G.R. No.

L-41182-3 April 16, 1988

DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants,

vs.
THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO S.CANILAO, and
SEGUNDINA NOGUERA, respondents-appellees.

xxx xxx xxx

On the strength of a contract (Exhibit A for the appellant Exhibit 2 for the appellees)
entered into on Oct. 19, 1960 by and between Mrs. Segundina Noguera, party of the
first part; the Tourist World Service, Inc., represented by Mr. Eliseo Canilao as party
of the second part, and hereinafter referred to as appellants, the Tourist World
Service, Inc. leased the premises belonging to the party of the first part at Mabini St.,
Manila for the former-s use as a branch office. In the said contract the party of the
third part held herself solidarily liable with the party of the part for the prompt
payment of the monthly rental agreed on. When the branch office was opened, the
same was run by the herein appellant Una 0. Sevilla payable to Tourist World
Service Inc. by any airline for any fare brought in on the efforts of Mrs. Lina Sevilla,
4% was to go to Lina Sevilla and 3% was to be withheld by the Tourist World
Service, Inc.

On or about November 24, 1961 (Exhibit 16) the Tourist World Service, Inc. appears
to have been informed that Lina Sevilla was connected with a rival firm, the
Philippine Travel Bureau, and, since the branch office was anyhow losing, the Tourist
World Service considered closing down its office. This was firmed up by two
resolutions of the board of directors of Tourist World Service, Inc. dated Dec. 2, 1961
(Exhibits 12 and 13), the first abolishing the office of the manager and vice-president
of the Tourist World Service, Inc., Ermita Branch, and the second,authorizing the
corporate secretary to receive the properties of the Tourist World Service then
located at the said branch office. It further appears that on Jan. 3, 1962, the contract
with the appellees for the use of the Branch Office premises was terminated and
while the effectivity thereof was Jan. 31, 1962, the appellees no longer used it. As a
matter of fact appellants used it since Nov. 1961. Because of this, and to comply with
the mandate of the Tourist World Service, the corporate secretary Gabino Canilao
went over to the branch office, and, finding the premises locked, and, being unable to
contact Lina Sevilla, he padlocked the premises on June 4, 1962 to protect the
interests of the Tourist World Service. When neither the appellant Lina Sevilla nor
any of her employees could enter the locked premises, a complaint wall filed by the
herein appellants against the appellees with a prayer for the issuance of mandatory
preliminary injunction. Both appellees answered with counterclaims. For apparent
lack of interest of the parties therein, the trial court ordered the dismissal of the case
without prejudice.

The appellee Segundina Noguera sought reconsideration of the order dismissing her
counterclaim which the court a quo, in an order dated June 8, 1963, granted
permitting her to present evidence in support of her counterclaim.

On June 17,1963, appellant Lina Sevilla refiled her case against the herein appellees
and after the issues were joined, the reinstated counterclaim of Segundina Noguera
and the new complaint of appellant Lina Sevilla were jointly heard following which the
 court a quo ordered both cases dismiss for lack of merit, on the basis of which was
elevated the instant appeal on the following assignment of errors:

I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE OF

PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'S COMPLAINT.

II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS. LINA 0.
SEVILA'S ARRANGEMENT (WITH APPELLEE TOURIST WORLD SERVICE, INC.)
WAS ONE MERELY OF EMPLOYER-EMPLOYEE RELATION AND IN FAILING TO
HOLD THAT THE SAID ARRANGEMENT WAS ONE OF JOINT BUSINESS
VENTURE.

III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT MRS.

LINA O. SEVILLA IS ESTOPPED FROM DENYING THAT SHE WAS A MERE
EMPLOYEE OF DEFENDANT-APPELLEE TOURIST WORLD SERVICE, INC.
EVEN AS AGAINST THE LATTER.

IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES HAD NO
RIGHT TO EVICT APPELLANT MRS. LINA O. SEVILLA FROM THE A. MABINI
OFFICE BY TAKING THE LAW INTO THEIR OWN HANDS.

V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL APPELLEE

NOGUERA'S RESPONSIBILITY FOR APPELLANT LINA O. SEVILLA'S FORCIBLE
DISPOSSESSION OF THE A. MABINI PREMISES.

VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT APPELLANT

MRS. LINA O. SEVILLA SIGNED MERELY AS GUARANTOR FOR RENTALS.

On the foregoing facts and in the light of the errors asigned the issues to be resolved are:

1. Whether the appellee Tourist World Service unilaterally disco the telephone line at
the branch office on Ermita;

2. Whether or not the padlocking of the office by the Tourist World Service was
actionable or not; and

3. Whether or not the lessee to the office premises belonging to the appellee
Noguera was appellees TWS or TWS and the appellant.

