Synopsis/Syllabi

FIRST DIVISION

[G.R. No. 120465. September 9, 1999]

WILLIAM UY and RODEL ROXAS, petitioners, vs. COURT OF

APPEALS, HON. ROBERT BALAO and NATIONAL HOUSING
AUTHORITY, respondents.
DECISION
KAPUNAN, J.:
Petitioners William Uy and Rodel Roxas are agents authorized to sell
eight parcels of land by the owners thereof. By virtue of such authority,
petitioners offered to sell the lands, located in Tuba, Tadiangan, Benguet
to respondent National Housing Authority (NHA) to be utilized and
developed as a housing project.
On February 14, 1989, the NHA Board passed Resolution No. 1632
approving the acquisition of said lands, with an area of 31.8231
hectares, at the cost of P23.867 million, pursuant to which the parties
executed a series of Deeds of Absolute Sale covering the subject
lands. Of the eight parcels of land, however, only five were paid for by
the NHA because of the report[1] it received from the Land Geosciences
Bureau of the Department of Environment and Natural Resources
(DENR) that the remaining area is located at an active landslide area
and therefore, not suitable for development into a housing project.
On 22 November 1991, the NHA issued Resolution No. 2352
cancelling the sale over the three parcels of land. The NHA, through
Resolution No. 2394, subsequently offered the amount of P1.225 million
to the landowners as daos perjuicios.
On 9 March 1992, petitioners filed before the Regional Trial Court
(RTC) of Quezon City a Complaint for Damages against NHA and its
General Manager Robert Balao.

After trial, the RTC rendered a decision declaring the cancellation of

the contract to be justified. The trial court nevertheless awarded
damages to plaintiffs in the sum of P1.255 million, the same amount
initially offered by NHA to petitioners as damages.
Upon appeal by petitioners, the Court of Appeals reversed the
decision of the trial court and entered a new one dismissing the
complaint. It held that since there was sufficient justifiable basis in
cancelling the sale, it saw no reason for the award of damages. The
Court of Appeals also noted that petitioners were mere attorneys-in-fact
and, therefore, not the real parties-in-interest in the action before the
trial court.
xxx In paragraph 4 of the complaint, plaintiffs alleged themselves to
be sellers agents for several owners of the 8 lots subject matter of the
case. Obviously, William Uy and Rodel Roxas in filing this case acted as
attorneys-in-fact of the lot owners who are the real parties in interest
but who were omitted to be pleaded as party-plaintiffs in the case. This
omission is fatal. Where the action is brought by an attorney-in-fact of a
land owner in his name, (as in our present action) and not in the name
of his principal, the action was properly dismissed (Ferrer vs. Villamor,
60 SCRA 406 [1974]; Marcelo vs. de Leon, 105 Phil. 1175) because the
rule is that every action must be prosecuted in the name of the real
parties-in-interest (Section 2, Rule 3, Rules of Court).
When plaintiffs Uy and Roxas sought payment of damages in their favor
in view of the partial rescission of Resolution No. 1632 and the Deed of
Absolute Sale covering TCT Nos. 10998, 10999 and 11292 (Prayer
complaint, page 5, RTC records), it becomes obviously indispensable
that the lot owners be included, mentioned and named as partyplaintiffs, being the real party-in-interest. Uy and Roxas, as attorneys-infact or apoderados, cannot by themselves lawfully commence this
action, more so, when the supposed special power of attorney, in their
favor, was never presented as an evidence in this case.Besides, even if
herein plaintiffs Uy and Roxas were authorized by the lot owners to
commence this action, the same must still be filed in the name of the
pricipal, (Filipino Industrial Corporation vs. San Diego, 23 SCRA 706
[1968]). As such indispensable party, their joinder in the action is
mandatory and the complaint may be dismissed if not so impleaded
(NDC vs. CA, 211 SCRA 422 [1992]).[2]

Their motion for reconsideration having been denied, petitioners

seek relief from this Court contending that:

meaning of real party-in-interest may be summarized as follows: An

action shall be prosecuted in the name of the party who, by the
substantive law, has the right sought to be enforced.[7]

I. COMPLAINT FINDING THE RESPONDENT CA ERRED IN DECLARING

THAT RESPONDENT NHA HAD ANY LEGAL BASIS FOR RESCINDING THE
SALE INVOLVING THE LAST THREE (3) PARCELS COVERED BY NHA
RESOLUTION NO. 1632.

Do petitioners, under substantive law, possess the right they seek

to enforce? We rule in the negative.

II. GRANTING ARGUENDO THAT THE RESPONDENT NHA HAD LEGAL

BASIS TO RESCIND THE SUBJECT SALE, THE RESPONDENT CA
NONETHELESS ERRED IN DENYING HEREIN PETITIONERS CLAIM TO
DAMAGES, CONTRARY TO THE PROVISIONS OF ART. 1191 OF THE CIVIL
CODE.
III. THE RESPONDENT CA ERRED IN DISMISSING THE SUBJECT
COMPLAINT FINDING THAT THE PETITIONERS FAILED TO JOIN AS
INDISPENSABLE PARTY PLAINTIFF THE SELLING LOT-OWNERS. [3]
We first resolve the issue raised in the third assignment of error.
Petitioners claim that they lodged the complaint not in behalf of
their principles but in their own name as agents directly damaged by the
termination of the contract. The damages prayed for were intended not
for the benefit of their principals but to indemnify petitioners for the
losses they themselves allegedly incurred as a result of such
termination. These damages consist mainly of unearned income and
advances.[4] Petitioners, thus, attempt to distinguish the case at bar from
those involving agents or apoderados instituting actions in their own
name but in behalf of their principals.[5] Petitioners in this case
purportedly brought the action for damages in their own name and in
their own behalf.
We find this contention unmeritorious.
Section 2, Rule 3 of the Rules of Court requires that every action
must be prosecuted and defended in the name of the real party-ininterest. The real party-in-interest is the party who stands to be
benefited or injured by the judgment or the party entitled to the avails
of the suit. Interest, within the meaning of the rule, means material
interest, an interest in the issue and to be affected by the decree, as
distinguished from mere interest in the question involved, or a mere
incidental interest.[6] Cases construing the real party-in-interest provision
can be more easily understood if it is borne in mind that the true

The applicable substantive law in this case is Article 1311 of the

Civil Code, which states:
Contracts take effect only between the parties, their assigns,
and heirs, except in case where the rights and obligations arising from
the contract are not transmissible by their nature, or by stipulation, or
by provision of law. x x x.
If a contract should contain some stipulation in favor of a third person,
he may demand its fulfillment provided he communicated his
acceptance to the obligor before its revocation. A mere incidental
benefit or interest of a person is not sufficient. The contracting parties
must have clearly and deliberately conferred a favor upon a third
person. (Underscoring supplied.)
Petitioners are not parties to the contract of sale between their
principals and NHA. They are mere agents of the owners of the land
subject of the sale. As agents, they only render some service or do
something in representation or on behalf of their principals.[8] The
rendering of such service did not make them parties to the contracts of
sale executed in behalf of the latter. Since a contract may be violated
only by the parties thereto as against each other, the real parties-ininterest, either as plaintiff or defendant, in an action upon that contract
must, generally, either be parties to said contract. [9]
Neither has there been any allegation, much less proof, that
petitioners are the heirs of their principals.
Are petitioners assignees to the rights under the contracts of
sale? In McMicking vs. Banco Espaol-Filipino,[10] we held that the rule
requiring every action to be prosecuted in the name of the real party-ininterest
x x x recognizes the assignments of rights of action and also recognizes
that when one has a right of action assigned to him he is then the real
party in interest and may maintain an action upon such claim or

right. The purpose of [this rule] is to require the plaintiff to be the real
party in interest, or, in other words, he must be the person to whom the
proceeds of the action shall belong, and to prevent actions by persons
who have no interest in the result of the same. xxx
Thus, an agent, in his own behalf, may bring an action founded on a
contract made for his principal, as an assignee of such contract. We find
the following declaration in Section 372 (1) of the Restatement of the
Law on Agency (Second):[11]
Section 372. Agent as Owner of Contract Right
(1) Unless otherwise agreed, an agent who has or who acquires an
interest in a contract which he makes on behalf of his principal can,
although not a promisee, maintain such action thereon as might a
transferee having a similar interest.
The Comment on subsection (1) states:
a. Agent a transferee. One who has made a contract on behalf of
another may become an assignee of the contract and bring suit against
the other party to it, as any other transferee. The customs of business or
the course of conduct between the principal and the agent may indicate
that an agent who ordinarily has merely a security interest is a
transferee of the principals rights under the contract and as such is
permitted to bring suit. If the agent has settled with his principal with
the understanding that he is to collect the claim against the obligor by
way of reimbursing himself for his advances and commissions, the agent
is in the position of an assignee who is the beneficial owner of the chose
in action. He has an irrevocable power to sue in his principals name. x x
x. And, under the statutes which permit the real party in interest to sue,
he can maintain an action in his own name. This power to sue is not
affected by a settlement between the principal and the obligor if the
latter has notice of the agents interest. x x x. Even though the agent has
not settled with his principal, he may, by agreement with the principal,
have a right to receive payment and out of the proceeds to reimburse
himself for advances and commissions before turning the balance over
to the principal. In such a case, although there is no formal assignment,
the agent is in the position of a transferee of the whole claim for
security; he has an irrevocable power to sue in his principals name and,
under statutes which permit the real party in interest to sue, he can
maintain an action in his own name.

Petitioners, however, have not shown that they are assignees of

their principals to the subject contracts. While they alleged that they
made advances and that they suffered loss of commissions, they have
not established any agreement granting them the right to receive
payment and out of the proceeds to reimburse [themselves] for
advances and commissions before turning the balance over to the
principal[s].
Finally, it does not appear that petitioners are beneficiaries of a
stipulation pour autrui under the second paragraph of Article 1311 of
the Civil Code. Indeed, there is no stipulation in any of the Deeds of
Absolute Sale clearly and deliberately conferring a favor to any third
person.
That petitioners did not obtain their commissions or recoup their
advances because of the non-performance of the contract did not entitle
them to file the action below against respondent NHA. Section 372 (2) of
the Restatement of the Law on Agency (Second) states:
(2) An agent does not have such an interest in a contract as to entitle
him to maintain an action at law upon it in his own name merely
because he is entilted to a portion of the proceeds as compensation for
making it or because he is liable for its breach.
The following Comment on the above subsection is illuminating:
The fact that an agent who makes a contract for his principal will gain or
suffer loss by the performance or nonperformance of the contract by the
principal or by the other party thereto does not entitle him to maintain
an action on his own behalf against the other party for its breach. An
agent entitled to receive a commission from his principal upon the
performance of a contract which he has made on his principals account
does not, from this fact alone, have any claim against the other party for
breach of the contract, either in an action on the contract or
otherwise. An agent who is not a promisee cannot maintain an action at
law against a purchaser merely because he is entitled to have his
compensation or advances paid out of the purchase price before
payment to the principal. x x x.
Thus, in Hopkins vs. Ives,[12] the Supreme Court of Arkansas, citing
Section 372 (2) above, denied the claim of a real estate broker to

recover his alleged commission against the purchaser in an agreement

to purchase property.
In Goduco vs. Court of Appeals,[13] this Court held that:
x x x granting that appellant had the authority to sell the property, the
same did not make the buyer liable for the commission she claimed. At
most, the owner of the property and the one who promised to give her a
commission should be the one liable to pay the same and to whom the
claim should have been directed. xxx
As petitioners are not parties, heirs, assignees, or beneficiaries of a
stipulation pour autrui under the contracts of sale, they do not, under
substantive law, possess the right they seek to enforce. Therefore, they
are not the real parties-in-interest in this case.
Petitioners not being the real parties-in-interest, any decision
rendered herein would be pointless since the same would not bind
the real parties-in-interest.[14]
Nevertheless, to forestall further litigation on the substantive
aspects of this case, we shall proceed to rule on the merits. [15]
Petitioners submit that respondent NHA had no legal basis to
rescind the sale of the subject three parcels of land. The existence of
such legal basis, notwithstanding, petitioners argue that they are still
entitled to an award of damages.
Petitioners confuse the cancellation of the contract by the NHA as a
rescission of the contract under Article 1191 of the Civil Code. The right
of rescission or, more accurately, resolution, of a party to an obligation
under Article 1191 is predicated on a breach of faith by the other party
that violates the reciprocity between them.[16] The power to rescind,
therefore, is given to the injured party.[17] Article 1191 states:
The power to rescind obligations is implied in reciprocal ones, in case
one of the obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission
of the obligation, with the payment of damages in either case. He may
also seek rescission, even after he has chosen fulfillment, if the latter
should become impossible.

