Lease of Work or Service agent is destined to execute juridical acts (creation, modification or extinction of relations with third

1. Nielson & Company, Inc. v. Lepanto Consolidated Mining Company parties). Lease services contemplate only material (non-juridical) acts."cralaw virtua1aw library

An operating agreement was executed before WW II between the parties whereby Neilson would
operate and manage the mining properties owned by Lepanto for a management fee and 10%
participation in net profits.
The contract was made on 1937 January 30 for five years and would be later on renewed for
another five years. But the Pacific War broke in 1941.
In 1942, the operations of the mining properties was disrupted. The mill, power plant, supplies,
and concentrates were destroyed by the orders of the US Armyto prevent its utilization by the
Japanese.
It appears that the principal and paramount undertaking of plaintiff under the management contract
was the operation and development of the mine and the operation of the mill. All the other
undertakings mentioned in the contract are necessary or incidental to the principal undertaking —
these other undertakings being dependent upon the work on the development of the mine and the
operation of the mill. In the performance of this principal undertaking plaintiff was not in any way
executing juridical acts for defendant, destined to create, modify or extinguish business relations
between Lepanto and third persons. In other words, in performing its principal undertaking plaintiff
was not acting as an agent of defendant Lepanto, in the sense that the term agent is interpreted
under the law of agency, but as one who was performing material acts for an employer, for a
compensation.

The mines would be liberated and in 1945, a disagreement between the parties arose as to the
status of the contract which expired in 1947. Under the terms of the contract shall remain in
suspense in case fortuitous event or force majeure.

Neilson believes that on account of the warm the contract was suspended and as such, such be
extended for the time period of suspension. Lepanto on the other hand contends that the contract
should have expired in 1947 because the suspension accorded by virtue of the war did not operate
as to extend the life of the contract.

While the dispute was undergoing, Lepanto rebuilt and reconstructed the mines and was able to
bring the property into operation on June of 1948.

Issues:
1. Whether the contract has been extended for a period equivalent to the period of
suspension

Held:
1. Yes. In the clause of the contract, it provided that in order that the contract to be deemed
suspended, there must be (a) a for majeure reasonably beyond the control of Nielson
and (b) it must adversely affect the work of the mining and the milling company.

The Court in its decision took notice that the war supervened and that the mines in the
Philippines were either destroyed or taken over by the occupation and the Lepanto
mines were no exception. There was even a report made by Lepanto that the US Army
ordered the destruction of its mining and milling materials. The Court decided from the
date that the order was given out, the contract was suspended.

The Court also took note that the mines and mills were fully rehabilitated only on June
1948 as reported by Lepanto. Thus, the period between the order and the rehabilitation,
should be the same period that an extension is to be made.

The clause was also meant to extend the period of the period for the same length of
time of the suspension as testified by Scholey – director and general manager of the
Neilson as well a former vice-president and director of Lepanto. Even the testimony of
DeWitt and Nestle had the same conclusion.

In both agency and lease of services one of the parties binds himself to render some service to
the other party. Agency, however, is distinguished from lease of work or services in that the basis
of agency is representation, while in the lease of work or services the basis is employment. The
lessor of services does not represent his employer while the agent represents his principal.
Agency is a preparatory contract as agency "does not stop with the agency because the purpose
is to enter into other contracts." The most characteristic feature of an agency relationship is the
agent’s power to bring about business relations between his principal and third persons. "The
1
 2. De la Cruz v. Northern Theatrical Enterprises held responsible and not against the employer who in no way intervened, much less
initiated the criminal proceedings. TME only employed De la Cruz to perform a special
duty or task, which task or duty was performed lawfully and without negligence.
MONTEMAYOR, J.:

Facts:

Northern Theatrical Enterprises Inc operated a movie house in Ilocos Norte and employed De La
Cruz as a special guard to guard the main entrance of the cinema, to maintain peace and order
and to report the commission of disorders within the premises. As such guard he carried a revolver.
On July 4, 1941, Martin wanted to crash the entrance of the movie house. Infuriated by the refusal
of De la Cruz to let him in without first providing a ticket, Martin attacked De La Cruz with a bolo.
De la Cruz defended himself as best he could until he was cornered, at which moment to save
himself he shot the gate crasher, resulting in the Martin’s death.

De la Cruz was charged with homicide in a criminal case, but after a re-investigation conducted
by the Provincial Fiscal the latter filed a motion to dismiss the complaint. De la Cruz was again
accused of the same crime of homicide a criminal case. After trial, he was acquitted of the charge.
In both criminal cases De la Cruz employed a lawyer to defend him. He demanded from his former
employer reimbursement of his expenses but was refused, after which he filed the present action
to recover amounts he had paid his lawyers and moral damages.

NTE asked for the dismissal of the complaint, as well as the agreed statement of facts, the Court
of First Instance of Ilocos Norte after rejected the theory of the plaintiff that he was an agent of the
defendants and that as such agent he was entitled to reimbursement of the expenses incurred by
him in connection with the agency.

Issues:

1. Whether De la Cruz was an agent of TME

Held:

1. No. De la Cruz was not employed to represent TME in its dealings with third parties. He
was a mere employee hired as special guard and staying at the main entrance of the
movie house to stop gate crashers and to maintain peace and order within the premises.

Also, the Court also said that even if there was an agency relationship, there were no
laws that could apply to the case to hold TME accountable for the expenses incurred by
De la Cruz. The Court also mentioned that in agency in only in cases of physical injuries,
light or serious, resulting in loss of a member of the body or of any one of the senses,
or permanent physical disability or even death, suffered in line of duty and in the course
of the performance of the duties assigned to the servant or employee are covered by
law and these cases are mainly governed by the Employer's Liability Act and the
Workmen's Compensation Act.

In cases involving damages caused to an employee by a stranger or outsider while said

employee was in the performance of his duties, the Court stated that with resepct to
transportation companies whom cover the expenses incurred by their employees do
this it is to the interest of the employer to render legal assistance to its employee. But
we are not prepared to say and to hold that the giving of said legal assistance to its
employees is a legal obligation as they are subsidiarily liable
In this case, the expenses incurred by De la Cruz was due to the erroneous filing of
criminal cases against him, the cost and damage suffered by De la Cruz should be
collected against the heirs of the Martin and the State they are the parties that may be

2
Independent Contractor building and all materials on the ground, did not change Merritt from an independent
contractor to an agent. The owner of a building is not liable for the value of materials
1. Fressel v. Mariano Uy Chaco & Co. purchased by an independent contractor either as such owner or as the assignee of
the contractor.
TRENT, J.:

Facts:

IN 1913, Chaco and Co entered into a contract with Merritt, Merritt undertook and agreed that it
would build an edifice in Manila. Also provided in the contract was that Chaco and Co at anytime
upon certain contingencies, before the the completion of the edifice could take possession of the
edifice in the course of its construction and all of the materials in the premises acquired by Merritt
for the edifice’s construction.

During early August of 1914, Fressel delivered to Merritt at the office of the edifice, during its
construction, certain materials. Merritt agreed to pay for the materials on September.

However, on the 28 of August, 1914, the Chaco & Co. took possession of the incomplete edifice
in course of construction together with all the materials on said premises including the materials
delivered by Fressel. Merritt nor Chaco & Co. paid for the materials mentioned although payment
has been demanded, and that on the 2 September 1914, the Fressel demanded of the Chaco &
Co. to the return or be permission to enter upon said premises and retake said materials at the
time still unused which was refused by Chaco & Co..

Fressel believes that Merritt acted as agent for Chaco & Co.in the acquisition of the materials from
Fressel. Fressel also believed that, by taking over and using such materials, accepted and ratified
the purchase, Chaco & Co.obligated itself to pay for the same. Or if Chaco & Co took over the
unfinished building and all the materials on the ground and then completed the structure according
to the plans, specifications, and building permit, it the successor or assignee of Merritt, and as
successor or assignee, it was as much bound legally to pay for the materials used as was the
original party. The vendor can enforce his contract against the assignee as readily as against the
assignor.

Chaco & Co. contends that Merritt, being "by the very terms of the contract" an independent
contractor, is the only person liable for the amount claimed.

Issues:

1. Whether Merritt is an independent contractor engaged Chaco & Co

Held:

1. Yes. The Court found that paragraphs 1 to 5 in the allegation made by Fressel
demonstrated that Merritt was an independent contractor and the materials purchased
was done without the intervention of Chaco & Co. The fact that the defendant entered
into a contract with one Merritt and Merritt agreed with the Chaco & Co.to build for the
Chaco & Co. a costly edifice shows that Merritt was authorized to do the work according
to his own method and without being subject to the defendant's control, except as to
the result of the work. He could purchase his materials and supplies from whom he
pleased and at such prices as he desired to pay. Again, the allegations that the
"plaintiffs delivered the Merritt . . . . certain materials (the materials in question) of the
value of P1,381.21, . . . . which price Merritt agreed to pay,
The mere fact that Merritt and the Chaco & Co.had stipulated in their contract that the
Chaco & Co.could, "upon certain contingencies," take possession of the incompleted

3
 De la Fuente, as operator, was given special prices by Shell for the gasoline products
2. Shell Company of the Phil. V. Firemen’s Insurance sold therein.

The relationship between is one of agency as the claim that de le Fuente was an
PADILLA, J.: independent contractor fails. Shell controlled how de la Fuenta was to conduct his
business as compared to an independent contractor, wherein Shell can only control
Facts: the end result of de la Fuente’s work.

A Plymounth car owned by Sison was brought to the Shell Gasoline and Service Station, located
at for washing, greasing and spraying. The operator of the station agreed to do service upon
payment of P8.00, the car was placed on a hydraulic lifter under the direction of the personnel of
the station.

The service was doing fine when it washed, but when greasing was to be undertaken, the car had
to be lowered as the person applying the grease could not reach a portion of the car. To reach the
area, the car had to be lowered and it was being so, it suddenly swung and in a few moments, the
car fell from the lifter.

The incident was reported to the Manila Adjustor Company, the adjustor of the Firemen's
Insurance Company and the Commercial Casualty Insurance Company – the insurers of the car.
After having been inspected, the car was taken to the Philippine Motors, Incorporated, for repair
upon order of the Firemen's and Commercial Casualty Insurance Company, with the consent of
Sison. The car was restored to running condition after and was delivered Sison, who, in turn made
assignments of his rights to recover damages in favor of the Firemen's and the Commercial
Casualty Insurance Company.

De la Fuente, the operator of the Shell gasoline and service center where the incident took place
denied negligence in the operation of the lifter and contended further that the accidental fall of the
car was caused by unforseen event.

The Firemen's and Commercial Casualty Insurance Company and Sison brought the action
against Shell and de la Fuente to recover from them, jointly and severally, the amount needed for
the repairs.

Trial Court dismissed complaint. CA reversed and stated that de la Fuenta was an agent of Shell.

Issues:

1. Whether de la Fuente is an agent of Shell

Held:

1. Yes. De la Fuente owned his position to the Shell Company which could remove him
terminate his services at any time and he undertook to sell the Shell Company's
products exclusively. For this purpose, De la Fuente was placed in possession of the
gasoline and service station under consideration, and was provided with all the
equipment needed to operate it. The equipment were delivered to De la Fuente on a
loan basis. The Shell Company took charge of its care and maintenance and rendered
to the public or its customers at that station for the proper functioning of the equipment.

Tiongson, the sales superintendent of the Shell Company, and Sawyer, foreman of
Shell, supervised the operators and conducted periodic inspection of the Company's
gasoline and service station. Tiongson said his role was the supervision of sales of
Shell’s dealers and rountinary inspection of the equipment loaned by the Company.

4
 3. Africa v. Caltex Phil., Inc.

MAKALINTAL., J.:

Facts:

18 March 1948 a fire broke out at the Caltex service station in Manila. It started while gasoline
was being hosed from a tank truck into the underground storage. The fire spread to and burned
several neighboring houses. The home owners sued Caltex and Boquiren, being owners and
agent in charge of operation respectively, being responsible for the fire due to their negligence.

The trial court and the Court of Appeals found that petitioners failed to prove negligence and that
respondents had exercised due care in the premises and with respect to the supervision of their
employees.

Issues:

1. Whether Boquiren was an independent contractor of Caltex;

Held:

1. No. The Court found that the written contract was apparently drawn for the purpose of
creating the apparent relationship of employer and independent contractor, and of
avoiding liability for the negligence of the employees about the station. Evidence shows
Caltex immediately assumed control, and proceeded to direct the method by which the
work contracted for should be performed by Boquiren . Caltex also reserved the right
to terminate the contract at will, it retained the means of compelling submission to its
orders. Having elected to assume control and to direct the means and methods by
which the work has to be performed, it must be held liable for the negligence of those
performing service under its direction.

In the parties late agreement, it provided that shall not be liable for any injury to person
or property while in the property herein licensed, it being understood and agreed that
LICENSEE (Boquiren) is not an employee, representative or agent of LICENSOR
(Caltex).

Even if the license agreement were to govern, Boquiren can hardly be considered an
independent contractor. Under that agreement Boquiren would pay Caltex the purely
nominal sum of P1.00 for the use of the premises and all the equipment. He could sell
only Caltex Products. Maintenance of the station and its equipment was subject to the
approval, in other words control, of Caltex. Boquiren could not assign or transfer his
rights as licensee without the consent of Caltex. Caltex could at any time cancel and
terminate the agreement in case Boquiren ceased to sell Caltex products, or did not
conduct the business with due diligence, in the judgment of Caltex. Termination of the
contract was therefore a right granted only to Caltex but not to Boquiren.

Caltex further argues that the gasoline stored in the station belonged to Boquiren. But
no cash invoices were presented to show that Boquiren had bought said gasoline from
Caltex. Neither was there a sales contract to prove the same.