In this appeal, appealant Lina Sevilla claims that a joint bussiness venture was
entered into by and between her and appellee TWS with offices at the Ermita branch
office and that she was not an employee of the TWS to the end that her relationship
with TWS was one of a joint business venture appellant made declarations showing:

1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and wife of an

eminent eye, ear and nose specialist as well as a imediately
columnist had been in the travel business prior to the establishment
of the joint business venture with appellee Tourist World Service, Inc.
and appellee Eliseo Canilao, her compadre, she being the godmother
of one of his children, with her own clientele, coming mostly from her
own social circle (pp. 3-6 tsn. February 16,1965).
 2. Appellant Mrs. Sevilla was signatory to a lease agreement dated
19 October 1960 (Exh. 'A') covering the premises at A. Mabini St.,
she expressly warranting and holding [sic] herself 'solidarily' liable
with appellee Tourist World Service, Inc. for the prompt payment of
the monthly rentals thereof to other appellee Mrs. Noguera (pp. 14-
15, tsn. Jan. 18,1964).

3. Appellant Mrs. Sevilla did not receive any salary from appellee
Tourist World Service, Inc., which had its own, separate office located
at the Trade & Commerce Building; nor was she an employee
thereof, having no participation in nor connection with said business
at the Trade & Commerce Building (pp. 16-18 tsn Id.).

4. Appellant Mrs. Sevilla earned commissions for her own

passengers, her own bookings her own business (and not for any of
the business of appellee Tourist World Service, Inc.) obtained from
the airline companies. She shared the 7% commissions given by the
airline companies giving appellee Tourist World Service, Lic. 3%
thereof aid retaining 4% for herself (pp. 18 tsn. Id.)

5. Appellant Mrs. Sevilla likewise shared in the expenses of

maintaining the A. Mabini St. office, paying for the salary of an office
secretary, Miss Obieta, and other sundry expenses, aside from
desicion the office furniture and supplying some of fice furnishings
(pp. 15,18 tsn. April 6,1965), appellee Tourist World Service, Inc.
shouldering the rental and other expenses in consideration for the 3%
split in the co procured by appellant Mrs. Sevilla (p. 35 tsn Feb.
16,1965).

6. It was the understanding between them that appellant Mrs. Sevilla

would be given the title of branch manager for appearance's sake
only (p. 31 tsn. Id.), appellee Eliseo Canilao admit that it was just a
title for dignity (p. 36 tsn. June 18, 1965- testimony of appellee Eliseo
Canilao pp. 38-39 tsn April 61965-testimony of corporate secretary
Gabino Canilao (pp- 2-5, Appellants' Reply Brief)

Upon the other hand, appellee TWS contend that the appellant was an employee of
the appellee Tourist World Service, Inc. and as such was designated manager. 1

xxx xxx xxx

The trial court  held for the private respondent on the premise that the private respondent, Tourist
2

World Service, Inc., being the true lessee, it was within its prerogative to terminate the lease and
padlock the premises.   It likewise found the petitioner, Lina Sevilla, to be a mere employee of said
3

Tourist World Service, Inc. and as such, she was bound by the acts of her employer.   The 4

respondent Court of Appeal   rendered an affirmance.

5

The petitioners now claim that the respondent Court, in sustaining the lower court, erred.
Specifically, they state:

I
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN HOLDING THAT "THE PADLOCKING OF THE PREMISES BY TOURIST WORLD
SERVICE INC. WITHOUT THE KNOWLEDGE AND CONSENT OF THE APPELLANT LINA
SEVILLA ... WITHOUT NOTIFYING MRS. LINA O. SEVILLA OR ANY OF HER EMPLOYEES AND
WITHOUT INFORMING COUNSEL FOR THE APPELLANT (SEVILIA), WHO IMMEDIATELY
BEFORE THE PADLOCKING INCIDENT, WAS IN CONFERENCE WITH THE CORPORATE
SECRETARY OF TOURIST WORLD SERVICE (ADMITTEDLY THE PERSON WHO PADLOCKED
THE SAID OFFICE), IN THEIR ATTEMP AMICABLY SETTLE THE CONTROVERSY BETWEEN
THE APPELLANT (SEVILLA) AND THE TOURIST WORLD SERVICE ... (DID NOT) ENTITLE THE
LATTER TO THE RELIEF OF DAMAGES" (ANNEX "A" PP. 7,8 AND ANNEX "B" P. 2) DECISION
AGAINST DUE PROCESS WHICH ADHERES TO THE RULE OF LAW.

II

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING APPELLANT SEVILLA RELIEF BECAUSE SHE HAD "OFFERED TO
WITHDRAW HER COMP PROVIDED THAT ALL CLAIMS AND COUNTERCLAIMS LODGED BY
BOTH APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8)

III

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING-IN FACT NOT PASSING AND RESOLVING-APPELLANT SEVILLAS
CAUSE OF ACTION FOUNDED ON ARTICLES 19, 20 AND 21 OF THE CIVIL CODE ON
RELATIONS.