In this case, the NHA did not rescind the contract. Indeed, it did not
have the right to do so for the other parties to the contract, the vendors,
did not commit any breach, much less a substantial breach, [18]of their
obligation. Their obligation was merely to deliver the parcels of land to
the NHA, an obligation that they fulfilled. The NHA did not suffer any
injury by the performance thereof.
The cancellation, therefore, was not a rescission under Article
1191. Rather, the cancellation was based on the negation of the cause
arising from the realization that the lands, which were the object of the
sale, were not suitable for housing.
Cause is the essential reason which moves the contracting parties
to enter into it.[19] In other words, the cause is the immediate, direct and
proximate reason which justifies the creation of an obligation through
the will of the contracting parties. [20] Cause, which is the essential reason
for the contract, should be distinguished from motive, which is the
particular reason of a contracting party which does not affect the other
party.[21]
For example, in a contract of sale of a piece of land, such as in this
case, the cause of the vendor (petitioners principals) in entering into the
contract is to obtain the price. For the vendee, NHA, it is the acquisition
of the land.[22] The motive of the NHA, on the other hand, is to use said
lands for housing. This is apparent from the portion of the Deeds of
Absolute Sale[23] stating:
WHEREAS, under the Executive Order No. 90 dated December 17, 1986,
the VENDEE is mandated to focus and concentrate its efforts and
resources in providing housing assistance to the lowest thirty percent
(30%) of urban income earners, thru slum upgrading and development
of sites and services projects;
WHEREAS, Letters of Instructions Nos. 555 and 557 [as] amended by
Letter of Instruction No. 630, prescribed slum improvement and
upgrading, as well as the development of sites and services as the
principal housing strategy for dealing with slum, squatter and other
blighted communities;
xxx
WHEREAS, the VENDEE, in pursuit of and in compliance with the abovestated purposes offers to buy and the VENDORS, in a gesture of their

willing to cooperate with the above policy and commitments, agree to

sell the aforesaid property together with all the existing improvements
there or belonging to the VENDORS;
NOW, THEREFORE, for and in consideration of the foregoing premises
and the terms and conditions hereinbelow stipulated, the VENDORS
hereby, sell, transfer, cede and convey unto the VENDEE, its assigns, or
successors-in-interest, a parcel of land located at Bo. Tadiangan, Tuba,
Benguet containing a total area of FIFTY SIX THOUSAND EIGHT
HUNDRED NINETEEN (56,819) SQUARE METERS, more or less x x x.

consisting of huge conglomerate boulders (see Photo No. 2) mix[ed] with

silty clay materials. These clay particles when saturated have some
swelling characteristics which is dangerous for any civil structures
especially mass housing development.[25]
Petitioners content that the report was merely preliminary, and not
conclusive, as indicated in its title:
MEMORANDUM
TO: EDWIN G. DOMINGO

Ordinarily, a partys motives for entering into the contract do not

affect the contract. However, when the motive predetermines the cause,
the motive may be regarded as the cause. In Liguez vs. Court of
Appeals,[24] this Court, speaking through Justice J.B.L. Reyes, held:
xxx It is well to note, however, that Manresa himself (Vol. 8, pp. 641642) while maintaining the distinction and upholding the
inoperativeness of the motives of the parties to determine the validity of
the contract, expressly excepts from the rule those contracts that are
conditioned upon the attainment of the motives of either party.
The same view is held by the Supreme Court of Spain, in its decisions of
February 4, 1941, and December 4, 1946, holding that the motive may
be regarded as causa when it predetermines the purpose of the
contract.
In this case, it is clear, and petitioners do not dispute, that NHA
would not have entered into the contract were the lands not suitable for
housing. In other words, the quality of the land was an implied condition
for the NHA to enter into the contract. On the part of the NHA, therefore,
the motive was the cause for its being a party to the sale.
Were the lands indeed unsuitable for the housing as NHA claimed?
We deem the findings contained in the report of the Land
Geosciences Bureau dated 15 July 1991 sufficient basis for the
cancellation of the sale, thus:
In Tadiangan, Tuba, the housing site is situated in an area of moderate
topography. There [are] more areas of less sloping ground apparently
habitable. The site is underlain by x x x thick slide deposits (4-45m)

Chief, Lands Geology Division

FROM: ARISTOTLE A. RILLON
Geologist II
SUBJECT: Preliminary Assessment of Tadiangan Housing Project in Tuba,
Benguet[26]
Thus, page 2 of the report states in part:
xxx
Actually there is a need to conduct further geottechnical [sic] studies in
the NHA property. Standard Penetration Test (SPT) must be carried out to
give an estimate of the degree of compaction (the relative density) of
the slide deposit and also the bearing capacity of the soil
materials. Another thing to consider is the vulnerability of the area to
landslides and other mass movements due to thick soil cover.Preventive
physical mitigation methods such as surface and subsurface drainage
and regrading of the slope must be done in the area.[27]
We read the quoted portion, however, to mean only that further
tests are required to determine the degree of compaction, the bearing
capacity of the soil materials, and vulnerability of the area to landslides,
since the tests already conducted were inadequate to ascertain such
geological attributes. It is only in this sense that the assessment was
preliminary.

Accordingly, we hold that the NHA was justified in cancelling the

contract. The realization of the mistake as regards the quality of the land
resulted in the negation of the motive/cause thus rendering the contract
inexistent.[28] Article 1318 of the Civil Code states that:
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (Underscoring supplied.)
Therefore, assuming that petitioners are parties, assignees or
beneficiaries to the contract of sale, they would not be entitled to any
award of damages.

G.R. No. L-20136

June 23, 1965

IN RE: PETITION FOR ISSUANCE OF SEPARATE CERTIFICATE OF

TITLE.
JOSE A. SANTOS Y Diaz, petitioner-appellant,
vs.
ANATOLIO BUENCONSEJO, ET AL., respondents-appellees.

SO ORDERED.

Segundo C. Mastrili for petitioner-appellant.

Manuel Calleja Rafael S. Lucila and Jose T. Rubio for respondentsappellees.

Davide, C.J., (Chairman), on leave.

Puno, Pardo, and Ynares-Santiago, JJ., concur.

CONCEPCION, J.:

WHEREFORE, the instant petition is hereby DENIED.

Petitioner Jose A. Santos y Diaz seeks the reversal of an order of the

Court of First Instance of Albay, denying his petition, filed in Cadastral
Case No. M-2197, LRC Cad. Rec. No. 1035, for the cancellation of original
certificate of title No. RO-3848 (25322), issued in the name of Anatolio
Buenconsejo, Lorenzo Bon and Santiago Bon, and covering Lot No. 1917
of the Cadastral Survey of Tabaco, Albay, and the issuance in lieu
thereof, of a separate transfer certificate of title in his name, covering
part of said Lot No. 1917, namely Lot No. 1917-A of Subdivision Plan
PSD-63379.
The main facts are not disputed. They are set forth in the order appealed
from, from which we quote:
It appears that the aforementioned Lot No. 1917 covered by
Original Certificate of Title No. RO-3848 (25322) was originally
owned in common by Anatolio Buenconsejo to the extent of

undivided portion and Lorenzo Bon and Santiago Bon to the

extent of the other (Exh. B); that Anatolio Buenconsejo's
rights, interests and participation over the portion
abovementioned were on January 3, 1961 and by a Certificate of
Sale executed by the Provincial Sheriff of Albay, transferred and
conveyed to Atty. Tecla San Andres Ziga, awardee in the
corresponding auction sale conducted by said Sheriff in
connection with the execution of the decision of the Juvenile
Delinquency and Domestic Relations Court in Civil Case No.
25267, entitled "Yolanda Buenconsejo, et al. vs. Anatolio
Buenconsejo"; that on December 26, 1961 and by a certificate of
redemption issued by the Provincial Sheriff of Albay, the rights,
interest, claim and/or or participation which Atty. Tecla San
Andres Ziga may have acquired over the property in question by
reason of the aforementioned auction sale award, were
transferred and conveyed to the herein petitioner in his capacity
as Attorney-in-fact of the children of Anatolio Buenconsejo,
namely, Anastacio Buenconsejo, Elena Buenconsejo and Azucena
Buenconsejo (Exh. C).
It would appear, also, that petitioner Santos had redeemed the
aforementioned share of Anatolio Buenconsejo, upon the authority of a
special power of attorney executed in his favor by the children of
Anatolio Buenconsejo; that relying upon this power of attorney and
redemption made by him, Santos now claims to have acquired the share
of Anatolio Buenconsejo in the aforementioned Lot No. 1917; that as the
alleged present owner of said share, Santos caused a subdivision plan of
said Lot No. 1917 to be made, in which the portion he claims as his
share thereof has been marked as Lot No. 1917-A; and that he wants
said subdivision at No. 1917-A to be segregated from Lot No. 1917 and a
certificate of title issued in his name exclusively for said subdivision Lot
No. 1917-A.
As correctly held by the lower court, petitioner's claim is clearly
untenable, for: (1) said special power of attorney authorized him to act
on behalf of the children of Anatolio Buenconsejo, and, hence, it could
not have possibly vested in him any property right in his own name; (2)

the children of Anatolio Buenconsejo had no authority to execute said

power of attorney, because their father is still alive and, in fact, he and
his wife opposed the petition of Santos; (3) in consequence of said
power of attorney (if valid) and redemption, Santos could have acquired
no more than the share pro indiviso of Anatolio Buenconsejo in Lot No.
1917, so that petitioner cannot without the conformity of the other
co-owners (Lorenzo and Santiago Bon), or a judicial decree of partition
issued pursuant to the provisions of Rule 69 of the new Rules of Court
(Rule 71 of the old Rules of Court) which have not been followed By
Santos adjudicate to himself in fee simple a determinate portion of
said Lot No. 1917, as his share therein, to the exclusion of the other coowners.
Inasmuch as the appeal is patently devoid of merit, the order appealed
from is hereby affirmed, with treble cost against petitioner-appellant Jose
A. Santos y Diaz. It is so ordered.
Bengzon, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Bengzon, J.P., and
Zaldivar, JJ., concur.
Bautista Angelo, Barrera and Paredes, JJ., took no part.

G.R. No. 107898 December 19, 1995

MANUEL LIM and ROSITA LIM, petitioners,
vs.
COURT OF APPEALS and PEOPLE OF THE
PHILIPPINES, respondents.

BELLOSILLO, J.:

MANUEL LIM and ROSITA LIM, spouses, were charged before the
Regional Trial Court of Malabon with estafa on three (3) counts under
Art. 315, par. 2 (d), of The Revised Penal Code, docketed as Crim. Cases
Nos. 1696-MN to 1698-MN. The Informations substantially alleged that
Manuel and Rosita, conspiring together, purchased goods from Linton
Commercial Company, Inc. (LINTON), and with deceit issued seven
Consolidated Bank and Trust Company (SOLIDBANK) checks
simultaneously with the delivery as payment therefor. When presented
to the drawee bank for payment the checks were dishonored as
payment on the checks had been stopped and/or for insufficiency of
funds to cover the amounts. Despite repeated notice and demand the
Lim spouses failed and refused to pay the checks or the value of the
goods.
On the basis of the same checks, Manuel and Rosita Lim were also
charged with seven (7) counts of violation of B.P. Blg. 22, otherwise
known as the Bouncing Checks Law, docketed as Crim. Cases Nos. 1699MN to 1705-MN. In substance, the Informations alleged that the Lims
issued the checks with knowledge that they did not have sufficient funds
or credit with the drawee bank for payment in full of such checks upon
presentment. When presented for payment within ninety (90) days from
date thereof the checks were dishonored by the drawee bank for
insufficiency of funds. Despite receipt of notices of such dishonor the
Lims failed to pay the amounts of the checks or to make arrangements
for full payment within five (5) banking days.
Manuel Lim and Rosita Lim are the president and treasurer, respectively,
of Rigi Bilt Industries, Inc. (RIGI). RIGI had been transacting business
with LINTON for years, the latter supplying the former with steel plates,
steel bars, flat bars and purlin sticks which it uses in the fabrication,
installation and building of steel structures. As officers of RIGI the Lim
spouses were allowed 30, 60 and sometimes even up to 90 days credit.
On 27 May 1983 the Lims ordered 100 pieces of mild steel plates worth
P51,815.00 from LINTON which were delivered on the same day at their
place of business at 666 7th Avenue, 8th Street, Kalookan City. To pay

LINTON for the delivery the Lims issued SOLIDBANK Check No. 027700
postdated 3 September 1983 in the amount of P51,800.00. 1
On 30 May 1983 the Lims ordered another 65 pieces of mild steel plates
worth P63,455.00 from LINTON which were delivered at their place of
business on the same day. They issued as payment SOLIDBANK Check
No. 027699 in the amount of P63,455.00 postdated 20 August 1983. 2
The Lim spouses also ordered 2,600 "Z" purlins worth P241,800.00
which were delivered to them on various dates, to wit: 15 and 22 April
1983; 11, 14, 20, 23, 25, 28 and 30 May 1983; and, 2 and 9 June 1983.
To pay for the deliveries, they issued seven SOLIDBANK checks, five of
which were
Check No. Date of Issue Amount
027683
027684
027719
027720
027721

16 July 1983 P27,900.00 3

23 July 1983 P27,900.00 4
6 Aug. 1983 P32,550.00 5
13 Aug. 1983 P27,900.00 6
27 Aug. 1983 P37,200.00 7

William Yu Bin, Vice President and Sales Manager of LINTON, testified

that when those seven (7) checks were deposited with the Rizal
Commercial Banking Corporation they were dishonored for "insufficiency
of funds" with the additional notation "payment stopped" stamped
thereon. Despite demand Manuel and Rosita refused to make good the
checks or pay the value of the deliveries.
Salvador Alfonso, signature verifier of SOLIDBANK, Grace Park Branch,
Kalookan City, where the Lim spouses maintained an account, testified
on the following transactions with respect to the seven (7) checks:
CHECK NO. DATE PRESENTED REASON FOR DISHONOR
027683 22 July 1983 Payment Stopped (PS) 8
027684 23 July 1983 PS and Drawn Against

Insufficient Fund (DAIF) 9

027699 24 Aug. 1983 PS and DAIF 10
027700 5 Sept. 1983 PS and DAIF 11
027719 9 Aug. 1983 DAIF 12
027720 16 Aug. 1983 PS and DAIF 13
027721 30 Aug. 1983 PS and DAIF 14
Manuel Lim admitted having issued the seven (7) checks in question to
pay for deliveries made by LINTON but denied that his company's
account had insufficient funds to cover the amounts of the checks. He
presented the bank ledger showing a balance of P65,752.75. Also, he
claimed that he ordered SOLIDBANK to stop payment because the
supplies delivered by LINTON were not in accordance with the
specifications in the purchase orders.
Rosita Lim was not presented to testify because her statements would
only be corroborative.
On the basis of the evidence thus presented the trial court held both
accused guilty of estafa and violation of B.P. Blg. 22 in its decision dated
25 January 1989. In Crim. Case No. 1696-MN they were sentenced to an
indeterminate penalty of six (6) years and one (1) day of prision
mayor as minimum to twelve (12) years and one (1) day of reclusion
temporal as maximum plus one (1) year for each additional P10,000.00
with all the accessory penalties provided for by law, and to pay the
costs. They were also ordered to indemnify LINTON in the amount of
P241,800.00. Similarly sentences were imposed in Crim. Cases Nos.
1697-MN and 1698-MN except as to the indemnities awarded, which
were P63,455.00 and P51,800.00, respectively.
In Crim. Case No. 1699-MN the trial court sentenced both accused to a
straight penalty of one (1) year imprisonment with all the accessory
penalties provided for by law and to pay the costs. In addition, they were
ordered to indemnify LINTON in the amount of P27,900.00. Again, similar
sentences were imposed in Crim. Cases Nos. 1700-MN to 1705-MN
except for the indemnities awarded, which were P32,550.00,