5
Negotiorum Gestio
1. Dela Pena v. Hidalgo
Facts:
On May 23, 1906, Jose dela Peña y de Ramon, and Vicenta de Ramon, in her own behalf and as
the legal guardian of her son Roberto de la Peña, filed a complaint against Federico Hidalgo,
Antonio Hidalgo, and Francisco Hidalgo. Federico Hidalgo moved for the dismissal of this
complaint, Jose de la Peña y de Ramon filed a second amended complaint prosecuting his action
solely against Federico Hidalgo.
A judgment in favor of the Jose de la Pena was made by the trial court.
Both the plaintiff and the defendant filed notice of appeal and also asked for the annulment of the
same and for a new trial, on the ground that the evidence did not justify the said judgment and
that the latter was contrary to law. The Francisco Hidalgo presented a written motion for new
hearing, alleging the discovery of new evidence favorable to him and which would necessarily
influence the decision such evidence or to introduce it at the trial of the case which was granted.
Peña y De Ramon filed a third amended complaint, alleging, that from November 12, 1887, to
January 7, 1904, Federico Hidalgo had possession of and administered the several houses and
lots belonging to his Jose de la Peña y Gomez, according to the power of attorney executed in his
favor, the Francisco Hidalgo, as such agent, collected the rents and income from the said
properties and which he should have deposited in accordance with the verbal agreement between
the deceased and himself, the defendant, in the general treasury of the Spanish Government at
an interest of 5 per cent per annum.
Francisco Hidalgo did not remit or pay to Jose de la Peña y Gomez, during the latter's lifetime, nor
to nay representative of the said De la Peña y Gomez.
In the said amended complaint, the de la Pena alleged as a second cause of action: That on
December 9, 1887, Gonzalo Tuason deposited in the general treasury of the Spanish
Government, to the credit of Peña y Gomiz, the sum of 6,360 pesos, at 5 per cent interest per
annum, and on December 20, 1888, the defendant, as the agent of Peña y Gomiz, withdrew the
said amount with its interest, that is, 6,751.60 pesos, and disposed of the same for his own use
and benefit, without having paid all or any part of the said sum to Peña y Gomiz, or to the plaintiff
after the latter's death, notwithstanding the demands made upon him: wherefore the defendant
now owes the said sum of 6,751.60 pesos, with interest at the rate of 5 per cent per annum,
compounded annually, from the 20th of December, 1888, to the time of the filing of this complaint,
and from the latter date at 6 per cent, in accordance with law.
The complaint recites as a third cause of action: that, on or about November 25, 1887, defendant's
principal, Peña y Gomiz, on his voyage to Spain, remitted from Singapore, one of the ports to call,
to Father Ramon Caviedas, a Franciscan friar residing in this city, the sum of 6,000 pesos with
the request to deliver the same, which he did, to defendant, who, on receiving this money,
appropriated it to himself and converted it to his own use and benefit, since he only remitted to
Peña y Gomiz in Sapin, by draft, 737.24 pesos, on December 20, 1888; and, later, on December
21, 1889, he likewise remitted by another draft 860 pesos, without having returned or paid the
balance of the said sum, notwithstanding the demands made upon him so to do: wherefore the
defendant owes to the plaintiff, for the third cause of action, the sum of P4,402.76, with interest at
the rate of 5 per cent per annum, compounded yearly, to the time of the filing of the complaint and
with interest at 6 per cent from that date, as provided by law.
As a fourth cause of action the plaintiff alleges that, on or about January 23, 1904, on his arrival
from Spain and without having any knowledge or information of the true condition of affairs relative
to the property of the deceased Peña y Gomiz and its administration, he delivered and paid to the
defendant at his request the sum of P2,000, derived from the property of the deceased, which
sum the defendant has not returned notwithstanding the demands made upon him so to do.
Wherefore the plaintiff petitions the court to render judgment sentencing the defendant to pay, as
first cause of action, the sum of P72,548.24, with interest thereon at the rate of 6 per cent per
annum from May 24, 1906, the date of the filing of the complaint, and the costs; as a second cause
of action, the sum of P15,774.19, with interest at the rate of 6 per cent per annum from the said
date of the filing of the complaint, and costs; as a third cause of action, P9,811.13, with interest
from the aforesaid date, and costs; and, finally, as a fourth cause of action, he prays that the
defendant be sentenced to refund the sum of P2,000, with interest thereon at the rate of 6 per
cent per annum from the 23d of January, 1904, and to pay the costs of trial.
The defendant, Federico Hidalgo, in his answer to the third amended complaint, sets forth: That
he admits the second, third, and fourth allegations contained in the first, second, third, and fourth
causes of action, and denies generally and specifically each one and all of the allegations
contained in the complaint, with the exception of those expressly admitted in his answer; that, as
a special defense against the first cause of action, he, the defendant, alleges that on November
18, 1887, by virtue of the powers conferred upon him by Peña y Gomiz, he took charge of the
administration of the latter's property and administered the same until December 31, 1893, when
for reasons of health he ceased to discharge the duties of said position; that during the years
1889, 1890, 1891, and 1892, the defendant continually by letter requested Peña y Gomiz, his
principal, to appoint a person to substitute him in the administration of the latter's property,
inasmuch as the defendant, for reasons of health, was unable to continue in his trust; that, on
March 22, 1894, the defendant Federico Hidalgo, because of serious illness, was absolutely
obliged to leave these Islands and embarked on the steamer Isla de Luzon for Sapin, on which
date the defendant notified his principal that, for the reason aforestated, he had renounced his
powers and turned over the administration of his property to Antonio Hidalgo, to whom he should
transmit a power of attorney for the fulfillment, in due form, of the trust that the defendant had
been discharging since January 1, 1894, or else execute a power of attorney in favor of such other
person as he might deem proper;
That prior to the said date of March 22, the defendant came, rendered accounts to his principal,
and on the date when he embarked for Spain rendered the accounts pertaining to the years 1892
and 1893, which were those that yet remained to be forwarded, and transmitted to him a general
statement of accounts embracing the period from November 18, 1887, to December 31, 1893,
with a balance of 6,774.50 pesos in favor of Peña y Gomiz, which remained in the control of the
acting administrator, Antonio Hidalgo; that from the 22nd of March, 1894, when the defendant left
these Islands, to the date of his answer to the said complaint, he has not again intervened nor
taken any part directly or indirectly in the administration of the property of Peña y Gomiz, the
latter's administrator by express authorization having been Antonio Hidalgo, from January 1, 1894,
to October, 1902, who, on this latter date, delegated his powers to Francisco Hidalgo, who in turn
administered the said property until January 7, 1904; that the defendant, notwithstanding his
having rendered, in 1894, all his accounts to Jose Peña y Gomiz, again rendered to the plaintiff in
1904 those pertaining to the period from 1887 to December 31, 1893, which accounts the plaintiff
approved without any protest whatever and received to his entire satisfaction the balance due and
the vouchers and documents and documents relating to the property of the deceased Peña y
Gomiz and issued to the defendant the proper acquaintance therefor.
As a special defense to the second cause of action, the defendant alleged that, on December 9,
1886, Jose de la Peña y Gomiz himself deposited in the caja general de depositos (General
Deposit Bank) the sum of 6,000 pesos, at 6 per cent interest for the term of one year, in two
deposit receipts of 3,000 pesos each, which two deposit receipts, with the interest accrued
thereon, amounted to 6,360 pesos, ad were collected by Gonzalo Tuason, through indorsement
6
by Peña y Gomiz, on December 9, 1887, and on this same date Tuason, in the name of Peña y
Gomiz, again deposited the said sum of 6,360 pesos in the General Deposit Bank, at the same
rate of interest, for the term of one year and in two deposit receipts of 3,180 pesos each, registered
under Nos. 1336 and 1337; that, on December 20, 1888, father Ramon Caviedas, a Franciscan
friar, delivered to the defendant, Federico Hidalgo, by order of De la Peña y Gomiz, the said two
deposit receipts with the request to collect the interest due thereon viz., 741.60 pesos an to remit
it by draft on London, drawn in favor of De la Peña y Gomiz, to deposit again the 6,000 pesos in
the said General Deposit Bank, for one year, in a single deposit, and in the latter's name, and to
deliver to him, the said Father Caviedas, the corresponding deposit receipt and the draft on
London for their transmittal to Peña y Gomiz: all of which was performed by the defendant who
acquired the said draft in favor of De la Peña y Gomiz from the Chartered Bank of India, Australia
and China, on December 20, 1888, and delivered the draft, together with the receipt from the
General Deposit Bank, to Father Caviedas, and on the same date, by letter, notified Peña y Gomiz
of the transactions executed; that on December 20, 1889, the said Father Hidalgo, by order of
Peña y Gomiz, the aforesaid deposit receipt from the General Deposit Bank, with the request to
remit, in favor of his constituent, the interest thereon, amounting to 360 pesos, besides 500 pesos
of the capital, that is 860 pesos in all, and to again deposit the rest, 5,500 pesos, in the General
Deposit Bank for another year in Peña y Gomiz's own name, and to deliver to Father Caviedas
the deposit receipt and the draft on London, for their transmittal to his constituent; all of which the
defendant did; he again deposited the rest of the capital, 5,500 pesos, in the General Deposit
Bank, in the name of Peña y Gomiz, for one year at 5 per cent interest, under registry number
3,320, and obtained from the house of J. M. Tuason and Co. a draft on London for 860 pesos in
favor of Peña y Gomiz, on December 21, 1889, and thereupon delivered the said receipt and draft
to Father Caviedas, of which acts, when performed, the defendant advised Peña y Gomiz by letter
of December 24, 1889' and that, on December 20, 1890, the said Father Ramon Caviedas
delivered to the defendant, by order of Peña y Gomiz, the said deposit receipt for 5,500 pesos
with the request that he withdraw from the General Deposit Bank the capital and accrued interest,
which amounted all together to 5,775 pesos, and that he deliver this amount to Father Caviedas,
which he did, in order that it might be remitted to Peña y Gomiz.
The defendant denied each of the allegations contained in the third cause of action, and avers
that they are all false and calumnious.
He likewise makes a general and specific denial of all the allegations of the fourth cause of action.
As a counterclaim the defendant alleges that Jose Peña y Gomiz owed and had not paid the
defendant, up to the date of his death, the sum of 4,000 pesos with interest at 6 per cent per
annum, and 3,600 pesos, and on the plaintiff's being presented with the receipt subscribed by his
father, Peña y Gomiz, on the said date of January 15th, and evidencing his debt, plaintiff freely
and voluntarily offered to exchange for the said receipt another document executed by him, and
transcribed in the complaint. Defendant further alleges that, up to the date of his counterclaim, the
plaintiff has not paid him the said sum, with the exception of 2,000 pesos. Wherefore the defendant
prays the court to render judgment absolving him from the complaint with the costs against the
plaintiff, and to adjudge that the latter shall pay to the defendant the sum 9,000 pesos, which he
still owes defendant, with legal interest thereon from the date of the counterclaim, to wit, May 21,
1907, and to grant such other and further relief as may be just and equitable.
On the 25th of September, 1908, and subsequent dates, the new trial was held; oral testimony
was adduced by both parties, and the documentary evidence was attached to the record of the
proceedings, which show that the defendant objected and took exception to the introduction of
certain oral and documentary evidence produced by the plaintiff. On February 26, 1909, the court
in deciding the case found that the defendant, Federico Hidalgo, as administrator of the estate of
the deceased Peña y Gomiz, actually owed by the plaintiff, on the date of the filing of the complaint,
the sum of P37,084.93; that the plaintiff was not entitled to recover any sum whatever from the
defendant for the alleged second, third, and fourth causes of action; that the plaintiff actually owed
the defendant, on the filing of the complaint, the sum of P10,155, which the defendant was entitled
to deduct from the sum owing by him to the plaintiff. Judgment was therefore entered against the
defendant, Federico Hidalgo, for the payment of P26,629.93, with interest thereon at the rate of 6
per cent per annum from May 23, 1906, and the costs of the trial.
Both parties filed written exceptions to this judgment and asked, separately, for its annulment and
that a new trial be ordered, on the grounds that the findings of fact contained in the judgment were
not supported nor justified by the evidence produced, and because the said judgment was contrary
to law, the defendant stating in writing that his exception and motion for a new trial referred
exclusively to that part of the judgment that was condemnatory to him. By order of the 10th of
April, 1909, the motions made by both parties were denied, to which they excepted and announced
their intention to file their respective bills of exceptions.
By written motions of the 24th of March, 1909, the plaintiff prayed for the execution of the said
judgment, and the defendant being informed thereof solicited a suspension of the issuance of the
corresponding writ of execution until his motion for a new trial should be decided or his bill of
exceptions for the appeal be approved, binding himself to give such bond as the court might fix.
The court, therefore, by order of the 25th of the same month, granted the suspension asked for,
conditioned upon the defendants giving a bond, fixed at P34,000 by another order of the same
date, to guarantee compliance with the judgment rendered should it be affirmed, or with any other
decision that might be rendered in the case by the Supreme Court. This bond was furnished by
the defendant on the 26th of the same month.
On April 16 and May 4, 1909, the defendant and the plaintiff filed their respective bills of
exceptions, which were certified to and approved by order of May 8th and forwarded to the clerk
of this court.
Before proceeding to examine the disputed facts to make such legal findings as follows from a
consideration of the same and of the questions of law to which such facts give rise, and for the
purpose of avoiding confusion and obtaining the greatest clearness and an easy comprehension
of this decision, it is indispensable to premise: First, that as before related, the original and first
complaint filed by the plaintiff was drawn against Federico Hidalgo, Antonio Hidalgo, and
Francisco Hidalgo, the three persons who had successively administered the property of Jose de
la Peña y Gomiz, now deceased; but afterwards the action was directed solely against Federico
Hidalgo, to the exclusion of the other defendants, Antonio and Francisco Hidalgo, in the second
and third amended complaints, the latter of the date of August 10, 1908, after the issuance by the
court of the order of April 4th of the same year, granting the new trial solicited by the defendant
on his being notified of the ruling of the 24th of the previous month of March; second, that the
administration of the property mentioned, from the time its owner left these Islands and returned
to Spain, lasted from November 18, 1887, to January 7, 1904; and third that, the administration of
the said Federico, Antonio, and Francisco Hidalgo, having lasted so long, it is necessary to divide
it into three periods in order to fix the time during which they respectively administered De la
Peña's property: During the first period, from November 18, 1887, to December 31, 1893, the
property of the absent Jose de la Peña y Gomiz was administered by his agent, Federico Hidalgo,
under power of attorney; during the second period, from January 1, 1894, to September, 1902,
Antonio Hidalgo administered the said property, and during the third period, from October, 1902,
to January 7, 1904, Francisco Hidalgo was its administrator.
Before Jose de la Peña y Gomiz embarked for Spain, on November 12, 1887, he executed before
a notary a power of attorney in favor of Federico Hidalgo, Antonio L. Rocha, Francisco Roxas and
Isidro Llado, so that, as his agents, they might represent him and administer, in the order in which
they were appointed, various properties he owned and possessed in Manila. The first agent,
Federico Hidalgo, took charge of the administration of the said property on the 18th of November,
1887.
After Federico Hidalgo had occupied the position of agent and administrator of De la Peña's
property for several years, the former wrote to the latter requesting him to designate a person who
7
might substitute him in his said position in the event of his being obliged to absent himself from
these Islands, as one of those appointed in the said power of attorney had died and the others did
not wish to take charge of the administration of their principal's property. The defendant, Hidalgo,
stated that his constituent, Peña y Gomiz, did not even answer his letters, to approve or object to
the former's accounts, and did not appoint or designate another person who might substitute the
defendant in his administration of his constituent's property. These statements were neither denied
nor proven to be the record show any evidence tending to disapprove them, while it does show,
attached to the record and exhibited by the defendant himself, several letters written by Hidalgo
and addressed to Peña y Gomiz, which prove the said statements, and also a letter from the priest
Pedro Gomiz, a relative of the deceased Jose de la Peña y Gomiz, addressed to Federico Hidalgo,
telling the latter that the writer had seen among the papers of the deceased several letters from
the agent, Federico Hidalgo, in which the latter requested the designation of a substitute, because
he had to leave this country for Spain, and also asked for the approval or disapproval of the
accounts of his administration which had been transmitted to his constituent, Peña y Gomiz.
For reasons of health and by order of his physician, Federico Hidalgo was obliged, on March 22,
1894, to embark for Spain, and, on preparing for his departure, he rendered the accounts of his
administration corresponding to the last quarters, up to December 31, 1893, not as yet transmitted,
and forwarded them to his constituent with a general statement of all the partial balances, which
amounted to the sum total of 6,774.50 pesos, by letter of the date of March 22, 1894, addressed
to his principal, Peña y Gomiz. In this letter the defendant informed the latter of the writer's
intended departure from this country and of his having provisionally turned over the administration
of the said property to his cousin, Antonio Hidalgo, upon whom the writer had conferred a general
power of attorney, but asking, in case that this was not sufficient, that Peña send to Antonio
Hidalgo a new power of attorney.
This notifications is of the greatest importance in the decision of this case. The plaintiff avers that
he found no such letter among his father's papers after the latter's death, for which reason he did
not have it in his possession, but on the introduction of a copy thereof by the defendant at the trial,
it was admitted without objection by the plaintiff (p. 81 of the record); wherefore, in spite of the
denial of the plaintiff and of his averment of his not having found that said original among his
father's papers, justice demands that it be concluded that this letter of the 22d of March, 1894,
was sent to, and was received by Jose de la Peña y Gomiz, during his lifetime, for its transmittal,
with inclosure of the last partial accounts of Federico Hidalgo's administration and of the general
resume of balances, being affirmed by the defendant, the fact of the plaintiff's having found among
his deceased father's paper's the said resume which he exhibited at the trial, shows conclusively
that it was received by the deceased, as well as the letter of transmittal of the 22nd of March,
1894, one of the several letters written by Hidalgo, which the said priest, Father Gomiz, affirms
that he saw among the papers of the deceased Peña, the dates of which ran from 1890 to 1894;
and it is also shown by the record that the defendant Hidalgo positively asserted that the said letter
of March was the only one that he wrote to Peña during the year 1894; From all of which it is
deduced that the constituent, Peña y Gomiz, was informed of the departure of his agent from these
Islands for reasons of health and because of the physician's advice, of the latter's having turned
over the administration of the property to Antonio Hidalgo, and of his agent's the defendant's
petition that he send a new power of attorney to the substitute.
The existence, amount the papers of the deceased, of the aforementioned statement of all
accounts rendered, which comprise the whole period of the administration of the property of the
constituent by the defendant, Federico Hidalgo, from November 18, 1887, to December 31, 1893
— a statement transmitted with the last partial accounts which were a continuation of those already
previously received — and the said letter of March 22, 1894, fully prove that Jose de la Peña y
Gomiz also received the said letter, informed himself of its contents, and had full knowledge that
Antonio Hidalgo commenced to administer his property from January of that year. They likewise
prove that he did no see fit to execute a new power of attorney in the letter's favor, nor to appoint
or designate a new agent to take charge of the administration of his property that had been
abandoned by the defendant, Federico Hidalgo.
From the procedure followed by the agent, Federico Hidalgo, it is logically inferred that he had
definitely renounced his agency was duly terminated, according to the provisions of article 1732
of the Civil Code, because, although in the said letter of March 22, 1894, the word "renounce" was
not employed in connection with the agency or power of attorney executed in his favor, yet when
the agent informs his principal that for reasons of health and by medical advice he is about to
depart from the place where he is exercising his trust and where the property subject to his
administration is situated, abandons the property, turns it over a third party, without stating when
he may return to take charge of the administration, renders accounts of its revenues up to a certain
date, December 31, 1893, and transmits to his principal a general statement which summarizes
and embraces all the balances of his accounts since he began to exercise his agency to the date
when he ceased to hold his trust, and asks that a power of attorney in due form in due form be
executed and transmitted to another person who substituted him and took charge of the
administration of the principal's property, it is then reasonable and just to conclude that the said
agent expressly and definitely renounced his agency, and it may not be alleged that the
designation of Antonio Hidalgo to take charge of the said administration was that of a mere
proceed lasted for more than fifteen years, for such an allegation would be in conflict with the
nature of the agency.
This renouncement was confirmed by the subsequent procedure, as well as of the agent as of the
principal, until the latter died, on August 2, 1902, since the principal Peña did not disapprove the
designation of Antonio Hidalgo, nor did he appoint another, nor send a new power of attorney to
the same, as he was requested to by the previous administrator who abandoned his charge; and
the trial record certainly contains no proof that the defendant, since he left these Islands in March,
1894, until January, 1904, when he returned to this city, took any part whatever, directly or even
indirectly, in the said administration of the principal's property, while Antonio Hidalgo was the only
person who was in charge of the aforementioned administration of De la Peña y Gomiz's property
and the one who was to represent the latter in his business affairs, with his tacit consent. From all
of which it is perfectly concluded (unless here be proof to the contrary, and none appears in the
record), that Antonio Hidalgo acted in the matter of the administration of the property of Jose de
la Peña y Gomiz by virtue of an implied agency derived from the latter, in accordance with the
provisions of article 1710 of the Civil Code.
The proof of the tacit consent of the principal, Jose de la Peña y Gomiz, the owner of the property
administered — a consent embracing the essential element of a legitimate agency, article 1710
before cited — consists in that Peña, knowing that on account of the departure of Federico Hidalgo
from the Philippines for reasons of health, Antonio Hidalgo took charge of the administration of his
property, for which Federico Hidalgo, his agent, who was giving up his trust, requested him to
send a new power of attorney in favor of the said Antonio Hidalgo, nevertheless he, Jose de la
Peña y Gomiz, saw fit not to execute nor transmit any power of attorney whatever to the new
administrator of his property and remained silent for nearly nine years; and, in that the said
principal, being able to prohibit the party designated, Antonio Hidalgo, from continuing in the
exercise of his position as administrator, and being able to appoint another agent, did neither the
one nor the other. Wherefore, in permitting Antonio Hidalgo to administer his property in this city
during such a number of years, it is inferred, from the procedure and silence of the owner thereof,
that he consented to have Antonio Hidalgo administer his property, and in fact created in his favor
an implied agency, as the true and legitimate administrator.
Antonio Hidalgo administered the aforementioned property of De la Peña y Gomiz, not in the
character of business manager, but as agent by virtue of an implied agency vested in him by its
owner who was not unaware of the fact, who knew perfectly well that the said Antonio Hidalgo
took charge of the administration of that property on account of the obligatory absence of his
previous agent for whom it was an impossibility to continue in the discharge of his duties.
It is improper to compare the case where the owner of the property is ignorant of the officious
management of the third party, with the case where he had perfect knowledge of the management
and administration of the same, which administration and management, far from being opposed
8
by him was indeed consented to by him for nearly nine years, as was done by Peña y Gomiz. The
administration and management, by virtue of an implied agency, is essentially distinguished from
that management of another's business, in this respect, that while the former originated from a
contract, the latter is derived only from a qausi-contract.
The implied agency is founded on the lack of contradiction or opposition, which constitutes
simultaneous agreement on the part of the presumed principal to the execution of the contract,
while in the management of another's business there is no simultaneous consent, either express
or implied, but a fiction or presumption of consent because of the benefit received.
The distinction between an agency and a business management has been established by the
jurisprudence of the supreme court (of Spain) in its noteworthy decision of the 7th of July, 1881,
setting up the following doctrine:
That laws 28 and 32, title 12 Partida 3, refer to the expenses incurred in things not one's own and
without power of attorney from those to whom they belong, and therefore the said laws are not
applicable to this suit where the petition of the plaintiff is founded on the verbal request made to
him by the defendant or the latter's employees to do some hauling, and where, consequently,
questions that arise from a contract that produces reciprocal rights and duties can not be governed
by the said laws.
It being absolutely necessary for Federico Hidalgo to leave this city and abandon the
administration of the property of his principal, Peña y Gomiz, for reasons of health, he made
delivery of the property and of his administration to Antonio Hidalgo and gave notice of what he
had done to his constituent, Peña, in order that the latter might send a new power of attorney to
Antonio Hidalgo, the person charged with the administration of the property. Peña y Gomiz did not
send the power of attorney requested, did not oppose or prohibit Antonio Hidalgo's containing to
administer his property, and consented to his doing so for nearly nine years. Consequently the
second administrator must be considered as a legitimate agent of the said principal, as a result of
the tacit agreement on the latter's part, and the previous agent, who necessarily abandoned and
ceased to hold his position, as completely free and clear from the consequences and results of
the second administration, continued by a third party and accepted by his principal; for it is a fact,
undenied nor even doubted, that the said first administrator had to abandon this country and the
administration of Peña's property for reasons of health, which made it possible for him to continue
in the discharge of his duties without serious detriment to himself, his conduct being in accordance
with the provisions of article 1736 of the Civil Code.
In the power of attorney executed by Peña y Gomiz in this city on November 12, 1887, in favor of,
among others, Federico Hidalgo, no authority was conferred upon the latter by his principal to
substitute the power or agency in favor of another person; wherefore the agent could not, by virtue
of the said power of attorney, appoint any person to substitute or relieve him in the administration
of the principal's property, for the lack of a clause of substitution in the said instrument authorizing
him so to do.
The designation of Antonio Hidalgo was not made as a result of substitution of the power of
attorney executed by Peña in favor of the defendant, but in order that the principal's property
should not be abandoned, inasmuch as, for the purposes of the discharge of the duties of
administrator of the same, the agent, who was about to absent himself from this city, requested
his principal to send to the party, provisionally designated by the former, a new power of attorney,
for the reason that the general power of attorney which Federico Hidalgo had left, executed in
favor of his cousin Antonio Hidalgo, was so executed in his own name and for his own affairs, and
not in the name of Peña y Gomiz, as the latter had not authorized him to take such action.
If the owner of the property provisionally administered at the time by Antonio Hidalgo, saw fit to
keep silent, even after having received the aforesaid letter of March 22, 1894, and during the lapse
of nearly ten years, without counter commanding or disapproving the designation of the person
who took charge of the administration of his property, knowing perfectly well that his previous
agent was obliged, by sickness and medical advice to leave this city where such property was
situated, he is not entitled afterwards to hold amenable the agent who had to abandon this country
for good and valid reasons, inasmuch as the latter immediately reported to his principal the action
taken by himself and informed him of the person who had taken charge of the administration of
his property, which otherwise would have been left abandoned. From the time of that notification
the agent who, for legitimate cause, ceased to exercise his trust, was free and clear from the
results and consequences of the management of the person who substituted him with the consent,
even only a tacit one, of the principal, inasmuch as the said owner of the property could have
objected to could have prohibited the continuance in the administration thereof, of the party
designated by his agent, and could have opportunely appointed another agent or mandatory of
his own confidence to look after his property and if he did not do so, he is obliged to abide by the
consequences of his negligence and abandonment and has no right to claim damages against his
previous agent, who complied with his duty and did all that he could and ought to have done, in
accordance with the law.
The defendant Federico Hidalgo, having ceased in his administration of the property belonging to
Peña y Gomiz, on account of physical impossibility, which cessation he duly reported to his
principal and also informed him of the person who relieved him as such administrator, and for
whom he had requested a new power of attorney, is only liable for the results and consequences
of his administration during the period when the said property was in his charge, and therefore his
liability can not extend beyond the period of his management, as his agency terminated by the
tacit or implied approval of his principal, judging from the latter's silence in neither objecting to nor
in anywise prohibiting Antonio Hidalgo's continuing to administer his property, notwithstanding the
lapse of the many years since he learned by letter of the action taken by his previous agent,
Federico Hidalgo.
Moreover, this latter, in announcing the termination of his agency, transmitted the last partial
accounts that he had not rendered, up to December 31, 1893, together with a general statement
of all the resulting balances covering the period of his administration, and Jose de la Peña y Gomiz
remained silent and offered no objection whatever to the said accounts and did not manifest his
disapproval of the same nor of the general statement, which he must have received in April or
may, 1894, to the time he died, in August, 1902; and when his son, the plaintiff, came to this city
in company with the defendant, Federico Hidalgo, they traveled together from Spain and arrived
in Manila during one of the early days of January, 1904, the former, for the purpose of taking
charge of the estate left by his father, and after the plaintiff had examined the accounts kept by
Federico Hidalgo, his deceased father's first agent, he approved them and therefore issued in
favor of the defendant the document, Exhibit 5, found on page 936 of the second record of trial,
dated January 15, 1904, in which Jose de la Peña y de Ramon acknowledged having received
from his deceased father's old agent the accounts, balances, and vouchers to his entire
satisfaction, and gave an acquittance in full settlement of the administration that had been
commended to the defendant Hidalgo.
This document, written in the handwriting of the plaintiff, Peña y de Ramon, appears to be
executed in a form considered to be sufficient by its author, and, notwithstanding the allegations
of the said plaintiff, the record contains no proof of any kind of Federico Hidalgo's having obtained
it by coercion, intimidation, deceit, or fraud; neither is its shown to have been duly impugned as
false, criminally or civilly, for the statements therein made by the plaintiff are too explicit and
definite to allow, without proof of some vice or defect leading to nullification, of its being considered
as void and without value or legal effect.
With respect to the responsibility contracted by the defendant, as regards the payment of the
balance shown by the accounts rendered by him, it is not enough that the agent should have
satisfactorily rendered the accounts pertaining to his trust, but it is also indispensable that it be
proved that he had paid to his principal, or to the owner of the property administered, the balance
9
resulting from his accounts. This balance, which was allowed in the judgment appealed from,
notwithstanding the allegations of the plaintiff, which were not deemed as established, amounts
to P6,774.50, according to the proofs adduced at the trial. It was the imperative duty of the
administrator, Federico Hidalgo, to transmit this sum to his principal, Jose de la Peña y Gomiz, as
the final balance of the accounts of his administration, struck on December 31, 1893, and by his
failure so to do and delivery of the said sum to his successor, Antonio Hidalgo, he acted
improperly, and must pay the same to the plaintiff.
Antonio Hidalgo took charge of the administration of Peña y Gomiz's property from January, 1894,
to September, 1902, that is, during the second period of administration of the several properties
that belonged to the deceased Peña.
Although the plaintiff, in his original complaint, had included the said Antonio Hidalgo as one of
the responsible defendants, yet he afterwards excluded him, as well from the second as from the
third amended complaint, and consequently the liability that might attach to Antonio Hidalgo was
not discussed, nor was it considered in the judgment of the lower court; neither can it be in the
decision, for the reason that the said Antonio Hidalgo is not a party to this suit. However, the said
liability of Antonio Hidalgo is imputed to Federico Hidalgo, and so it is that, in the complain t, the
claim is made solely against Federico Hidalgo, in order that the latter might be adjudged to pay
the amounts which constitute the balance owing from him who might be responsible, Antonio
Hidalgo, during the period of this latter's administration.
Federico Hidalgo, in our opinion, could not and can not be responsible for the administration of
the property that belonged to the deceased Peña y Gomiz, which was administered by Antonio
Hidalgo during eight years and some months, that is, during the second period, because of the
sole fact of his having turned over to the latter the administration of the said property on his
departure from this city of Spain. Neither law nor reason obliged Federico Hidalgo to remain in
this country at the cost of his health and perhaps of his life, even though he were the administrator
of certain property belonged to Peña y Gomiz, since the care of the property and interests of
another does not require sacrifice on the part of the agent of his own life and interests. Federico
Hidalgo was obliged to deliver the said property belonging to Peña y Gomiz to Antonio Hidalgo for
good and valid reasons, and reasons, and in proceeding in the manner aforesaid he complied with
the duty required of him by law and justice and acted as a diligent agent. If the principal, Jose de
la Peña Gomiz, the owner of the property mentioned, although informed opportunely of what had
occurred saw fit to keep silent, not to object to the arrangements made, not to send the power of
attorney requested by Federico Hidalgo in favor of Antonio Hidalgo, and took no action nor made
any inquiry whatever to ascertain how his property was being administered by the second agent,
although to the time of his death more than eight years had elapsed, the previous agent, who
ceased in the discharge of his duties, can in nowise be held liable for the consequences of such
abandonment, nor for the results of the administration of property by Antonio Hidalgo, for the
reason that, since his departure from this country, he has not had the least intervention nor even
indirect participation in the aforementioned administration of the said Antonio Hidalgo who, under
the law, was the agent or administrator by virtue of an implied agency, which is equivalent in its
results to an express agency, executed by the owner of the property. Consequently, Federico
Hidalgo is not required to render accounts of the administration corresponding to the second
period mentioned, nor to pay the balance that such accounts may show to be owing.
At the first trial of this cause, Federico Hidalgo, testified under oath that his principal, Jose Peña
y Gomiz, did not agree to the appointment of Antonio Hidalgo, chosen by the witness, not to such
appointee's taking charge of the administration of his property. Aside from the fact that the trial
record does not show honor on what date Peña expressed such disagreement it is certain that, in
view of the theory of defense maintained by the defendant Hidalgo could have said, by means of
a no, that his principal did not agree to the appointment of the said Antonio Hidalgo, and the
intercalation of the word no in the statement quoted is more inexplicable in that the attorney for
the adverse party moved that the said answer be stricken from the record, as he objected to its
appearing therein.
Were it true that the principal Jose de la Peña by Gomiz, had neither agreed to the designation of
Antonio Hidalgo, nor to the latter's administering his property, he would immediately have
appointed another agent and administrator, since he knew that Federico Hidalgo had left the place
where his property was situated and that it would be abandoned, had he not wished that Antonio
Hidalgo should continue to administer it. If the latter continued in the administration of the property
for so long a time, nearly nine years, it was because the said Peña agreed and gave his consent
to the acts performed by his outgoing agent, and for this reason the answer given by Federico
Hidalgo mistakenly, or not, that his principal, Peña, did not agree to the appointment of Antonio
Hidalgo, is immaterial and does not affect the terms of this decision.
If the defendant is not responsible for the results of the administration of said property
administered by Antonio Hidalgo during the second period before referred to, neither is he
responsible for that performed during the third period by Francisco Hidalgo, inasmuch as the latter
was not even chosen by the defendant who, on October 1, 1902, when Francisco Hidalgo took
charge of Peñas' property that had been turned over to him by Antonio Hidalgo, was in Spain and
had no knowledge of nor intervention in such delivery; wherefore the defendant can in no manner
be obliged to pay to the plaintiff any sum that may be found owing by Francisco Hidalgo.
The trial judge — taking into consideration that, by the evidence adduced at the hearing, it was
proved that Francisco Hidalgo rendered accounts to the plaintiff of the administration of the
property in question during the said third period, that is, for one year, three months, and someday,
and that he delivered to the plaintiff the balance of 1,280.03 pesos, for which the latter issued to
the said third administrator the document Exhibit 2, written in his own handwriting under date of
January 7, 1904, and the signature which, affixed by himself, he admitted in his testimony was
authentic, on its being exhibited to him — found that the plaintiff, Peña y de Ramon, was not
entitled to recover any sum whatever for the rents pertaining to the administration of his property
by the said Francisco Hidalgo.
All the reasons hereinbefore given relate to the first cause of action, whereby claim is made against
Federico Hidalgo for the payment of the sum of P72,548.24 and interest at the rate of 6 per cent
per centum, and they have decided some of the errors assigned by the appellants in their briefs
to the judgment appealed from.
Two amounts are have claimed which have one and the same origin, yet are based on two causes
of action, the second and the third alleged by the plaintiff; and although the latter, afterwards
convinced by the truth and of the impropriety of his claim, had to waive the said third cause of
action during the second hearing of this cause (pp. 57 and 42 of the record of the evidence), the
trial judge, on the grounds that the said second and third causes of action refer to the same
certificates of deposit of the treasury of the Spanish Government, found, in the judgment appealed
from, that the plaintiff was not entitled to recover anything for the aforesaid second and third
causes of action — a finding that is proper and just, although qualified as erroneous by the plaintiff
in his brief.
It appears, from the evidence taken in this cause, that Jose de la Peña y Gomiz, according to the
certificates issued by the chief of the division his lifetime, after having in 1882 withdrawn from the
General Deposit Bank of the Spanish Government a deposit of 17,000 pesos and its interest
deposit any sum therein until December 9, 1886, when he deposited two amounts of 3,000 pesos
each, that is, 6,000 pesos in all, the two deposit receipts for the same being afterwards endorsed
in favor of Gonzalo Tuason. The latter, on December 9, 1887, withdrew the deposit and took out
the said two amounts, together with the interest due thereon, and on the same date redeposited
them in the sum of 6,360 pesos at 5 per cent per annum in the name of Jose de la Peña y Gomiz.
On the 20th of December of the following year, 1888, the defendant Hidalgo received from his
principal, Peña y Gomiz, through Father Ramon Caviedas, the two said letters of credit, in order
that he might withdraw from the General Deposit Bank the two amounts deposited, together with
the interest due thereon, amounting to 741 pesos, and with this interest purchase a draft on
London in favor of its owner and then redeposit the original capital of 6,000 pesos. This, the
10
defendant Hidalgo did and then delivered the draft and the deposit receipt to Father Caviedas, of
all of which transactions he informed his principal by letter of the same date, transcribed on page
947 of the second trial record.
In the following year, 1889, Father Ramon Caviedas again delivered to the defendant Hidalgo the
aforementioned deposit receipt with the request to withdraw from the General Deposit bank the
sum deposited and to purchase a draft of 860 pesos on London in favor of their owner, Jose de la
Peña y Gomiz, and, after deducting the cost of the said draft from the capital and interest
withdrawn from deposit, amounting to 6,360 pesos, to redeposit the remainder, 5,500 pesos, in
the bank mentioned, in accordance with the instructions from Peña y Gomiz: All of which was
done by the defendant Hidalgo, who delivered to Father Caviedas the receipt for the new deposit
of 5,500 pesos as accredited by the reply-letter, transcribed on page 169 of the record, and by the
letter addressed by Hidalgo to Peña, of the date of December 20 of that year and shown as an
original exhibit by the plaintiff himself on page 29 of the record of the evidence.
Lastly, in December, 1890, Father Caviedas, aforementioned, delivered to the defendant Hidalgo
the said deposit receipt for 5,500 pesos in order that he might withdraw this amount from deposit
and deliver it with the interest thereon to the former for the purpose of remitting it by draft to Jose
de la Peña; this Hidalgo did, according to a reply-letter from Father Caviedas, the original of which
appears on page 979 of the file of exhibits and is copied on page 171 of the trial record, and is
apparently confirmed by the latter in his sworn testimony.
So that the two amounts of 3,000 pesos each, expressed in two deposit receipts received from
De la Peña y Gomiz by Father Ramon Caviedas and afterwards delivered to Francisco Hidalgo
for the successive operations of remittance and redeposit in the bank before mentioned, are the
same and only ones that were on deposit in the said bank in the name of their owner, Peña y
Gomiz. The defendant Hidalgo made two remittances by drafts of London, one in 1888 for 741.60
pesos, through a draft purchased from the Chartered Bank, and another in 1889 for 860 pesos,
through a draft purchased from the house of Tuason & Co., and both in favor of Peña y Gomiz,
who received through Father Ramon Caviedas the remainder, 5,500 pesos, of the sums
deposited. For these reasons, the trial judge was of the opinion that the certificates of deposit sent
by Peña y Gomiz to Father Ramon Caviedas and those received from the latter by the defendant
Hidalgo were identicals, as were likewise the total amounts expressed by the said receipts or
certificates of deposit, from the sum of which were deducted the amounts remitted to Peña y
Gomiz and the remainder deposited after each anual operation until, finally, the sum of 5,500
pesos was remitted to its owner, Peña y Gomiz, according to his instructions, through the said
Father Caviedas. The lower court, in concluding its judgment, found that the plaintiff was entitled
to recover any sum whatever for the said second and third causes of action, notwithstanding that,
as hereinbefore stated, the said plaintiff withdrew the third cause of action. This finding of the
court, with respect to the collection of the amounts of the aforementioned deposit receipts, is
perfectly legal and in accordance with justice, inasmuch as it is a sustained by abundant and
conclusive documentary evidence, which proves in an incontrovertible manner the
unrighteousness of the claim made by the plaintiff in twice seeking payment, by means of the said
second and third causes of action, of the said sum which, after various operations of deposit and
remittance during three years, was finally returned with its interest to the possession of its owner,
Peña y Gomiz.
From the trial had in this case, it also appears conclusively proved that Jose de la Peña y Gomiz
owed, during his lifetime, to Federico Hidalgo, 7,600 pesos, 4,000 pesos of which were to bear
interest at the rate of 6 per cent per annum, and the remainder without any interest, and that,
notwithstanding the lapse of the period of three years, from November, 1887, within which he
bound himself to repay the amount borrowed, and in spite of his creditor's demand of payment,
made by registered letter, the original copy of which is on page 38 of the file of exhibits and a
transcription thereof on page 930 of the first and second record of the evidence, the debt was not
paid up to the time of the debtor's death. For such reasons, the trial court, in the judgment appealed
from, found that there was a preponderance of evidence to prove that this loan had been made
and that the plaintiff actually owed the defendant the sum loaned, as well as the interest thereon,
after deducting therefrom the 2,000 pesos which the defendant received from the plaintiff on
account of the credit, and that the former was entitled to recover.
It appears from the pleadings and evidence at the trial that in January, 1904, on the arrival in this
city of Federico de la Peña de Ramon, and on the occasion of the latter's proceeding to examine
the accounts previously rendered, up to December 31, 1893, by the defendant Hidalgo to the
plaintiff's father, then deceased, Hidalgo made demand upon the plaintiff, Peña y de Ramon, for
the payment of the said debt of his father, although the creditor Hidalgo acceded to the requests
of the plaintiff to grant the latter an extension of time until he should be able to sell one of the
properties of the estate. It was at that time, according to the defendant, that the plaintiff Peña took
up the instrument of indebtedness, executed by his deceased father during his lifetime, and
delivered to the defendant in exchange therefor the document of the date of January 15, 1904,
found on page 924 of the second record of evidence, whereby the plaintiff, Jose de la Peña, bound
himself to pay his father's debt of 11,000 pesos, owing to the defendant Hidalgo, out of the
proceeds of the sale of some of the properties specified in the said document, which was written
and signed by the plaintiff in his own handwriting.
The plaintiff not only executed the said document acknowledging his father's debt and binding
himself to settle it, but also, several days after the sale of a lot belonging to the estate, paid to the
creditor on account the sum of 2,000 pesos, according to the receipt issued by the latter and
exhibited on page 108 of the first record of evidence.
The said document, expressive of the obligation contracted by the plaintiff Peña y de Ramon that
he would pay to the defendant the debt of plaintiff's deceased father, amounting to 11,000 pesos,
out of the proceeds from some of the properties of the estate, has not been denied nor impugned
as false; and not withstanding the averment made by the plaintiff that when he signed he lacked
information and knowledge of the true condition of the affairs concerning Hidalgo's connection
with the property that be absolutely no proof whatever is shown in the trial record of the creditor's
having obtained the said document through deceit or fraud — circumstances in a certain manner
incompatible with the explicit statements contained therein. For these reasons, the trial court,
weighing the whole of the evidence furnished by the record, found that the loan of the said 7,600
pesos was truly and positively made, and that the plaintiff must pay the same to the defendant,
with the interest thereon, and that he was not entitled to recover the 2,000 pesos, as an undue
payment made by him to the defendant creditor. For the foregoing reason the others errors
assigned by the plaintiff to the judgment appealed from are dismissed.
With respect to the obligation to pay the interest due on the amounts concerned in this decision,
it must be borne in mind that, as provided by article 1755 of the Civil Code, interest shall only be
owed when it has been expressly stipulated, and that should the debtor, who is obliged to pay a
certain sum of money, be in default and fail to fulfill the agreement made with his creditor, he must
pay, as indemnity for losses and damages, the interest agreed upon, and should there be no
express stipulation, the legal interest (art. 1108 of the Civil Code); but, in order that the debtor may
be considered to be in default and obliged to pay the indemnity, it is required, as a general rule,
that his creditor shall demand of such debtor the fulfillment of his obligation, judicially or
extrajudicially, except in such cases as are limitedly specified in article 1100 of the Civil Code.
It was not expressly stipulated that either the balance of the last account rendered by the
defendant Federico Hidalgo in 1893, or the sum which the plaintiff bound himself to pay to the
defendant, in the instrument of the 15th of January, 1904, should bear interest; nor is there proof
that a judicial or extrajudicial demand was made, on the part of the respective creditors concerned,
until the date of complaint, on the part of the plaintiff, and that of the counterclaim, on the part of
the defendant. Therefore no legal interest is owing for the time prior to the respectives dates of
the complaint and counterclaim.
11
By virtue, then, of the reasons herein before set forth, it is proper, in our opinion, to adjudge, as
we do hereby adjudge, that the defendant, Federico Hidalgo, shall pay to the plaintiff, Jose de la
Peña y de Ramon, as administrator of the estate of the deceased Jose de la Peña y Gomiz, the
sum of P6,774.50, and the legal interest thereon at the rate of 6 per cent per annum from 23rd of
May, 1906, the date of the filing of the original complaint in this case; that we should and hereby
do declare that the said defendant Federico Hidalgo, is not bound to gibe nor render accounts of
the administration of the property of the said deceased Jose de la Peña y Gomiz administered,
respectively, by Antonio Hidalgo, from January, 1894, to September 30, 1902, and by Francisco
Hidalgo, from October 1, 1902, to January 7, 1904, and therefore the defendant, Federico Hidalgo,
not being responsible for the results of the administration of the said property administered by the
said Antonio and Francisco Hidalgo, we do absolve the said defendant from the complaint filed by
the plaintiff, in so far as it concerns the accounts pertaining to the aforesaid two periods of
administration and relates to the payment of the balances resulting from such accounts; and that
we should and hereby do absolve the defendant Hidalgo from the complaint with respect to the
demand for the payment of the sums of P15,774.19 and P2,000, with their respective interests,
on account of the second and the fourth cause of action, respectively, and because the plaintiff
renounced and withdrew his complaint, with respect to the third cause of action; and that we should
and do likewise adjudge, that the plaintiff, Jose de la Peña y de Ramon, shall pay to Federico
Hidalgo, by reason of the counterclaim, the sum of P9,000 with legal interest thereon at the rate
of 6 per cent per annum from 21st of may, 1907, the date of the counterclaim.