IV

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING APPEAL APPELLANT SEVILLA RELIEF YET NOT RESOLVING HER
CLAIM THAT SHE WAS IN JOINT VENTURE WITH TOURIST WORLD SERVICE INC. OR AT
LEAST ITS AGENT COUPLED WITH AN INTEREST WHICH COULD NOT BE TERMINATED OR
REVOKED UNILATERALLY BY TOURIST WORLD SERVICE INC. 6

As a preliminary inquiry, the Court is asked to declare the true nature of the relation between Lina
Sevilla and Tourist World Service, Inc. The respondent Court of see fit to rule on the question, the
crucial issue, in its opinion being "whether or not the padlocking of the premises by the Tourist World
Service, Inc. without the knowledge and consent of the appellant Lina Sevilla entitled the latter to the
relief of damages prayed for and whether or not the evidence for the said appellant supports the
contention that the appellee Tourist World Service, Inc. unilaterally and without the consent of the
appellant disconnected the telephone lines of the Ermita branch office of the appellee Tourist World
Service, Inc.  Tourist World Service, Inc., insists, on the other hand, that Lina SEVILLA was a mere
7

employee, being "branch manager" of its Ermita "branch" office and that inferentially, she had no say
on the lease executed with the private respondent, Segundina Noguera. The petitioners contend,
however, that relation between the between parties was one of joint venture, but concede
that "whatever might have been the true relationship between Sevilla and Tourist World Service," the
Rule of Law enjoined Tourist World Service and Canilao from taking the law into their own hands,   in8

reference to the padlocking now questioned.

The Court finds the resolution of the issue material, for if, as the private respondent, Tourist World
Service, Inc., maintains, that the relation between the parties was in the character of employer and
employee, the courts would have been without jurisdiction to try the case, labor disputes being the
exclusive domain of the Court of Industrial Relations, later, the Bureau Of Labor Relations, pursuant
to statutes then in force. 
9

In this jurisdiction, there has been no uniform test to determine the evidence of an employer-
employee relation. In general, we have relied on the so-called right of control test, "where the person
for whom the services are performed reserves a right to control not only the end to be achieved but
also the means to be used in reaching such end."   Subsequently, however, we have considered, in
10

addition to the standard of right-of control, the existing economic conditions prevailing between the
parties, like the inclusion of the employee in the payrolls, in determining the existence of an
employer-employee relationship. 11

The records will show that the petitioner, Lina Sevilla, was not subject to control by the private
respondent Tourist World Service, Inc., either as to the result of the enterprise or as to the means
used in connection therewith. In the first place, under the contract of lease covering the Tourist
Worlds Ermita office, she had bound herself in solidum as and for rental payments, an arrangement
that would be like claims of a master-servant relationship. True the respondent Court would later
minimize her participation in the lease as one of mere guaranty,   that does not make her an
12

employee of Tourist World, since in any case, a true employee cannot be made to part with his own
money in pursuance of his employer's business, or otherwise, assume any liability thereof. In that
event, the parties must be bound by some other relation, but certainly not employment.

In the second place, and as found by the Appellate Court, '[w]hen the branch office was opened, the
same was run by the herein appellant Lina O. Sevilla payable to Tourist World Service, Inc. by any
airline for any fare brought in on the effort of Mrs. Lina Sevilla.   Under these circumstances, it
13

cannot be said that Sevilla was under the control of Tourist World Service, Inc. "as to the means
used." Sevilla in pursuing the business, obviously relied on her own gifts and capabilities.

It is further admitted that Sevilla was not in the company's payroll. For her efforts, she retained 4% in
commissions from airline bookings, the remaining 3% going to Tourist World. Unlike an employee
then, who earns a fixed salary usually, she earned compensation in fluctuating amounts depending
on her booking successes.

The fact that Sevilla had been designated 'branch manager" does not make her, ergo, Tourist
World's employee. As we said, employment is determined by the right-of-control test and certain
economic parameters. But titles are weak indicators.

In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a consequence,
accepting Lina Sevilla's own, that is, that the parties had embarked on a joint venture or otherwise, a
partnership. And apparently, Sevilla herself did not recognize the existence of such a relation. In her
letter of November 28, 1961, she expressly 'concedes your [Tourist World Service, Inc.'s] right to
stop the operation of your branch office   in effect, accepting Tourist World Service, Inc.'s control
14

over the manner in which the business was run. A joint venture, including a partnership,
presupposes generally a of standing between the joint co-venturers or partners, in which each party
has an equal proprietary interest in the capital or property contributed   and where each party
15

exercises equal rights in the conduct of the business.  furthermore, the parties did not hold
16

themselves out as partners, and the building itself was embellished with the electric sign "Tourist
World Service, Inc.  in lieu of a distinct partnership name.
17

It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to (wo)man the
private respondent, Tourist World Service, Inc.'s Ermita office, she must have done so pursuant to a
contract of agency. It is the essence of this contract that the agent renders services "in
representation or on behalf of another.  In the case at bar, Sevilla solicited airline fares, but she did
18
so for and on behalf of her principal, Tourist World Service, Inc. As compensation, she received 4%
of the proceeds in the concept of commissions. And as we said, Sevilla herself based on her letter of
November 28, 1961, pre-assumed her principal's authority as owner of the business undertaking.
We are convinced, considering the circumstances and from the respondent Court's recital of facts,
that the ties had contemplated a principal agent relationship, rather than a joint managament or a
partnership..

But unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible
with the intent of the parties, cannot be revoked at will. The reason is that it is one coupled with an
interest, the agency having been created for mutual interest, of the agent and the principal.   It 19

appears that Lina Sevilla is a bona fide travel agent herself, and as such, she had acquired an
interest in the business entrusted to her. Moreover, she had assumed a personal obligation for the
operation thereof, holding herself solidarily liable for the payment of rentals. She continued the
business, using her own name, after Tourist World had stopped further operations. Her interest,
obviously, is not to the commissions she earned as a result of her business transactions, but one
that extends to the very subject matter of the power of management delegated to her. It is an agency
that, as we said, cannot be revoked at the pleasure of the principal. Accordingly, the revocation
complained of should entitle the petitioner, Lina Sevilla, to damages.