P27,900.00, P27,900.00, P63,455.00, P51,800.00 and P37,200.00

respectively. 15
On appeal, the accused assailed the decision as they imputed error to
the trial court as follows: (a) the regional Trial Court of malabon had no
jurisdiction over the cases because the offenses charged ere committed
outside its territory; (b) they could not be held liable for estafa because
the seven (7) checks were issued by them several weeks after the
deliveries of the goods; and, (c) neither could they be held liable for
violating B.P. Blg. 22 as they ordered payment of the checks to be
stopped because the goods delivered were not those specified by them,
besides they had sufficient funds to pay the checks.
In the decision of 18 September 1992 16 respondent Court of Appeals
acquitted accused-appellants of estafa on the ground that indeed the
checks were not made in payment of an obligation contracted at the
time of their issuance. However it affirmed the finding of the trial court
that they were guilty of having violated B.P. Blg. 22. 17 On 6 November
1992 their motion for reconsideration was denied. 18
In the case at bench petitioners maintain that the prosecution failed to
prove that any of the essential elements of the crime punishable under
B.P. Blg. 22 was committed within the jurisdiction of the Regional Trial
Court of Malabon. They claim that what was proved was that all the
elements of the offense were committed in Kalookan City. The checks
were issued at their place of business, received by a collector of LINTON,
and dishonored by the drawee bank, all in Kalookan City. Furthermore,
no evidence whatsoever supports the proposition that they knew that
their checks were insufficiently funded. In fact, some of the checks were
funded at the time of presentment but dishonored nonetheless upon
their instruction to the bank to stop payment. In fine, considering that
the checks were all issued, delivered, and dishonored in Kalookan City,
the trial court of Malabon exceeded its jurisdiction when it tried the case
and rendered judgment thereon.
The petition has no merit. Section 1, par. 1, of B.P. Blg. 22 punishes
"[a]ny person who makes or draws and issues any check to apply on

account or for value, knowing at the time of issue that he does not have
sufficient funds in or credit with the drawee bank for the payment of
such check in full upon its presentment, which check is subsequently
dishonored by the drawee bank for insufficiency of funds or credit or
would have been dishonored for the same reason had not the drawer,
without any valid reason, ordered the bank to stop payment . . ." The
gravamen of the offense is knowingly issuing a worthless check. 19 Thus,
a fundamental element is knowledge on the part of the drawer of the
insufficiency of his funds in 20 or credit with the drawee bank for the
payment of such check in full upon presentment. Another essential
element is subsequent dishonor of the check by the drawee bank for
insufficiency of funds or credit or would have been dishonored for the
same reason had not the drawer, without any valid reason, ordered the
bank to stop payment. 21
It is settled that venue in criminal cases is a vital ingredient of
jurisdiction. 22 Section 14, par. (a), Rule 110, of the Revised Rules of
Court, which has been carried over in Sec. 15, par. (a), Rule 110 of the
1985 Rules on Criminal Procedure, specifically provides:
Sec. 14. Place where action is to be instituted. (a) In all
criminal prosecutions the action shall be instituted and
tried in the court of the municipality or province wherein
the offense was committed or anyone of the essential
ingredients thereof took place.
If all the acts material and essential to the crime and requisite of its
consummation occurred in one municipality or territory, the court
therein has the sole jurisdiction to try the case. 23 There are certain
crimes in which some acts material and essential to the crimes and
requisite to their consummation occur in one municipality or territory
and some in another, in which event, the court of either has jurisdiction
to try the cases, it being understood that the first court taking
cognizance of the case excludes the other. 24 These are the so-called
transitory or continuing crimes under which violation of B.P. Blg. 22 is
categorized. In other words, a person charged with a transitory crime

may be validly tried in any municipality or territory where the offense

was in part committed. 25
In determining proper venue in these cases, the following acts material
and essential to each crime and requisite to its consummation must be
considered: (a) the seven (7) checks were issued to LINTON at its place
of business in Balut, Navotas; b) they were delivered to LINTON at the
same place; (c) they were dishonored in Kalookan City; and, (d)
petitioners had knowledge of the insufficiency of their funds in
SOLIDBANK at the time the checks were issued. Since there is no dispute
that the checks were dishonored in Kalookan City, it is no longer
necessary to discuss where the checks were dishonored.
Under Sec. 191 of the Negotiable Instruments Law the term "issue"
means the first delivery of the instrument complete in form to a person
who takes it as a holder. On the other hand, the term "holder" refers to
the payee or indorsee of a bill or note who is in possession of it or the
bearer thereof. In People v. Yabut 26 this Court explained
. . . The place where the bills were written, signed, or
dated does not necessarily fix or determine the place
where they were executed. What is of decisive importance
is the delivery thereof. The delivery of the instrument is
the final act essential to its consummation as an
obligation. An undelivered bill or note is inoperative. Until
delivery, the contract is revocable. And the issuance as
well as the delivery of the check must be to a person who
takes it as a holder, which means "(t)he payee or
indorsee of a bill or note, who is in possession of it, or the
bearer thereof." Delivery of the check signifies transfer of
possession, whether actual or constructive, from one
person to another with intent to transfer titlethereto . . .
Although LINTON sent a collector who received the checks from
petitioners at their place of business in Kalookan City, they were actually
issued and delivered to LINTON at its place of business in Balut,
Navotas. The receipt of the checks by the collector of LINTON is not the

issuance and delivery to the payee in contemplation of law. The collector

was not the person who could take the checks as a holder, i.e., as a
payee or indorsee thereof, with the intent to transfer title thereto.
Neither could the collector be deemed an agent of LINTON with respect
to the checks because he was a mere employee. As this Court further
explained in People v. Yabut 27
Modesto Yambao's receipt of the bad checks from Cecilia
Que Yabut or Geminiano Yabut, Jr., in Caloocan City
cannot, contrary to the holding of the respondent Judges,
be licitly taken as delivery of the checks to the
complainant Alicia P. Andan at Caloocan City to fix the
venue there. He did not take delivery of the checks as
holder, i.e., as "payee" or "indorsee." And there appears
to be no contract of agency between Yambao and Andan
so as to bind the latter for the acts of the former. Alicia P.
Andan declared in that sworn testimony before the
investigating fiscal that Yambao is but her "messenger" or
"part-time employee." There was no special
fiduciary relationship that permeated their dealings. For a
contract of agency to exist, the consent of both parties is
essential. The principal consents that the other party, the
agent, shall act on his behalf, and the agent consents so
as to act. It must exist as a fact. The law makes no
presumption thereof. The person alleging it has the
burden of proof to show, not only the fact of its existence,
but also its nature and extent . . .
Section 2 of B.P. Blg. 22 establishes a prima facie evidence of knowledge
of insufficient funds as follows
The making, drawing and issuance of a check payment of
which is refused by the bank because of insufficient funds
in or credit with such bank, when presented within ninety
(90) days from the date of the check, shall be prima
facie evidence of knowledge of such insufficiency of funds
or credit unless such maker or drawer pays the holder

thereof the amount due thereon, or makes arrangement

for payment in full by the drawee of such check within five
(5) banking days after receiving notice that such check
has not been paid by the drawee.
The prima facie evidence has not been overcome by petitioners in the
cases before us because they did not pay LINTON the amounts due on
the checks; neither did they make arrangements for payment in full by
the drawee bank within five (5) banking days after receiving notices that
the checks had not been paid by the drawee bank. InPeople
v. Grospe 28 citing People v. Manzanilla 29 we held that ". . . knowledge on
the part of the maker or drawer of the check of the insufficiency of his
funds is by itself a continuing eventuality, whether the accused be
within one territory or another."
Consequently, venue or jurisdiction lies either in the Regional Trial Court
of Kalookan City or Malabon. Moreover, we ruled in the
same Grospe and Manzanilla cases as reiterated in Lim v. Rodrigo 30 that
venue or jurisdiction is determined by the allegations in the Information.
The Informations in the cases under consideration allege that the
offenses were committed in the Municipality of Navotas which is
controlling and sufficient to vest jurisdiction upon the Regional Trial
Court of Malabon. 31
We therefore sustain likewise the conviction of petitioners by the
Regional Trial Court of Malabon for violation of B.P. Blg. 22 thus
Accused-appellants claim that they ordered payment of
the checks to be stopped because the goods delivered
were not those specified by them. They maintain that they
had sufficient funds to cover the amount of the checks.
The records of the bank, however, reveal otherwise. The
two letters (Exhs. 21 and 22) dated July 23, and August
10, 1983 which they claim they sent to Linton
Commercial, complaining against the quality of the goods
delivered by the latter, did not refer to the delivery of mild
steel plates (6mm x 4 x 8) and "Z" purlins (16 x 7 x 2-1/2

mts) for which the checks in question were issued. Rather,

the letters referred to B.1. Lally columns (Sch. #20), which
were the subject of other purchase orders.
It is true, as accused-appellants point out, that in a case
brought by them against the complainant in the Regional
Trial Court of Kalookan City (Civil Case No. C-10921) the
complainant was held liable for actual damages because
of the delivery of goods of inferior quality (Exh. 23). But
the supplies involved in that case were those of B.I. pipes,
while the purchases made by accused-appellants, for
which they issued the checks in question, were purchases
of mild steel plates and "Z" purlins.
Indeed, the only question here is whether accusedappellants maintained funds sufficient to cover the
amounts of their checks at the time of issuance and
presentment of such checks. Section 3 of B.P. Blg. 22
provides that "notwithstanding receipt of an order to stop
payment, the drawee bank shall state in the notice of
dishonor that there were no sufficient funds in or credit
with such bank for the payment in full of the check, if such
be the fact."
The purpose of this provision is precisely to preclude the
maker or drawer of a worthless check from ordering the
payment of the check to be stopped as a pretext for the
lack of sufficient funds to cover the check.
In the case at bar, the notice of dishonor issued by the
drawee bank, indicates not only that payment of the
check was stopped but also that the reason for such order
was that the maker or drawer did not have sufficient funds
with which to cover the checks. . . . Moreover, the bank
ledger of accused-appellants' account in Consolidated
Bank shows that at the time the checks were presented
for encashment, the balance of accused-appellants'

account was inadequate to cover the amounts of the

checks. 32 . . .
WHEREFORE, the decision of the Court of Appeals dated 18 September
1992 affirming the conviction of petitioners Manuel Lim and Rosita Lim

In CA-G.R. CR No. 07277 (RTC Crim. Case No. 1699-MN);

CA-G.R. CR No. 07278 (RTC Crim. Case No. 1700-MN); CAG.R. CR No. 07279 (RTC Crim. Case No. 1701-MN); CA-G.R.
CR No. 07280 (RTC Crim. Case No. 1702-MN); CA-G.R. CR
No. 07281 (RTC Crim. Case No. 1703-MN); CA-G.R. CA No.
07282 (RTC Crim. Case No. 1704-MN); and CA-G.R. CR No.
07283 (RTC Crim Case No. 1705-MN), the Court finds the
accused-appellants
MANUEL LIM and ROSITA LIM guilty beyond reasonable
doubt of violation of Batas Pambansa Bilang 22 and are
hereby sentenced to suffer a STRAIGHT PENALTY OF ONE
(1) YEAR IMPRISONMENT in each case, together with all
the accessory penalties provided by law, and to pay the
costs.
In CA-G.R. CR No. 07277 (RTC Crim. Case No. 1699-MN),
both accused-appellants are hereby ordered to indemnify
the offended party in the sum of P27,900.00.
In CA-G.R. CR No. 07278 (RTC Crim. Case No. 1700-MN)
both accused-appellants are hereby ordered to indemnify
the offended party in the sum of P32,550.00.
In CA-G.R. CR No. 07278 (RTC Crim. Case No. 1701-MN)
both accused-appellants are hereby ordered to indemnify
the offended party in the sum of P27,900.00.

In CA-G.R. CR No. 07280 (RTC Crim. Case No. 1702-MN)

both accused-appellants are hereby ordered to indemnify
the offended party in the sum of P27,900.00.

-----------------------------

In CA-G.R. CR No. 07281 (RTC Crim. Case No. 1703-MN)

both accused are hereby ordered to indemnify the
offended party in the sum of P63,455.00.

COMPAIA MARITIMA and Manager JOSE C. TEVES, petitioners,

vs.
ALLIED FREEWORKERS' (PLUM) and COURT OF INDUSTRIAL
RELATIONS, respondents.

In CA-G.R CR No. 07282 (RTC Crim. Case No. 1704-MN)

both accused-appellants are hereby ordered to indemnify
the offended party in the sum of P51,800.00, and

L-22951 and 22952:

Vicente A. Rafael and Associates for petitioner.
Rafael Dinglasan for respondents.
Mariano B. Tuason for respondent Court of Industrial Relations.

In CA-G.R. CR No. 07283 (RTC Crim. Case No. 1705-MN)

both accused-appellants are hereby ordered to indemnify
the offended party in the sum of P37,200.00 33
as well as its resolution of 6 November 1992 denying
reconsideration thereof, is AFFIRMED. Costs against petitioners.
SO ORDERED.

G.R. Nos. L-22951 and L-22952

G.R. No. L-22971

January 31, 1967

L-22971:
Rafael Dinglasan for petitioner.
Vicente A. Rafael and Associates for respondents.
Mariano B. Tuason for respondent Court of Industrial Relations.
BENGZON, J.P., J.:
The three cases before this Court are the respective appeals separately
taken by the parties hereto from an order1 of the Court of Industrial
Relations en banc affirming its trial judge's decision, rendered on
November 4, 1963, in CIR Case 175-MC and CIR Case 426-ULP. Thus L22971 is the appeal of MARITIMA2 in CIR Case 175-MC; L-22952
is AFWU's appeal in the same case; and L-22951 refers to AFWU's3
appeal in CIR Case 426-ULP. Since these cases were jointly tried and
decided in the court a quo and they involve the same fundamental issue
the presence or absence of employer-employee relationship they
are jointly considered herein.

January 31, 1967

ALLIED FREE WORKERS' UNION (PLUM), petitioner,

vs.
COMPAIA MARITIMA, Manager JOSE C. TEVES, and COURT OF
INDUSTRIAL RELATIONS, respondents.

MARITIMA is a local corporation engaged in the shipping business. Teves

is its branch manager in the port of Iligan City. And AFWU is duly
registered legitimate labor organization with 225 members.
On August 11, 1952, MARITIMA, through Teves, entered into
a CONTRACT 4 with AFWU the terms of which We reproduce:
ARRASTRE AND STEVEDORING CONTRACT

KNOW ALL MEN BY THESE PRESENTS:

This CONTRACT made and executed this 11th day of
August, 1952, in the City of Iligan, Philippines, by and
between the COMPAIA MARITIMA Iligan Branch,
represented by its Branch Manager in Iligan City, and the
ALLIED FREE WORKERS' UNION, a duly authorized labor
union, represented by its President:
WITNESSETH.
1. That the Compaia MARITIMA hereby engage the
services of the Allied Free Workers' Union to do and
perform all the work of stevedoring and arrastre services
of all its vessels or boats calling in the port of Iligan City,
beginning August 12, 1952.
2. That the Compaia MARITIMA shall not be liable for the
payment of the services rendered by the Allied Free
Workers' Union, for the loading, unloading and deliveries
of cargoes as same is payable by the owners and
consignees of cargoes, as it has been the practice in the
port of Iligan City.
3. That the Allied Free Workers' Union shall be responsible
for the damages that may be caused to the cargoes in the
course of their handling.
4. That this CONTRACT is good and valid for a period of
one (1) month from August 12, 1952, but same may be
renewed by agreement of the parties; however
Compaia MARITIMAreserves the right to revoke
this CONTRACT even before the expiration of the term, if
and when the Allied Free Workers' Unionfails to render
good service.
IN WITNESS WHEREOF, we hereunto sign this presents in
the City of Iligan, Philippines, this 11th day of August,
1952.