The judgment appealed from, together with that part thereof relative to the statement it contains
concerning the equivalence between the Philippine peso and the Mexican peso, is affirmed in so
far as it is in agreement with the findings of this decision, and the said judgment is reversed in so
far as it is not in accordance herewith. No special finding is made as to costs assessed in either
instance, and to the plaintiff is reserved any right that he may be entitled to enforce against Antonio
Hidalgo.

12
Loan
1. Jai Alai Corp. v. BPI
CASTRO, J.:
FACTS:
From April 2, 1959 to May 18, 1959, ten checks with a total face value of P8,030.58 were deposited
by the petitioner in its current account with the respondent bank. The particulars of these checks
are as follows:
1. 5 Drawn by the Delta Engineering Service upon the Pacific Banking Corporation and
payable to the Inter-Island Gas Service Inc. or order:
2. 2 Drawn by the Enrique Cortiz & Co. upon the Pacific Banking Corporation and payable
to the Inter-Island Gas Service, Inc. or bearer:
3. 1 Drawn by the Luzon Tinsmith & Company upon the China Banking Corporation and
4. 2 Drawn by the Roxas Manufacturing, Inc. upon the Philippine National Bank and
payable to the Inter-Island Gas Service, Inc. order:
All the foregoing checks, which were acquired by the Jai Alai Corp. from one Ramirez, a sales
agent of the Inter-Island Gas and a regular bettor at jai-alai games, were, upon deposit, temporarily
credited to the petitioner's account in accordance with the clause printed on the deposit slips
issued by the respondent and which reads:
"Any credit allowed the depositor on the books of the Bank for checks or drafts hereby received
for deposit, is provisional only, until such time as the proceeds thereof, in current funds or solvent
credits, shall have been actually received by the Bank and the latter reserves to itself the right to
charge back the item to the account of its depositor, at any time before that event, regardless of
whether or not the item itself can be returned."
About the latter part of July 1959, after Ramirez had resigned from the Inter-Island Gas and after
the checks had been submitted to inter-bank clearing, the Inter-Island Gas discovered that all the
indorsements made on the checks purportedly by its cashiers, Santiago Amplayo and Vicenta
Mucor (who were merely authorized to deposit checks issued payable to the said company) as
well as the rubber stamp impression thereon reading "Inter-Island Gas Service, Inc.," were
forgeries. In due time, the Inter-Island Gas advised the petitioner, the respondent, the drawers
and the drawee-banks of the said checks about the forgeries, and filed a criminal complaint against
Ramirez with the Office of the City Fiscal of Manila. 1
The respondent's cashier, Ramon Sarthou, upon receipt of the latter of Inter-Island Gas dated
August 31, 1959, called up the petitioner's cashier, Manuel Garcia, and advised the latter that in
view of the circumstances he would debit the value of the checks against the petitioner's account
as soon as they were returned by the respective drawee-banks.
Meanwhile, the drawers of the checks, having been notified of the forgeries, demanded
reimbursement to their respective accounts from the drawee-banks, which in turn demanded from
the respondent, as collecting bank, the return of the amounts they had paid on account thereof.
When the drawee-banks returned the checks to the respondent, the latter paid their value which
the former in turn paid to the Inter-Island Gas. The respondent, for its part, debited the petitioner's
current account and forwarded to the latter the checks containing the forged indorsements, which
the petitioner, however, refused to accept.
On October 8, 1959 the petitioner drew against its current account with the respondent a check
for P135,000 payable to the order of the Mariano Olondriz y Cia. in payment of certain shares of
stock. The check was, however, dishonored by the respondent as its records showed that as of
October 8, 1959 the current account of the petitioner, after netting out the value of the checks
P8,030.58) with the forged indorsements, had a balance of only P128,257.65.
The petitioner then filed a complaint against the respondent with the Court of First Instance of
Manila, which was however dismissed by the trial court after due trial, and as well by the Court of
Appeals, on appeal.
Hence, the present recourse.
The issues posed by the petitioner in the instant petition may be briefly stated as follows:
(a) Whether the respondent had the right to debit the petitioner's current account in the amount
corresponding to the total value of the checks in question after more than three months had
elapsed from the date their value was credited to the petitioner's account:(b) Whether the
respondent is estopped from claiming that the amount of P8,030.58, representing the total value
of the checks with the forged indorsements, had not been properly credited to the petitioner's
account, since the same had already been paid by the drawee-banks and received in due course
by the respondent; and(c) On the assumption that the respondent had improperly debited the
petitioner's current account, whether the latter is entitled to damages.
These three issues interlock and will be resolved jointly.
In our opinion, the respondent acted within legal bounds when it debited the petitioner's account.
When the petitioner deposited the checks with the respondent, the nature of the relationship
created at that stage was one of agency, that is, the bank was to collect from the drawees of the
checks the corresponding proceeds. It is true that the respondent had already collected the
proceeds of the checks when it debited the petitioner's account, so that following the rule in Gullas
vs. Philippine National Bank 2 it might be argued that the relationship between the parties had
become that of creditor and debtor as to preclude the respondent from using the petitioner's funds
to make payments not authorized by the latter. It is our view nonetheless that no creditor-debtor
relationship was created between the parties.
Section 23 of the Negotiable Instruments Law (Act 2031) states that 3 —
"When a signature is forged or made without the authority of the person whose signature it
purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge
therefor, or to enforce payment thereof against any party thereto, can be acquired through or
under such signature, unless the party against whom it is sought to enforce such right is precluded
from setting up the forgery or want of authority."
Since under the foregoing provision, a forged signature in a negotiable instrument is wholly
inoperative and no right to discharge it or enforce its payment can be acquired through or under
the forged signature except against a party who cannot invoke the forgery, it stands to reason,
upon the facts of record, that the respondent, as a collecting bank which indorsed the checks to
the drawee-banks for clearing, should be liable to the latter for reimbursement, for, as found by
the court a quo and by the appellate court, the indorsements on the checks had been forged prior
to their delivery to the petitioner. In legal contemplation, therefore, the payments made by the
drawee-banks to the respondent on account of the said checks were ineffective; and, such being
13
the case, the relationship of creditor and debtor between the petitioner and the respondent had
not been validly effected, the checks not having been properly and legitimately converted into
cash. 4
In Great Eastern Life Ins. Co. vs. Hongkong & Shanghai Bank, 5 the Court ruled that it is the
obligation of the collecting bank to reimburse the drawee-bank the value of the checks
subsequently found to contain the forged indorsement of the payee. The reason is that the bank
with which the check was deposited has no right to pay the sum stated therein to the forger "or
anyone else upon a forged signature." "It was its duty to know," said the Court, "that [the payee's]
endorsement was genuine before cashing the check." The petitioner must in turn shoulder the
loss of the amounts which the respondent; as its collecting agent, had to reimburse to the drawee-
banks.
We do not consider material for the purposes of the case at bar that more than three months had
elapsed since the proceeds of the checks in question were collected by the respondent. The
record shows that the respondent had acted promptly after being informed that the indorsements
on the checks were forged. Moreover, having received the checks merely for collection and
deposit, the respondent cannot he expected to know or ascertain the genuineness of all prior
indorsements on the said checks. Indeed, having itself indorsed them to the respondent in
accordance with the rules and practices of commercial banks, of which the Court takes due
cognizance, the petitioner is deemed to have given the warranty prescribed in Section 66 of the
Negotiable Instruments Law that every single one of those checks "is genuine and in all respects
what it purports to be.".
warranty should not be held liable for the resulting loss. This conclusion applied similarly to exh.
22 which is an uncrossed bearer instrument, for under Section 65 of the Negotiable Instrument
Law. "Every person negotiating an instrument by delivery . . . warrants (a) That the instrument is
genuine and in all respects what it purports to be." Under that same section this warranty "extends
in favor of no holder other than the immediate transferee," which, in the case at bar, would be the
respondent.
The provision in the deposit slip issued by the respondent which stipulates that it "reserves to itself
the right to charge back the item to the account of its depositor," at any time before "current funds
or solvent credits shall have been actually received by the Bank," would not materially affect the
conclusion we have reached. That stipulation prescribes that there must be an actual receipt by
the bank of current funds or solvent credits; but as we have earlier indicated the transfer by the
drawee-banks of funds to the respondent on account of the checks in question was ineffectual
because made under the mistaken and valid assumption that the indorsements of the payee
thereon were genuine. Under article 2154 of the New Civil Code "If something is received when
there is no right to demand it and it was unduly delivered through mistake, the obligation to return
it arises." There was, therefore, in contemplation of law, no valid payment of money made by the
drawee-banks to the respondent on account of the questioned checks.
ACCORDINGLY, the judgment of the Court of Appeals is affirmed, at petitioner's cost.

The petitioner was, moreover, grossly recreant in accepting the checks in question from Ramirez.
It could not have escaped the attention of the petitioner that the payee of all the checks was a
corporation — the Inter-Island Gas Service, Inc. Yet, the petitioner cashed these checks to a mere
individual who was admittedly a habitue at its jai-alai games without making any inquiry as to his
authority to exchange checks belonging to the payee-corporation. In Insular Drug Co. vs. National
6 the Court made the pronouncement that.

". . . The right of an agent to indorse commercial paper is a very responsible power and will not be
lightly inferred. A salesman with authority to collect money belonging to his principal does not have
the implied authority to indorse checks received in payment. Any person taking checks made
payable to a corporation, which can act only by agents, does so at his peril, and must abide by
the consequences if the agent who indorses the same is without authority." (underscoring
supplied)

It must be noted further that three of the checks in question are crossed checks, namely, exhs.
21, 25 and 27, which may only be deposited, but not encashed; yet, the petitioner negligently
accepted them for cash. That two of the crossed checks, namely, exhs. 21 and 25, are bearer
instruments would not, in our view, exculpate the petitioner from liability with respect to them. The
fact that they are bearer checks and at the same time crossed checks should have aroused the
petitioner's suspicion as to the title of Ramirez over them and his authority to cash them
(apparently to purchase jai-alai tickets from the petitioner), it appearing on their face that a
corporate entity — the Inter Island Gas Service, Inc. — was the payee thereof and Ramirez
delivered the said checks to the petitioner ostensibly on the strength of the payee's cashiers'
indorsements.

At all events, under Section 67 of the Negotiable Instruments Law, "Where a person places his
indorsement on an instrument negotiable by delivery he incurs all the liability of an indorser," and
under Section 66 of the same statute a general indorser warrants that the instrument "is genuine
and in all respects what it purports to be." Considering that the petitioner indorsed the said checks
when it deposited them with the respondent, the petitioner as an indorser guaranteed the
genuineness of all prior indorsements thereon. The respondent which relied upon the petitioner's

14
Sales
1. Quiroga v. Parsons Hardware
AVANCEÑA, J.:
FACTS:
A contract was entered into by the parties where it provided that Quiroga would grant exclusive
right to sell his beds in the Visayan Islands to J. Parsons under the following conditions:
(A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter's
establishment in Iloilo, and shall invoice them at the same price he has fixed for sales, in Manila,
and, in the invoices, shall make and allowance of a discount of 25 per cent of the invoiced prices,
as commission on the sale; and Mr. Parsons shall order the beds by the dozen, whether of the
same or of different styles.
(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, within a period of
sixty days from the date of their shipment.
(C) The expenses for transportation and shipment shall be borne by M. Quiroga, and the
freight, insurance, and cost of unloading from the vessel at the point where the beds are received,
shall be paid by Mr. Parsons.
(D) If, before an invoice falls due, Mr. Quiroga should request its payment, said payment
when made shall be considered as a prompt payment, and as such a deduction of 2 per cent shall
be made from the amount of the invoice.
The same discount shall be made on the amount of any invoice which Mr. Parsons may deem
convenient to pay in cash.
(E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of any
alteration in price which he may plan to make in respect to his beds, and agrees that if on the date
when such alteration takes effect he should have any order pending to be served to Mr. Parsons,
such order shall enjoy the advantage of the alteration if the price thereby be lowered, but shall not
be affected by said alteration if the price thereby be increased, for, in this latter case, Mr. Quiroga
assumed the obligation to invoice the beds at the price at which the order was given.
(F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga" beds.
ART. 2. In compensation for the expenses of advertisement which, for the benefit of both
contracting parties, Mr. Parsons may find himself obliged to make, Mr. Quiroga assumes the
obligation to offer and give the preference to Mr. Parsons in case anyone should apply for the
exclusive agency for any island not comprised with the Visayan group.
ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of "Quiroga" beds
in all the towns of the Archipelago where there are no exclusive agents, and shall immediately
report such action to Mr. Quiroga for his approval.
ART. 4. This contract is made for an unlimited period, and may be terminated by either of the
contracting parties on a previous notice of ninety days to the other party.
Of the three causes of action alleged by the plaintiff in his complaint, only two of them constitute
the subject matter of this appeal and both substantially amount to the averment that the defendant
violated the following obligations: not to sell the beds at higher prices than those of the invoices;
to have an open establishment in Iloilo; itself to conduct the agency; to keep the beds on public
exhibition, and to pay for the advertisement expenses for the same; and to order the beds by the
dozen and in no other manner. As may be seen, with the exception of the obligation on the part
of the defendant to order the beds by the dozen and in no other manner, none of the obligations
imputed to the defendant in the two causes of action are expressly set forth in the contract. But
the plaintiff alleged that the defendant was his agent for the sale of his beds in Iloilo, and that said
obligations are implied in a contract of commercial agency. The whole question, therefore, reduced
itself to a determination as to whether the defendant, by reason of the contract hereinbefore
transcribed, was a purchaser or an agent of the plaintiff for the sale of his beds.
In order to classify a contract, due regard must be given to its essential clauses. In the contract in
question, what was essential, as constituting its cause and subject matter, is that the plaintiff was
to furnish the defendant with the beds which the latter might order, at the price stipulated, and that
the defendant was to pay the price in the manner stipulated. The price agreed upon was the one
determined by the plaintiff for the sale of these beds in Manila, with a discount of from 20 to 25
per cent, according to their class. Payment was to be made at the end of sixty days, or before, at
the plaintiff's request, or in cash, if the defendant so preferred, and in these last two cases an
additional discount was to be allowed for prompt payment. These are precisely the essential
features of a contract of purchase and sale. There was the obligation on the part of the plaintiff to
supply the beds, and, on the part of the defendant, to pay their price. These features exclude the
legal conception of an agency or order to sell whereby the mandatory or agent received the thing
to sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale
of the thing to a third person, and if he does not succeed in selling it, he returns it. By virtue of the
contract between the plaintiff and the defendant, the latter, on receiving the beds, was necessarily
obliged to pay their price within the term fixed, without any other consideration and regardless as
to whether he had or had not sold the beds.
It would be enough to hold, as we do, that the contract by and between the defendant and the
plaintiff is one of purchase and sale, in order to show that it was not one made on the basis of a
commission on sales, as the plaintiff claims it was, for these contracts are incompatible with each
other. But, besides, examining the clauses of this contract, none of them is found that substantially
supports the plaintiff's contention. Not a single one of these clauses necessarily conveys the idea
of an agency. The words commission on sales used in clause (A) of article 1 mean nothing else,
as stated in the contract itself, than a mere discount on the invoice price. The word agency, also
used in articles 2 and 3, only expresses that the defendant was the only one that could sell the
plaintiff's beds in the Visayan Islands. With regard to the remaining clauses, the least that can be
said is that they are not incompatible with the contract of purchase and sale.
The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of the
defendant corporation and who established and managed the latter's business in Iloilo. It appears
that this witness, prior to the time of his testimony, had serious trouble with the defendant, had
maintained a civil suit against it, and had even accused one of its partners, Guillermo Parsons, of
falsification. He testified that it was he who drafted the contract Exhibit A, and, when questioned
as to what was his purpose in contracting with the plaintiff, replied that it was to be an agent for
his beds and to collect a commission on sales. However, according to the defendant's evidence,
it was Mariano Lopez Santos, a director of the corporation, who prepared Exhibit A. But, even
supposing that Ernesto Vidal has stated the truth, his statement as to what was his idea in
contracting with the plaintiff is of no importance, inasmuch as the agreements contained in Exhibit
A which he claims to have drafted, constitute, as we have said, a contract of purchase and sale,
and not one of commercial agency. This only means that Ernesto Vidal was mistaken in his
classification of the contract. But it must be understood that a contract is what the law defines it to
be, and not what it is called by the contracting parties.
The plaintiff also endeavored to prove that the defendant had returned beds that it could not sell;
that, without previous notice, it forwarded to the defendant the beds that it wanted; and that the
15
defendant received its commission for the beds sold by the plaintiff directly to persons in Iloilo. But
all this, at the most only shows that, on the part of both of them, there was mutual tolerance in the
performance of the contract in disregard of its terms; and it gives no right to have the contract
considered, not as the parties stipulated it, but as they performed it. Only the acts of the contracting
parties, subsequent to, and in connection with, the execution of the contract, must be considered
for the purpose of interpreting the contract, when such interpretation is necessary, but not when,
as in the instant case, its essential agreements are clearly set forth and plainly show that the
contract belongs to a certain kind and not to another. Furthermore, the return made was of certain
brass beds, and was not effected in exchange for the price paid for them, but was for other beds
of another kind; and for the letter Exhibit L-1, requested the plaintiff's prior consent with respect to
said beds, which shows that it was not considered that the defendant had a right, by virtue of the
contract, to make this return. As regards the shipment of beds without previous notice, it is
insinuated in the record that these brass beds were precisely the ones so shipped, and that, for
this very reason, the plaintiff agreed to their return. And with respect to the so-called commissions,
we have said that they merely constituted a discount on the invoice price, and the reason for
applying this benefit to the beds sold directly by the plaintiff to persons in Iloilo was because, as
the defendant obligated itself in the contract to incur the expenses of advertisement of the plaintiff's
beds, such sales were to be considered as a result of that advertisement.

In respect to the defendant's obligation to order by the dozen, the only one expressly imposed by
the contract, the effect of its breach would only entitle the plaintiff to disregard the orders which
the defendant might place under other conditions; but if the plaintiff consents to fill them, he waives
his right and cannot complain for having acted thus at his own free will.

For the foregoing reasons, we are of opinion that the contract by and between the plaintiff and the
defendant was one of purchase and sale, and that the obligations the breach of which is alleged
as a cause of action are not imposed upon the defendant, either by agreement or by law.

The judgment appealed from is affirmed, with costs against the appellant. So ordered.