As we have stated, the respondent Court avoided this issue, confining itself to the telephone
disconnection and padlocking incidents. Anent the disconnection issue, it is the holding of the Court
of Appeals that there is 'no evidence showing that the Tourist World Service, Inc. disconnected the
telephone lines at the branch office.   Yet, what cannot be denied is the fact that Tourist World
20

Service, Inc. did not take pains to have them reconnected. Assuming, therefore, that it had no hand
in the disconnection now complained of, it had clearly condoned it, and as owner of the telephone
lines, it must shoulder responsibility therefor.

The Court of Appeals must likewise be held to be in error with respect to the padlocking incident. For
the fact that Tourist World Service, Inc. was the lessee named in the lease con-tract did not accord it
any authority to terminate that contract without notice to its actual occupant, and to padlock the
premises in such fashion. As this Court has ruled, the petitioner, Lina Sevilla, had acquired a
personal stake in the business itself, and necessarily, in the equipment pertaining thereto.
Furthermore, Sevilla was not a stranger to that contract having been explicitly named therein as a
third party in charge of rental payments (solidarily with Tourist World, Inc.). She could not be ousted
from possession as summarily as one would eject an interloper.

The Court is satisfied that from the chronicle of events, there was indeed some malevolent design to
put the petitioner, Lina Sevilla, in a bad light following disclosures that she had worked for a rival
firm. To be sure, the respondent court speaks of alleged business losses to justify the closure '21 but
there is no clear showing that Tourist World Ermita Branch had in fact sustained such reverses, let alone, the fact that Sevilla had moonlit for
another company. What the evidence discloses, on the other hand, is that following such an information (that Sevilla was working for another
company), Tourist World's board of directors adopted two resolutions abolishing the office of 'manager" and authorizing the corporate
secretary, the respondent Eliseo Canilao, to effect the takeover of its branch office properties. On January 3, 1962, the private respondents
ended the lease over the branch office premises, incidentally, without notice to her.

It was only on June 4, 1962, and after office hours significantly, that the Ermita office was padlocked,
personally by the respondent Canilao, on the pretext that it was necessary to Protect the interests of
the Tourist World Service. "   It is strange indeed that Tourist World Service, Inc. did not find such a
22

need when it cancelled the lease five months earlier. While Tourist World Service, Inc. would not
pretend that it sought to locate Sevilla to inform her of the closure, but surely,  it was aware that after office
hours, she could not have been anywhere near the premises. Capping these series of "offensives," it cut the office's telephone lines,
paralyzing completely its business operations, and in the process, depriving Sevilla articipation therein.
This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish Sevillsa it
had perceived to be disloyalty on her part. It is offensive, in any event, to elementary norms of justice
and fair play.

We rule therefore, that for its unwarranted revocation of the contract of agency, the private
respondent, Tourist World Service, Inc., should be sentenced to pay damages. Under the Civil Code,
moral damages may be awarded for "breaches of contract where the defendant acted ... in bad
faith. 
23

We likewise condemn Tourist World Service, Inc. to pay further damages for the moral injury done to
Lina Sevilla from its brazen conduct subsequent to the cancellation of the power of attorney granted
to her on the authority of Article 21 of the Civil Code, in relation to Article 2219 (10) thereof —

ART. 21. Any person who wilfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for the
damage. 24

ART. 2219. Moral damages  may be recovered in the following and analogous
25

cases:

xxx xxx xxx

(10) Acts and actions refered into article 21, 26, 27, 28, 29, 30, 32, 34, and 35.

The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby ordered to respond for the
same damages in a solidary capacity.

Insofar, however, as the private respondent, Segundina Noguera is concerned, no evidence has
been shown that she had connived with Tourist World Service, Inc. in the disconnection and
padlocking incidents. She cannot therefore be held liable as a cotortfeasor.

The Court considers the sums of P25,000.00 as and for moral damages,24 P10,000.00 as
exemplary damages,   and P5,000.00 as nominal   and/or temperate  damages, to be just, fair, and
25 26 27

reasonable under the circumstances.

WHEREFORE, the Decision promulgated on January 23, 1975 as well as the Resolution issued on
July 31, 1975, by the respondent Court of Appeals is hereby REVERSED and SET ASIDE. The
private respondent, Tourist World Service, Inc., and Eliseo Canilao, are ORDERED jointly and
severally to indemnify the petitioner, Lina Sevilla, the sum of 25,00.00 as and for moral damages,
the sum of P10,000.00, as and for exemplary damages, and the sum of P5,000.00, as and for
nominal and/or temperate damages.

Costs against said private respondents.

SO ORDERED.
G.R. No. L-41420 July 10, 1992

CMS LOGGING, INC., petitioner,

vs.
THE COURT OF APPEALS and D.R. AGUINALDO CORPORATION, respondents.