(SGD) SALVADOR T. LLUCH

President
Allied Free Workers' Union
Iligan City

(SGD) JOSE C. TEVES

Branch Manager
Compaia Maritima
Iligan City

SIGNED IN THE PRESENCE OF:

1. (SGD) JOSE CUETO
2. (SGD) SERGIO OBACH.
During the first month of the existence of
the CONTRACT , AFWU rendered satisfactory service. So, MARITIMA,
through Teves, verbally renewed the same. This harmonious relations
between MARITIMA and AFWU lasted up to the latter part of 1953 when
the former complained to the latter of unsatisfactory and inefficient
service by the laborers doing the arrastre and stevedoring work. This
deteriorating situation was admitted as a fact by AFWU'spresident. To
remedy the situation since MARITIMA's business was being adversely
affected Teves was forced to hire extra laborers from among "standby" workers not affiliated to any union to help in the stevedoring and
arrastre work. The wages of these extra laborers were paid
by MARITIMA through separate vouchers and not byAFWU. Moreover,
said wages were not charged to the consignees or owners of the
cargoes.
On July 23, 1954, AFWU presented to MARITIMA a written proposal5 for a
collective bargaining agreement.
This demand embodied certain terms and conditions of employment
different from the provisions of theCONTRACT . No reply was made
by MARITIMA.
On August 6, 1954, AFWU instituted proceedings in the Industrial
Court6 praying that it be certified as the sole and exclusive bargaining
agent in the bargaining unit composed of all the laborers doing the
arrastre and stevedoring work in connection with MARITIMA's vessels in
Iligan City. MARITIMA answered, alleging lack of employer-employee
relationship between the parties.

On August 24, 1954, MARITIMA informed AFWU of the termination of

the CONTRACT because of the inefficient service rendered by the latter
which had adversely affected its business. The termination was to take
effect as of September 1, 1954. MARITIMA then contracted with the
Iligan Stevedoring Union for the arrastre and stevedoring work. The
latter agreed to perform the work subject to the same terms and
conditions of the CONTRACT . The new agreement was to be carried out
on September 1, 1954.
On August 26, 1954, upon the instance of AFWU, MARITIMA found itself
charged before the Industrial Court7 of unfair labor practices under Sec.
4(a), (1), (3), (4) and (6) of Rep. Act No. 875. MARITIMA answered, again
denying the employer-employee relationship between the parties.
On September 1, 1954, members of AFWU, together with those of the
Mindanao Workers Alliance a sister union formed a picket line at
the wharf of Iligan City, thus preventing the Iligan Stevedoring Union
from carrying out the arrastre and stevedoring work it contracted
for.8 This picket lasted for nine days.
On September 9, 1954, MARITIMA filed an action9 to rescind
the CONTRACT , enjoin AFWU members from doing arrastre and
stevedoring work in connection with its, vessels, and for recovery of
damages against AFWUand its officers. Incidentally, this civil case has
been the subject of three proceedings already which have reached this
Court. The first 10 involved a preliminary injunction issued therein on
September 9, 1954, by the trial court prohibiting AFWU from interfering
in any manner with the loading and unloading of cargoes
from MARITIMA'svessels. This injunction was lifted that very evening
upon the filing of a counter bond by AFWU. Subsequently, a motion to
dissolve said counterbond was filed by MARITIMA but the hearing on this
incident was enjoined by Us on March 15, 1955, upon the institution of
the petition for prohibition and injunction in said L8876. 11 Meanwhile,AFWU members-laborers were able to continue the
arrastre and stevedoring work in connection with MARITIMA'svessels.
On December 5, 1960, the CFI decision in the civil case was
promulgated. It ordered the rescission of theCONTRACT and
permanently enjoined AFWU members from performing work in
connection with MARITIMA'svessels. AFWU then filed its notice of appeal,
appeal bond and record on appeal. 12 The subsequent incidents thereto

gave rise to the two other proceedings which have previously reached
Us here.
On January 6, 1961, upon motion of MARITIMA ,an order of execution
pending appeal and a writ of injunction against AFWU was issued by the
trial court in the civil case. This enabled MARITIMA to engage the
services of the Mindanao Arrastre Service to do the arrastre and
stevedoring work on January 8, 1961. However, AFWU filed a petition
for certiorari, injunction and prohibition 13 here and on January 18, 1961,
was able to secure a writ of preliminary injunction ordering the
maintenance of the status quo prior to January 6, 1961. Thus, after
January 18, 1961, AFWU laborers were again back doing the same work
as before.
The third incident that reached US 14 involved an order of the same trial
court in the same civil case, dated January 11, 1961, which amended
some clerical errors in the original decision of December 5, 1960. Upon
motion of MARITIMA, the trial court, on March 24, 1962, issued an order
for the execution of the decision of January 11, 1961, since AFWU did
not appeal therefrom, and on March 31, 1962, a writ of execution
ousting the 225 AFWUmembers-laborers from their work in connection
with the loading and unloading of cargoes was issued and a levy on
execution upon the properties of AFWU was effected. Accordingly, on
April 1, 1962, MARITIMA was again able to engage the services of the
Mindanao Arrastre Service.
On April 16, 1962, upon the institution of the petition for certiorari,
injunction, prohibition and mandamus, a preliminary injunction was
issued by Us against the orders of March 24 and 31, 1962. But then, on
May 16, 1962, upon motion of MARITIMA this preliminary injunction was
lifted by Us insofar as it related to the execution of the order ousting
the AFWU laborers from the stevedoring and arrastre work in connection
with the MARITIMAvessels. 15 Such then was the status of things.
On November 4, 1963, after almost 10 years of hearing the two cases
jointly, the Industrial Court finally rendered its decision. The dispositive
part provided:
IN VIEW OF ALL THE FOREGOING CIRCUMSTANCES, the complaint
of the union for unfair labor practices against the
Compaia MARITIMA and/or its agent Jose C. Teves and the Iligan

Stevedoring Union and/or Sergio Obach is hereby dismissed for

lack of substantial evidence and merit.
In pursuance of the provisions of Section 12 of Republic Act 875
and the Rules of this court on certification election, the
Honorable, the Secretary of Labor or any of his authorized
representative is hereby requested to conduct certification
election among all the workers and/or stevedores working in the
wharf of Iligan City who are performing stevedoring and arrastre
service aboard Compaia MARITIMA vessels docking at Iligan City
port in order to determine their representative for collective
bargaining with the employer, whether their desire to be
represented by the petitioner Allied Free Workers Union or neither
[sic]; and upon termination of the said election, the result thereof
shall forthwith be submitted to this court for further
consideration. The union present payroll may be utilized in
determining the qualified voters, with the exclusion of all
supervisors.
SO ORDERED.
As already indicated, the fundamental issue involved in these cases
before Us consists in whether there is an employer-employee
relationship between MARITIMA, on the one hand, and AFWU and/or its
members-laborers who do the actual stevedoring and arrastre work on
the other hand.
THE UNFAIR LABOR PRACTICE CASE
(L-22951 * [CIR Case 426-ULP])
Petitioner AFWU's proposition is that the court a quo erred (1) in
concluding that MARITIMA had not refused to bargain collectively with it,
as the majority union; (2) in not finding that MARITIMA had committed
acts of discrimination, interferences and coercions upon its memberslaborers, and (3) in concluding that theCONTRACT may not be
interferred with even if contrary to law or public policy.
It is true that MARITIMA admits that it did not answer AFWU's proposal
for a collective bargaining agreement. From this it does not necessarily
follow that it is guilty of unfair labor practice. Under the law 16 the duty
to bargain collectively arises only between the "employer" and its

"employees". Where neither party is an "employer" nor an "employee"

of the other, no such duty would exist. Needless to add, where there is
no duty to bargain collectively the refusal to bargain violates no right.
So, the question is: Under the CONTRACT , was MARITIMA the
"employer" and AFWU and/or its members the "employees" with respect
to one another?
The court a quo held that under the CONTRACT , AFWU was an
independent contractor of MARITIMA. This conclusion was based on the
following findings of fact, which We can no longer disturb, stated in the
CIR decision:
7. ... The petitioner union operated as a labor contractor under
the so-called "cabo" system; and as such it has a complete set of
officers and office personnel (Exhs. "F" and "F-1") and its
organizational structure includes the following: General President,
with the following under him one vice-president, legal counsel,
general treasurer, general manager and the board of directors.
Under the general manager is the secretary, the auditor, and the
office staff composing of the general foreman, general checker,
general timekeeper, and the respective subordinates like
assistant foreman, capataz, assistant general checker, field
checker, office timekeeper, and field timekeeper all appointed by
the general manager of the union and are paid in accordance
with the union payroll exclusively prepared by the union in the
office. (See t.s.n. pp. 32-36, June 9, 1960; pp. 78-80, February 16,
1961; pp. 26-28, August 9, 1960). The payrolls where laborers
are listed and paid were prepared by the union itself without the
intervention or control of the respondent company and/or its
agent at Iligan City. The respondent never had any knowledge of
the individual names of laborers and/or workers listed in the
union payroll or in their roster of membership.
8. The union engaged the services of their members in
undertaking the work of arrastre and stevedoringeither to haul
shippers' goods from their warehouses in Iligan City to
the MARITIMA boat or from the boat to the different
consignees. The charges for such service were known by the
union and collected by them through their bill collector. This is
shown by the preparation of the union forms known as "conduci"
or delivery receipts. These "conduci" or receipts contain
informations as to the number and/or volume of cargoes handled

by the union, the invoice number, the name of the vessel and the
number of bills of lading covering the cargoes to be delivered.
Those delivery receipts are different and separate from the bills
of lading and delivery receipts issued by the company to the
consignees or shippers. Cargoes carried from the warehouses to
the boat or from the boat to the consignees were always
accompanied by the union checker who hand-carry the
"conduci". Once goods are delivered to their destination the
union through its bill collectors prepare the bills of collection and
the charges thereon are collected by the union bill collectors who
are employees of the union and not of the respondent. The
respondent had no intervention whatsoever in the collection of
those charges as the same are clearly indicated and described in
the laborCONTRACT , Exhibit "A". There were, however, instances
when the respondents were requested to help the union in the
collection of charges for services rendered by members of the
union when fertilizers and gasoline drums were loaded aboard
the Compaia MARITIMA boats. This was necessary in order to
facilitate the collection of freight and handling charges from the
government for auditing purposes. When cargoes are to be
loaded, the shipper usually notifies the petitioner union when to
load their cargoes aboard Compaia MARITIMA boats calling in
the port of Iligan City; and when a boat docks in said port, the
union undertakes to haul the said shipper's goods to the boat. In
doing this work, the union employs their own trucks or other
vehicles or conveyance from shipper's warehouse to the boat or
vice-versa. The respondent has no truck of any kind for the
service of hauling cargoes because such service is included in
the CONTRACT executed between the parties. (See Exh. "A").
9. The union members who were hired by the union to perform
arrastre and stevedoring work on respondents' vessels at Iligan
port were being supervised and controlled by the general
foreman of the petitioner union or by any union assistant or
capataz responsible for the execution of the labor
CONTRACTwhen performing arrastre and/or stevedoring work
aboard vessels of the Compaia MARITIMA docking at Iligan City.
The foreman assigned their laborers to perform the required work
aboard vessels of the respondent. For instance, when a boat
arrives, the general foreman requests the cargo report from the
chief mate of the vessel in order to determine where the cargoes
are located in the hold of the boat and to know the destination of

these cargoes. All the laborers and/or workers hired for said work
are union members and are only responsible to their immediate
chief who are officers and/or employees of the union. The
respondent firm have their own separate representatives like
checkers who extend aid to the union officers and members in
checking the different cargoes unloaded or loaded aboard vessels
of the Compaia MARITIMA. There were no instances where
offices and employees of the respondent Compaia MARITIMA
and/or its agent had interferred in the giving of instructions to
the laborers performing the arrastre and/or stevedoring work
either aboard vessels or at the wharf of Iligan City. As contractor,
the union does not receive instructions as to what to do, how to
do, and works without specific instructions. They have no fixed
hours of work required by the MARITIMA.
10. While cargoes were in transit either from the warehouse to
the boat or from the boat to the different consignees, any losses
or damages caused with the said cargoes were charged to the
account of the union; and the union likewise imposed the penalty
or fine to any employee who caused or committed the damages
to cargoes in transit. Other disciplinary measures imposed on
laborers performing the said work were exercised by the general
foreman of the union who has blanket authority from the union
general manager to exercise disciplinary control over their
members who were assigned to perform the work in a group of
laborers assigned by the union to perform loading or unloading
cargoes when a Compaia MARITIMA boat docked at Iligan City.
The respondents have not at any time interferred in the
imposition of disciplinary action upon the laborers who are
members of the union. In one instance, under this situation, the
president of the union himself dismissed one inefficient laborer
found to have been performing inefficient service at the
time (t.s.n. pp. 17-18, February 15, 1961).
xxx

xxx

xxx

13. Erring laborers and/or workers who are affiliates of the union
were directly responsible to the union and never to the
respondent. Respondent cannot, therefore, discipline and/or
dismiss these erring workers of the union. (Emphasis supplied)

