II.
FORM OF THE CONTRACT OF AGENCY Ratio: The Civil Code and the Code of Civil Procedure requires
Angeles vs. PNR (Garcia, 2006)
Facts: PNR accepted Gaudencio’s Romualdez’ offer to buy on
an “AS IS, WHERE IS” basis PNR’s scrap/unserviceable rails
located in Lubao, Pampanga for a total amount of P96,000.
Romualdez wrote a letter explicitly authorizing Lizette Angeles
(deceased; was substituted by the husband) as Romualdez’
lawful representative in the withdrawal of the scrap materials.
The letter also contain that Lizette was given the Original Copy
of the Award for the above said purpose.
Lizette informed the PNR that the scrap materials was not ready
for hauling and requested that the PNR transfer the location.
The PNR granted this request and allowed the withdrawal of
scrap materials in Tarlac. Later on, however, it suspended the
withdrawal for alleged documentary discrepancies and reports
of pilferage.
The spouses demanded the return of the money they paid but
PNR refused on the ground that some scrap materials have
already been withdrawn (worth P114,781.80). The spouses filed
a suit for specific performance against PNR. The trial court
ruled that the spouses are not real parties in interest. The CA
affirmed the decision of the trial court.
Issue: WON Lizette was an assignee or a mere agent of
Romualdez. (WON the spouses are real party in interest.)
AGENT
Ratio: Where agency exists, the 3rd party’s liability on a
contract is to the principal and not to the agent. An agent, by
himself, is not a real party in interest with regard to the
contract. The situation is different is the agent is the assignee.
In such a case the agent may, in his own behalf, sue on a
contract made for his principal as an assignee of the contract.
The rule requiring every action to be prosecuted in the name of
the real party in interest recognizes the assignment of rights of
action and also recognizes that when one has a rights assigned
to him, he is then a real party in interest and may maintain an
action upon such claim or right.
The agent may also be called an attorney, proxy, delegate, or
representative. The scrutiny of the letter would reveal that
Lizette was an agent and not an assignee.
Power of Attorney – in the absence of statute, no form or
method of execution is required. It may be in any form clearly
showing on its face the agent’s authority. It is an instrument in
writing by awhich a person, as principal, appoints another as
his agent and confers upon him the authority to perform certain
special acts on behalf of the principal. The written
authorization itself is the power of attorney. Its primary
purpose is not to define the authority of the agent but to
evidence the authority of the agent to third parties. Except as
may be required by statute, a power of attorney is valid even if it
is not notarized.
- it is strictly construed and pursued. The agent may
not go beyond nor deviate from the power of attorney.
JIMENEZ VS. RABOT (STREET, 1918)
Facts: Gregorio Jimenez was an assignee of parcels of land
located in Damayat Tancaran, Alaminos, Pangasinan. He
confided the property to the care of his sister, Nicolasa Jimenez.
Sometime in February 1911, he wrote to his sister requesting
her to sell one of his parcels of land because he was pressed for
money.
She sold the parcel of land in contention to Pedro Rabot for
P500 but she did not convey the money to her brother. She did
not show her authorization to Rabot and she made the sale
under her own name. Gerogorio instituted an action against
Nicolaca. Rabot, meanwhile, took possession of the property.
Issue: WON Nicolasa’s actuations can bind his brother to the
contract of sale. YES
that the authority to alienate land shall be contained in an
express mandate and that the authority of the agent must be in
writing and subscribed by the party to be charged. There is a
substantial compliance with the requirement.
The purpose of giving a power of attorney (POA) is to substitute
the mind and hand of the agent for the mind and hand of the
principal. As a matter of formality, a POA to convey rela
property ought to appear in a public instrument. But in as
much as it is established doctrine that a private instrument is
competent to create, transmit, modify, or extinguish a right in
real property, it follows that a POA to convey such property,
eventhough in the form of a private document will operate with
effect.
CITY LITE REALTY VS. CA
Written authority to sell piece of land (1874)
Facts:
FP Holdings (FP) was the owner of Violago property and offered
the said property for sale to the general public through
circulation of sales brochure. Respondent Roy (of MetroDrug /
MD) sent a sales brochure, location plan, and copy of the TCT
to Atty. Mamaril, a licensed real estate broker. The latter then
passed the documents to officials of CityLite (CL).
(Flow: FP >> Roy/MD >> Mamaril >> CL)
CL conveyed interest to purchasing ½ of the property,
but subsequently agreed to buy the whole with the price
stipulated. In a meeting, Roy agreed to sell the property
provided that CL submit its acceptance in writing. However, FP
refused to execute the deed of sale in favor of CL. The latter
caused annotation of adverse claim on the title, then demanded
Roy/MD to comply with its commitment.
FP tried to amicably settle with CL but failed. CL
caused the annotation of notice of lis pendens. RTC QC ruled
that CL’s adverse claim had factual basis. CL then instituted an
action for specific performance and damages. After 2nd
annotation, however, the property was transferred to
Viewmaster Construction (VM). Court still rendered decision in
favor of CL. CA reversed the TC.