This is a petition for review on certiorari from the decision dated July 31, 1975 of the Court of
Appeals in CA-G.R. No. 47763-R which affirmed in toto the decision of the Court of First Instance of
Manila, Branch VII, in Civil Case No. 56355 dismissing the complaint filed by petitioner CMS
Logging, Inc. (CMS, for brevity) against private respondent D.R. Aguinaldo Corporation (DRACOR,
for brevity) and ordering the former to pay the latter attorney's fees in the amount of P1,000.00 and
the costs.

The facts of the case are as follows: Petitioner CMS is a forest concessionaire engaged in the
logging business, while private respondent DRACOR is engaged in the business of exporting and
selling logs and lumber. On August 28, 1957, CMS and DRACOR entered into a contract of
agency   whereby the former appointed the latter as its exclusive export and sales agent for all logs
1

that the former may produce, for a period of five (5) years. The pertinent portions of the agreement,
which was drawn up by DRACOR,   are as follows:
2

1. SISON [CMS] hereby appoints DRACOR as his sole and exclusive export sales
agent with full authority, subject to the conditions and limitations hereinafter set forth,
to sell and export under a firm sales contract acceptable to SISON, all logs produced
by SISON for a period of five (5) years commencing upon the execution of the
agreement and upon the terms and conditions hereinafter provided and DRACOR
hereby accepts such appointment;

xxx xxx xxx

3. It is expressly agreed that DRACOR shall handle exclusively all negotiations of all
export sales of SISON with the buyers and arrange the procurement and schedules
of the vessel or vessels for the shipment of SISON's logs in accordance with
SISON's written requests, but DRACOR shall not in anyway [sic] be liable or
responsible for any delay, default or failure of the vessel or vessels to comply with
the schedules agreed upon;

xxx xxx xxx

9. It is expressly agreed by the parties hereto that DRACOR shall receive five (5%)
per cent commission of the gross sales of logs of SISON based on F.O.B. invoice
value which commission shall be deducted from the proceeds of any and/or all
moneys received by DRACOR for and in behalf and for the account of SISON;

By virtue of the aforesaid agreement, CMS was able to sell through DRACOR a total of 77,264,672
board feet of logs in Japan, from September 20, 1957 to April 4, 1962.

About six months prior to the expiration of the agreement, while on a trip to Tokyo, Japan, CMS's
president, Atty. Carlos Moran Sison, and general manager and legal counsel, Atty. Teodoro R.
Dominguez, discovered that DRACOR had used Shinko Trading Co., Ltd. (Shinko for brevity) as
agent, representative or liaison officer in selling CMS's logs in Japan for which Shinko earned a
commission of U.S. $1.00 per 1,000 board feet from the buyer of the logs. Under this arrangement,
Shinko was able to collect a total of U.S. $77,264.67.  3

CMS claimed that this commission paid to Shinko was in violation of the agreement and that it
(CMS) is entitled to this amount as part of the proceeds of the sale of the logs. CMS contended that
since DRACOR had been paid the 5% commission under the agreement, it is no longer entitled to
the additional commission paid to Shinko as this tantamount to DRACOR receiving double
compensation for the services it rendered.

After this discovery, CMS sold and shipped logs valued at U.S. $739,321.13 or
P2,883,351.90,   directly to several firms in Japan without the aid or intervention of DRACOR.
4

CMS sued DRACOR for the commission received by Shinko and for moral and exemplary damages,
while DRACOR counterclaimed for its commission, amounting to P144,167.59, from the sales made
by CMS of logs to Japanese firms. In its reply, CMS averred as a defense to the counterclaim that
DRACOR had retained the sum of P101,167.59 as part of its commission for the sales made by
CMS.   Thus, as its counterclaim to DRACOR's counterclaim, CMS demanded DRACOR return the
5

amount it unlawfully retained. DRACOR later filed an amended counterclaim, alleging that the
balance of its commission on the sales made by CMS was P42,630.82,   thus impliedly admitting
6

that it retained the amount alleged by CMS.

In dismissing the complaint, the trial court ruled that no evidence was presented to show that Shinko
received the commission of U.S. $77,264.67 arising from the sale of CMS's logs in Japan, though
the trial court stated that "Shinko was able to collect the total amount of $77,264.67 US Dollars
(Exhs. M and M-1)."   The counterclaim was likewise dismissed, as it was shown that DRACOR had
7

waived its rights to the balance of its commission in a letter dated February 2, 1963 to Atty. Carlos
Moran Sison, president of CMS. 8 From said decision, only CMS appealed to the Court of Appeals.