And in absolving MARITIMA of the unfair labor charge on this point, the
court a quo concluded:
From the foregoing circumstances and findings, the Court is of
the opinion that no substantial evidence has been presented to
sustain the charge of unfair labor practice acts as alleged to have
been committed by herein respondent. The Court finds no
interference in the union activities, if any, of the members of the
Allied Free Workers Union as these persons engaged in the
stevedoring and arrastre service were employed by the Allied
Free Workers Union as independent contractor subject to the
terms and conditions of their then existing labor CONTRACT
Exhibit "A". To construe the CONTRACT otherwise would tend to
disregard the rights and privileges of the parties intended by
them in their CONTRACT . (Exhibit "A"). This Court believes that it
may not interfere in the implementation of the said
labor CONTRACT in the absence of abuse by one party to the
prejudice of the other. ...
Further, the Court finds that the petitioner, aside from its labor
CONTRACT (See Exhibit "A") with the respondent Compaia
MARITIMA also has other labor contracts with other shipping
firms on the stevedoring and arrastre work; and that this
CONTRACT obligated the petitioner as an independent labor
contractor to undertake the arrastre and stevedoring service on
Compaia MARITIMA boats docking at Iligan City Port. The
petitioner is an independent contractor as defined in
the CONTRACT Exhibit "A" and in the evidence submitted by the
parties. "An independent contractor is one who, in rendering
services, exercises an independent employment or occupation
and represents the will of his employer only as to the results of
his work and not as to the means whereby it is accomplished;
one who exercising an independent employment, contracts to do
a piece of work according to his own methods, without being
subject to the control of his employer except as to the result of
his work; and who engaged to perform a certain service for
another, according to his own manner and methods, free from
the control and direction of his employer in all matters connected
with the performance of the service except as to the result of the
work." (see 56 C.J.S. pp. 41-43; Cruz, et al. vs. Manila Hotel et al.,
G.R. No. L-9110, April 30, 1957). These factors were present in

the relation of the parties as described in their CONTRACT Exhibit

"A".
xxx

xxx

xxx

In Viaa vs. Al Lagadan et al., G.R. No. L-8967, May 31, 1956, the
Supreme Court states the rule as follows.
'In determining the existence of employer-employee
relationship, the following elements are generally
considered, namely: (1) the selection and engagement of
the employees; (2) the payment of wages; (3) the power
of dismissal; and (4) the power to control the employee's
conduct although the latter is the most important
element (35 Am. Jur. 445). Assuming that the share
received by the deceased could partake of the nature of
wages on which we need not and do not express our
view and that the second element, therefore, exists in
the case at bar, the record does not contain any specific
data regarding the third and fourth elements.'
The clear implication of the decision of the Supreme Court is that
if the defendant has no power of control which, according to
the Supreme Court, is the "most important element" there is
no employer-employee relationship. (Emphasis supplied)
The conclusion thus reached by the court a quo is in full accord with the
facts and the applicable jurisprudence. We totally agree with the court a
quo that AFWU was an independent contractor. And an independent
contractor is not an "employee".17
Neither is there any direct employment relationship
between MARITIMA and the laborers. The latter have no separate
individual contracts with MARITIMA. In fact, the court a quo found that it
was AFWU that hired them. Their only possible connection
with MARITIMA is through AFWU which contracted with the latter. Hence,
they could not possibly be in a better class than AFWU which dealt
with MARITIMA.18
In this connection, it is interesting to note that the facts as found by the
court a quo strongly indicate that it isAFWU itself who is the "employer"

of those laborers. The facts very succinctly show that it

was AFWU, through its officers, which (1) selected and hired the
laborers, (2) paid their wages, (3) exercised control and supervision over
them, and (4) had the power to discipline and dismiss them. These are
the very elements constituting an employer-employee relationship.19
Of course there is no legal impediment for a union to be an
"employer". 20 Under the particular facts of this case,
however, AFWU appears to be more of a distinct and completely
autonomous business group or association. Its organizational structure
and operational system is no different from other commercial entities on
the same line. It even has its own bill collectors and trucking facilities.
And that it really is engaged in business is shown by the fact that it had
arrastre and stevedoring contracts with other shipping firms in Iligan
City.
Now, in its all-out endeavor to make an "employer" out
of MARITIMA, AFWU citing an impressive array of jurisprudence, even
goes to the extent of insisting that it be considered a mere "agent"
of MARITIMA. Suffice it to say on this point that an agent can not
represent two conflicting interests that are diametrically opposed. And
that the cases sought to be relied upon did not involve representatives
of opposing interests.
Anent the second point raised: AFWU claims that the court a quo found
that acts of interferences and discriminations were committed
by MARITIMA against the former's members simply for their union
affiliation. 21However, nowhere in the 32-page decision of the court a
quo can any such finding be found. On the contrary, said court made the
following finding:
18. There is no showing that this new union, the Iligan
Stevedoring Union, was organized with the help of the branch
manager Jose C. Teves. The organizer of the union like Messrs.
Sergio Obach, Labayos and Atty. Obach and their colleagues have
never sought the intervention, help or aid of the respondent
Compaia MARITIMA or its branch manager Teves in the
formation and/or organization of the said Iligan Stevedoring
Union. It appears that these people have had previous knowledge
and experience in handling stevedoring and in the arrastre
service prior to the employment of the Allied Free Workers Union

in the Iligan port. The charge of union interference and

domination finds no support from the evidence. (Emphasis
supplied)
More worthy of consideration is the suggestion that the termination of
the CONTRACT was in bad faith. First of all, contrary to AFWU's sweeping
statement, the court a quo did not find that the termination of
the CONTRACTwas "in retaliation to AFWU's demand for collective
bargaining. On the contrary, the court a quo held
thatMARITIMA's authority to terminate the CONTRACT was rightfully
exercised:
21. The evidence does not show substantially any act of
interference in the union membership or activities of the
petitioner union. The rescission of their CONTRACT is not a union
interference contemplated in the law.
x x x Further, the Court is satisfied that there is no act or acts of
discrimination as claimed by herein petitioner to have been
committed by the respondent firm or its branch manager Teves.
Evidence is clear that Teves, in representation of the principal,
the respondent Compaia MARITIMA, has also acted, in good
faith in implementing the provisions of their
existent CONTRACT (Exhibit "A"), and when he advised the union
of the rescission of the said CONTRACT effective August 31,
1954, he did so in the concept that the employer firm may so
terminate their contract pursuant to paragraph 4 of Exhibit "A"
which at the time was the law controlling between them. ...
(Emphasis supplied)
We are equally satisfied that the real reason for the termination of
the CONTRACT was AFWU's inefficient service. The court a quo drew its
conclusion from the following findings:
11. During the first month of the existence of the
labor CONTRACT Exhibit 'A', the petitioner union rendered
satisfactory service. Under this situation, the
Compaia MARITIMA's representative at Iligan City was
authorized to renew verbally with the extension of
the CONTRACT Exhibit "A" from month to month basis after the
first month of its expiration. This situation of harmony lasted up

to the latter part of 1953 when the Compaia MARITIMA and its
branch manager agent complained to the union of the
unsatisfactory service of the union laborers hired to load and
unload cargoes aboard Compaia MARITIMA boats. This
deteriorating situation was admitted as a fact by the union
president (See Exhs. "3", "3-A" and "3-B"; See also t.s.n. pp. 6566, August 9, 1960).
12. There was a showing that the laborers employed by the
union were inefficient in performing their jobs, and the business
of the respondent company in Iligan City suffered adversely
during the year 1954; and this was due to the fact that
respondents' vessels were forced to leave cargoes behind in
order not to disrupt the schedule of departures. The Union
laborers were slow in loading and/or unloading freight from
which the respondent Compaia MARITIMA secured its income
and/or profits. At times, cargoes were left behind because of the
union's failure to load them before vessel's departure. In order to
solve this inefficiency of the complaining union, the branch
manager of the Compaia MARITIMA was forced to hire extra
laborers from among 'stand-by' workers not affiliated to any
union for the purpose of helping in the stevedoring and arrastre
work on their vessels because, at that time, the union was not
performing and/or rendering efficient service in the loading and
unloading of cargoes. ...
xxx

xxx

xxx

14. Because of the deterioration of the Service rendered to the

respondent, the branch manager of the respondent Compaia
MARITIMA informed the union of its intention to rescind the
CONTRACT Exhibit "A" because the company had been suffering
losses for such inefficient service. (See Exhibit "N").
Respondent Teves reported to the MARITIMA's head office on the
financial losses of the company in its operations. (See Exhibits
'Y', 'Y-1' to 'X-5').
15. On August 24, 1954, branch manager Jose C. Teves of the
Iligan City MARITIMA Branch, wrote the petitioner union informing
them of the termination of their CONTRACT , Exhibit "A". (See

Exhibit "N"). This step was taken after the company found the
union lagging behind their work under the CONTRACT , so much
so that MARITIMA boats have to leave on schedule without
loading cargoes already contacted to be transported. (Emphasis
supplied)
Perhaps, AFWU might say that this right to terminate appearing in
paragraph 4 of the CONTRACT is contrary to law, morals, good customs,
public order, or public policy. 22 However, it has not adduced any
argument to demonstrate such point. Moreover, there is authority to the
effect that the insertion in a CONTRACT for personal services of a
resolutory condition permitting the cancellation of the CONTRACT by one
of the contracting parties is valid. 23 Neither would the termination
constitute "union-busting". Oceanic Air Products vs. CIR, 24 cited
byAFWU is not in point. That case presupposes an employer-employee
relationship between the parties disputants a basis absolutely
wanting in this case.
AFWU's third point is again that MARITIMA's act of terminating
the CONTRACT constituted union interference. As stated, the court a
quo found as a fact that there is no sufficient evidence of union
interference. And no reason or argument has been advanced to show
that the fact of said termination alone constituted union interference.
THE CERTIFICATION ELECTION CASE
(L-22952 ** & L-22971 [CIR Case No. 175-MC]).
In the certification ejection case, the court a quo directed the holding of
a certification election among the laborers then doing arrastre and
stevedoring work. Both MARITIMA and AFWU have appealed from that
ruling. The latter maintains that the lower court should have directly
certified it as the majority union, entitled to represent all the workers in
the arrastre and stevedoring work unit, whereas MARITIMA contends
that said court could not even have correctly ordered a certification
election considering that there was an absence of employer-employee
relationship between it and said laborers.
There is no question that certification election could not have been
proper during the existence of the CONTRACTin view of the court a quo's
finding that there was no employment relationship thereunder between
the parties. But after the termination of the CONTRACT on August 31,

1954, what was the nature of the relationship betweenMARITIMA and the
laborers-members of AFWU?
From the finding that after the rescission of
the CONTRACT , MARITIMA continued to avail of the services ofAFWU the
court a quo concluded that there came about an implied employeremployee relationship between the parties. This conclusion cannot be
sustained.
First of all, it is contradicted by the established facts. In its findings of
fact, the court a quo observed that after the rescission,
the AFWU laborers continued working in accordance with the "cabo"
system, which was the prevailing custom in the place. Said the court:
20. After the rescission of the CONTRACT Exhibit "A" on August
31, 1954, the Allied Free Workers Union and its members were
working or performing the work of arrastre and stevedoring
service aboard 'vessels of the Compaia MARITIMA docking at
Iligan City port under the 'cabo system' then prevailing in that
teritory; and the customs and conditions then prevailing were
observed by the parties without resorting to the conditions of the
former labor contract Exhibit "A". (Emphasis supplied)
Under the "Cabo" system, the union was an independent contractor. This
is shown by the court a quo's own finding that prior to
the CONTRACT between MARITIMA and AFWU, the former had an oral
arrastre and stevedoring agreement with another union. This agreement
was also based on the "cabo" system. As found by the court a quo:
4. That prior to the execution of Exhibit "A", the arrastre and
stevedoring work was performed by the Iligan Wharf Laborers
Union headed by one Raymundo Labayos under a verbal
agreement similar to the nature and contents of Exhibit "A"; and
this work continued from 1949 to 1952.
5. Under the oral CONTRACT , the Iligan Laborers Union acting as
an independent labor contractor engaged [in] the services of its
members as laborers to perform the contract work of arrastre
and stevedoring service aboard vessels of the Compaia
MARITIMA calling and docking at Iligan City; and for the services
therein rendered the union charged shippers and/or consignees

in accordance with the consignment or place, and the proceeds

thereof shall be shared by the union members in accordance
with the union's internal rules and regulations. This system of
work is locally known as the 'cabo system'. The laborers who are
members of the union and hired for the arrastre and stevedoring
work were paid on union payrolls and the Compaia MARITIMA
has had nothing to do with the preparation of the same.
6. Because of unsatisfactory service rendered by the Iligan Wharf
Labor Union headed by Labayos, the
Compaia MARITIMA through its agent in Iligan City cancelled
their oral contractor and entered into a new contractor, Exhibit
"A" with the Allied Free Workers Union (PLUM) now petitioner in
this case. The terms and conditions of the same continued and
was similar to the oral contractor entered into with the union
headed by Labayos. ...
7. The cancellation of the oral contract with the Iligan Wharf
Labor Union headed by Labayos was due to the inefficient service
rendered by the said union. The labor contract entered into by
the petitioner herein (Exh. "A") was negotiated through the
intervention of Messrs. Salvador Lluch, Mariano Ll Badelles,
Laurentino Ll. Badelles, Nicanor T. Halivas and Raymundo
Labayos. The contract was prepared by their legal panel and
after several negotiations, respondent Teves reluctantly signed
the said written contract with the union with the assurance
however that the same arrange previously had with the former
union regarding the performance and execution of the arrastre
and stevedoring contract be followed in accordance with the
custom of such kind of work at Iligan City. The petitioner union,
operated as a labor contractor under the so-called "cabor"
system; ... (Emphasis supplied)
From the above findings, it is evident that, insofar as the working
arrangement was concerned, there was no real difference between
the CONTRACT and the prior oral agreement. Both were based on the
"cabo" system. Under both, (1) the union was an independent contractor
which engaged the services of its members as laborers; (2) the charges
against the consignees and owners of cargoes were made directly by the
union; and (3) the laborers were paid on union payrolls
and MARITIMA had nothing to do with the preparation of the same.
These are the principal characteristics of the "cabo" system on which

the parties based their relationship after the termination of

the CONTRACT.
Hence, since the parties observed the "cabo" system after the rescission
of the CONTRACT, and since the characteristics of said system show that
the contracting union was an independent contractor, it is reasonable to
assume that AFWU continued being an independent contractor
of MARITIMA. And, being an independent contractor, it could not qualify
as an "employee". With more reason would be true with respect to the
laborers.
Moreover, there is no evidence at all regarding the characteristics of the
working arrangement between AFWUand MARITIMA after the
termination of the CONTRACT. All we have to go on is the court a quo's
finding that the "cabo" system was observed a system that negatives
employment relationship. The four elements generally regarded as
indicating the employer-employee relationship or at the very least,
the element of "control" must be shown to sustain the conclusion that
there came about such relationship. The lack of such a showing in the
case at bar is fatal to AFWU's contention.
Lastly, to uphold the court a quo's conclusion would be tantamount to
the imposition of an employer-employee relationship against the will
of MARITIMA. This cannot be done, since it would violate MARITIMA's
exclusive prerogative to determine whether it should enter into an
employment CONTRACT or not, i.e, whether it should hire others or
not. 25 In Pampanga Bus Co. vs. Pambusco Employees' Union, 26 We said:
x x x The general right to make a contract in relation to one's
business is an essential part of the liberty of the citizens
protected by the due process clause of the constitution. The right
of a laborer to sell his labor to such person as he may choose is,
in its essence, the same as the right of an employer to purchase
labor from any person whom it chooses. The employer and the
employee have thus an equality of right guaranteed by the
constitution. 'If the employer can compel the employee to work
against the latter's will, this is servitude. If the employee can
compel the employer to give him work against the employer's
will, this is oppression (Emphasis supplied) .