Issue: WON there was a perfected contract of sale. NO
Reasoning:
A1874 CC provides that “When the sale of a piece of land or any
interest therein is through an agent, the authority of the latter
shall be in writing; otherwise, the sale is void.”
Petitioner anchors authority of Roy/MD on:
a. Testimonies of CL’s 3 witnesses and admission of
Roy/MD
b. Sales brochure stating Roy as contract person
c. Guard posted at the property saying MD was
authorized agent
d. Common knowledge that MD and Roy was
authorized agent of FP
CC provision is clear. The absence of written authority to sell
can be determined from the memorandum issued by FP
requesting MD’s assistance in finding buyers for the property.
But the final evaluation, appraisal, and acceptance of the
transaction could only be made by FP. Roy / MD was only a
contact person with no authority to conclude a sale of the
property.
Decision affirmed.
COSMIC LUMBER CORP VS. CA
Eject squatters, not to sell property
Facts:
Paz Villamil-Estrada (Paz) was given an SPA by CLC as
attorney-in-fact “to initiate, institute, and file any court action
for ejectment of third persons and/or squatters…to appear at
the pre-trial conference and enter into any stipulation of facts
and/or compromise agreement so far as it shall protect the
rights and interest of the corporation…”
 By virtue of this, she filed an action for ejectment
against private respondent Isidro Perez and recover possession
of a portion of the latter’s lot. The parties then entered in a
Compromise Agreement, in effect conveying a portion of CLC’s
land to Perez for compensation. The agreement was approved by
TC. It was only after 5years and service of summons for revival
of judgment that the CLC learned of such agreement. CLC thus
sought annulment of the decision of TC. CA dismissed because
not one of the grounds for annulment was present.
Petitioner argues that the decision of TC was void
because the compromise agreement upon which it is based is
void, that Paz did not possess the authority to sell nor had a
Board Resolution authorizing sale of the property.
Issue: WON the sale was void. YES
Reasoning: The authority granted to Paz was explicit and
exclusionary. Nowhere in the authorization was Paz expressly
or impliedly granted any power to sell the subject property nor a
portion thereof. Furthermore, the price that respondent bought
the property is “for a song” (80/sqm, when the prevailing
market price was 250/sqm).
Sale of a piece of land by agent must be in writing
otherwise the sale is void. It must give him specific authority. A
special power of attorney is necessary to enter into any contract
by which the ownership of an immovable is transmitted or
acquired either gratuitously or for a valuable consideration. For
the principal to confer the right upon an agent to sell real
estate, a power of attorney must be so expressed in clear and
unmistakable language.
The conduct of Paz furthermore constitutes extrinsic
or collateral fraud (prevents a party from hearing a trial, or
real contest, or presenting his case in court; any fraudulent act
of the prevailing party in the litigation which is committed
outside of the trial of the case whereby the defeated party has
been prevented from exhibiting fully his side of the case) thus
the agreement can be annulled or struck down. Petitioner was
deceived and betrayed by its attorney-in-fact. Paz deliberately
concealed the compromise agreement.
Where the conduct and dealings of the agent are such
as to raise a clear presumption that he will not communicate to
the principal the facts in the controversy, it would be contrary
to common sense to presume to presume or expect that he
would communicate the facts to the principal. Verily, when an
agent is engaged in the perpetration of fraued upon his
principal for his own exclusive benefit, he is not really
acting for the principal but is really acting for himself,
entirely outside the scope of his agency. Indeed, the basic
tenets of agency rest on the highest considerations of justice,
equity, and fair play, and an agent will not be permitted to
pervert his authority to his own personal advantage, and act in
secret hostility to the interests of his principal.
SAN JUAN STRUCTURAL AND STEEL
FABRICATORS, INC. VS. CA (PANGANIBAN,
1998)
(The corporate treasurer, who (together with the husband)
owned 99.866 of the company’s stocks) sold a parcel of land
owned by the corporation without authorization of the board.)
Ratio: A corporation is a juridical person separate and distinct
from its stockholders or members. Accordingly, the property of
the corporation is not the property of its stockholders and it
could not be validly sold without prior authorization of the
board of directors. (Sec. 23 of BP 68 1 [Corporation Code of the
Philippines]). It is not binding upon Motorich because it never
authorized or ratified such sale.
1
Unless otherwise provided in this Code, the corporate powers of all corporations
formed under this Code shall be exercised, all business conducted and all property of
such corporations controlled and held by the board of directors or trustees to be elected
from among the holders of stocks, or where there is no stock, from among the members
of the corporation, who shall hold office for one year and until their successors are
elected and qualified.