The Court of Appeals, in a 3 to 2 decision,   affirmed the dismissal of the complaint since "[t]he trial
9

court could not have made a categorical finding that Shinko collected commissions from the buyers
of Sison's logs in Japan, and could not have held that Sison is entitled to recover from Dracor the
amount collected by Shinko as commissions, plaintiff-appellant having failed to prove by competent
evidence its claims." 10

Moreover, the appellate court held:

There is reason to believe that Shinko Trading Co. Ltd., was paid by defendant-
appellee out of its own commission of 5%, as indicated in the letter of its president to
the president of Sison, dated February 2, 1963 (Exhibit "N"), and in the Agreement
between Aguinaldo Development Corporation (ADECOR) and Shinko Trading Co.,
Ltd. (Exhibit "9"). Daniel R. Aguinaldo stated in his said letter:

. . . , I informed you that if you wanted to pay me for the service, then it would be no
more than at the standard rate of 5% commission because in our own case, we pay
our Japanese agents 2-1/2%. Accordingly, we would only add a similar amount of 2-
1/2% for the service which we would render you in the Philippines.  11

Aggrieved, CMS appealed to this Court by way of a petition for review on certiorari, alleging (1) that
the Court of Appeals erred in not making a complete findings of fact; (2) that the testimony of Atty.
Teodoro R. Dominguez, regarding the admission by Shinko's president and director that it collected
a commission of U.S. $1.00 per 1,000 board feet of logs from the Japanese buyers, is admissible
against DRACOR; (3) that the statement of DRACOR's chief legal counsel in his memorandum
dated May 31, 1965, Exhibit "K", is an admission that Shinko was able to collect the commission in
question; (4) that the fact that Shinko received the questioned commissions is deemed admitted by
DRACOR by its silence under Section 23, Rule 130 of the Rules of Court when it failed to reply to
Atty. Carlos Moran Sison's letter dated February 6, 1962; (5) that DRACOR is not entitled to its 5%
commission arising from the direct sales made by CMS to buyers in Japan; and (6) that DRACOR is
guilty of fraud and bad faith in its dealings with CMS.

With regard to CMS's arguments concerning whether or not Shinko received the commission in
question, We find the same unmeritorious.

To begin with, these arguments question the findings of fact made by the Court of Appeals, which
are final and conclusive and can not be reviewed on appeal to the Supreme Court.  12

Moreover, while it is true that the evidence adduced establishes the fact that Shinko is DRACOR's
agent or liaison in Japan,   there is no evidence which established the fact that Shinko did receive
13

the amount of U.S. $77,264.67 as commission arising from the sale of CMS's logs to various
Japanese firms.

The fact that Shinko received the commissions in question was not established by the testimony of
Atty. Teodoro R. Dominguez to the effect that Shinko's president and director told him that Shinko
received a commission of U.S. $1.00 for every 1,000 board feet of logs sold, since the same is
hearsay. Similarly, the letter of Mr. K. Shibata of Toyo Menka Kaisha, Ltd.   is also hearsay since Mr.
14

Shibata was not presented to testify on his letter.

CMS's other evidence have little or no probative value at all. The statements made in the
memorandum of Atty. Simplicio R. Ciocon to DRACOR dated May 31, 1965,   the letter dated
15

February 2, 1963 of Daniel

R. Aguinaldo,   president of DRACOR, and the reply-letter dated January 9, 1964   by DRACOR's
16 17

counsel Atty. V. E. Del Rosario to CMS's demand letter dated September 25, 1963 can not be
categorized as admissions that Shinko did receive the commissions in question.

The alleged admission made by Atty. Ciocon, to wit —

Furthermore, as per our records, our shipment of logs to Toyo Menka Kaisha, Ltd., is
only for a net volume of 67,747,732 board feet which should enable Shinko to collect
a commission of US $67,747.73 only

can not be considered as such since the statement was made in the context of questioning
CMS's tally of logs delivered to various Japanese firms.

Similarly, the statement of Daniel R. Aguinaldo, to wit —

. . . Knowing as we do that Toyo Menka is a large and reputable company, it is

obvious that they paid Shinko for certain services which Shinko must have
satisfactorily performed for them in Japan otherwise they would not have paid Shinko

and that of Atty. V. E. Del Rosario,

. . . It does not seem proper, therefore, for CMS Logging, Inc., as principal, to
concern itself with, much less question, the right of Shinko Trading Co., Ltd. with
which our client debt directly, to whatever benefits it might have derived form the
 ultimate consumer/buyer of these logs, Toyo Menka Kaisha, Ltd. There appears to
be no justification for your client's contention that these benefits, whether they can be
considered as commissions paid by Toyo Menka Kaisha to Shinko Trading, are to be
regarded part of the gross sales.

can not be considered admissions that Shinko received the questioned commissions since
neither statements declared categorically that Shinko did in fact receive the commissions
and that these arose from the sale of CMS's logs.

As correctly stated by the appellate court:

It is a rule that "a statement is not competent as an admission where it does not,
under a reasonable construction, appear to admit or acknowledge the fact which is
sought to be proved by it". An admission or declaration to be competent must have
been expressed in definite, certain and unequivocal language (Bank of the Philippine
Islands vs. Fidelity & Surety Co., 51 Phil. 57, 64). 18

CMS's contention that DRACOR had admitted by its silence the allegation that Shinko received the
commissions in question when it failed to respond to Atty. Carlos Moran Sison's letter dated
February 6, 1963, is not supported by the evidence. DRACOR did in fact reply to the letter of Atty.
Sison, through the letter dated March 5, 1963 of F.A. Novenario,   which stated:
19

This is to acknowledge receipt of your letter dated February 6, 1963, and addressed
to Mr. D. R. Aguinaldo, who is at present out of the country.

xxx xxx xxx

We have no record or knowledge of any such payment of commission made by Toyo

Menka to Shinko. If the payment was made by Toyo Menka to Shinko, as stated in
your letter, we knew nothing about it and had nothing to do with it.