Therefore, even if the AFWU laborers continued to perform arrastre and

stevedoring work after August 31, 1954, it cannot be correctly
concluded as did the court a quo that an employer-employee
relationship even impliedly at that arose when before there never
had been any. Indeed, it would appeal unreasonable and unjust to force
such a relationship upon MARITIMA when it had clearly and continuously
manifested its intention not to have any more business relationship
whatsoever with AFWU because of its inefficient service. It was only to
comply with injunctions and other judicial mandates
that MARITIMA continued to abide by the status quo, extending in fact
and in effect the operation of the MARITIMA contract.
The only remaining question now is whether, in the particular context of
what We have said, the lower court's ruling ordering a certification
election can be sustained. As already stated, the duty to bargain
collectively exists only between the "employer" and its "employees".
However, the actual negotiations which may possibly culminate in a
concrete collective bargaining contract are carried on between the
"employer" itself and the official representative of the "employees" 27
in most cases, the majority labor union. Since the only function of a
certification election is to determine, with judicial sanction, who this
official representative or spokesman of the "employees" will be, 28 the
order for certification election in question cannot be sustained. There
being no employer-employee relationship between the parties
disputants, there is neither a "duty to bargain collectively" to speak of.
And there being no such duty, to hold certification elections would be
pointless. There is no reason to select a representative to negotiate
when there can be no negotiations in the first place. We therefore hold
that where as in this case there is no duty to bargain collectively, it
is not proper to hold certification elections in connection therewith.
The court a quo's objective in imposing the employer-employee
relationship may have been to do away with the "cabo" system which,
although not illegal, is in its operation regarded as disadvantageous to
the laborers and stevedores. The rule however remains that the end
cannot justify the means. For an action to be sanctioned by the courts,
the purpose must not only be good but the means undertaken must also
be lawful.
A true and sincere concern for the welfare of AFWU members-laborers
would call for reforms within AFWU itself, if the evil of the so-called
"cabo" system is to be eliminated. As We suggested in Bermiso vs. Hijos

de Escao, 29the remedy against the "cabo" system need not be sought
in the courts but in the laborers themselves who should organize into a
closely-knit union "which would secure the privileges that the members
desire thru the election of officers among themselves who would not
exploit them."
Wherefore, the appealed decision of the Court of Industrial Relations is
hereby affirmed insofar as it dismissed the charge of unfair labor
practice in CIR Case 426-ULP, but reversed and set aside insofar as it
ordered the holding of a certification election in CIR Case No. 175-MC,
and the petition for certification in said case should be, as it is hereby,
dismissed. No costs. So ordered.

Defendant in its answer denied the material allegations of the complaint

and set up certain special defenses, among them, prescription and
laches, as bars against the institution of the present action.
After trial, during which the parties presented testimonial and numerous
documentary evidence, the court a quorendered a decision dismissing
the complaint with costs. The court stated that it did not find sufficient
evidence to establish defendant's counterclaim and so it likewise
dismissed the same.
The present appeal was taken to this Court directly by the plaintiff in
view of the amount involved in the case.
The facts of this case, as stated in the decision appealed from, are
hereunder quoted for purposes of this decision:
It appears that the suit involves an operating agreement
executed before World War II between the plaintiff and the
defendant whereby the former operated and managed the
mining properties owned by the latter for a management fee of
P2,500.00 a month and a 10% participation in the net profits
resulting from the operation of the mining properties. For brevity
and convenience, hereafter the plaintiff shall be referred to as
NIELSON and the defendant, LEPANTO.

G.R. No. L-21601

December 17, 1966

NIELSON & COMPANY, INC., plaintiff-appellant,

vs.
LEPANTO CONSOLIDATED MINING COMPANY, defendant-appellee.
W. H. Quasha and Associates for plaintiff-appellant.
Ponce Enrile, Siguion-Reyna, Montecillo and Belo for defendant-appellee.
ZALDIVAR, J.:
On February 6, 1958, plaintiff brought this action against defendant
before the Court of First Instance of Manila to recover certain sums of
money representing damages allegedly suffered by the former in view of
the refusal of the latter to comply with the terms of a management
contract entered into between them on January 30, 1937, including
attorney's fees and costs.

The antecedents of the case are: The contract in question

(Exhibit `C') was made by the parties on January 30, 1937 for a
period of five (5) years. In the latter part of 1941, the parties
agreed to renew the contract for another period of five (5) years,
but in the meantime, the Pacific War broke out in December,
1941.
In January, 1942 operation of the mining properties was disrupted
on account of the war. In February of 1942, the mill, power plant,
supplies on hand, equipment, concentrates on hand and mines,
were destroyed upon orders of the United States Army, to
prevent their utilization by the invading Japanese Army. The
Japanese forces thereafter occupied the mining properties,
operated the mines during the continuance of the war, and who
were ousted from the mining properties only in August of 1945.

After the mining properties were liberated from the Japanese

forces, LEPANTO took possession thereof and embarked in
rebuilding and reconstructing the mines and mill; setting up new
organization; clearing the mill site; repairing the mines; erecting
staff quarters and bodegas and repairing existing structures;
installing new machinery and equipment; repairing roads and
maintaining the same; salvaging equipment and storing the
same within the bodegas; doing police work necessary to take
care of the materials and equipment recovered; repairing and
renewing the water system; and remembering (Exhibits "D" and
"E"). The rehabilitation and reconstruction of the mine and mill
was not completed until 1948 (Exhibit "F"). On June 26, 1948 the
mines resumed operation under the exclusive management of
LEPANTO (Exhibit "F-l").
Shortly after the mines were liberated from the Japanese
invaders in 1945, a disagreement arose between NIELSON and
LEPANTO over the status of the operating contract in question
which as renewed expired in 1947. Under the terms thereof, the
management contract shall remain in suspense in case fortuitous
event or force majeure, such as war or civil commotion,
adversely affects the work of mining and milling.
"In the event of inundations, floodings of mine, typhoon,
earthquake or any other force majeure, war, insurrection,
civil commotion, organized strike, riot, injury to the
machinery or other event or cause reasonably beyond the
control of NIELSON and which adversely affects the work
of mining and milling; NIELSON shall report such fact to
LEPANTO and without liability or breach of the terms of
this Agreement, the same shall remain in suspense,
wholly or partially during the terms of such inability."
(Clause II of Exhibit "C").
NIELSON held the view that, on account of the war, the contract
was suspended during the war; hence the life of the contract
should be considered extended for such time of the period of
suspension. On the other hand, LEPANTO contended that the
contract should expire in 1947 as originally agreed upon because
the period of suspension accorded by virtue of the war did not
operate to extend further the life of the contract.

No understanding appeared from the record to have been bad by

the parties to resolve the disagreement. In the meantime,
LEPANTO rebuilt and reconstructed the mines and was able to
bring the property into operation only in June of 1948, . . . .
Appellant in its brief makes an alternative assignment of errors
depending on whether or not the management contract basis of the
action has been extended for a period equivalent to the period of
suspension. If the agreement is suspended our attention should be
focused on the first set of errors claimed to have been committed by the
court a quo; but if the contrary is true, the discussion will then be
switched to the alternative set that is claimed to have been committed.
We will first take up the question whether the management agreement
has been extended as a result of the supervening war, and after this
question shall have been determined in the sense sustained by
appellant, then the discussion of the defense of laches and prescription
will follow as a consequence.
The pertinent portion of the management contract (Exh. C) which refers
to suspension should any event constituting force majeure happen
appears in Clause II thereof which we quote hereunder:
In the event of inundations, floodings of the mine, typhoon,
earthquake or any other force majeure, war, insurrection, civil
commotion, organized strike, riot, injury to the machinery or
other event or cause reasonably beyond the control of NIELSON
and which adversely affects the work of mining and milling;
NIELSON shall report such fact to LEPANTO and without liability or
breach of the terms of this Agreement, the same shall remain in
suspense, wholly or partially during the terms of such inability.
A careful scrutiny of the clause above-quoted will at once reveal that in
order that the management contract may be deemed suspended two
events must take place which must be brought in a satisfactory manner
to the attention of defendant within a reasonable time, to wit: (1) the
event constituting the force majeure must be reasonably beyond the
control of Nielson, and (2) it must adversely affect the work of mining
and milling the company is called upon to undertake. As long as these
two condition exist the agreement is deem suspended.

Does the evidence on record show that these two conditions had existed
which may justify the conclusion that the management agreement had
been suspended in the sense entertained by appellant? Let us go to the
evidence.
It is a matter that this Court can take judicial notice of that war
supervened in our country and that the mines in the Philippines were
either destroyed or taken over by the occupation forces with a view to
their operation. The Lepanto mines were no exception for not was the
mine itself destroyed but the mill, power plant, supplies on hand,
equipment and the like that were being used there were destroyed as
well. Thus, the following is what appears in the Lepanto Company Mining
Report dated March 13, 1946 submitted by its President C. A. DeWitt to
the defendant:1 "In February of 1942, our mill, power plant, supplies on
hand, equipment, concentrates on hand, and mine, were destroyed upon
orders of the U.S. Army to prevent their utilization by the enemy." The
report also mentions the report submitted by Mr. Blessing, an official of
Nielson, that "the original mill was destroyed in 1942" and "the original
power plant and all the installed equipment were destroyed in 1942." It
is then undeniable that beginning February, 1942 the operation of the
Lepanto mines stopped or became suspended as a result of the
destruction of the mill, power plant and other important equipment
necessary for such operation in view of a cause which was clearly
beyond the control of Nielson and that as a consequence such
destruction adversely affected the work of mining and milling which the
latter was called upon to undertake under the management contract.
Consequently, by virtue of the very terms of said contract the same may
be deemed suspended from February, 1942 and as of that month the
contract still had 60 months to go.
On the other hand, the record shows that the defendant admitted that
the occupation forces operated its mining properties subject of the
management contract,2 and from the very report submitted by President
DeWitt it appears that the date of the liberation of the mine was August
1, 1945 although at the time there were still many booby
traps.3 Similarly, in a report submitted by the defendant to its
stockholders dated August 25, 1948, the following appears: "Your
Directors take pleasure in reporting that June 26, 1948 marked the
official return to operations of this Company of its properties in
Mankayan, Mountain Province, Philippines."4

It is, therefore, clear from the foregoing that the Lepanto mines were
liberated on August 1, 1945, but because of the period of rehabilitation
and reconstruction that had to be made as a result of the destruction of
the mill, power plant and other necessary equipment for its operation it
cannot be said that the suspension of the contract ended on that date.
Hence, the contract must still be deemed suspended during the
succeeding years of reconstruction and rehabilitation, and this period
can only be said to have ended on June 26, 1948 when, as reported by
the defendant, the company officially resumed the mining operations of
the Lepanto. It should here be stated that this period of suspension from
February, 1942 to June 26, 1948 is the one urged by plaintiff. 5
It having been shown that the operation of the Lepanto mines on the
part of Nielson had been suspended during the period set out above
within the purview of the management contract, the next question that
needs to be determined is the effect of such suspension. Stated in
another way, the question now to be determined is whether such
suspension had the effect of extending the period of the management
contract for the period of said suspension. To elucidate this matter, we
again need to resort to the evidence.
For appellant Nielson two witnesses testified, declaring that the
suspension had the effect of extending the period of the contract,
namely, George T. Scholey and Mark Nestle. Scholey was a mining
engineer since 1929, an incorporator, general manager and director of
Nielson and Company; and for some time he was also the vice-president
and director of the Lepanto Company during the pre-war days and, as
such, he was an officer of both appellant and appellee companies. As
vice-president of Lepanto and general manager of Nielson, Scholey
participated in the negotiation of the management contract to the
extent that he initialed the same both as witness and as an officer of
both corporations. This witness testified in this case to the effect that
the standard force majeure clause embodied in the management
contract was taken from similar mining contracts regarding mining
operations and the understanding regarding the nature and effect of
said clause was that when there is suspension of the operation that
suspension meant the extension of the contract. Thus, to the question,
"Before the war, what was the understanding of the people in the
particular trend of business with respect to the force majeure clause?",
Scholey answered: "That was our understanding that the suspension
meant the extension of time lost."6

Mark Nestle, the other witness, testified along similar line. He had been
connected with Nielson since 1937 until the time he took the witness
stand and had been a director, manager, and president of the same
company. When he was propounded the question: "Do you know what
was the custom or usage at that time in connection withforce
majeure clause?", Nestle answered, "In the mining world the force
majeure clause is generally considered. When a calamity comes up and
stops the work like in war, flood, inundation or fire, etc., the work is
suspended for the duration of the calamity, and the period of the
contract is extended after the calamity is over to enable the person to
do the big work or recover his money which he has invested, or
accomplish what his obligation is to a third person ."7
And the above testimonial evidence finds support in the very minutes of
the special meeting of the Board of Directors of the Lepanto Company
issued on March 10, 1945 which was then chairmaned by Atty. C. A.
DeWitt. We read the following from said report:
The Chairman also stated that the contract with Nielson and
Company would soon expire if the obligations were not
suspended, in which case we should have to pay them the
retaining fee of P2,500.00 a month. He believes however, that
there is a provision in the contract suspending the effects thereof
in cases like the present, and that even if it were not there, the
law itself would suspend the operations of the contract on
account of the war. Anyhow, he stated, we shall have no difficulty
in solving satisfactorily any problem we may have with Nielson
and Company.8
Thus, we can see from the above that even in the opinion of Mr. DeWitt
himself, who at the time was the chairman of the Board of Directors of
the Lepanto Company, the management contract would then expire
unless the period therein rated is suspended but that, however, he
expressed the belief that the period was extended because of the
provision contained therein suspending the effects thereof should any of
the case of force majeure happen like in the present case, and that even
if such provision did not exist the law would have the effect of
suspending it on account of the war. In substance, Atty. DeWitt
expressed the opinion that as a result of the suspension of the mining
operation because of the effects of the war the period of the contract
had been extended.

Contrary to what appellant's evidence reflects insofar as the

interpretation of the force majeure clause is concerned, however,
appellee gives Us an opposite interpretation invoking in support thereof
not only a letter Atty. DeWitt sent to Nielson on October 20,
1945,9 wherein he expressed for the first time an opinion contrary to
what he reported to the Board of Directors of Lepanto Company as
stated in the portion of the minutes of its Board of Directors as quoted
above, but also the ruling laid down by our Supreme Court in some
cases decided sometime ago, to the effect that the war does not have
the effect of extending the term of a contract that the parties may enter
into regarding a particular transaction, citing in this connection the
cases of Victorias Planters Association v. Victorias Milling Company, 51
O.G. 4010; Rosario S. Vda. de Lacson, et al. v. Abelardo G. Diaz, 87 Phil.
150; andLo Ching y So Young Chong Co. v. Court of Appeals, et al., 81
Phil. 601.
To bolster up its theory, appellee also contends that the evidence
regarding the alleged custom or usage in mining contract that
appellant's witnesses tried to introduce was incompetent because (a)
said custom was not specifically pleaded; (b) Lepanto made timely and
repeated objections to the introduction of said evidence; (c) Nielson
failed to show the essential elements of usage which must be shown to
exist before any proof thereof can be given to affect the contract; and
(d) the testimony of its witnesses cannot prevail over the very terms of
the management contract which, as a rule, is supposed to contain all the
terms and conditions by which the parties intended to be bound.
It is here necessary to analyze the contradictory evidence which the
parties have presented regarding the interpretation of the force
majeure clause in the management contract.
At the outset, it should be stated that, as a rule, in the construction and
interpretation of a document the intention of the parties must be sought
(Rule 130, Section 10, Rules of Court). This is the basic rule in the
interpretation of contracts because all other rules are but ancilliary to
the ascertainment of the meaning intended by the parties. And once this
intention has been ascertained it becomes an integral part of the
contract as though it had been originally expressed therein in
unequivocal terms (Shoreline Oil Corp. v. Guy, App. 189, So., 348, cited
in 17A C.J.S., p. 47). How is this intention determined?