Powers of a corporation officer/agent: powers that were
intentionally conferred, powers in the usual course of business,
powers which are incidental to the usual course of
business/powers implied therefrom. Powers added by custom
and usage as usually pertaining to an officer/agent. Apparent
powers as a corporation has caused persons dealing with the
officer/agent to believe that it has conferred. (Thus, selling is
not a part of a treasurer’s function/powers)
The general rule is that actions of corporate officers are binding
upon the corporation unless the officer’s actions exceeded his
authority.
The piercing of the corporate veil could not apply because there
is no showing that the corporate veil is being used to perpetuate
fraud.
AF REALTY AND DEVELOPMENT INC. ET AL VS.
DIESELMAN FRIEGHT SERVICES (SANDOVAL-GUTTIEREZ,
2002)
(Cruz, Jr, a member of the Dieselman’s Board of Directors,
issued authorization to sell real estate to Broker Polintan.
Broker authorized Noble to sell the same lot. Noble sold the lot
to AF Realty. Dieselman accepted AF Realty’s ‘earnest money’
worth P300K. Dieselman suddenly terminated the offer and
sold the land to Midas Dev’t Corp. It is alleging that Polintan
has no authority as agent because the Boards did not issue a
written authorization to Polintan)
Ratio: Sec 23 of the Corporation Code expressly provides that
the corporation powers shall be exercised by the board of
directors. Polintan has no authority since her authorization
came from Cruz, Jr. and not the Board. Also, Art. 1874 provides
that when a sale of a piece of land or any interest therein is
through an agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void.
Art 1409 par 7 provides that contracts are inexistent and void
ab initio when the laws expressly declared them to be void.
These contracts could not be ratified. Thus, even the acceptance
of the benefit of the one posing as an agent will not be able to
ratify the sale. Neither can the right to set up the defense of
illegality waived.
Nemo dat quod non habet.
DELOS REYES VS. CA (GONZAGA-REYES, 1999)
(A verbal agreement that the petitioners entered into with
private respondent Renato Gabriel involving a sale of land
registered in the name of Renato’s deceased father.)
Ratio: Legal consent presupposed capacity. Renato has no
capacity to convey the property. He was neither the owner nor
an agent of the registered owner. Renato’s father already
donated the property to another person before he died. Thus,
Renato never acquired ownership of the property.
The appellees also failed to prove which capacity was Renato
acting as when he convey the land to them. Their 3 theories:
1st: Renato acted as agent; 2nd: owner; 3rd: heir; could not co-
exist with one another. Renato could not all be an agent, an
owner and an heir all at the same time. Because the appellees
were not able to establish what actually convinced them to buy
the land from Renato, the sale could not be upheld because it
cannot be determined with certainty in what capacity Renato
acted.
**The court ordered restoration of the P90,000 paid by the
petitioner.
III. OBLIGATION TO DETERMINE EXISTENCE OF AGENCY
KEELER ELECTRIC CO. VS. RODRIGUEZ
Matthews electric plant, buyer did not deliver the payment after
the inspection and installation of a certain Cenar.
Facts:
Keeler sells Matthews electric plant. AC Montelibano
approached Keeler at Manila office, claiming that he was from
Iloilo and that he could find purchases for the Matthews plant.
Keeler promised a 10% commission for every sale
consummated.
Montelibano convinced Rodriguez to buy, and the
plant was shipped from Manila to Iloilo and later installed in the
buyer’s premises.
Without Keeler’s knowledge, Rodriquez paid the
purchase price to Montelibano (P2,513.55). Keeler filed an
action for specific performance in CFI Manila. Lower court ruled
for Rodriguez, stating that the payment to Montelibano
discharged the debt of the defendant.
According to Keller, at the time of the shipment, the
company sent Juan Cenar, one of its employees, with the
shipment for the purposes of installing the plant on the
defendant’s premises and to give the statement of account to
Rodrizuez totaling P2,563.95. According to Cenar, Rodriquez
kept the statement of account while the former made no efforts
to collect from the latter because Rodriquez said that he would
pay for the plant in Manila.
Keeler alleges that Montelibano has no authority from
the company to receive or receipt for money, and that his
services were confined to the finding of purchases for the
Matthews plant.
Rodriquez however alleges that it was Montelibano
himself sold and delivered the plant to him, and was the one
who ordered the installation of the electric plant. Rodriguez
presented a statement and receipt which Montelibano signed.
Issue: WON Montelibano had authority to accept payment. NO
Held:
1. There is nothing on the receipt which showed that
Montelibano was the agent of the plaintiff. It was his
own personal receipt and his signature.
2. Payments for fare negated the allegation of defendant
that Montelibano was the one who installed the
electric plant. (Cenar was the one who travelled)
3. After Cenar’s return to Manila, Keller wrote a letter to
Rodriguez requesting payment, and the latter
responded with a telegram (paid to Montelibano 3wks
Keeler did not present bill). The telegram was in direct
conflict with the receipt Montelibano issued, which
was an itemized statement of account. As mentioned,
there was no evidence that Montelibano was
authorized to receive payment for Keeler.