The finding of fact made by the trial court, i.e., that "Shinko was able to collect the total amount of
$77,264.67 US Dollars," can not be given weight since this was based on the summary prepared by
CMS itself, Exhibits "M" and "M-1".

Moreover, even if it was shown that Shinko did in fact receive the commissions in question, CMS is
not entitled thereto since these were apparently paid by the buyers to Shinko for arranging the sale.
This is therefore not part of the gross sales of CMS's logs.

However, We find merit in CMS's contention that the appellate court erred in holding that DRACOR
was entitled to its commission from the sales made by CMS to Japanese firms.

The principal may revoke a contract of agency at will, and such revocation may be express, or
implied,   and may be availed of even if the period fixed in the contract of agency as not yet
20

expired.   As the principal has this absolute right to revoke the agency, the agent can not object
21

thereto; neither may he claim damages arising from such revocation,   unless it is shown that such
22

was done in order to evade the payment of agent's commission.  23

In the case at bar, CMS appointed DRACOR as its agent for the sale of its logs to Japanese firms.
Yet, during the existence of the contract of agency, DRACOR admitted that CMS sold its logs
directly to several Japanese firms. This act constituted an implied revocation of the contract of
agency under Article 1924 of the Civil Code, which provides:

Art. 1924 The agency is revoked if the principal directly manages the business
entrusted to the agent, dealing directly with third persons.

In New Manila Lumber Company, Inc. vs. Republic of the Philippines,   this Court ruled that the act
24

of a contractor, who, after executing powers of attorney in favor of another empowering the latter to
collect whatever amounts may be due to him from the Government, and thereafter demanded and
collected from the government the money the collection of which he entrusted to his attorney-in-fact,
constituted revocation of the agency in favor of the attorney-in-fact.

Since the contract of agency was revoked by CMS when it sold its logs to Japanese firms without
the intervention of DRACOR, the latter is no longer entitled to its commission from the proceeds of
such sale and is not entitled to retain whatever moneys it may have received as its commission for
said transactions. Neither would DRACOR be entitled to collect damages from CMS, since damages
are generally not awarded to the agent for the revocation of the agency, and the case at bar is not
one falling under the exception mentioned, which is to evade the payment of the agent's
commission.

Regarding CMS's contention that the Court of Appeals erred in not finding that DRACOR had
committed acts of fraud and bad faith, We find the same unmeritorious. Like the contention involving
Shinko and the questioned commissions, the findings of the Court of Appeals on the matter were
based on its appreciation of the evidence, and these findings are binding on this Court.

In fine, We affirm the ruling of the Court of Appeals that there is no evidence to support CMS's
contention that Shinko earned a separate commission of U.S. $1.00 for every 1,000 board feet of
logs from the buyer of CMS's logs. However, We reverse the ruling of the Court of Appeals with
regard to DRACOR's right to retain the amount of P101,536.77 as part of its commission from the
sale of logs by CMS, and hold that DRACOR has no right to its commission. Consequently,
DRACOR is hereby ordered to remit to CMS the amount of P101,536.77.

WHEREFORE, the decision appealed from is hereby MODIFIED as stated in the preceding
paragraph. Costs de officio.

SO ORDERED.
G.R. No. L-28633 March 30, 1971

CENTRAL SURETY and INSURANCE COMPANY, petitioner,

vs.
C. N. HODGES and THE COURT OF APPEALS, respondents.

Appeal by certiorari from a decision of the Court of Appeals, the dispositive part of which reads as
follows:

WHEREFORE, in view of the foregoing considerations, the decision appealed from is modified and
judgment is hereby rendered against Central Surety & Insurance Company:

(a) To pay plaintiff C. N. Hodges the sum of P17,826.08 with interest thereon at the rate of 12% per
annum from October 24, 1955 until fully paid;

(b) To pay plaintiff C. N. Hodges the sum of P1,551.60 as attorney's fees; and

(c) To pay the costs.

The main facts are not disputed. Prior to January 15, 1954, lots Nos. 1226 and 1182 of the Cadastral
Survey of Talisay, Negros Occidental, had been sold by C. N. Hodges to Vicente M. Layson, for the
sum of P43,000.90, payable on installments. As of January 15, 1954, the outstanding balance of
Layson's debt, after deducting the installments paid by him prior thereto, amounted to P15,516.00. In
order that he could use said lots as security for a loan he intended to apply from a bank, Layson
persuaded Hodges to execute in his (Layson's) favor a deed of absolute sale over the properties,
with the understanding that he would put up a surety bond to guarantee the payment of said
balance. Accordingly, on the date above-mentioned, Layson executed, in favor of Hodges, a
promissory note for P15,516.00, with interest thereon at the rate of 1% per month, and the sum of
P1,551.60, for attorney's fees and costs, in case of default in the payment of the principal or interest
of said note. To guarantee the same, on January 23, 1954, the Central Surety and Insurance
Company — hereinafter referred to as petitioner — through the manager of its branch office in Iloilo,
Mrs. Rosita Mesa, executed in favor of Hodges the surety bond Annex B, which was good for twelve
(12) months from the date thereof.