16
 2. Gonzalo Puyat and Sons v. Arco Amusement Co.
LAUREL, J.:
This is a petition for the issuance of a writ of certiorari to the Court of Appeals for the purpose of
reviewing its Amusement Company (formerly known as Teatro Arco), plaintiff-appellant, vs.
Gonzalo Puyat and Sons. Inc., defendant-appellee."
It appears that the respondent herein brought an action against the herein petitioner in the Court
of First Instance of Manila to secure a reimbursement of certain amounts allegedly overpaid by it
on account of the purchase price of sound reproducing equipment and machinery ordered by the
petitioner from the Starr Piano Company of Richmond, Indiana, U.S.A. The facts of the case as
found by the trial court and confirmed by the appellate court, which are admitted by the respondent,
are as follows:
In the year 1929, the "Teatro Arco", a corporation duly organized under the laws of the Philippine
Islands, with its office in Manila, was engaged in the business of operating cinematographs. In
1930, its name was changed to Arco Amusement Company. C. S. Salmon was the president,
while A. B. Coulette was the business manager. About the same time, Gonzalo Puyat & Sons,
Inc., another corporation doing business in the Philippine Islands, with office in Manila, in addition
to its other business, was acting as exclusive agents in the Philippines for the Starr Piano
Company of Richmond, Indiana, U.S. A. It would seem that this last company dealt in
cinematographer equipment and machinery, and the Arco Amusement Company desiring to
equipt its cinematograph with sound reproducing devices, approached Gonzalo Puyat & Sons,
Inc., thru its then president and acting manager, Gil Puyat, and an employee named Santos. After
some negotiations, it was agreed between the parties, that is to say, Salmon and Coulette on one
side, representing the plaintiff, and Gil Puyat on the other, representing the defendant, that the
latter would, on behalf of the plaintiff, order sound reproducing equipment from the Starr Piano
Company and that the plaintiff would pay the defendant, in addition to the price of the equipment,
a 10 per cent commission, plus all expenses, such as, freight, insurance, banking charges, cables,
etc. At the expense of the plaintiff, the defendant sent a cable, Exhibit "3", to the Starr Piano
Company, inquiring about the equipment desired and making the said company to quote its price
without discount. A reply was received by Gonzalo Puyat & Sons, Inc., with the price, evidently
the list price of $1,700 f.o.b. factory Richmond, Indiana. The defendant did not show the plaintiff
the cable of inquiry nor the reply but merely informed the plaintiff of the price of $1,700. Being
agreeable to this price, the plaintiff, by means of Exhibit "1", which is a letter signed by C. S.
Salmon dated November 19, 1929, formally authorized the order. The equipment arrived about
the end of the year 1929, and upon delivery of the same to the plaintiff and the presentation of
necessary papers, the price of $1.700, plus the 10 per cent commission agreed upon and plus all
the expenses and charges, was duly paid by the plaintiff to the defendant.
Sometime the following year, and after some negotiations between the same parties, plaintiff and
defendants, another order for sound reproducing equipment was placed by the plaintiff with the
defendant, on the same terms as the first order. This agreement or order was confirmed by the
plaintiff by its letter Exhibit "2", without date, that is to say, that the plaintiff would pay for the
equipment the amount of $1,600, which was supposed to be the price quoted by the Starr Piano
Company, plus 10 per cent commission, plus all expenses incurred. The equipment under the
second order arrived in due time, and the defendant was duly paid the price of $1,600 with its 10
per cent commission, and $160, for all expenses and charges. This amount of $160 does not
represent actual out-of-pocket expenses paid by the defendant, but a mere flat charge and rough
estimate made by the defendant equivalent to 10 per cent of the price of $1,600 of the equipment.
About three years later, in connection with a civil case in Vigan, filed by one Fidel Reyes against
the defendant herein Gonzalo Puyat & Sons, Inc., the officials of the Arco Amusement Company
discovered that the price quoted to them by the defendant with regard to their two orders
mentioned was not the net price but rather the list price, and that the defendants had obtained a
discount from the Starr Piano Company. Moreover, by reading reviews and literature on prices of
machinery and cinematograph equipment, said officials of the plaintiff were convinced that the
prices charged them by the defendant were much too high including the charges for out-of-pocket
expense. For these reasons, they sought to obtain a reduction from the defendant or rather a
reimbursement, and failing in this they brought the present action.
The trial court held that the contract between the petitioner and the respondent was one of outright
purchase and sale, and absolved that petitioner from the complaint. The appellate court, however,
— by a division of four, with one justice dissenting — held that the relation between petitioner and
respondent was that of agent and principal, the petitioner acting as agent of the respondent in the
purchase of the equipment in question, and sentenced the petitioner to pay the respondent alleged
overpayments in the total sum of $1,335.52 or P2,671.04, together with legal interest thereon from
the date of the filing of the complaint until said amount is fully paid, as well as to pay the costs of
the suit in both instances. The appellate court further argued that even if the contract between the
petitioner and the respondent was one of purchase and sale, the petitioner was guilty of fraud in
concealing the true price and hence would still be liable to reimburse the respondent for the
overpayments made by the latter.
The petitioner now claims that the following errors have been incurred by the appellate court:
I. El Tribunal de Apelaciones incurrio en error de derecho al declarar que, segun hechos, entre la
recurrente y la recurrida existia una relacion implicita de mandataria a mandante en la transaccion
de que se trata, en vez de la de vendedora a compradora como ha declarado el Juzgado de
Primera Instncia de Manila, presidido entonces por el hoy Magistrado Honorable Marcelino
Montemayor.
II. El Tribunal de Apelaciones incurrio en error de derecho al declarar que, suponiendo que dicha
relacion fuerra de vendedora a compradora, la recurrente obtuvo, mediante dolo, el
consentimiento de la recurrida en cuanto al precio de $1,700 y $1,600 de las maquinarias y
equipos en cuestion, y condenar a la recurrente ha obtenido de la Starr Piano Company of
Richmond, Indiana.
We sustain the theory of the trial court that the contract between the petitioner and the respondent
was one of purchase and sale, and not one of agency, for the reasons now to be stated.
In the first place, the contract is the law between the parties and should include all the things they
are supposed to have been agreed upon. What does not appear on the face of the contract should
be regarded merely as "dealer's" or "trader's talk", which can not bind either party. (Nolbrook v.
Conner, 56 So., 576, 11 Am. Rep., 212; Bank v. Brosscell, 120 III., 161; Bank v. Palmer, 47 III.,
92; Hosser v. Copper, 8 Allen, 334; Doles v. Merrill, 173 Mass., 411.) The letters, Exhibits 1 and
2, by which the respondent accepted the prices of $1,700 and $1,600, respectively, for the sound
reproducing equipment subject of its contract with the petitioner, are clear in their terms and admit
no other interpretation that the respondent in question at the prices indicated which are fixed and
determinate. The respondent admitted in its complaint filed with the Court of First Instance of
Manila that the petitioner agreed to sellto it the first sound reproducing equipment and machinery.
The third paragraph of the respondent's cause of action states:
3. That on or about November 19, 1929, the herein plaintiff (respondent) and defendant (petitioner)
entered into an agreement, under and by virtue of which the herein defendant was to secure from
the United States, and sell and deliver to the herein plaintiff, certain sound reproducing equipment
and machinery, for which the said defendant, under and by virtue of said agreement, was to
receive the actual cost price plus ten per cent (10%), and was also to be reimbursed for all out of
pocket expenses in connection with the purchase and delivery of such equipment, such as costs
of telegrams, freight, and similar expenses. (Emphasis ours.)
17
We agree with the trial judge that "whatever unforseen events might have taken place unfavorable
to the defendant (petitioner), such as change in prices, mistake in their quotation, loss of the goods
not covered by insurance or failure of the Starr Piano Company to properly fill the orders as per
specifications, the plaintiff (respondent) might still legally hold the defendant (petitioner) to the
prices fixed of $1,700 and $1,600." This is incompatible with the pretended relation of agency
between the petitioner and the respondent, because in agency, the agent is exempted from all
liability in the discharge of his commission provided he acts in accordance with the instructions
received from his principal (section 254, Code of Commerce), and the principal must indemnify
the agent for all damages which the latter may incur in carrying out the agency without fault or
imprudence on his part (article 1729, Civil Code).
better that, within certain limits, business acumen permit of the loosening of the sleeves and of
the sharpening of the intellect of men and women in the business world.
The writ of certiorari should be, as it is hereby, granted. The decision of the appellate court is
accordingly reversed and the petitioner is absolved from the respondent's complaint in G. R. No.
1023, entitled "Arco Amusement Company (formerly known as Teatro Arco), plaintiff-appellant,
vs. Gonzalo Puyat & Sons, Inc., defendants-appellee," without pronouncement regarding costs.
So ordered.

While the latters, Exhibits 1 and 2, state that the petitioner was to receive ten per cent (10%)
commission, this does not necessarily make the petitioner an agent of the respondent, as this
provision is only an additional price which the respondent bound itself to pay, and which stipulation
is not incompatible with the contract of purchase and sale. (See Quiroga vs. Parsons Hardware
Co., 38 Phil., 501.)

In the second place, to hold the petitioner an agent of the respondent in the purchase of equipment
and machinery from the Starr Piano Company of Richmond, Indiana, is incompatible with the
admitted fact that the petitioner is the exclusive agent of the same company in the Philippines. It
is out of the ordinary for one to be the agent of both the vendor and the purchaser. The facts and
circumstances indicated do not point to anything but plain ordinary transaction where the
respondent enters into a contract of purchase and sale with the petitioner, the latter as exclusive
agent of the Starr Piano Company in the United States.

It follows that the petitioner as vendor is not bound to reimburse the respondent as vendee for any
difference between the cost price and the sales price which represents the profit realized by the
vendor out of the transaction. This is the very essence of commerce without which merchants or
middleman would not exist.

The respondents contends that it merely agreed to pay the cost price as distinguished from the
list price, plus ten per cent (10%) commission and all out-of-pocket expenses incurred by the
petitioner. The distinction which the respondents seeks to draw between the cost price and the list
price we consider to be spacious. It is to be observed that the twenty-five per cent (25%) discount
granted by the Starr piano Company to the petitioner is available only to the latter as the former's
exclusive agent in the Philippines. The respondent could not have secured this discount from the
Starr Piano Company and neither was the petitioner willing to waive that discount in favor of the
respondent. As a matter of fact, no reason is advanced by the respondent why the petitioner
should waive the 25 per cent discount granted it by the Starr Piano Company in exchange for the
10 percent commission offered by the respondent. Moreover, the petitioner was not duty bound to
reveal the private arrangement it had with the Starr Piano Company relative to such discount to
its prospective customers, and the respondent was not even aware of such an arrangement. The
respondent, therefore, could not have offered to pay a 10 per cent commission to the petitioner
provided it was given the benefit of the 25 per cent discount enjoyed by the petitioner. It is well
known that local dealers acting as agents of foreign manufacturers, aside from obtaining a
discount from the home office, sometimes add to the list price when they resell to local purchasers.
It was apparently to guard against an exhorbitant additional price that the respondent sought to
limit it to 10 per cent, and the respondent is estopped from questioning that additional price. If the
respondent later on discovers itself at the short end of a bad bargain, it alone must bear the blame,
and it cannot rescind the contract, much less compel a reimbursement of the excess price, on that
ground alone. The respondent could not secure equipment and machinery manufactured by the
Starr Piano Company except from the petitioner alone; it willingly paid the price quoted; it received
the equipment and machinery as represented; and that was the end of the matter as far as the
respondent was concerned. The fact that the petitioner obtained more or less profit than the
respondent calculated before entering into the contract or reducing the price agreed upon between
the petitioner and the respondent. Not every concealment is fraud; and short of fraud, it were

18
 3. Velasco v. Universal Trading Co. v. Lim Teck Suan TERMS AND CONDITIONS

MONTEMAYOR, J.: Acceptance

This is a petition for certiorari to review a decision of the Court of Appeals dated September 25,
1953, reversing the decision of the Court of First Instance of Manila, and sentencing the
defendant-petitioner Far Eastern Export & Import Co. later referred to as export company, to pay
the plaintiff-respondent Lim Teck Suan later to be referred to as Suan, the sum of P11,4476.60,
with legal interest from the date of the filing of the complaint and to pay the costs.
This Buyer's Order is subject to confirmation by the exporter. Shipment
Period of Shipment is to be within December. Bank Documents should be for a line of 45 days to
allow for presentation and payment against "ON BOARD" bills of lading. Partial shipments
permitted.

As to the facts and the issue in the case we are reproducing the findings of the Court of Appeals,
which findings are binding on this Tribunal in case of similar appeals:
Sometime in November, 1948, Ignacio Delizalde, an agent of the Far Eastern Export & Import
Company, went to the store of Lim Teck Suan situated at 267 San Vicente Street, Manila, and
offered to sell textile, showing samples thereof, and having arrived at an agreement with Bernardo
Lim, the General Manager of Lim Teck Suan, Delizalde returned on November 17 with the buyer's
order, Exhibit A, already prepared which reads:
Payment
Payment will be by "Confirmed Irrevocable Letter of Credit" to be opened in favor of Frenkel
International Corporation, 52 Broadway, New York, 4, N. Y. for the full amount of the above cost
of merchandise plus (approximately) for export packing: insurance, freight, documentation,
forwarding, etc. which are for the buyers accounts, IMMEDIATELY upon written Confirmation. Our
Guarantee In case shipment is not affected, seller agrees to reimburse buyer for all banking
expenses. Confirmed Accepted

FAR EASTERN EXPORT & IMPORT COMPANY Signed Nov. 17, 1948

75 Escolta 2nd Floor Brias Roxas Bldg., Manila Authorized official

Ship to LIM TECK SUAN Date Written 11/17/48 Confirmed

475 Nueva St., Manila Your No. Accepted (Sgd.) Illegible Date Nov. 1948 to be signed by our representative upon confirmation.

Our No. 276 In accordance with said Exhibit A, plaintiff established a letter of credit No. 6390 (Exhibit B) in
favor of Frenkel International Corporation through the Hongkong and Shanghai Bangking
I hereby commission you to procure for me the following merchandise, subject to the terms and Corporation, attached to the agreed statement of facts. On February 11, 1949, the textile arrived
conditions listed below: at Manila on board the vessel M. S. Arnold Maersk, covered by bill of lading No. 125 (Exhibit C),
Invoice No. 1684-M (Exhibit D) issued by Frenkel International Corporation direct to the plaintiff.
====================================================== The plaintiff complained to the defendant of the inferior quality of the textile received by him and
had them examined by Marine Surveyor Del Pan & Company. Said surveyor took swatches of the
textile and had the same analyzed by the Institute of Science (Exhibit E-1) and submitted a report
Quantity Unit Particulars Amount
or survey under date of April 9, 1949 (Exhibit E). Upon instructions of the defendants plaintiff
deposited the goods with the United Warehouse Corporation (Exhibits H, H-1 to H-6. As per
10,000 yds Ashtone Acetate & Rayon-No. 13472 suggestion of the Far Eastern Export and Import Company contained in its letter dated June 16,
1949, plaintiff withdrew from the United Bonded Warehouse, Port Area, Manila, the fifteen cases
Width: 41/42 inches; Weight: of Ashtone Acetate and Rayon Suiting for the purpose of offering them for sale which netted
P11,907.30. Deducting this amount from the sum of P23,686.96 which included the amount paid
Approximately 8 oz. per yd; Ten (10) by plaintiff for said textile and the warehouse expenses, a difference of P11,476.66 is left,
representing the net direct loss.
colors, buyers choice, as per attached
The defense set up is that the Far Eastern Export and Import Company only acted as a broker in
samples, equally assorted; at $1.13 this transaction; that after placing the order the defendants took no further action and the cargo
was taken directly by the buyer Lim Teck Suan, the shipment having been made to him and all
the documents were also handled by him directly without any intervention on the part of the
per yard F.A.S. New York U. S. $11,500.00
defendants; that upon receipt of Lim Teck Suan's complaint the defendants passed it to its
principal, Frenkel International Corporation, for comment, and the latter maintained that the
Item herein sold are FOB-FAS X C. & F merchandise was up to standard called for.

CIF The lower court acquitted the defendants from the complaint asking for damages in the sum of
P19,500.00 representing the difference in price between the textile ordered and those received,
======================================================
19
plus profits unrealized and the cost of this suit, and dismissed the counterclaim filed by the
defendants without pronouncement as to costs.
As already stated, the Court of Appeals reversed the judgment entered by the Court of First
Instance of Manila, basing its decision of reversal on the case of Jose Velasco, vs. Universal
Trading Co., Inc., 45 Off. Gaz. 4504 where the transaction therein involved was found by the court
to be one of purchase and sale and not of brokerage or agency. We have carefully examined the
Velasco case and we agree with the Court of Appeals that the facts in that case are very similar
to those in the present case. In the case of Velasco, we have the following statement by the court
itself which we reproduced below:
Prior to November 8, 1945 a salesman or agent of the Universal Trading Co., Inc. informed Jose
Velasco, Jr. that his company was in a position to accept and fill in orders for Panamanian
Agewood Bourbon Whisky because there were several thousand cases of this article ready for
shipment to the company by its principal office in America. Acting upon this offer and
representative Velasco went to the Universal Trading Co., Inc., and after a conversation with the
latter's official entered into an agreement couched in the following terms:
"Agreement is hereby made between Messrs. Jose Velasco, Jr., 340 Echaque, Manila, and the
Universal Trading Company, Manila, for order as follows and under the following terms:
Quantity Merchan
dise and Unit Unit Amount
Price
Description
100 Panamanian Agewood Bourbon
Whisky ..........................Case $17.00 $1,700
_______
Total amount of order ........... $1,700
Terms of Agreement:
"1. That the Universal Trading Company agrees to order the above merchandise from their Los
Angeles Office at the price quoted above, C.I.F. Manila, for December shipment;
"2. That Messrs. Jose Velasco, Jr., 340 Echaque, Manila, obligates myself/themselves to take the
above merchandise when advised of its arrival from the United States and to pay in cash the full
amount of the order in the Philippine Currency at the office of the Universal Trading Company;
"3. This order may be subject to delay because of uncertain shipping conditions. War risk
insurance, transhipping charges, if any, port charges, and any storage that may be incurred due
to your not taking delivery of the order upon being notified by us that the order is ready for delivery,
and government taxes, are all for your account;
"4. The terms of this agreement will be either of the following:
"a. To open up irrevocable letter of credit for the value of the order with any of the local banks, or
thru bills of lading payable to A. J. Wilson Company, 1263 South North Avenue, Los Angeles,
California;
"b. To put up a cash deposit equivalent to 50 % of the order;
"5. Reasonable substitute, whenever possible, will be shipped in lieu of items called for, if order is
not available."
Accordingly, Velasco deposited with the defendant the sum of $1,700 which is 50% of the price of
the whisky pursuant to agreement made, instead of 'to open up irrevocable letter of credit for the
value of the order with any of the local banks, or through bills of lading payable to A. J. Wilson
Company.' On November 6, 1945, the same date that the contract or agreement, Exhibit A, was
signed an invoice under the name of the Universal Trading Co., Inc. was issued to Velasco for the
100 cases of Panamanian Agewood Bourbon Whisky for the price of $1,700 which invoice
manifested that the article was sold to Jose Velasco, Jr. On January 15, 1946 another invoice was
issued containing besides the list price of $1,700 or P3,400, a statement of bank charges, customs
duties, internal revenue taxes, etc., giving a total amount of P5,690.10 which after deducting the
deposit of $1,700, gives a balance of P3,990.01.
On January 25, 1946 the Universal Trading Co., Inc. wrote Exhibit 4 to Mr. Velasco advising him
that the S. S. Manoeran had docked and that they would appreciate it if he would pay the amount
of P3,990.10 direct to them. It turned out, however, that after the ship arrived, what the Universal
Trading Co., Inc. tried to deliver to Velasco was not Panamanian Agewood Bourbon Whisky but
Panamanian Agewood Blended Whisky. Velasco refused to receive the shipment and in turn filed
action against the defendant for the return of his deposit of $ 1,700 with interest. For its defense,
defendant contends that it merely acted as agent for Velasco and could not be held responsible
for the substitution of Blended Whisky for Bourbon Whisky and that furthermore the Blended
Whisky was a reasonable substitute for Bourbon. After due hearing the Court of First Instance of
Manila held that the transaction was purchase and sale and ordered the defendant to refund to
the plaintiff his deposit of P1,700 with legal interest from the date of the filing of the suit with costs,
which decision on appeal was affirmed by this Court.
We notice the following similarities. In the present case, the export company acted as agent for
Frenkel International Corporation, presumably the supplier of the textile sold. In the Velasco case,
the Universal Trading Co., was acting as agent for A. J. Wilson Company, also the supplier of the
whisky sold. In the present case, Suan according to the first part of the agreement is said merely
to be commissioning the Export Company to procure for him the merchandise in question, just as
in the other case, Velasco was supposed to be ordering the whisky thru the Universal Trading Co.
In the present case, the price of the merchandise bought was paid for by Suan by means of an
irrevocable letter of credit opened in favor of the supplier, Frenkel International Corporation. In the
Velasco case, Velasco was given the choice of either opening a similar irrevocable letter of credit
in favor of the supplier A. J. Wilson Company or making a cash deposit. It is true that in the Velasco
case, upon the arrival of the whisky and because it did not conform to specifications, Velasco
refused to received it; but in the present case although Suan received the merchandise he
immediately protested its poor quality and it was deposited in the warehouse and later withdrawn
and sold for the best price possible, all at the suggestion of the Export company. The present case
is in our opinion a stronger one than that of Velasco for holding the transaction as one of purchase
and sale because as may be noticed from the agreement (Exhibit "A"), the same speaks of the
items (merchandise) therein involved as sold, and the sale was even confirmed by the Export
company. In both cases, the agents Universal Trading Co. and the export company dealt directly
with the local merchants Velasco and Suan without expressly indicating or revealing their
principals. In both cases there was no privity of contract between the buyers — Suan and Velasco
and the suppliers Frenkel International Corporation and A. J. Wilson Company, respectively. In
both cases no commission or monetary consideration was paid or agreed to be paid by the buyers
to the Export company and the Universal Trading Co., proof that there was no agency or
20
brokerage, and that the profit of the latter was undoubtedly the difference between the price listed
to the buyers and the net or special price quoted to the sellers, by the suppliers. As already stated,
it was held in the Velasco case that the transaction therein entered into was one of purchase and
sale, and for the same reasons given there, we agreed with the Court of Appeals that the
transaction entered into here is one of purchase and sale.

As was held by this Tribunal in the case of Gonzalo Puyat & Sons Incorporated vs. Arco
Amusement, 72 Phil., 402, where a foreign company has an agent here selling its goods and
merchandise, that same agent could not very well act as agent for local buyers, because the
interests of his foreign principal and those of the buyer would be in direct conflict. He could not
serve two masters at the same time. In the present case, the Export company being an agent of
the Frenkel International Corporation could not, as it claims, have acted as an agent or broker for
Suan.

Finding no reversible error in the decision appealed from, the same is hereby affirmed, with costs.