A1162 CC: Payment must be made to the
person in whose favor the obligation is constituted, or
to another authorized to receive it in his name.
A1727: The principal shall be liable as to
matters with respect to which the agent has exceeded
his authority only when he ratifies the same expressly
or by implication.
Mechem on Agency Sec.743
Fundamental principles:
1. The law indulges no bare presumptions that an agency
exists. It must be proved or presumed from facts
2. The agent cannot establish his own authority either by
his representations or by assuming to exercise it
3. An authority cannot be established by mere rumor or
general reputation
4. Even general authority is not an unlimited one
5. Every authority must find its ultimate source in some
act or omission of the principal
Ratio:
Persons dealing with an assumed agency, whether the it be a
general or special one, are bound at their peril, if they would
hold the principal to ascertain not only the fact of the agency
but the nature and extent of the authority and in case either is
controverted, the burden of proof is upon them to establish it.
Against the agent, the third person has the obligation
to determine existence and scope of agency. It is moreover in
any case entirely within the power of the person dealing with
the agent to satisfy himself that the agent has the authority he
assumed to exercise, or to decline to enter into relations with
him. The person dealing with the agent must also act with
ordinary prudence and reasonable diligence. If, he knows or has
good reason to believe that the agent is exceeding his authority,
he cannot claim protection.
Judgment reversed.
YU ENG CHO VS. PAN AMERICAN
Tokyo-San Francisco flight was not confirmed yet the plaintiffs
pushed through with the flight. Business agreement did not push
through. Sought for damages against PanAm, TWSI, and
independent travel agent who represented herself as agent of
TWSI.
Facts:
Yu Eng Cho is the owner of Young Hardware Co. and Achilles
Marketing. He travels from time to time to Malaysia, Taipei, and
Hongkong. On July 10, 1976 he bought plane tickets to
Fairfield, New Jersey from defendant Claudia Tagunicar who
represented herseld to be an agent of TWSI. The purpose of the
trip was to buy 2 lines of infrared heating system processing
textured plastic article.
Only the Manila-Hongkong-Tokyo passage were
conrfirmed. Tokyo-San Francisco was on “RQ” status, meaning
“on request.” After a few days, plaintiffs returned to follow-up
and Tagunicar told them that the flight was confirmed all the
way. A few days before the flight, plaintiff’s son called Pan Am
office to verify the status of the flight, and a personnel
confirmed the bookings.
They left for HK, then to Tokyo. Upon arrival in Tokyo,
they called Pan Am for reconfirmation of fight to SF. The officer
said that their names were not in the manifest. They cannot
stay in Japan for more than 72hrs and NW Airlines was on
strike, thus they could not leave for US. They were forced to
return to Taipei, then back to Manila.
Japan Airlines refunded their fare, but the business
deal with Radiant Heat Enterprises was cancelled. Yung Eng
Cho expected to realize a profit of 300k-400k. A complaint for
damages was filed against Pan Am, TWSI and Canilao, and
Tagunicar for the costs of tickets and hotel accommodations.
RTC held the defendants solidarily liable. Appellate
court modified the amount of damages and held Tagunicar
solely liable, because the latter is an independent travel solicitor
and not a duly authorized agent or representative of either Pan
Am or TWSI.
Issue: WON Tagunicar was an agent of Pan Am or TWSI. NO.
Held: (Agency defined, elements, rule in Keeler)
II. Tagunicar issued an affidavit to the effect that she is indeed
an agent of TWSI, but subsequently she made a court statement
that she was independent travel agent. Court gave more weight
to the testimony in open court.
III. It was shown that plaintiff only sued Pan Am to recover
money since they did not expect the agent to have something to
pay them (according to the Amended Complaint). “…this Court
will not tolerate an abuse of the judicial process by passengers
in order to pry on international airlines for damage awards…”
The meritless suit is more glaring when the plaintiff
did not give a demand letter to Pan Am, TWSI and Canilao.
IV. The ticket was not confirmed for good reasons.
 1. Persistent calls by Tagunicar to Canilao and Pan Am
are indications that petitioners knew their tickets have
not been confirmed. Why would one continually try to
have one’s ticket confirmed if it already had?
2. Tagunicar was not authorized to attach validation
stickers (for exclusive use of airline company)
3. Names of petitioners did not appear in passenger
manifest
4. Status of Tokyo-SF segment still on request
5. With this Tagunicar stated, “Bahala na.”
Thus petitioners knew that they might be bumped off at Tokyo.
Aware of this risk, they still proceeded with the flight.
Ratio: Against the agent, the third person has the obligation to
determine the existence and scope of agency. He who deals with
an agent is bound at his peril, having the burden to ascertain
not only the fact of agency but also its nature and the extent of
authority granted.
Judgment affirmed.
IV. AGENCY DISTINGUISHED FROM OTHER CONTRACTS /
RELATIONSHIPS
SEVILLA VS. CA
SHELL VS. FIREMAEN’S INSURANCE
DELA CRUZ V. NORTHERN THEATRICAL
ENTERPRISES, INC., ET AL.