One pattern is to ascertain the contemporaneous and subsequent acts

of the contracting parties in relation to the transaction under
consideration (Article 1371, Civil Code). In this particular case, it is
worthy of note what Atty. C. A. DeWitt has stated in the special meeting
of the Board of Directors of Lepanto in the portion of the minutes already
quoted above wherein, as already stated, he expressed the opinion that
the life of the contract, if not extended, would last only until January,
1947 and yet he said that there is a provision in the contract that the
war had the effect of suspending the agreement and that the effect of
that suspension was that the agreement would have to continue with
the result that Lepanto would have to pay the monthly retaining fee of
P2,500.00. And this belief that the war suspended the agreement and
that the suspension meant its extension was so firm that he went to the
extent that even if there was no provision for suspension in the
agreement the law itself would suspend it.
It is true that Mr. DeWitt later sent a letter to Nielson dated October 20,
1945 wherein apparently he changed his mind because there he stated
that the contract was merely suspended, but not extended, by reason of
the war, contrary to the opinion he expressed in the meeting of the
Board of Directors already adverted to, but between the two opinions of
Atty. DeWitt We are inclined to give more weight and validity to the
former not only because such was given by him against his own interest
but also because it was given before the Board of Directors of Lepanto
and in the presence, of some Nielson officials 10 who, on that occasion
were naturally led to believe that that was the true meaning of the
suspension clause, while the second opinion was merely self-serving and
was given as a mere afterthought.
Appellee also claims that the issue of true intent of the parties was not
brought out in the complaint, but anent this matter suffice it to state
that in paragraph No. 19 of the complaint appellant pleaded that the
contract was extended. 11 This is a sufficient allegation considering that
the rules on pleadings must as a rule be liberally construed.
It is likewise noteworthy that in this issue of the intention of the parties
regarding the meaning and usage concerning the force majeure clause,
the testimony adduced by appellant is uncontradicted. If such were not
true, appellee should have at least attempted to offer contradictory
evidence. This it did not do. Not even Lepanto's President, Mr. V. E.
Lednicky who took the witness stand, contradicted said evidence.

In holding that the suspension of the agreement meant the extension of

the same for a period equivalent to the suspension, We do not have the
least intention of overruling the cases cited by appellee. We simply want
to say that the ruling laid down in said cases does not apply here
because the material facts involved therein are not the same as those
obtaining in the present. The rule of stare decisis cannot be invoked
where there is no analogy between the material facts of the decision
relied upon and those of the instant case.
Thus, in Victorias Planters Association vs. Victorias Milling Company, 51
O.G. 4010, there was no evidence at all regarding the intention of the
parties to extend the contract equivalent to the period of suspension
caused by the war. Neither was there evidence that the parties
understood the suspension to mean extension; nor was there evidence
of usage and custom in the industry that the suspension meant the
extension of the agreement. All these matters, however, obtain in the
instant case.
Again, in the case of Rosario S. Vda. de Lacson vs. Abelardo G. Diaz, 87
Phil. 150, the issue referred to the interpretation of a pre-war contract of
lease of sugar cane lands and the liability of the lessee to pay rent
during and immediately following the Japanese occupation and where
the defendant claimed the right of an extension of the lease to make up
for the time when no cane was planted. This Court, in holding that the
years which the lessee could not use the land because of the war could
not be discounted from the period agreed upon, held that "Nowhere is
there any insinuation that the defendant-lessee was to have possession
of lands for seven years excluding years on which he could not harvest
sugar." Clearly, this ratio decidendi is not applicable to the case at bar
wherein there is evidence that the parties understood the "suspension
clause by force majeure" to mean the extension of the period of
agreement.
Lastly, in the case of Lo Ching y So Young Chong Co. vs. Court of
Appeals, et al., 81 Phil. 601, appellant leased a building from appellee
beginning September 13, 1940 for three years, renewable for two years.
The lessee's possession was interrupted in February, 1942 when he was
ousted by the Japanese who turned the same over to German Otto
Schulze, the latter occupying the same until January, 1945 upon the
arrival of the liberation forces. Appellant contended that the period
during which he did not enjoy the leased premises because of his
dispossession by the Japanese had to be deducted from the period of

the lease, but this was overruled by this Court, reasoning that such
dispossession was merely a simple "perturbacion de merohecho y de la
cual no responde el arrendador" under Article 1560 of the old Civil Code
Art. 1664). This ruling is also not applicable in the instant case because
in that case there was no evidence of the intention of the parties that
any suspension of the lease by force majeure would be understood to
extend the period of the agreement.
In resume, there is sufficient justification for Us to conclude that the
cases cited by appellee are inapplicable because the facts therein
involved do not run parallel to those obtaining in the present case.
We shall now consider appellee's defense of laches. Appellee is correct
in its contention that the defense of laches applies independently of
prescription. Laches is different from the statute of limitations.
Prescription is concerned with the fact of delay, whereas laches is
concerned with the effect of delay. Prescription is a matter of time;
laches is principally a question of inequity of permitting a claim to be
enforced, this inequity being founded on some change in the condition
of the property or the relation of the parties. Prescription is statutory;
laches is not. Laches applies in equity, whereas prescription applies at
law. Prescription is based on fixed time, laches is not. (30 C.J.S., p.
522; See also Pomeroy's Equity Jurisprudence, Vol. 2, 5th ed., p. 177).
The question to determine is whether appellant Nielson is guilty of
laches within the meaning contemplated by the authorities on the
matter. In the leading case of Go Chi Gun, et al. vs. Go Cho, et al., 96
Phil. 622, this Court enumerated the essential elements of laches as
follows:
(1) conduct on the part of the defendant, or of one under whom
he claims, giving rise to the situation of which complaint is made
and for which the complaint seeks a remedy; (2) delay in
asserting the complainant's rights, the complainant having had
knowledge or notice of the defendant's conduct and having been
afforded an opportunity to institute a suit; (3) lack of knowledge
or notice on the part of the defendant that the complainant
would assert the right on which he bases his suit; and (4) injury
or prejudice to the defendant in the event relief is accorded to
the complainant, or the suit is not held barred.

Are these requisites present in the case at bar?

The first element is conceded by appellant Nielson when it claimed that
defendant refused to pay its management fees, its percentage of profits
and refused to allow it to resume the management operation.
Anent the second element, while it is true that appellant Nielson knew
since 1945 that appellee Lepanto has refused to permit it to resume
management and that since 1948 appellee has resumed operation of
the mines and it filed its complaint only on February 6, 1958, there
being apparent delay in filing the present action, We find the delay
justified and as such cannot constitute laches. It appears that appellant
had not abandoned its right to operate the mines for even before the
termination of the suspension of the agreement as early as January 20,
194612 and even before March 10, 1945, it already claimed its right to
the extension of the contract,13 and it pressed its claim for the balance
of its share in the profits from the 1941 operation14 by reason of which
negotiations had taken place for the settlement of the claim15 and it was
only on June 25, 1957 that appellee finally denied the claim. There is,
therefore, only a period of less than one year that had elapsed from the
date of the final denial of the claim to the date of the filing of the
complaint, which certainly cannot be considered as unreasonable delay.
The third element of laches is absent in this case. It cannot be said that
appellee Lepanto did not know that appellant would assert its rights on
which it based suit. The evidence shows that Nielson had been claiming
for some time its rights under the contract, as already shown above.
Neither is the fourth element present, for if there has been some delay
in bringing the case to court it was mainly due to the attempts at
arbitration and negotiation made by both parties. If Lepanto's
documents were lost, it was not caused by the delay of the filing of the
suit but because of the war.
Another reason why appellant Nielson cannot be held guilty of laches is
that the delay in the filing of the complaint in the present case was the
inevitable of the protracted negotiations between the parties concerning
the settlement of their differences. It appears that Nielson asked for
arbitration16 which was granted. A committee consisting of Messrs.
DeWitt, Farnell and Blessing was appointed to act on said differences but
Mr. DeWitt always tried to evade the issue17 until he was taken ill and

died. Mr. Farnell offered to Nielson the sum of P13,000.58 by way of

compromise of all its claim arising from the management contract18 but
apparently the offer was refused. Negotiations continued with the
exchange of letters between the parties but with no satisfactory
result.19 It can be said that the delay due to protracted negotiations was
caused by both parties. Lepanto, therefore, cannot be permitted to take
advantage of such delay or to question the propriety of the action taken
by Nielson. The defense of laches is an equitable one and equity should
be applied with an even hand. A person will not be permitted to take
advantage of, or to question the validity, or propriety of, any act or
omission of another which was committed or omitted upon his own
request or was caused by his conduct (R. H. Stearns Co. vs. United
States, 291 U.S. 54, 78 L. Ed. 647, 54 S. Ct., 325; United States vs.
Henry Prentiss & Co., 288 U.S. 73, 77 L. Ed., 626, 53 S. Ct., 283).
Had the action of Nielson prescribed? The court a quo held that the
action of Nielson is already barred by the statute of limitations, and that
ruling is now assailed by the appellant in this appeal. In urging that the
court a quoerred in reaching that conclusion the appellant has discussed
the issue with reference to particular claims.
The first claim is with regard to the 10% share in profits of 1941
operations. Inasmuch as appellee Lepanto alleges that the correct basis
of the computation of the sharing in the net profits shall be as provided
for in Clause V of the Management Contract, while appellant Nielson
maintains that the basis should be what is contained in the minutes of
the special meeting of the Board of Directors of Lepanto on August 21,
1940, this question must first be elucidated before the main issue is
discussed.
The facts relative to the matter of profit sharing follow: In the
management contract entered into between the parties on January 30,
1937, which was renewed for another five years, it was stipulated that
Nielson would receive a compensation of P2,500.00 a month plus 10% of
the net profits from the operation of the properties for the preceding
month. In 1940, a dispute arose regarding the computation of the 10%
share of Nielson in the profits. The Board of Directors of Lepanto,
realizing that the mechanics of the contract was unfair to Nielson,
authorized its President to enter into an agreement with Nielson
modifying the pertinent provision of the contract effective January 1,
1940 in such a way that Nielson shall receive (1) 10% of the dividends
declared and paid, when and as paid, during the period of the contract

and at the end of each year, (2) 10% of any depletion reserve that may
be set up, and (3) 10% of any amount expended during the year out of
surplus earnings for capital account. 20 Counsel for the appellee
admitted during the trial that the extract of the minutes as found in
Exhibit B is a faithful copy from the original. 21 Mr. George Scholey
testified that the foregoing modification was agreed upon. 22
Lepanto claims that this new basis of computation should be rejected (1)
because the contract was clear on the point of the 10% share and it was
so alleged by Nielson in its complaint, and (2) the minutes of the special
meeting held on August 21, 1940 was not signed.
It appearing that the issue concerning the sharing of the profits had
been raised in appellant's complaint and evidence on the matter was
introduced 23 the same can be taken into account even if no amendment
of the pleading to make it conform to the evidence has been made, for
the same is authorized by Section 4, Rule 17, of the old Rules of Court
(now Section 5, Rule 10, of the new Rules of Court).
Coming now to the question of prescription raised by defendant
Lepanto, it is contended by the latter that the period to be considered
for the prescription of the claim regarding participation in the profits is
only four years, because the modification of the sharing embodied in the
management contract is merely verbal, no written document to that
effect having been presented. This contention is untenable. The
modification appears in the minutes of the special meeting of the Board
of Directors of Lepanto held on August 21, 1940, it having been made
upon the authority of its President, and in said minutes the terms of the
modification had been specified. This is sufficient to have the agreement
considered, for the purpose of applying the statute of limitations, as a
written contract even if the minutes were not signed by the parties (3
A.L.R., 2d, p. 831). It has been held that a writing containing the terms
of a contract if adopted by two persons may constitute a contract in
writing even if the same is not signed by either of the parties (3 A.L.R.,
2d, pp. 812-813). Another authority says that an unsigned agreement
the terms of which are embodied in a document unconditionally
accepted by both parties is a written contract (Corbin on Contracts, Vol.
1, p. 85)
The modification, therefore, made in the management contract relative
to the participation in the profits by appellant, as contained in the

minutes of the special meeting of the Board of Directors of Lepanto held

on August 21, 1940, should be considered as a written contract insofar
as the application of the statutes of limitations is concerned. Hence, the
action thereon prescribes within ten (10) years pursuant to Section 43 of
Act 190.
Coming now to the facts, We find that the right of Nielson to its 10%
participation in the 1941 operations accrued on December 21, 1941 and
the right to commence an action thereon began on January 1, 1942 so
that the action must be brought within ten (10) years from the latter
date. It is true that the complaint was filed only on February 6, 1958,
that is sixteen (16) years, one (1) month and five (5) days after the right
of action accrued, but the action has not yet prescribed for various
reasons which We will hereafter discuss.
The first reason is the operation of the Moratorium Law, for appellant's
claim is undeniably a claim for money. Said claim accrued on December
31, 1941, and Lepanto is a war sufferer. Hence the claim was covered by
Executive Order No. 32 of March 10, 1945. It is well settled that the
operation of the Moratorium Law suspends the running of the statue of
limitations (Pacific Commercial Co. vs. Aquino, G.R. No. L-10274,
February 27, 1957).
This Court has held that the Moratorium Law had been enforced for
eight (8) years, two (2) months and eight (8) days (Tioseco vs. Day, et
al., L-9944, April 30, 1957; Levy Hermanos, Inc. vs. Perez, L-14487, April
29, 1960), and deducting this period from the time that had elapsed
since the accrual of the right of action to the date of the filing of the
complaint, the extent of which is sixteen (16) years, one (1) month and
five (5) days, we would have less than eight (8) years to be counted for
purposes of prescription. Hence appellant's action on its claim of 10% on
the 1941 profits had not yet prescribed.
Another reason that may be taken into account in support of the no-bar
theory of appellant is the arbitration clause embodied in the
management contract which requires that any disagreement as to any
amount of profits before an action may be taken to court shall be
subject to arbitration. 24 This agreement to arbitrate is valid and
binding. 25 It cannot be ignored by Lepanto. Hence Nielson could not
bring an action on its participation in the 1941 operations-profits until
the condition relative to arbitration had been first complied with. 26 The