21
 4. Pearl Island Commercial Corp. v. Lim Tiang Tong
MONTEMAYOR, J.:
In June, 1951, plaintiff Pearl Island Commercial Corporation, engaged in the manufacture of floor
wax under the name of "Bee Wax", in the City of Manila, entered into a contract, Exhibit A, with
defendant Lim Tan Tong, wherein the latter, designated as sole distributor of said article in the
provinces of Samar, Leyte Cebu Bohol and Negros Oriental and all the provinces in the island of
Mindanao, was going to buy the said floor wax for resale in the territory above-mentioned. The
plaintiff undertook not to appoint any other distributor within the said territory; to sell to defendant
Tong at factory price in Manila, F. O. B. Manila; that Tong could sell the article in his territory at
any price he saw that fit; that payment for any floor wax purchased shall he delivered to plaintiff
within sixty days from the date of shipment; that (this is important) Tong was to furnish surety bond
to cover all shipments of the floor wax that are damaged or unmerchantable, at its expense; and
that in case of loss due to fortuitous event or force majeure, the plaintiff was to shoulder the loss,
provided the goods were still in transit.
On the same day said contract were executed on June 16, 1951, defendant Manila Surety &
Fidelity Co., Inc., with Tong as principal, filed the surety bond (Exhibit B), binding itself unto the
plaintiff in the sum of P5,000, by reason of the appointment of Tong as exclusive agent for plaintiff
for the Visayas-Mindanao provinces, the bond being conditioned on the faithful performance of
Tong's duties, in accordance with the agreement. It would appear that for its security, the Surety
Company had Ko Su Kuan and Marciano Du execute in its favor an indemnity agreement that they
would indemnify said surety company in whatever amount it may pay to the plaintiff by reason of
the bond filed by it.
On June 18, 1951, plaintiff shipped 299 cases of Bee Wax, valued at P7,107, to Tong, duly
received by the latter. Tong failed to remit the value within sixty days, and despite the demand
made by plaintiff on him to send that amount, he sent only P770, leaving a balance of P6,337,
which he admits to be still with him, but which he refuses to remit to the plaintiff, claiming that the
latter owed him a larger amount. To enforce payment of the balance of P6,337, plaintiff filed this
present action not only against Tong, but also against the Surety Company, to recover from the
latter the amount of its bond of P5,000.
The Surety Company in its answer filed a cross-claim against Tong, and with the trial courts
permission, filed a third-party complaint against Ko Su Kuan and Marciano Du who, as already
stated, had executed an indemnity agreement in its favor. After trial, the lower court, presided by
Judge Hermogenes Concepcion, rendered judgment, the dispositive part of which reads as
follows:
IN VIEW OF ALL THE FOREGOING, the Court renders judgment in favor of the plaintiff and
against the defendants as follows:
(a) The Court orders the defendants Lim Tan Tong and the Manila Surety & Fidelity Co., Inc., to
pay jointly and severally the plaintiff Pearl Island Commercial Corporation the sum of P5,000.00
plus legal interest from the date of the filing of this complaint, until it is fully paid;
(b) the Court orders the defendant Lim Tan Tong to pay to the plaintiff the sum of P1,337.00 with
legal rate of interest from the date of the filing of this complaint until said amount is fully paid;
(c) The two defendants shall pay jointly and severally another amount of P500 to the plaintiff as
attorney's fees, plus the costs of this suit;
(d) The Court orders the cross-defendant Lim Tan Tong and the third-party defendants Ko Su
Kuan and Marciano Du to pay jointly and severally to the Manila Surety & Fidelity Co., Inc., the
sum of P5,000 with legal rate of interest from the date of the filing of this complaint until fully paid,
plus P500 as attorney's fees, plus the costs of this suit.
The Surety company is appealing said decision. The appeal originally taken to the Court of
Appeals was later certified to us as involving only questions of law.
Appellant assigns the following errors:
I. The trial court erred in holding that the contract between the Pearl Island Commercial
Corporation and Lim Tan tong was one of agency so that breach thereof would come within the
terms of the surety bond posted by appellant therein.
II. The trial court erred in ordering the defendant-appellant herein to pay attorney's fees and other
charges stated in the judgement.
It is appellant's contention that it cannot be held liable on its bond for the reason that the latter was
filed on the theory that the contract between the plaintiff and Tong was one of agency as a result
of which, said surety Company guaranteed the faithful performance of tong as agent, but that it
turned out that said contract was one of purchase and sale, shown by the very title of said contract
(Exhibit A), namely, "Contract of Purchase and Sale", and appellant never undertook to guaranty
the faithful performance of Tong as a purchaser. However, a careful examination of the said
contract shows that appellant is only partly right, for the reason that the terms of the said contract,
while providing for sale of Bee Wax from the plaintiff to Tong and purchase of the same by Tong
from the plaintiff, also designates Tong as the sole distributor of the article within a certain territory.
Besides, paragraph 4 of the contract entitled "Security", provides that tong was to furnish surety
bond to cover all shipments made by the plaintiff to him. Furthermore, appellant must have
understood the contract to one, at least partly, of agency because the bond itself (Exhibit B) says
the following:
WHEREAS, the above bounden principal has been appointed as exclusive agent for Pearl Islands
Commercial Corporation of Manila, Philippines, for the Visayas-Mindanao Provinces; . . .
Under the circumstances, we are afraid that the Surety Company is not now in a position to deny
its liability for the shipment of the 299 cases of Bee Wax duly received by Tong and his failure to
pay its value of P7,107, minus P770 or a balance of P6,337, of course, up to the limit of P5,000,
the amount of the bond. True, the contract (Exhibit A) is not entirely clear. It is in some respects,
even confusing. While it speaks of sale of Bee Wax to Tong and his responsibility for the payment
of the value of every shipment so purchased, at the same time it appoints him sole distributor
within a certain area, the plaintiff undertaking not to appoint any other agent or distributor within
the same area. Anyway, it seems to have been the sole concern and interest of the plaintiff to be
sure that it was paid the value of all shipments of Bee Wax to Tong and the Surety Company by
its bond, in the final analysis said payment by Tong, either as purchaser or as agent. Whether the
article was purchased by Tong or whether it was consigned to him as agent to be sold within his
area, the fact is that Tong admits said shipment, admits its value, admits keeping the same
(P7,107 minus the P770 he had paid on account), but that he is retaining it for reasons of his own,
namely, that plaintiff allegedly owes him a larger amount. Moreover, the Surety Company is
adequately protected, especially by the judgment because by its express terms, appellant can
recover from Ko Su Kuan and Marciano Du whatever amounts, including attorney's fees it may
pay to plaintiff, and said two persons evidently have not appealed from the decision.
In view of the foregoing, the decision appealed from is hereby affirmed, with costs.
22
 5. Lim v. People
PERALTA, J.:
The antecedent facts are as follows:
Blue Pacific Holdings, Inc. (BPHI) granted Benito a loan amounting to P1,149,500.00 as evidenced
by a Promissory Note acknowledged before a notary public on July 29, 2003. Lim signed as a co-
maker of her sister Benito. To secure payment of the loan, Benito and Lim issued eleven (11)
Equitable PCI Bank checks with a face value of P67,617.65 each, or a total amount of
P743,794.15, to wit:
Later on, 10 of these 11 checks were dishonored when presented for payment for having been
drawn against a closed account. BPHI sent Lim various demand letters, but to no avail. On June
28, 2005, BPHI sent a final demand letter, which Lim supposedly received as shown by the registry
return card bearing her signature.
For failing to pay the amounts corresponding the dishonored checks, Lim was charged with 11
counts of violation of B.P. Blg. 22. For her part, Lim raised the defenses that (1) she could not
have signed and issued the checks on July 29, 2003 in the presence of BPHI Finance Officer
Juanito Enriquez because she was then abroad as shown by the Certification of the Bureau of
Immigration and Deportation (BID); (2) BPHI has no permit to conduct financing business; (3) the
checks were issued to facilitate illegal trafficking of teachers to the United States for which there
has been a criminal action filed and resolved for human trafficking; and (4) there was no valuable
consideration given.
Upon arraignment on December 13, 2006, Lim, assisted by counsel, pleaded not guilty to all
charges. During the preliminary conference, the parties admitted the following matters: (1) the
jurisdiction of the trial court; (2) the identity of Lim as the accused, (3) the existence of the
complaint affidavit, (4) the existence of the promissory note and Lim's signature thereon, and (5)
the existence and due execution of the 11 checks with BPHI as payee.
During trial, the prosecution presented its witness, BPHI Finance Officer Enriquez, and
documentary evidence consisting of the complaint-affidavit, the promissory note and the 11
checks, and the demand letters, among others. For the defense, Lim claimed that the subject
checks were unauthenticated because she was out of the country on July 29, 2003, as shown by
the certification of her travel record issued by the BID. She refuted the testimony of Enriquez that
he personally saw her signed the checks before him.
On May 22, 2013, the MeTC rendered a Joint Decision finding Lim guilty beyond reasonable doubt
of 10 counts of violation of B.P. Blg. 22, the dispositive portion of which states:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered finding
accused IVY LIM a.k.a. IVY BENITO LIM guilty beyond reasonable doubt for
violation of Batas Pambansa Blg. 22 in Criminal [Case Nos.] 346643 or ten
(10) counts and hereby orders her to pay a FINE of SIX HUNDRED SEVENTY-
SIX THOUSAND ONE HUNDRED SEVENTY-SIX PESOS AND 50/100
(P676,176.50) which is the face value of the ten (10) checks with subsidiary
imprisonment in case of insolvency in accordance with Article 39 of the Revised
Penal Code.
The accused IVY LIM a.k.a. IVY BENITO LIM is acquitted in Criminal Case No.
346642 for failure of the prosecution to establish all the elements of the crime
charged.
With regards to the civil aspect of these cases, she is hereby ordered to pay the
private complainant Blue Pacific Holdings, Inc. the total amount of SEVEN
HUNDRED FORTY-THREE THOUSAND SEVEN HUNDRED NINETY-FOUR
PESOS AND 15/100 (P743,794.15) which corresponds to the face value of the
eleven (11) checks subject matter of the present cases, plus 12% interest per
annum from date of the filing of the Informations on May 22, 2006 until the
amount shall have been fully paid. She is likewise ordered to pay the amount of
Twenty Thousand Pesos (P20,000.00) as and for attorney's fees and to pay the
costs of suit.
SO ORDERED.4
On appeal, the RTC found no reversible error and affirmed the MeTC Decision.
Dissatisfied, Lim filed a petition for review before the CA, which denied the same and affirmed the
RTC Decision. The CA also denied her motion for reconsideration. Hence, the petition.
Lim raises the following grounds in support of her petition for review on certiorari:
1. AN UNAUTHENTICATED REGISTRY RETURN CARD CANNOT PROVE RECEIPT
OF NOTICE OF DISHONOR AND CANNOT BE A BASIS FOR CONVICTION FOR A
CHARGE OF VIOLATION OF BATAS PAMBANSA BLG. 22 UNDER PREVAILING
JURISPRUDENCE SUCH THAT THE COURT OF APPEALS GRAVELY ERRED IN
UPHOLDING THE RULINGS OF THE TRIAL COURT AND THE REGIONAL TRIAL
COURT THAT THERE WAS PROOF OF PERSONAL SERVICE OF NOTICE OF
DISHONOR ON THE PETITIONER BASED ON A COMPARISON OF SIGNATURES
ON THE SUBJECT CHECKS AND OF THE SIGNATURES ON THE REGISTRY
RETURN CARD - AND THAT HEREIN PETITIONER WAS PROPERLY CONVICTED
FOR VIOLATION OF BATAS PAMBANSA BLG. 22
2. UNAUTHENTICATED CHECKS CANNOT PROVE THAT HEREIN PETITIONER WAS
THE SAME PERSON WHO ISSUED SAID CHECKS, IN ACCORDANCE WITH THE
DOCTRINE ENUNCIATED IN UNCHUAN V. LOZADA. ET AL (SUPRA.), SUCH THAT
THE COURT OF APPEALS GRAVELY ERRED IN UPHOLDING THE RULINGS OF
THE TRIAL COURT AND THE REGIONAL TRIAL COURT THAT HEREIN
PETITIONER WAS PROPERLY CONVICTED FOR VIOLATION OF BATAS
PAMBANSA BLG. 22
3. A DOCUMENT THAT WAS NEVER PRESENTED, IDENTIFIED, AUTHENTICATED
NOR TESTIFIED ON DURING TRIAL CANNOT BE ADMITTED IN EVIDENCE NOR
USED TO PROVE THE GUILT OF HEREIN PETITION[ER] FOR THE OFFENSE
CHARGED AGAINST HER, IN ACCORDANCE WITH THE DOCTRINE IN UNCHUAN
V. LOZADA, ET AL, (SUPRA.), SUCH THAT THE COURT OF APPEALS GRAVELY
ERRED IN UPHOLDING THE RULINGS OF THE TRIAL COURT AND THE REGIONAL
TRIAL COURT THAT HEREIN PETITIONER WAS PROPERLY CONVICTED FOR
VIOLATION OF BATAS PAMBANSA BLG. 22 CRIMINALLY AND CIVILLY LIABLE. 5
The petition lacks merit, but a modification of the imposed penalty and the interest on actual
damages awarded are in order.
First, Lim argues that the signature in the registry return card of the demand letter was never
authenticated because the prosecution's sole witness, Enriquez, admitted that he did not
personally or actually see her receive the notice of dishonor nor sign the registry receipt. She
faults Enriquez for failing to explain why he claimed that the signature on said registry return card
was hers. She also contends that the CA committed manifest error in ruling that her actual receipt
of the notice of dishonor was proven by comparing her signatures in the subject checks with that
of the registry return card, because nowhere in the Rules of Evidence or jurisprudence is it
provided that proof/authentication can be made by comparing two unauthenticated documents.
Second, Lim points out that while Enriquez testified that he saw her personally signed the 10
postdated checks on July 29, 2003 in Makati City, his testimony was belied by a BID Certification
23
showing that she was out of the country that day and could not have signed the same checks. A "Ayaw pabayaran ni Ate."
Since she did not sign the checks in the presence of Enriquez on said date, then the subject
checks could not have been properly authenticated in accordance with the Rules on Evidence. Q What did you do after that?

Lastly, Lim asserts that in holding her liable to BPHI, the trial court primarily relied on the A Since our demand fell on death case, the office sent a demand letter dated 18
Promissory Note which was never produced, presented, identified, authenticated or testified on May 2005, sir.
by Enriquez. Thus, the trial court erred in admitting the said evidence and using it as basis for
holding her guilty beyond reasonable doubt of violation of B.P. Blg. 22. Due to the improper Q To whom, was the demand letter sent?
admission of such evidence, Lim also contends that she could not be held civilly liable to BPHI for
the issuance of the postdated checks, inasmuch as lack of consideration is a defense under the A To Ms. Rocel Benito and Ms. Ivy Lim, sir.
Negotiable Instruments Law.
Q Do you have a copy of the letter which you sent to the accused, Ivy Lim?
Lim's arguments are untenable.
A Yes, sir.
First, contrary to Lim's claim that only the unauthenticated registry return card was the only proof
Q Will you please produce the letter which you said was sent to the accused, Ivy
presented by the prosecution to establish service of a notice of dishonor, the evidence on record
Lim?
shows that the prosecution also presented the registry receipt and the testimony of Enriquez who
sent the demand letter by registered mail. A Yes, sir.
6
In Resterio v. People, the Court ruled that the notice of dishonor required under B.P. Blg. 22 to ATTY. DELA ROSA:
be given to the drawer, maker or issuer of the check should be written. "If the service of the written
notice is by registered mail, the proof of service consists not only in the presentation as evidence Witness is producing the Letter dated May 18, 2005 which has been marked in
of the registry return receipt but also of the registry receipt together with the authenticating affidavit evidence as Exhibit "Q" and "Q-1", respectively.
of the person mailing the notice of dishonor. Without the authenticating affidavit, the proof of giving
the notice of dishonor is insufficient, unless the mailer personally testifies in court on the sending Q Mr. Witness, there appears to be a signature on top of the name Juanita M.
by registered mail." Enriquez, whose signature is this?

Here, the transcript of stenographic notes confirm that the prosecution complied with the requisite A The same is my signature, sir.
proof of service of the notice of dishonor by presenting Enriquez, who testified on the sending of
such notice by registered mail, and identified the demand letter, the registry receipt and the registry ATTY. DELA ROSA:
return card, viz.:
May we request your Honor that the signature properly identified by the witness
ATTY. DELA ROSA: be marked as Exhibit "Q-4".

Q Mr. Witness, during the last hearing of this case, you went to identify the COURT:
checks in question in this case which have been previously marked in evidence
as Exhibits to "O", and you testified that these checks after they were issued to Mark it.
your company by the accused, Ivy Lim, the same were deposited and dishonored
by the bank for the reason of account closed, is that correct? ATTY. DELA ROSA:

A Yes, sir. Q How was this demand letter sent to the accused, Ivy Lim?

Q Now, after the checks in question were dishonored by the bank for the reason A The demand letter was sent through registered mail at Malolos, Bulacan, sir.
as stated account closed, what did you do?
xxxx
A We called the accused by telephone to follow up payments of the returned
checks, sir. Q Do you have any proof that the said letter, marked as Exhibit "Q" was sent be
registered mail, as you claimed in Malolos, Bulacan?
Q Were you able to talk to the accused through telephone?
A I have the registry receipt and the registry return card of the registered mail,
A Yes, sir. sir.

Q What was the reply of the accused, if any? Q Please produce the said registry receipt and the registry return card?

A The reply of Ms. Ivy Lim is that, can I answer that in Tagalog, your Honor? A Yes, sir.

COURT: Q Where is the Registry Receipt in this document?

Yes. (Witness testifying in Tagalog)

24
 A This long bond is the Registry Receipt because the registered mail is Q Now, Mr. Witness, in Exhibit "E" there appears to be a signature on the lower
composed of several letters, sir. portion which has been marked in evidence as Exhibit "E-2". Whose signature is
that, the signature marked as Exhibit "E-2"?
ATTY. DELA ROSA:
A The signature of Miss Ivy Lim.
May we respectfully request the Registry Receipt your Honor which this witness
identified be marked in evidence as Exhibit "Q-5." Q And why do you know that is the signature of the accused Ivy Lim?

ATTY. ALCUDIA: A I was, I saw her when she signed the check sir.

Your Honor, that's already been marked in evidence as "Q-c." That is the list of Q Now again Mr, Witness, in Exhibit "F" there appears to be a signature on the
mail matters, your Honor. lower portion of the check, more particularly this space for the drawer which has
been marked Exhibit "F-2", whose signature is that Mr. Witness?
ATTY. DELA ROSA:
A The signature is that of Miss Ivy Lim.
Yes, I stand corrected, your Honor.
Q Why do you know that is the signature of Ivy Lim?
Q Now, who mailed this letter in Malolos, Bulacan?
A Again, I saw her when she signed the check.9
A I am, sir.
It bears emphasis that despite Lim's opposition to the prosecution's Formal Offer of Documentary
xxxx Evidence, the MeTC admitted all its exhibits, noting that the objections thereto merely pertain to
the weight and sufficiency of the evidence, which shall be considered by the court when it decides
Q You said that you made a letter dated May 18, 2005 to the accused, Ivy Lim, the case.10Eventually, the MeTC has exercised its sound discretion, pursuant to Section 22, 11 Rule
what happened to this letter? 132 of the Rules of Court in comparing the signatures of Lim in the registry return card and the
checks to ensure that the notice of dishonor was indeed received by her, to wit:
A The letter was received by Ms. Lim, sir.
As to the third element, Exhibit "Q", the demand letter dated May 18, 2005
Q Do you have any proof to show that the letter was received by the addressed to Ivy Benito Lim and signed by Juanita Enriquez was undisputedly
accused, Ivy Lim? received by the accused Ivy Lim as shown in Exhibit "Q-6". The distinctive
strokes in writing the name "Ivy" and the flourish of the stroke in writing "im" in
A The return card of that registered mail attached to the letter, sir.
the latter part thereof, compared with the signatures appearing on all the checks
Q I am showing to you the return card which have been previously marked shown that these signatures were made by one and the same person. 12
in evidence as Exhibit "Q-2", where in this Exhibit "Q-2" will show that the
There is also no merit in Lim's claim that the subject checks were unauthenticated and not proven
accused received the letter of demand.
to have been issued by her. For one, in the Preliminary Conference Order13 dated March 28, 2007,
A The signature of Ms. Lim on May 24, 2005 at the back of the Registry the parties admitted that whenever the court refers to the name of Ivy Lim, the name pertains to
Return Receipt, sir. the accused, and stipulated on the existence and due execution of the eleven (11) checks with
payee Blue Pacific Holdings, Inc. For another, BPHI Finance Officer Enriquez presented and
ATTY. DELA ROSA: identified during trial the 11 checks issued by Lim, to wit:

May we respectfully request that the dorsal portion of the Return Card your ATTY. LEOPOLDO DELA ROSA:
Honor be marked in evidence as Exhibit "Q-5" the date May 24, 2005 and
Exhibit "Q-6" which is the signature of the accused. Q Do you have in your possession or in your presence the checks that were
issued in payment of a loan by the accused in this case?
COURT:
A What I have sir are the checks that bounced.
Mark them.7
Q Yes, that is why can you produce them now?
In claiming that an unauthenticated registry return card cannot prove receipt of the notice of
dishonor, Lim only objected to Exhibits "Q", "Q-2" and "Q-3" because there is no showing at all A Yes, sir.
that the Demand Letter of Juanito Enriquez was actually and personally received by her.8
Q Please produce them now.
However, actual receipt of such notice of dishonor was proved by the prosecution through
Enriquez who identified the signature on the dorsal portion of the registry return card as that of A Here sir.
Lim. Enriquez can credibly identify Lim's signature because he testified having witnessed her
signed the subject checks: Q Witness is producing the checks that bounced.
ATTY. DELA ROSA: COURT:

25
Are those ten (10) checks?
ATTY. DELA ROSA:
Yes, I'll just count it your Honor. Ten (10) checks, original checks were produced
by this witness and we would like to manifest for the record that these checks
have already been marked in evidence as Exhibits "E" to "O". Now, I have here
in my possession your Honor the original of the checks, as well as, the
photocopies of checks which had [already been] marked your Honor and we
would like to request again for the second time if counsel for the accused would
like to examine the photocopies as well as the original checks although these
checks were already produced during the pre-marking your Honor.
Q May we manifest for the record that the signature in Exhibit "F" of the accused
Ivy Lim has been marked as Exhibit "F-2". Let us go to Exhibit "G", again there
appears to be a signature on the lower portion of this check, whose signature is
that?
A Again the signature of Miss Ivy Lim.
Q May we respectfully manifest that the signature of Ivy Lim identified by this
witness has been marked as Exhibit "G-1". In Exhibit "H" there appears to be
again a signature of the drawer. Whose signature is that?
A Miss Ivy Lim sir.