Keywords: guard sues employer for recovery of expenses
incurred in his homicide cases
FACTS:
 Northern Theatrical operated a movie house with Dela Cruz
as special guard whose duties were to guard the main
entrance of the cine, to maintain the peace and order and
to report the commission of disorders within the premises,
and as such, he carried a revolver.
 One afternoon, one Benjamin Martin wanted to crash the
gate of the movie house, got infuriated when Dela Cruz
denied him entry without a ticket, attacked the Dela Cruz
with a bolo. Dela Cruz was cornered and shot Martin,
killing the latter.
 Dela Cruz was charged with homicide, which upon the
prosecutor’s re-investigation was dismissed. Again charged
for homicide with the same court, but was finally acquitted.
 Dela Cruz demanded from Northern Theatrical
reimbursement of his expenses, but was denied. Brought
action to recover not only the amounts he had paid his
lawyers but also moral damages suffered, due to his worry,
his neglect of his interests and his family and in the
supervision of the cultivation of his land, P15k.
 CFI: dismissed. Dela Cruz appealed to SC.
ISSUES: W/N an employee or servant who in line of duty and
while in the performance of the task assigned to him, performs
an act which eventually results in his incurring expenses,
caused by a third party not in the employ of his employer, may
recover damages from his employer.
HELD:
 NO. Plaintiff wasn’t hired to represent defendant in its
dealings with third persons; he was an employee hired to
perform specific duty.
 No law nor jurisprudence directly applicable then; all we
have found refer to cases of physical injuries, resulting in
loss of body part or any of the senses, or permanent
disability, or death, suffered in the line of duty of an
employee, and are governed by Employer’s Liability Act and
Workmen’s Compensation Act.
 It is to the interest of the employer to render legal
assistance to its employee; while it may be regarded as a
moral obligation, it’s not a legal obligation.
 Another point of view is that the damage suffered was
caused rather by improper filing of the criminal charge,
possibly at the instance of Martin’s heirs and by the State
through the Fiscal. If despite his innocence, he was
accused of homicide, then the responsibility for the
improper accusation may be laid at the door of said heirs
and the State.
 Another view is that the shooting was not the proximate
cause of the damages suffered but may be regarded as only
as a remote cause, because from the shooting to the
damages suffered there wasn’t that natural and continuous
sequence required to fix civil responsibility.
NIELSON & CO. V. LEPANTO CONSOLIDATED
Keywords: mining operations suspended during the Japanese
occupation and resumed a little later after the war, mgt contract
unilaterally terminated by Lepanto
FACTS:
 Nielson and Lepanto executed a management contract,
wherein Neilson agreed, for 5 yrs, mainly to develop and
operate Lepanto’s mine and mill, and other undertakings
necessary or incidental to the principal undertaking,
including acting as purchasing agent of supplies and enter
into contracts regarding sale of mineral, but only with prior
approval of Lepanto.
 War in Feb. ’42, upon order of the US Army, Lepanto’s
installations at Lepanto’s mines were destroyed to prevent
their utilization by the enemy. Neilson could not undertake
the work. When the mines were liberated in Aug. ‘45, the
condition of the installations was not the same, the work
still could not be undertaken under the same favorable pre-
war circumstances, and the installations were
reconstructed and operations resumed only on June ’48.
 Lepanto terminated the contract in ’45 when it took over
and assumed exclusive management of the work, alleging
said contract to be one of agency, hence, can be terminated
at will by the principal, and Neilson, as the alleged agent,
isn’t entitled to damages, a theory which was raised for the
first time only on this motion for reconsideration to the SC.
ISSUES:
1. W/N SC erred in overlooking A1733 of OCC by which
agency was effectively revoked or terminated
2. W/N court erred in holding that Par. II of the contract
suspending the period contract
3. W/N Neilson’s action for relief against Lepanto has
prescribed
4. Assuming Neilson entitled to any relief, W/N court
erred in ordering Lepanto to deliver shares of stock
with fruits
5. W/N court erred in awarding to Neilson the shares of
stock and/or cash
HELD:
1.
Agency Lease of services
One of the parties binds himself to render some service to the
other party
Based on representation Based on employment
Agent is destined to execute
juridical acts (creation, Contemplates only material
modification, or extinction of (non-juridical) acts
relations with third parties)
 NO. A1868, NCC: By the contract of agency a person binds
himself to render some service or to do something in
representation or on behalf of another, with the consent or
authority of the latter.
 The management contract is a lease of service and not a
contract of agency. Neilson’s principal undertaking or
operating the mine and mill wasn’t executing juridical acts
for Lepanto, to create, modify, or extinguish business
relations between Lepanto and third persons. Neilson was
 not an agent as interpreted in the law of agency, but an
only an agent only in the sense of performing material acts
for an employer, for compensation.