evidence shows that an arbitration committee was constituted but it

failed to accomplish its purpose on June 25, 1957. 27From this date to the
filing of the complaint the required period for prescription has not yet
elapsed.
Nielson claims the following: (1) 10% share in the dividends declared in
1941, exclusive of interest, amounting to P17,500.00; (2) 10% in the
depletion reserves for 1941; and (3) 10% in the profits for years prior to
1948 amounting to P19,764.70.
With regard to the first claim, the Lepanto's report for the calendar year
of 1954 28 shows that it declared a 10% cash dividend in December,
1941, the amount of which is P175,000.00. The evidence in this
connection (Exhibits L and O) was admitted without objection by counsel
for Lepanto. 29 Nielson claims 10% share in said amount with interest
thereon at 6% per annum. The document (Exhibit L) was even
recognized by Lepanto's President V. L. Lednicky, 30 and this claim is
predicated on the provision of paragraph V of the management contract
as modified pursuant to the proposal of Lepanto at the special meeting
of the Board of Directors on August 21, 1940 (Exh. B), whereby it was
provided that Nielson would be entitled to 10% of any dividends to be
declared and paid during the period of the contract.
With regard to the second claim, Nielson admits that there is no
evidence regarding the amount set aside by Lepanto for depletion
reserve for 1941 31 and so the 10% participation claimed thereon cannot
be assessed.
Anent the third claim relative to the 10% participation of Nielson on the
sum of P197,647.08, which appears in Lepanto's annual report for
1948 32 and entered as profit for prior years in the statement of income
and surplus, which amount consisted "almost in its entirety of proceeds
of copper concentrates shipped to the United States during 1947," this
claim should to denied because the amount is not "dividend declared
and paid" within the purview of the management contract.
The fifth assignment of error of appellant refers to the failure of the
lower court to order Lepanto to pay its management fees for January,
1942, and for the full period of extension amounting to P150,000.00, or
P2,500.00 a month for sixty (60) months, a total of P152,500.00
with interest thereon from the date of judicial demand.

It is true that the claim of management fee for January, 1942 was not
among the causes of action in the complaint, but inasmuch as the
contract was suspended in February, 1942 and the management fees
asked for included that of January, 1942, the fact that such claim was
not included in a specific manner in the complaint is of no moment
because an appellate court may treat the pleading as amended to
conform to the evidence where the facts show that the plaintiff is
entitled to relief other than what is asked for in the complaint (Alonzo vs.
Villamor, 16 Phil. 315). The evidence shows that the last payment made
by Lepanto for management fee was for November and December,
1941. 33 If, as We have declared, the management contract was
suspended beginning February 1942, it follows that Nielson is entitled to
the management fee for January, 1942.
Let us now come to the management fees claimed by Nielson for
the period of extension. In this respect, it has been shown that the
management contract was extended from June 27, 1948 to June 26,
1953, or for a period of sixty (60) months. During this period Nielson had
a right to continue in the management of the mining properties of
Lepanto and Lepanto was under obligation to let Nielson do it and to pay
the corresponding management fees. Appellant Nielson insisted in
performing its part of the contract but Lepanto prevented it from doing
so. Hence, by virtue of Article 1186 of the Civil Code, there was a
constructive fulfillment an the part of Nielson of its obligation to manage
said mining properties in accordance with the contract and Lepanto had
the reciprocal obligation to pay the corresponding management fees and
other benefits that would have accrued to Nielson if Lepanto allowed it
(Nielson) to continue in the management of the mines during the
extended period of five (5) years.
We find that the preponderance of evidence is to the effect that Nielson
had insisted in managing the mining properties soon after liberation. In
the report 34 of Lepanto, submitted to its stockholders for the period
from 1941 to March 13, 1946, are stated the activities of Nielson's
officials in relation to Nielson's insistence in continuing the
management. This report was admitted in evidence without objection.
We find the following in the report:
Mr. Blessing, in May, 1945, accompanied Clark and Stanford to San
Fernando (La Union) to await the liberation of the mines. (Mr. Blessing
was the Treasurer and Metallurgist of Nielson). Blessing with Clark and
Stanford went to the property on July 16 and found that while the mill

site had been cleared of the enemy the latter was still holding the area
around the staff houses and putting up a strong defense. As a result,
they returned to San Fernando and later went back to the mines on July
26. Mr. Blessing made the report, dated August 6, recommending a
program of operation. Mr. Nielson himself spent a day in the mine early
in December, 1945 and reiterated the program which Mr. Blessing had
outlined. Two or three weeks before the date of the report, Mr. Coldren of
the Nielson organization also visited the mine and told President C. A.
DeWitt of Lepanto that he thought that the mine could be put in
condition for the delivery of the ore within ten (10) days. And according
to Mark Nestle, a witness of appellant, Nielson had several men
including engineers to do the job in the mines and to resume the work.
These engineers were in fact sent to the mine site and submitted reports
of what they had done. 35
On the other hand, appellee claims that Nielson was not ready and able
to resume the work in the mines, relying mainly on the testimony of Dr.
Juan Nabong, former secretary of both Nielson and Lepanto, given in the
separate case of Nancy Irving Romero vs. Lepanto Consolidated Mining
Company (Civil Case No. 652, CFI, Baguio), to the effect that as far as he
knew "Nielson and Company had not attempted to operate the Lepanto
Consolidated Mining Company because Mr. Nielson was not here in the
Philippines after the last war. He came back later," and that Nielson and
Company had no money nor stocks with which to start the operation. He
was asked by counsel for the appellee if he had testified that way in Civil
Case No. 652 of the Court of First Instance of Baguio, and he answered
that he did not confirm it fully. When this witness was asked by the same
counsel whether he confirmed that testimony, he said that when he
testified in that case he was not fully aware of what happened and that
after he learned more about the officials of the corporation it was only
then that he became aware that Nielson had really sent his men to the
mines along with Mr. Blessing and that he was aware of this fact
personally. He further said that Mr. Nielson was here in 1945 and "he
was going out and contacting his people." 36
Lepanto admits, in its own brief, that Nielson had really insisted in taking
over the management and operation of the mines but that it (Lepanto)
unequivocally refuse to allow it. The following is what appears in the
brief of the appellee:
It was while defendant was in the midst of the rehabilitation work
which was fully described earlier, still reeling under the terrible

devastation and destruction wrought by war on its mine that

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

10%

November

1949

P 200,000.00

10%

July

1950

300,000.00

10

10%

October

1950

500,000.00

11

20%

December

1950

1,000,000.00

12

20%

March

1951

1,000,000.00

13

20%

June

1951

1,000,000.00

14

20%

September

1951

1,000,000.00

15

40%

December

1951

2,000,000.00

16

20%

March

1952

1,000,000.00

17

20%

May

1952

1,000,000.00

stock dividends worth P1,000,000.00; and on August 22, 1950, the stock
dividends declared was 66-2/3% of the standing authorized capital of
P3,000,000.00 of the company, or stock dividends worth
P2,000,000.00. 40
18

20%

July

1952

1,000,000.00

19

20%

September

1952

1,000,000.00

20

20%

December

1952

1,000,000.00

21

20%

March

1953

1,000,000.00

22

20%

June

1953

1,000,000.0
0

TOTAL

P14,000,000.0
0

According to the terms of the management contract as modified,

appellant is entitled to 10% of the P14,000,000.00 cash dividends that
had been distributed, as stated in the above-mentioned report, or the
sum of P1,400,000.00.
With regard to the second category, the stock dividends declared by
Lepanto during the period of extension of the contract are: On
November 28, 1949, the stock dividend declared was 50% of the
outstanding authorized capital of P2,000,000.00 of the company, or

Appellant's claim that it should be given 10% of the cash value of said
stock dividends with interest thereon at 6% from February 6, 1958
cannot be granted for that would not be in accordance with the
management contract which entitles Nielson to 10% of any dividends
declared paid, when and as paid. Nielson, therefore, is entitled to 10% of
the stock dividends and to the fruits that may have accrued to said
stock dividends pursuant to Article 1164 of the Civil Code. Hence to
Nielson is due shares of stock worth P100,000.00, as per stock dividends
declared on November 28, 1949 and all the fruits accruing to said shares
after said date; and also shares of stock worth P200,000.00 as per stock
dividends declared on August 20, 1950 and all fruits accruing thereto
after said date.
Anent the third category, the depletion reserve appearing in the
statement of income and surplus submitted by Lepanto corresponding to
the years covered by the period of extension of the contract, may be
itemized as follows:
In 1948, as per Exh. F, p. 36 and Exh. Q, p. 5, the depletion
reserve set up was P11,602.80.
In 1949, as per Exh. G, p. 49 and Exh. Q, p. 5, the depletion
reserve set up was P33,556.07.
In 1950, as per Exh. H, p. 37, Exh. Q, p. 6 and Exh. I, p. 37, the
depletion reserve set up was P84,963.30.
In 1951, as per Exh. I, p. 45, Exh. Q, p. 6, and Exh. J, p. 45, the
depletion reserve set up was P129,089.88.
In 1952, as per Exh. J, p. 45, Exh. Q, p. 6 and Exh. K p. 41, the
depletion reserve was P147,141.54.
In 1953, as per Exh. K, p. 41, and Exh. Q, p. 6, the depletion
reserve set up as P277,493.25.

Regarding the depletion reserve set up in 1948 it should be noted that

the amount given was for the whole year. Inasmuch as the contract was
extended only for the last half of the year 1948, said amount of
P11,602.80 should be divided by two, and so Nielson is only entitled to
10% of the half amounting to P5,801.40.

The increase, therefore, of the value of the fixed assets of Lepanto from
June, 1948 to June, 1953 is P6,943,647.69, which amount represents the
difference between the value of the fixed assets of Lepanto in the year
1948 and in the year 1953, as stated above. On this amount Nielson is
entitled to a share of 10% or to the amount of P694,364.76.

Likewise, the amount of depletion reserve for the year 1953 was for the
whole year and since the contract was extended only until the first half
of the year, said amount of P277,493.25 should be divided by two, and
so Nielson is only entitled to 10% of the half amounting to P138,746.62.
Summing up the entire depletion reserves, from the middle of 1948 to
the middle of 1953, we would have a total of P539,298.81, of which
Nielson is entitled to 10%, or to the sum of P53,928.88.

Considering that most of the claims of appellant have been entertained,

as pointed out in this decision, We believe that appellant is entitled to be
awarded attorney's fees, especially when, according to the undisputed
testimony of Mr. Mark Nestle, Nielson obliged himself to pay attorney's
fees in connection with the institution of the present case. In this
respect, We believe, considering the intricate nature of the case, an
award of fifty thousand (P50,000.00) pesos for attorney's fees would be
reasonable.

Finally, with regard to the fourth category, there is no figure in the

record representing the value of the fixed assets as of the beginning of
the period of extension on June 27, 1948. It is possible, however, to
arrive at the amount needed by adding to the value of the fixed assets
as of December 31, 1947 one-half of the amount spent for capital
account in the year 1948. As of December 31, 1947, the value of the
fixed assets was P1,061,878.8841 and as of December 31, 1948, the
value of the fixed assets was P3,270,408.07. 42 Hence, the increase in
the value of the fixed assets for the year 1948 was P2,208,529.19, onehalf of which is P1,104,264.59, which amount represents the expenses
for capital account for the first half of the year 1948. If to this amount
we add the fixed assets as of December 31, 1947 amounting to
P1,061,878.88, we would have a total of P2,166,143.47 which represents
the fixed assets at the beginning of the second half of the year 1948.
There is also no figure representing the value of the fixed assets when
the contract, as extended, ended on June 26, 1953; but this may be
computed by getting one-half of the expenses for capital account made
in 1953 and adding the same to the value of the fixed assets as of
December 31, 1953 is P9,755,840.41 43 which the value of the fixed
assets as of December 31, 1952 is P8,463,741.82, the difference being
P1,292,098.69. One-half of this amount is P646,049.34 which would
represent the expenses for capital account up to June, 1953. This
amount added to the value of the fixed assets as of December 31, 1952
would give a total of P9,109,791.16 which would be the value of fixed
assets at the end of June, 1953.

IN VIEW OF THE FOREGOING CONSIDERATIONS, We hereby reverse the

decision of the court a quo and enter in lieu thereof another, ordering
the appellee Lepanto to pay appellant Nielson the different amounts as
specified hereinbelow:
(1) 10% share of cash dividends of December, 1941 in the amount of
P17,500.00, with legal interest thereon from the date of the filing of the
complaint;
(2) management fee for January, 1942 in the amount of P2,500.00, with
legal interest thereon from the date of the filing of the complaint;
(3) management fees for the sixty-month period of extension of the
management contract, amounting to P150,000.00, with legal interest
from the date of the filing of the complaint;
(4) 10% share in the cash dividends during the period of extension of
the management contract, amounting to P1,400,000.00, with legal
interest thereon from the date of the filing of the complaint;
(5) 10% of the depletion reserve set up during the period of extension,
amounting to P53,928.88, with legal interest thereon from the date of
the filing of the complaint;

(6) 10% of the expenses for capital account during the period of
extension, amounting to P694,364.76, with legal interest thereon from
the date of the filing of the complaint;

(8) the sum of P50,000.00 as attorney's fees; and

(7) to issue and deliver to Nielson and Co., Inc. shares of stock of
Lepanto Consolidated Mining Co. at par value equivalent to the total of
Nielson's l0% share in the stock dividends declared on November 28,
1949 and August 22, 1950, together with all cash and stock dividends, if
any, as may have been declared and issued subsequent to November
28, 1949 and August 22, 1950, as fruits that accrued to said shares;

Concepcion, C.J., Regala, Makalintal, Bengzon, J.P., Sanchez and Castro,

JJ., concur.

If sufficient shares of stock of Lepanto's are not available to satisfy this

judgment, defendant-appellee shall pay plaintiff-appellant an amount in
cash equivalent to the market value of said shares at the time of default
(12 C.J.S., p. 130), that is, all shares of the stock that should have been
delivered to Nielson before the filing of the complaint must be paid at
their market value as of the date of the filing of the complaint; and all
shares, if any, that should have been delivered after the filing of the
complaint at the market value of the shares at the time Lepanto
disposed of all its available shares, for it is only then that Lepanto placed
itself in condition of not being able to perform its obligation (Article
1160, Civil Code);

(9) the costs. It is so ordered.

Reyes, J.B.L. and Barrera, JJ., took no part.