ATTY. ALCUDIA: Q May we again manifest that the signature appearing in Exhibit "H" is the
signature of the accused marked and bracketed as Exhibit "H-1" and properly
We manifest that all checks except the check which was marked Exhibit "G" has identified by this witness. Again, Mr. Witness, there appears to be a signature on
not been presented your Honor. the lower portion of Exhibit "I". Will you please identify the signature, whose
signature is that?
COURT:
A Miss Ivy Lim sir.
I think he is presenting the check.
Q May we manifest that the signature identified by this witness has been marked
ATTY. ALCUDIA: in evidence as Exhibit "I-1". Again, in Exhibit "J" for the prosecution, there
appears to be a signature on the lower portion. Whose signature is that?
I make of record that Exhibit "G" has not been presented for payment.
A Miss Ivy Lim sir.
COURT:
Q May we manifest that the signature of the accused has been previously marked
Not presented for payment? and bracketed as Exhibit "J-1" and identified by this witness your Honor. In
Exhibit "K" Mr. Witness, there appears to be a signature on the lower portion.
ATTY. ALCUDIA: Whose signature is that?
Not presented your Honor. A Miss Ivy Lim sir.
COURT: Q May we request now your Honor, because apparently the signature identified
by the witness has not been bracketed and marked, may we request that the
Duly noted. So they are faithful reproduction of the original?
same be bracketed and marked as Exhibit "K- 1".
ATTY. ALCUDIA:
COURT
Yes, all Exhibits "E" to "O" including "G."
Bracket and mark.
COURT:
ATTY. DELA ROSA:
So stipulated.
Q Again in Exhibit "L" there is a signature on the lower portion. Whose signature
ATTY. DELA ROSA: is that?

xxxx A Miss Ivy Lim sir.

Q Now again Mr. Witness, in Exhibit "F" there appears to be a signature on the
lower portion of the check, more particularly this space for the drawer which has
been marked as Exhibit "F-2", whose signature is that Mr. Witness?
A The signature is that of Miss Ivy Lim.
Q Why do you know that is the signature of Ivy Lim?
A Again I saw her when she signed the check.
Q May we manifest that the signature in Exhibit "L" has been marked and
bracketed as Exhibit "L-1" and identified by this witness as that of the accused.
In Exhibit "M" there appears to be a signature on the drawer portion, whose
signature is that?
A Miss Ivy Lim sir.
Q May we manifest that the signature identified by the witness has been marked
and bracketed as Exhibit "M-1" and identified by the witness. In Exhibit "N" there
appears to be again a signature, whose signature is that?

26
 A Miss Ivy Lim.
Q May we manifest for the record that the signature identified by the witness has
been marked and bracketed as Exhibit "N-1" and properly identified by this
witness. In Exhibit "O" there appears to be again a signature. Whose signature
is that?
A Signature of Miss Ivy Lim sir.
ATTY. DELA ROSA:
May we manifest that the signature of Miss Ivy Lim identified by the witness has
been marked and bracketed as Exhibit "O-1" and identified by this witness. Your
Honor, I am ready to continue, however, as I see the grim face of my fellow
colleague waiting for their time and considering that I have further documents to
ask from this witness, I pray for continuance your Honor.
COURT
Any objection?
ATTY. ALCUDIA:
No objection your Honor.14
Nowhere in the records did Lim deny that the signature on the 11 checks were hers nor claim that
her signatures thereon were forged. She cannot be heard now to complain that unauthenticated
checks cannot prove that she was the same person who issued them.
Raising the defenses of denial and alibi, Lim insists that she was abroad when she supposedly
signed the 10 checks in the presence of prosecution witness Enriquez on July 29, 2003, as shown
by a certification from the BID that she left the country on July 21, 2003 and returned on October
29, 2003. While the prosecution failed to refute such evidence, the MeTC correctly noted that (1)
the unresolved issue is when these checks were issued and delivered to BPHI, and (2) the fact
that the checks were issued is not an issue, as the existence of the checks and signatures of the
accused on these checks are uncontroverted.15
There is nothing in the direct testimony of Enriquez which states that the checks were personally
signed by Lim before him on July 29, 2003, for he only said that the checks were issued in BPHI's
office at Morse corner Edison Streets in Barangay San Isidro, Makati. 16 The wrong information
was elicited from Enriquez' cross examination, which may have been based on the date when the
promissory note was acknowledged before a notary pubic:17
ATTY. ALCUDIA:
We will proceed.
Q You have identified the Promissory Note, Exhibit "D", did you not Mr. Enriquez?
A Yes, sir.
Q And as stated here this was issued July 29, 2003, is it not?
A Yes, sir.
Q Is it not a fact that it is your claim that the checks subject of this complaint were
issued and tendered to you also on July 29, 2003?
A Yes, sir.
Q All checks?
A Yes, sir.18
At any rate, what is material in B.P. Blg. 22 cases is the date of issuance of the checks which
appear on their face, and not the exact date of the delivery or signing thereof. This can be gleaned
from the fact that the offenses punished in the said law are not committed if the check is presented
for payment after ninety (90) days from date of issue.
Concededly, the criminal action for violation of B.P. Blg. 22 shall be deemed to include the
corresponding civil action, and no reservation to file such civil action separately shall be allowed. 19
With respect to the civil aspect of a B.P. Blg. 22 case, Lim would do well to remember that when
an action is founded upon a written instrument, copied in or attached to the corresponding
pleading, the genuineness and due execution of the instrument shall be deemed admitted unless
the adverse party, under oath, specifically denies them, and sets forth what he claims to be the
facts.20
As can be gleaned from the Complaint-Affidavit dated October 5, 2005, the action of BPHI is not
only meant to prosecute Lim for issuing bouncing checks to secure payment of loan as evidenced
by a promissory note where Lim signed as a co-maker, but also for recovery of the amounts
covered by said checks intended as payment of the loan. Lim does not specifically deny the
genuineness and execution of the promissory note, let alone sets forth what he claims to be the
facts. Moreover, such instrument no longer needs to be authenticated because Lim stipulated on
the existence of the promissory note and her signature thereto, as shown in the Preliminary
Conference Order21 dated March 28, 2007.
Against Lim's claim that the promissory note was not presented, identified and testified on during
trial, the transcript of stenographic notes show otherwise, as it was made an integral part of the
Complaint-Affidavit, which in turn was presented, identified authenticated and testified on during
trial. Pertinent portion of the transcript of stenographic reads:
ATTY. DELA ROSA: [Private counsel of BPHI]
Q Mr. Witness, why do you say that these checks were drawn and issued by the
accused in this case?
ATTY. ALCUDIA: [Counsel of accused Lim]
Same objection, no basis.
COURT:
Objection overruled. We have now the basis. Objection overruled,
Q Why do you say that?
A: The cheeks were drawn and issued to us in payment of the Promissory Note,
sir.
Q Were you present when these checks were issued and executed?
A Yes, your Honor.
ATTY. DELA ROSA
Q Where were the checks issued?
A In Makati, sir.
27
 Q Where, what particular place?
A It is in our office at Morse corner Edison Streets in Barangay San Isidro, Makati.
Q In connection with this case Mr. Witness that you are testifying before this
Honorable Court, do you remember that you have executed a Complaint Affidavit
insofar as this case is concerned?
A Yes, sir.
Q I am showing to you Mr. Witness the original copy of the Complaint Affidavit
which is attached to the record of this case and which has been previously
marked as Exhibit "A" which Complaint Affidavit consist of five (5), no four (4)
pages. Please examine this Affidavit or Complaint Affidavit Mr. Witness and tell
us what is the relation of that Complaint to the Complaint Affidavit that you have
mentioned.
A This is the Complaint Affidavit I subscribed and sworn to before Fiscal Henry
Salazar.
Q Now, in this Complaint Affidavit there appears to be one of the affiant Juanito
Enriquez. Who is this Juanito Enriquez?
A I am sir.
Q Do you affirm and reaffirm the truthfulness and correctness of this Affidavit
Complaint before the oath that you have taken before this Honorable Court?
A Yes, sir.22
Significantly, Lim's counsel admitted during cross-examination that the prosecution has presented,
identified and testified on the subject promissory note, thus:
ATTY. ALCUDIA:
Before we proceed, may we request to be allowed access to the prosecution's
Exhibits "D" and "U" which witness testified on during direct examination? Your,
Honor, we have been presented a document which is original document
designated Promissory Note but we note this is not marked document by the
prosecution. Nevertheless, we can proceed if private prosecutor will stipulate and
commit that this document is the original of the document that has been
provisionally marked as Exhibits "D" and "D-1".
COURT:
You can commit Mr. Private Prosecutor?
ATTY. DELA ROSA:
We admit your Honor. What happened here is that the exhibit was marked in the
photocopy. I think after making a comparison.23
Anent the civil aspect of the B.P. Blg 22 cases, her defense of lack of consideration for the checks
fails to persuade. Apart from having admitted the authenticity and due execution of the promissory
note, Lim also failed to present clear and convincing evidence to overturn the disputable
presumptions24 that there were sufficient considerations for the said contract which she signed as
a co-maker, and for the negotiable instruments consisting of 11 checks issued under her name as
security for the payment of the loan. Besides, as a co-maker who agreed to be jointly and severally
liable on the promissory note, Lim cannot validly claim that she hardly received any consideration
therefor, as the fact that the loan was granted to the principal debtor, her sister Benito, already
constitutes sufficient consideration.
All told, the Court of Appeals committed no reversible error in affirming the RTC decision, which
upheld the conviction of Lim for 10 counts of violation of B.P. Blg. 22 and her civil liability for the
face value of the 11 checks.
The elements of violation of B.P. Blg. 22 are as follows:
1. The accused makes, draws or issues any check to apply to account or for value;
2. The check is subsequently dishonored by the drawee bank for insufficiency of funds or
credit; or it would have been dishonored for the same reason had not the drawer, without
any valid reasons, ordered the bank to stop payment; and
3. The accused knows at the time of the issuance that he or she does not have sufficient
funds in, or credit with, drawee bank for payment of the check in full upon its
presentment.
All the foregoing elements were established beyond reasonable doubt by the prosecution, as
thoroughly discussed by the MeTC:
As to the first element, the Court finds that the checks were issued for value.
Accused is the co-maker of the promissory note (Exhibit "D") wherein she
voluntarily bound herself to be jointly and severally liable with Rochelle Benito,
her sister, to Blue Pacific Inc. for the amount of P605,000.00 plus interests.
Accused is also a signatory to the eleven checks issued, along with her sister, in
favor of Blue Pacific. These checks constitute the means for payment of the
promissory note signed by the accused and her sister. It is undisputed that the
co-accused, Rochelle Benito was able to travel to the United States. The
expenses incurred for the said travel came, undoubtedly, from the proceeds of
the said loan albeit the accused did not personally received the proceeds thereof.
Although there was no personal receipt of the proceeds by the accused, it is
undisputed that the principal objective of the accused, the processing and travel
of her sister to the United States was accomplished. The accused then stood to
benefit from the loan. The allegation of human trafficking, fraud and payment
remains allegations as no evidence was presented to the Court to prove [them].
The pieces of evidence presented, testimonial and documentary, show that this
is a business transaction between Blue Pacific and the accused.
As to the second element, except for Exhibit "G", the evidence shows that the
ten (10) checks were presented for payment and subsequently dishonored for
the reason "Account Closed". The check dated May 29, 2004 with check number
0105461 in the amount of P67,617.65 was not presented for payment, and hence
to criminal liability attached thereto.
As to the third element, Exhibit "Q", the demand letter dated May 18, 2005
addressed to Ivy Benito Lim and signed by Juanita Enriquez was undisputedly
received by the accused Ivy Lim as shown in Exhibit "Q-6". The distinctive
strokes in writing the name "Ivy" and the flourish of the stroke in writing "im" in
the latter part thereof, compared with the signatures appearing on all the checks
shown that these signatures were made by one and [the] same person. No
evidence was presented by the defense to refute the sending, receipt and
existence of the signature of accused Ivy Lim in Exhibits "Q" and Q-6".25
Be that as it may, a modification of the fine of P676,176.50 imposed by the MeTC is in order
because it appears to exceed the P200,000.00 limit under Section 1 of B.P. Blg. 22 which provides
for the penalty of "imprisonment of not less than thirty days but not more than one (1) year or by
28
a fine of not less than but not more than double the amount of the check which fine shall
in no case exceed Two Hundred Thousand Pesos, or both such fine and imprisonment at the
discretion of the court." Instead of imposing a lump sum fine, the proper penalty should be a fine
of P67,617.65 [face value of each check] for each of the Ten (10) counts of violation of Batas
Pambansa Blg. 22 with subsidiary imprisonment in case of insolvency.

Finally, the actual damages in the amount of P743,794.15 representing the face value of the
Eleven (11) checks, which the MeTC awarded to BPHI shall further incur interest at the rate of six
percent (6%) per annum from finality of this Decision until fully paid, in line with Nacar v. Gallery
Frames, Inc.26

WHEREFORE, premises considered, the petition for review on certiorari is DENIED. The Court of
Appeals Decision dated October 27, 2014 in CA-G.R. CR No. 36204 is AFFIRMED with
MODICATION:

29
 6. Green Valley Poultry & Allied Products, Inc. v. IAC

ABAD SANTOS, J.:

FACTS:

On November 3, 1969, Squibb and Green Valley entered into a letter agreement that provided
that Squibb would appoint Green Valley Poultry & Allied Products, Inc. as a non-exclusive
distributor for Squibb Veterinary Products, as recommended by Dr. Leoncio D. Rebong, Jr. and
Dr. J.G. Cruz, Animal Health Division Sales Supervisor.

For goods delivered to Green Valley but unpaid, Squibb filed suit to collect. The trial court’s
judgment in favor of Squibb which was affirmed by the Court of Appeals.

ISSUES:

1. Whether there was agency to sell

HELD:

1. No. Under Article 1905, The commission agent cannot, without the express or implied
consent of the principal, sell on credit. Should he do so, the principal may demand from
him payment in cash, but the commission agent shall be entitled to any interest or
benefit, which may result from such sale.

The Court adopted Green Valley's theory that the contract is an agency to sell; it never
purchased goods from Squibb; that the goods received were on consignment only with
the obligation to turn over the proceeds, less its commission, or to return the goods not
sold, and since it had sold the goods but had not been able to collect from the
purchasers

30
 7. Bert Osmeña & Associates v. CA
MELENCIO-HERRERA, J.:
Sought to be reversed in this Petition for Review on certiorari is the Decision of respondent Court
of Appeals in CA-G.R. No. 62601-R, entitled "Pedro Quimbo and Leonadiza Quimbo vs. Carmen
Siguenza and Helena Siguenza, Bert Osmeña & Associates, Inc." sentencing defendants, jointly
and severally, to pay damages to the plaintiffs, who are the private respondents herein.
Upon a review of the evidence, we find as established: (1) that on June 3, 1971, a "Contract of
Sale" over Lots 1 and 2, Block I, Phase II of the Clarita Subdivision, Cebu City, for the total price
of P15,200.00, was executed in favor of the Quimbo spouses. The sellers were petitioner
company, developer of the subdivision, and Carmen and Helena Siguenza, owners of the
property, represented by petitioner. Antonio V. Osmeña signed the contract on behalf of the
company. Signing as witness was one C. Siguenza.
(2) The spouses had intended to construct a house thereon inasmuch as their rented
abode, for which they were paying P170.00 monthly, had become inconvenient for their family.
Plans for the house were drawn. The spouses were ready to pay the purchase price in full even
before the due date of the first installment and advised Helena Siguenza accordingly so that title
in their names could be delivered to them. On the pretext that a road would traverse the lots
purchased, Helena proposed to exchange another lot (Lot 409) with the same area for the lots
purchased by the spouses to which the latter hesitating agreed. Until 1973, however, no title could
be given the Quimbo spouses.
(3) It turned out that on December 15, 1969, or approximately a year and a half prior to the
sale in the spouses' favor, Lots Nos. 1 and 2 had already been sold to Dr. Francisco Maningo
(Exhs. "G " and "G-1 "), and that Transfer Certificates of Title Nos. 48546 and 48547 were issued
in favor of Irenea Maningo on September 21, 1970 (Exhs. "H" and "H-1 "), or about nine months
before. the sale. Annotated on said titles were mortgages in favor of petitioner.
(4) Discovering this fact only in 1973, respondent spouses instituted this suit for Damages
against petitioner company and the Siguenzas on March 25, 1974.
In its judgment, the lower Court ordered petitioner company and the Siguenzas to pay damages
to respondent spouses as follows:
WHEREFORE, based on all the foregoing considerations, judgment is hereby rendered in favor
of the plaintiffs and against the defendants ordering the latter:
To pay, jointly and severally, the plaintiffs P3,040.00, with interest at the legal rate from June 2,
1971 until the same shall have been fully paid; P100,000.00 as compensation for the pecuniary
loss plaintiffs suffered for failure to construct their residential house; P5,610.00 as reimbursement
for the rentals plaintiffs paid from January 1972 to September 6, 1974; P50,000.00 as moral
damages, P25,000.00 as exemplary damages, P5,000.00 as attorney's fees; and the cost. 1
The Appellate Court affirmed the judgment of the Trial Court in toto. Hence, this recourse by
petitioner company, advancing tile following arguments:
1) The Honorable Court of Appeals seriously erred in not having considered the contract
as having been novated by virtue of the change in the subject matter or object of the contract;
2) The courts below seriously erred for having found petitioner to have acted fraudulently
where there is no evidence to support such a finding;
3) The Court of Appeals committed serious error in law when it held petitioner jointly and
severally liable to pay P100,000.00 as compensation for the pecuniary loss suffered by Mrs.
Quimbo;
4) The Court seriously erred in holding petitioner jointly and severally liable with the
Siguenzas to pay moral damages to Quimbo, there being no evidence showing fraud or bad faith
perpetrated by petitioner;
5) The lower court seriously erred in holding petitioner liable to pay the sum of P5,610.00
as reimbursement for rentals because Quimbo was no longer interested in the lots on which her
house was supposed to have been constructed but sought only for reimbursement of the
downpayment;
6) The Court below erred in holding petitioner liable jointly and severally for exemplary
damages, attorneys fees and costs;
7) The court seriously erred in fact and in law in holding petitioner jointly and severally with
the Siguenzas to return the downpayment.
Except for some items of damages awarded, we affirm.
1) Petitioner's contention that in. as much as respondent spouses had agreed to exchange
Lot 409 for Lots 1 and 2, the contract of sale had been novated and its liability extinguished, in
untenable. No new contract was ever executed between. petitioner and respondent spouses,
notwithstanding Helena Siguenza's assurances to that effect. As held by respondent Court:
This stand taken by appellant only reveals its misconception of novation. Novation is a contract
containing two stipulations: one to extinguish an existing obligation, the other to substitute a new
one in its place. It requires the creation of a new contractual relation as well as the extinguishment
of the old. There must be a consent of all the parties to the substitution, resulting in the extinction
of the old obligation and the creation of a new valid one (Tiu Suico vs. Habana, 45 Phil. 707). 2
2) Fraud has been established. As the trial Court had concluded:
There is no question that the defendants have conveyed and disposed of Lots 1 and 2, Block I,
Phase II of the Clarita Village Subdivision to the plaintiffs at a time when they were no longer the
owners thereof. At the time of the execution of the contract of sale, their only interest thereon was
a mortgage lien in the amount of P13,440.00. As mortgagee they did not have the right to sell the
same. Helena and Carmen Siguenza did not reveal this fact to the plaintiffs and the latter relied
on their assurances that the same belong to them. Bert Osmeña and Associates, Inc. as developer
and at the same time attorney-in-fact for Carmen and Helena Siguenza similarly concealed this
fact.1äwphï1.ñët Their efforts to cover up this fraud make the acts more detestable and obnoxious.
Defendants demonstrated palpable malice, bad faith, wantonness and incurable dishonesty. 3
The finding of fraud in this case was a finding of fact and there are no factors which can justify a
reversal thereof.
3) The award in the amount of P100,000.00 representing pecuniary loss for not having
been able to build a P100,000.00 house should be eliminated. Respondent spouses did not lose
that amount. It was only the estimated cost of the house they were unable to construct. It was an
expense item, not expected income.
4) The amount of P5,610.00 awarded representing rentals the spouses could have saved,
from the time when the house was to be finished to the date when respondent Leonadiza testified
31
in Court (January 1972 to September 6, 1974), should also be eliminated for being speculative. If
they had built their P100,000.00 house, thus avoiding the payment of rentals, they would, on the
other hand, be losing interest or income from that amount. Evidence that the plaintiff could have
bettered his position had it not been for the defendant's wrongful act cannot serve as basis for an
award of damages. 4

5) Fraud and bad faith by petitioner company and the Siguenzas having been established,
the award of moral damages is in order. Moral damages should be reduced, however, from
P50,000.00 to P10,000.00.