 Neilson’s incidental capacity as purchasing agent of
supplies and enter into contracts regarding the sale of
mineral, but Neilson couldn’t make any purchase or sell
minerals without prior approval of Lepanto; hence, these
are not considered juridical acts either, but just acting only
as an intermediary.
 Lepanto could not terminate the said contract at will
because Paragraph XI of the contract provides that it may
only cancel the contract upon 90 days written notice, in the
event that Neilson for any reason except acts of God, cease
mining operation and development in good faith and in
accordance with approved mining practice. Such a factual
condition has not been proven by Lepanto as to allow any
cancellation by Lepanto.
 The phrase “both parties … recognize that … this
agreement … possible only because of the good faith and
confidence of each company” in Par. XI doesn’t qualify the
relation to be principal-agent based on trust and
confidence, such that it may be terminated by the principal
any time that he loses trust and confidence in the agent.
Rather, the basis of Neilson’s employment is the know-how
and technical service that Neilson offered and Lepanto
accepted Lepanto’s, stated in latter’s annual report in ’86.
 Lepanto thereby violated the contract by unilaterally
terminating the contract, which was renewed so that it still
had 2 yrs to go.
 Indeed, if this were agency, Par. XI shouldn’t’ve been
inserted because:
A1733, NCC: agency is essentially revocable at will of the
principal.
But Par. XI inserted to provide for the cause of revocation.
2. NO. The management contract was suspended because of
the war. The suspension would last not only while the
event constituting the force majeure (war) continued to
occur but also for as long as its adverse effects had not
been eliminated.
 The period of the contract was extended for a period
equivalent to the time when Neilson was unable to perform
the work of mining and milling because of the adverse
effects of the war.
 The nature of the contract for management and operation
of mines justifies the interpretation of its force majeure
clause, that a period equal to the period of suspension due
to force majeure should be added to the original term of the
contract by way of an extension
3. NO. The claims of Neilson are based on a written document,
and as such, the cause of action prescribes in 10 yrs.
Inasmuch as there are different claims which accrued on
different dates the prescriptive periods for all the claims are
not the same.
 The right of action of Neilson against Lepanto had not
prescribed because of the arbitration clause in the
management contract. Neilson had asked for arbitration,
and an arbitration committee had been constituted, which,
however, failed to bring about any settlement. Lepanto later
advised Neilson they weren’t entertaining any of the latter’s
claims; hence, Neilson filed a complaint afterwards.
4. NO. The original agreement regarding the compensation of
Neilson was modified. Neilson should be awarded the
management fees during the whole period of extension,
plus 10% of dividends declared during extension, 10% of
the depletion reserve set up, and 10% of expended amount
out of surplus earnings on capital account.
5. YES. Sec. 16 of the Corporation Law: stock dividends can’t
be issued to a person not a stockholder in payment of the
services rendered. Neilson can’t be paid in shares of stock
which form part of the stock dividends of Lepanto for services
rendered under the contract.
 The understanding between Lep and Neils was simply to
make the cash value of the stock dividends declared to
determine the amount of compensation that should be paid
to Neilson.
QUIROGA V. PARSONS HARDWARE CO.
August 23, 1918
Facts
 A contract was entered into by and between Andres
Quiroga (plaintiff) and J. Parsons (defendant) for the
exclusive sale of ‘Quiroga’ beds in the Visayan Islands.
 Plaintiff alleges that defendant violated the following
obligations: not to sell the beds at higher prices than
those of the invoices; to have an open establishment in
Iloilo; itself to conduct the agency; to keep the beds on
public exhibition, and to pay for the advertisement
expenses for the same; and to order the beds by the
dozen and in no other manner.
 However, none of the obligations, except for that part
of the defendant to order the beds by the dozen and no
other manner, are expressly set forth in the contract.
 But the plaintiff alleged that the defendant was his
agent for the sale of his beds in Iloilo, and that said
obligations are implied in a contract of commercial
agency.
Issue
Whether Parsons, by reason of the contract, was a
purchaser or an agent of Quiroga for the sale of his beds
Held
The contract by and between the plaintiff and the
defendant was one of purchase and sale.
Ratio
 In order to classify a contract, due regard must be
given to its essential clauses. In the contract in
question, what was essential, as constituting its cause
and subject matter, is that the plaintiff was to furnish
the defendant with the beds which the latter might
order, at the price stipulated, and that the defendant
was to pay the price in the manner stipulated.
 There was the obligation on the part of the plaintiff to
supply the beds, and, on the part of the defendant, to
pay their price. These features exclude the legal
conception of an agency or order to sell whereby the
mandatory or agent received the thing to sell it, and
does not pay its price, but delivers to the principal the
price he obtains from the sale of the thing to a third
person, and if he does not succeed in selling it, he
returns it.
 Not a single one of the clauses in the contract
necessarily conveys the idea of an agency. The words
commission on sales used in clause (A) of article 1
mean nothing else, as stated in the contract itself,
than a mere discount on the invoice price.