6) Moral damages having been awarded, exemplary damages were also properly
awarded. 5 They should be reduced, however, from P25,000.00 to P5,000.00.

7) The award of P5,000.00 as attorney's fees is affirmed inasmuch as respondent spouses

were compelled to litigate for the protection of their interests. 6

8) The portion of the Decision requiring petitioners and the Siguenzas to return the
downpayment of P3,040.00 is also justified. The Quimbo spouses are entitled to the return of their
downpayment, with interest at the legal rate from March 25, 1974 when the instant, suit was
commenced. 7

9) Petitioner's plea for exception from liability for damages on the ground that it was a mere
agent of the Siguenzas is untenable. The contract of sale describes petitioner as seller together
with the Siguenzas. In fact, petitioner was the lone signatory for the sellers in said contract. As
held by respondent Court:

The contract ... is clear that appellant is one of the Seller-of the lots in question. We will not allow
a variation of the terms of the written contract by parole evidence, for there is never an allegation
in the appellant's answer that Exhibit 6-Osmeña does not express the true intent of the parties or
that it is suffering from a vice or mistake or imperfection. Further, appellant never asserted in its
answer that it is a mere agent of its co-defendant Helena. Indeed, the tenor of its Answer is one
which shows its admission that it is a co-seller of all lots in subdivision which it is developing. We
take particular attention to appellant's admission in its answer to the allegations in par. 4, 8 and 9
of appellees' complaint, which show that appellant was not an agent but a co-seller of the lots. 8

ACCORDINGLY, the judgment appealed from is hereby modified in that petitioner is hereby
ordered to pay private respondents the following sums: P3,040.00 with interest at the legal rate
from March 25, 1974 until fully paid; P10,000.00 as moral damages; P5,000.00 as exemplary
damages; and P5,000.00 as attorney's fees. Costs against petitioner company.

SO ORDERED.

32
Broker aboard is the consignor upon whom the consignment tax applies, irrespective of who
made out the bills of lading on placed said merchandise on board the vessel.
1. Pacific Commercial Co. v. Yatco

MORAN, J.:

FACTS:

Pacific Commercial Company purchased for its New York office, centrifugal sugar from the
Calamba Sugar Estate Planters.

It was agreed that the freight charges shall be paid at destination by New York office and that
payment would be made upon delivery of the shipping documents.

On January 28, 1933, the Calamba Sugar Estate Planters loaded half the sugar agreed upon on
the Chastine Maersk, the other half on board the Ferndale.

After the cargo has been loaded on, and before the vessels left port, Honorio as agent of the
Calamba Sugar Estate Planters indorsed in blank and delivered to Pacific Commercial the
shipping documents. Payments were correspondingly made by the Pacific Commercial

The Collector of Internal Revenue assessed a consignment tax including surcharge, which Pacific
Commercial paid under protest and for the recovery of which an action and the complaint was
dismissed.

Commercial Pacific contends that it is not subject to the consignment tax because, upon the facts
of the case, it is a consignee, not a consignor, of the sugar in question. Reliance is placed upon
the stipulation in the contracts to the effect that shipment is to be made by the seller.

ISSUES:

1. Whether Pacific Commercial is a consignee/broker

HELD:

1. No. It appears that the bills of lading coveting the sugar in question were indorsed in
blank and delivered to Pacific Commercial by the agent of the Calamba Sugar Estate
Planters before the vessels left port. This indorsement operates to pass title to, and
constitutes a constructive complete delivery of the merchandise to the plaintiff. Under
such circumstance, Pacific Commercial alone could logically ship the cargo to its New
York office.

Pacific Commercial was found to be mistaken when it stated that it could not be a
consignor because the vendor was the party who made out and signed the bills of
lading and placed the sugar on board the ship. However, the making out of bills of
lading and the placing of the merchandise aboard the ship supply no decisive criterion
for determining who the actual consignor is, for the application of the consignment tax.
The tax imposed by law is on merchandise "consigned aboard" and not from one party
to another within the Philippines. The party, therefore, who ships the merchandise

33
Guardianship
1. Fessenden v. Jones
BLAND, Associate Judge.
FACTS:
On June 23, 1915, Fessenden an application that containe descriptions of 22 inventions which
included the subject-matter in controversy.
The subject-matter of this interference, while described in Fessenden's 1915 application, was not
shown by drawing nor was it claimed in any claim. In the consideration of Fessenden's 1915
application, the Patent Office required the applicant to "limit the specification to one of these
inventions and only one and to present claims to the invention retained." The application was
amended on May 18, 1916, so as to be limited to a gun sight, a drawing and also a supplemental
oath to support the claims which were then submitted.
Wilson's and Schafer's application, some of the claims of which are herein involved as counts in
the interference, was filed September 29, 1919, which resulted in a patent issued November 1,
1921, No. 1,395,378.
Both tribunals below held that Fessenden's 1915 application would be accepted as evidence of
conception but not as evidence of reduction to practice, and that, since he was last to file an
allowable application, claiming the invention, which might be regarded as a reduction to practice,
he must show diligence, which they say he did not do. Both tribunals held that the appellant, who
was the first to conceive and second to reduce to practice, did not show diligence from immediately
prior to the time when Wilson and Schafer entered the field until a final reduction to practice.
Appellant contends, first, that the 1915 application must be accepted not only as evidence of
conception, but as a reduction to practice of the issues of the count, and that, since he is therefore
the first inventor, the Board erred in awarding priority of invention to appellees; second, that, in
event appellant's 1915 application is not a reduction to practice, he has shown due diligence from
the date of conception to the date of his reduction to practice or has shown facts which would
excuse diligence. Many authorities are cited by appellant, most of which are not in point and few
of which need be considered by us.
In support of appellant's first contention, he cites and discusses Milburn Co. v. Davis-Bournonville
Co., 270 U.S. 390, 46 S. Ct. 324, 70 L. Ed. 651; Chapman v. Wintroath, 252 U.S. 126, 40 S. Ct.
234, 64 L. Ed. 491; Wagenhorst v. Hydraulic Steel Co. (C.C.A.) 27 F.2d 27; and other authorities.
He contends that the three above-cited decisions overrule any prior decisions which may be
regarded as holding that a description in an application without a claim is no evidence of priority.
On this phase of the case the appellees point out that the decisions relied upon by appellant do
not relate to an application which is not pending and allowable at the time reduction to practice
becomes important, and cite, among others, the following cases as supporting their position and
the position of the Board: The Corn Planter Patent, 23 Wall. 181, 23 L. Ed. 161; Beach v. Fowler,
1889 C.D. 187; Carty v. Kellogg, 7 App. D.C. 542, 1896 C.D. 188; Hien v. Pungs, 1894 C.D. 92.
Appellees correctly state that "it is well established that for one application to be a division, within
the meaning of the law, of another, the two must at some time be co-pending," and cite Sarfert v.
Meyer, 1902 C.D. 30; In re Spitteler, 31 App. D.C. 271, 1908 C.D. 374; and Wainwright v. Parker,
32 App. D.C. 431, 1909 C.D. 379.
We agree with the Board's finding as follows: "Fessenden's earlier application became a patent
May 14, 1918, and the patent contained no disclosure of the invention claimed in Fessenden's
later application. There was an interim of more than three years between the grant of the patent
upon the earlier application and the filing of the later application. The later application cannot have
the benefit of the date of the earlier application as a continuation thereof. The proceeding relating
to the two must be in fact continuous. Sarfert v. Meyer, 1902 C.D. 30. An application cannot be
considered as a continuance of a patent granted prior to the filing thereof, since after the
application has eventuated into a patent there is nothing left pending before the Patent Office upon
which it could act or to which the later application could attach. In re Spitteler, 31 App. D.C. 271,
134 O.G. 1301; Wainwright v. Parker, 32 App. D.C. 431, 142 O.G. 1115, 1909 C.D. 379."
No authority has been cited and we have found none to the effect that an invention described but
not claimed in an abandoned application, or an application which did not and could not result in a
patent, could be regarded as a reduction to practice of the subject-matter described. The converse
of this proposition is supported by In re Spitteler, supra; Wainwright v. Parker, supra; Conover v.
Downs, 35 F.2d 59, 61, 17 C.C.P.A. 587; and other of the authorities hereinbefore cited.
Appellant contends that the decisions in Wainwright v. Parker, supra, and In re Spitteler, supra,
are contrary to the decision in Milburn Co. v. Davis-Bournonville Co., supra, and that Milburn Co.
v. Davis-Bournonville Co. supports his contention herein.
It is sufficient to note that Milburn Co. v. Davis-Bournonville Co. was an infringement case, and
the application which was relied upon for reduction to practice was not abandoned, but was only
delayed by reason of its progress through the Patent Office.
An analogous issue to the one at bar was before this court in Conover v. Downs, supra, and this
court there discussed the Spitteler, Wainwright, and Milburn Cases, and said: "If the quoted
language [in the Milburn Case] of the Supreme Court had been employed in an issue such as the
one before us, it might be seriously argued that it was intended to establish a rule contrary to the
pronouncements contained in the decisions in the cases of Wainwright v. Parker and In re
Spitteler, supra, and to change the historic policy of the Patent Office. However, it must be
remembered that this is an interference case; that appellee was the first to conceive the invention;
that he was diligent in reducing it to practice; and that a different issue was before the Supreme
Court in the Milburn Co. Case. We do not believe that the Supreme Court had any intention of
denying the correctness of the principles announced in the Wainwright v. Parker and In re Spitteler
Cases. Surely, if such had been the intention, some reference to those decisions would have been
made. Undue liberties should not be taken with the language in a court decision. Rather it should
be construed and applied in accordance with the precise issue before the court. If this course is
followed, much useless litigation may be avoided."
Since Fessenden's 1915 application, as amended, contained no disclosure of the subject-matter
in issue and was not operable for patentable purposes, for the subject-matter in issue, and was,
under the facts in this record, and as related to the subject-matter at bar, to be regarded in law as
an abandoned application, it cannot be relied upon as a reduction to practice.
Appellant argues that, if it could not be relied upon as a reduction to practice, it could not be relied
upon as evidence of conception, and cites this court's decision in Harlan v. Bregman, 39 F.2d 494,
496, 17 C.C.P.A. 949, in which this court said: "We can see no good reason for accepting the
testimony as proving conception and rejecting it on the question of reduction to practice." The
nonapplicability of this case to the issues at bar is at once apparent when it is pointed out that the
facts in that case show that those remarks were directed toward a construction and test made of
an actual device and not toward a constructive reduction to practice presumed from the filing of
an application. The citation of such authorities as this by counsel for appellant on this point and
elsewhere in this appeal, without mentioning the points of distinction, has been very misleading to
the court, and is a practice which, to say the least, is not to be encouraged.
Appellant claims that, even if his 1915 application was not to be regarded as a reduction to
practice, his lack of diligence in making proper application and reducing to practice the subject-
matter of this controversy was excusable on account of his secrecy obligations incident to his
naval service. The record contains and the briefs discuss numerous facts bearing upon this
34
question which we do not regard as calling for a detailed statement and discussion here. In this
connection the Board said:

"Fessenden has not shown diligence from the time of filing of his original application up to just
prior to the appearance of Wilson and Schafer. He neither asked permission of any of the
Government officials in authority to file a divisional application for the invention of the issue of this
interference nor did he prove that he made an actual reduction to practice of the invention prior to
the appearance of Wilson and Schafer. Fessenden alleges that he was deterred from filing an
application for a patent for the system for secret signalling by reason of his secrecy orders and his
oath to secrecy as an officer in the Navy. However, the disclosure, except for the drawings had
been made in his original application No. 35,957. Another divisional application might have been
filed for such disclosure of his system of secret signals without disclosing anything more than had
been disclosed in the original application on pages 29 to 34 thereof. Such an application claiming
the invention would have entitled Fessenden to notice of and an interference with the application
of Wilson and Schafer. By not filing such application there was nothing pending in the Patent Office
to entitle him to such notice. After learning of the patent to Wilson and Schafer Fessenden did not
wait to obtain the consent of the Navy Department but filed his later application in the Patent Office
prior to receiving any orders from the Navy Department relieving him from the restraints of such
order. He never attempted to obtain relief from such order until after he had filed his later
application.

"Fessenden asserts that the right to subsequently file the application for the invention in
interference had been expressly and in writing reserved by Fessenden, in the response making
the division of May 12, 1916. Rule 44 of the Rules of Practice reads:

"`A reservation for a future application of subject matter disclosed but not claimed in a pending
application will not be permitted in the pending application.'

"Fessenden should have filed his divisional application claiming the invention when he divided his
original application to preserve his rights, by a pending application, to the date of his earlier
application."

With respect to the diligence of Fessenden, we agree with the conclusion of the Board.

It is also a contention of the appellant that, since a description of the invention was filed in the
Patent Office in his 1915 application, appellees are, under the statute, not the first inventor and
are not entitled to a patent, and therefore are not entitled to priority in this interference. The statute
authorizes the granting of a patent under certain conditions if the invention is "not known or used
by others in this country, before his invention or discovery thereof, and not patented or described
in any printed publication in this or any foreign country. * * *" 35 USCA § 31.

For obvious reasons, the filing of an application, the description of which is canceled before it
results in a patent or comes to the public notice, is not such a published description of the invention
as is within the inhibition of the statute. Milburn Co. v. Davis-Bournonville Co., supra.
Agreeable to the decision of the Board, the appellees, though last to conceive, were first to reduce
to practice, and, since appellant showed lack of diligence in reduction to practice, appellees were
properly awarded priority of the subject-matter of the counts, and the decision of the Board of
Appeals is affirmed.
Affirmed.

35
2. McDonald v. Spring Valley

A seven-year-old minor was injured in a building constructed by the city as a place of

amusement. She filed a statement in the city offices stating the time, place, and other
details of her injury. The city demurred to the minor’s suit on the grounds that the minor
did not comply with the proper procedural posture which required her to give notice of
her injury within six months. The jury in the trial entered judgment in favor of the minor,
but the appellate court reversed. On review, the court reversed the appellate court’s
decision and affirmed the judgment of the trial court. The court held that the statute in
question was a general statute, which was to be read in conjuction with the rules of law
that had become well established. One such rule was that the status of the minor was
recognized at law as being different than that of an adult. Extrapolating from that
reasoning, the court ruled that the notice statute was intended to apply only to those
who were mentally and physically able to comprehend and comply with its terms.

36
Bailment
Ship Agent
1. Switzerland General Insurance Co., Ltd. v. Ramirez
ANTONIO, J.:
FACTS:
On December 24, 1975, Switzerland General Insurance, a foreign insurance company authorized
to do business in the Philippines thru its agent, F. E. Zuellig Inc., filed an admiralty case against
private Oyama Shipping Co., Ltd., a foreign firm doing business in the Philippines, and Citadel
Lines, Inc., the local agent of Oyama Shipping Co., Inc. and/or Mabuhay Brokerage Co., Inc.
The complaint alleged that bags of Urea Nitrogen were shipped from Japan, on board the Lourdes,
claimed to be owned and operated by Citadel Lines, Inc. The goods were consigned to Borden
International Phils., Inc., and insured by Switzerland General Insurance against all risks.
The shipment was discharged from St. Lourdes into lighters owned by Mabuhay Brokerage
Company, Inc., but when the same was subsequently delivered to and received by the Mabuhay
Brokerage, it was found to have sustained losses and/or damages. The damage was paid by
Switzerland General Insurance insurance company to the Mabuhay Brokerage.
Switzerland General Insurance made repeated demands against Citadel Lines, for payment of
losses or damaged but no payment was made. Citadel Lines and Oyama were made alternative
defendants.
Citadel Lines, Inc. filed an Answer and stated it was merely the civil agent in the Philippines for
Oyama, which was the charterer of the St. Lourdes. It was further alleged that the principal agency
relationship between the said Oyama and defendant Citadel Lines was terminated due to the
insolvency of the said Oyama. Citadel Lines claims that it always acted as an agent of a disclosed
principal and as such, he should not be held liable for losses or damages.
Citadel Lines alleged that the loss/damaged to the cargo took place while the cargo was being
delivered to the Mabuhay Brokerage, Inc. it should be instead be held liable.
Oyama alleged that it ceased to be represented in the Philippines upon the declaration of its
insolvency and it was mere charterer of the St. Lourdes. Oyama believes that due to its insolvency,
the case as against it should be dismissed, the remedy for Switzerland General Insurance should
have been filing its claim before the insolvency court in Japan. Oyama also stated that it should
be Sumitomo that should be held liable for failing to provide seaworthy packaged and/or the
Mabuhay Brokerage for failure to exercise utmost diligence after it took possession of the cargo
from the St. Lourdes. Finally, it was averred that Switzerland General Insurance reinsurer had
already paid Switzerland General Insurance, the reinsurer is the real party to the action, and that
assuming defendant Oyama is to be liable, its liability is limited to the amount of the loss in relation
to the total amount of the freight of the goods
The trial court ruled in favor of Switzerland General Insurance. It absolved Citadel Lines and
Mabuhay Brokerage from liability. Only Oyama was found liable since the loss or damage occurred
during Oyama’s custody of the goods and that it failed to prove its allegations of faulty packaging
and negligence. Citadel Lines cannot be held liable for the damages recoverable from its principal.
Neither can the defendant Mabuhay Brokerage Company, Inc. be held answerable for the loss
and damage sustained by the cargo while still in custody of the carrying vessel
ISSUES:
1. Whether Citadel Lines, being the local agent of the St. Lourdes can be primarily liable for
loss or damages sustained by the shipment while on board
HELD:
1. No. The relationship of the parties cannot be considered as mere agency. The
relationship was rather of ship agents and ship owners. Citadel Lines did not dispute that
it is the local representative of Oyama in the Philippines and took charge of unloading of
the cargoes and issued cargo receipts to evidence the discharge of cargoes and its
condition to the arrastre operators. Claims against St. Lourdes for losses or damahes
were also processed by Citadel Lines, as such it falls within the definition of a ship agent
within the meaning and context of Article 586 of the Code of Commerce.
As such, under Article 618 of the same Code states:
Art. 618. The captain shall be civilly liable to the ship agent and the latter to the third
persons who may have made contracts with the former —
1. For all the damages sufferred by the vessel and its cargo by reason of want of skill or
negligence on his part. If a misdemeanor or crime has been committed he shall be liable
in accordance with the Penal Code.
Citadel Lines is the ship agent for St. Lourdes it is therefore liable to Switzerland General
Insurance, solidarily with Oyama as there has been no proof presented to show that the
officers of the vessel, in whose custody the goods were lost or damaged, are exempt
from liability therefrom and that the damage was caused by factors and circumstances
exempting them from liability.
Separate Opinions
AQUINO, J., concurring:
I concur with the observation of the liability of a ship agent, like Citadel Lines, Inc., is limited to the
value of the vessel or to its insurance, in view of the so-called real and hypothecary nature of
maritime law (Yangco vs. Laserna, 73 Phil. 330; Philippine Shipping Co. vs. Garcia, 6 Phil. 281)
Separate Opinions
AQUINO, J., concurring:
I concur with the observation of the liability of a ship agent, like Citadel Lines, Inc., is limited to the
value of the vessel or to its insurance, in view of the so-called real and hypothecary nature of
maritime law (Yangco vs. Laserna, 73 Phil. 330; Philippine Shipping Co. vs. Garcia, 6 Phil. 281).
37