 The word agency, also used in articles 2 and 3, only
expresses that the defendant was the only one that
could sell the plaintiff’s beds in the Visayan Islands.
 The testimony of the person who drafted this contract,
to the effect that his purpose was to be an agent for
the beds and to collect a commission on the sales, is of
no importance to prove that the contract was one of
agency, inasmuch as the agreements contained in the
contract constitute, according to law, covenants of
purchase and sale, and not of commercial agency. It
must be understood that a contract is what the law
defines it to be, and not what it is called by the
contracting parties.
GONZALO PUYAT & SONS VS. ARCO
AMUSEMENT COMPANY
June 20, 1941
Keywords: discounted price of sound reproducing equipment not
disclosed; Arco Amusement seeks reimbursement.
Facts:
 - In 1929, Arco Amusement Company (formerly known
as Teatro Arco) was engaged in the business of
operating cinematographs.
- Around 1930, Arco Amusement approached Gonzalo
Puyat & Sons, Inc., the exclusive agents in the Phils of
the Starr Piano Company (of Richmond, Indiana, USA)
to negotiate with them their intent to buy sound
reproducing equipment from Starr Piano through
Gonzalo Puyat & Sons.
- After some negotiations, the parties agreed that
Gonzalo Puyat & Sons would order the equipment
from Starr Piano and Arco Amusement would pay
Gonzalo Puyat, in addition to the price of the
equipment, a 10% commission, plus expenses, such as
freight, insurance, banking charges, cables etc.
- In ordering the equipment, Gonzalo Puyat & Sons was
able to get a discounted price from Starr Piano.
However, Gonzalo Puyat did not inform Arco
Amusement of the discounted price, and still billed
them the list price of $ 1,700 plus the 10%
commission and the expenses incurred in ordering the
equipment.
- Arco Amusement paid the bills and then placed
another order for a second sound reproducing
equipment, which was quoted at $1,600 plus
commission and other expenses. Arco paid the amount
assessed by Gonzalo Puyat.
- 3 years later, Arco Amusement discovered that the
price quoted to them by Gonzalo Puyat was not the net
price but was rather the list price and that Gonzalo
Puyat obtained a discount from Starr Piano.
- They sought for reimbursement of what they have paid
Gonzalo Puyat by filing a case for reimbursement.
- CFI of Manila held that the contract between the
petitioner and the respondent was one of outright
purchase and sale, and absolved Gonzalo Puyat from
the complaint.
- CA reversed the decision of the CFI, holding that the
relation between Gonzalo Puyat and Arco Amusement
was that of an agent and a principal, and sentenced
Gonzalo Puyat to reimburse Arco Amusement of all the
alleged overpayments in the total sum of $1,335.52 or
Php 2,671.04
Issue: WON the contract between Gonzalo Puyat and Arco
Amusement is an Agency to merit Arco Amusement a
reimbursement or is an Outright Purchase and Sale Contract
that would absolve Gonzalo Puyat of the case.
Held: The contract between Gonzalo Puyat and Arco
Amusement is an Outright Purchase and Sale Contract
Ratio:
The contract is the law between the parties and should
include all the things they are supposed to have agreed upon.
The letters, by which Arco accepted the prices of $1,700 and
S1,600 plus the commission and other expenses for the sound
reproducing equipment are clear in their terms and admit of no
other interpretation than that Arco agreed to purchase from
Gonzalo Puyat the equipment in question at the prices indicated
which are fixed and determinate. Arco admitted in its complaint
filed with the CFI that Gonzalo Puyat agreed to sell to it the first
sound reproducing equipment and machinery.
Whatever unforeseen events might have taken place
unfavorable to Arco, such as change in prices, mistake in their
quotation, or failure of Starr Piano to properly fill the orders as
per specifications, Gonzalo Puyat might still legally hold Arco to
the prices fixed. This is incompatible with the pretended
relation of agency between the petitioner and the
respondent, because in agency, the agent is exempted from all
liability in the discharge of his commission provided that he
acts in accordance with the instructions received from his
principal and the principal must indemnify the agent for all
damages which the latter may incur in carrying out the agency
without fault or imprudence on his part.
To hold the petitioner an agent of the respondent in
the purchase of the equipment from Starr Piano is incompatible
with the fact that the petitioner is the exclusive agent of the
same company in the Phils. It is out of the ordinary for one to
be the agent of both the vendor and the vendee.
It follows that Gonzalo Puyat as a vendor is not bound
to reimburse Arco as vendee for any difference between the cost
price and the sales price which represents the profit realized by
the vendor out of the transaction. This is the very essence of
commerce without which merchants or middlemen would not
exist.
LIM V. PEOPLE
Keywords: tobacco, estafa, receipt letter
Facts:
Lourdes Valerio Lim is a businesswoman. She went to the
house of Maria Ayroso and proposed to sell Ayroso’s tobacco.
Ayroso agreed that Lim would sell 615 kilos at P1.30 per kilo
and that Lim could receive the over-price from the selling. A
document was executed to certify the receipt of the tobacco
leaves. Lim brought a jeep to Ayroso’s house, then collected the
P799.50 worth of tobacco leaves. After sometime, demands for
payment has been made persistently by Ayroso’s sister, Salud
Bantug, but even if the camarin was empty (meaning, there’s no
more tobacco), Lim did not pay. Lim wrote a letter explaining
her delinquencies: that she was having a hard time collecting,
and eventually paid P240 in three instalments. Due to the
inability of Lim to pay for the balance, Ayroso then filed a
complaint for estafa, which Lim was convicted for and such
conviction was affirmed by the Court of Appeals.
Issue:
Was the receipt a contract of agency to sell or a contract of sale
of the subject tobacco between petitioner and complainant?
(The latter would preclude the criminal liability of Lim)
Ruling:
Lim was acting as Ayroso’s agent. Lim’s theory was backed up
by the fact that she did not receive commissions, therefore, it
was not a contract of agency and ultimately, she should not be
held criminally liable. The Supreme Court denied this, affirming
the explanation of the Court of Appeals stating that since Lim
was a businesswoman and she took the efforts of collecting the
tobacco from Ayroso’s house, it is more likely she was acting as
an agent, rather than doing a favour for a friend, because if it
were a favour, then it would be Ayroso who would have dropped
off the leaves to Lim’s house. There was no transfer of
ownership and the agreement clearly considered Lim as an
agent with the obligation to return the tobacco if the same was
not sold.
PACIFIC COMMERCIAL V. YATCO
Keywords: sugar, commission merchant, broker, tax
Facts:
Pacific Commercial engaged in business as a merchant and sold
for Victoria Milling Co. refined sugar for the total value of
P1,126,135.96 and received a commission of P29,534.29. Such
transactions were made in either of two ways:
1. Ex-ship: Pacific looks for buyers of the sugar, receives
the bill of lading, and hands over the bill of lading to
the buyer and collects the price. The buyer collects the
sugar from the point of delivery. In this case, Pacific
acts as a broker for Victoria and the buyer.
2. Ex-warehouse: Sugar is deposited first in Pacific’s
warehouse before delivery to the potential buyer is
done. Here, Pacific acts as a commission merchant.
Victoria Milling paid P16,994.90 to the Collector of Internal
Revenue as merchant sales tax in its capacity as manufacturer
and owner of the sugar sold. Notwithstanding such payment,
Pacific was also made to pay the same tax. Pacific then went to
the CFI to address the issue on double taxation. The CFI
decided that defendant (I assume Yatco is the CIR) return the
taxes paid under the first type of transaction (ex-ship) ONLY,
but the taxes imposed on Pacific for the transactions ex-
warehouse were valid.

Issue:
Was there double taxation in:
(1) transactions ex-warehouse (subsequently, was that a
transaction involving a commission merchant)?
(2) transactions ex-ship (subsequently, was that a
transaction involving a broker)?

Ruling:
There was only double taxation as to the transactions ex-
ship. The majority relied heavily on the doctrine in Gil
Hermanos v. Hord where there is no double taxation after a
merchant sold for commission Gil Hermanos’s abaca and both
merchant and Hermano were taxed. This is because what was
being taxed for the merchant was the occupation or the
industry, not the property sold itself, the property was just the
basis on how much tax the transaction should cost. The Court
found a parallelism to the facts of the case and applied the case
squarely on the transactions ex-warehouse.

There is no doubt in their mind that transactions ex-warehouse

had Pacific acting as commission merchants. A commission
merchant is one engaged in the purchase or sale for another of
personal property, which, for this purpose, is placed in his
possession and at his disposal. The relationship of the
merchant is not only with the principal, but also to the property
that is the subject matter of the transaction. The receipt and
depositing in the warehouse of Pacific attests to this
relationship. After taking the sugar until it is sold, Pacific had
the sugar in its possession and at its own risk.

However, there should be no tax over the transaction if it was

done ex-ship. This was because Pacific was merely acting as a
broker. A broker, unlike a commission merchant, has no
relation to the thing he sells or buys. He is merely an
intermediary between the buyer and the seller and never
acquires possession over the property.

The appealed decision was affirmed.

Dissent (Moran):
Justice Moran points out the inconsistency of doctrine in
various jurisprudence and feels that the Court should have
decided to clarify such inconsistencies. In Atkins, Kroll & Co v.
Posadas, the court held that for a single consignment, the
Government is not entitled to collect two taxes, one from the
owner of the merchandise and the other from the commission
merchant. Moran found that the consignment and the sale are
parallel situations and such ruling is a more equitable doctrine
for good commerce since according to him, the Government has
no right to receive more than one tax for a single transaction or
else it will be detrimental to local merchants.

KER VS. LINGAD

HAHN VS. CA