When Layson defaulted in the discharge of his aforesaid obligation, Hodges demanded payment
from the petitioner, which, despite repeated extensions of time granted thereto, at its request, failed
to honor its commitments under the surety bond. On October 24, 1955, Hodges commenced,
therefore. the present action, in the Court of First Instance of Iloilo, against Layson and petitioner
herein, to recover from them, jointly and severally, the sums of P17,826.08, representing the
principal and interest due up to said date, and P1,551.60, as attorney's fees. In his answer to the
complaint, Layson admitted the formal allegations and denied the other allegations thereof.

Having failed to file its answer within the reglementary period, the petitioner was, on January 18,
1956, declared in default. When the case was called for trial, insofar as Layson was concerned, the
latter did not appear, and Hodges was allowed to introduce his evidence. Then the trial court
rendered a partial decision against Layson, petitioner having, in the meantime, filed a motion to set
aside the order of default, which motion was still pending resolution.  Thereafter, said motion was
lâwphî1.ñèt
denied, and upon presentation of the evidence of Hodges against herein petitioner, judgment was
rendered against the latter as prayed for in the complaint. Thereupon, petitioner filled a motion for
reconsideration and a motion for relief under Rule 38. Acting thereon, His Honor, the trial Judge,
later set aside its decision against the petitioner and admitted its answer, attached to the motion to
set aside the order of default.

In its answer, petitioner disclaimed liability under the surety bond in question, upon the ground (a)
that the same is null and void, it having been issued by Mrs. Rosita Mesa after her authority therefor
had been withdrawn on March 15, 1952; (b) that even under her original authority Mrs. Mesa could
not issue surety bonds in excess of P8,000.00 without the approval of petitioner's main office which
was not given to the surety bond in favor of Hodges; and (c) that the present action is barred by the
provision in the surety bond to the effect that all claims and actions thereon should be filed within
three (3) months from the date of its expiration on January 23, 1955. Petitioner, moreover, set up a
counterclaim for damages.

In due course, thereafter, the trial court rendered a decision:

a) Condenando a la demandada Central Surety & Insurance Co. que pague al demandante la desde
la P8,000.00 con intereses legales a contar desde la fecha de la demanda — 24 de Octubre de
1955;

b) Condenando a la misma demandada que pague al de mindante la suma de P600.00 en concepto

de honorarios de abogado; y

c) Condenindo ademas a la misma demandada que pague las costas del juicio.

Hodges appealed to the Court of Appeals (CA-G.R. No. L-24684-R) from this decision, insofar as it
limited petitioners liability to P8,000.00. Petitioner, also, appealed to said Court upon the ground that
the trial court had erred: (a) in holding petitioner liable under a contract entered into by its agent in
excess of her authority; (b) in sentencing petitioner to pay Hodges the sum of P8,000.00 with interest
thereon, in addition to attorney's fees and the costs; and (c) in "not awarding" petitioner's
counterclaim.

After appropriate proceedings, the Court of Appeals rendered the decision above referred to, from
which petitioner has appealed to this Court, alleging that the Court of Appeals has erred: (1) in
finding that petitioner "was liable on a bond issued by an agent whose authority ... had already been
withdrawn and revoked"; (2) "in applying the rule on implied admission by reason of failure to deny
under oath the authenticity of a pleaded document"; and (3) "in not considering the legal effect of the
waiver contained in the disputed bond and in not disposing of this case under the light of such
waiver."

The first assignment of error is predicated upon the fact that prior to January 23, 1954, when the
surety bond involved in this case was executed, or on March 15, 1952, petitioner herein had
withdrawn the authority of its branch manager in the City of Iloilo, Mrs. Rosita Mesa, to issue, inter
alia, surety bonds and that, accordingly, the surety bond, copy of which was attached to the
complaint as Annex B, is null and void. On this point, the Court of Appeals had the following to say:

... we are of the opinion that said surety bond is valid. In the first place, there appears
to be no showing that the revocation of authority was made known to the public in
general by publication, nor was Hodges notified of such revocation despite the fact
that he was a regular client of the firm. And even if Hodges would have inquired from
Mrs. Mesa as to her authority to issue said bond, we doubt if she would disclose the
 contents of the letter of March 15, 1952 in view of Central Surety's claim that she
was committing irregularities in her remittances to the main office. Secondly, some
surety bonds issued by Mrs. Mesa in favor of Hodges after her authority had
allegedly been curtailed, were honored by the Central Surety despite the fact that
these were not reported to the main office at the time of their issuance. These
accounts were paid on January 31, 1957, to wit: Felicito and Libertad Parra issued
on August 16, 1952; Estrella Auayan issued on November 16, 1953; Dominador
Jordan issued on August 26, 1953; and Ladislao Lachica issued on February 28,
1953. (Exhs. F, G, H, I and J). By these acts Central Surety ratified Mrs. Mesa's
unauthorized acts and as such it is now estopped from setting forth Mrs. Mesa's lack
of authority to issue surety bonds after March 15, 1952. It has been held that
although the agent may have acted beyond the scope of his authority, or may have
acted without authority at all, the principal may yet subsequently see fit to recognize
and adopt the act as his own. Ratification being a matter of assent to and approval of
the act as done on account of the person ratifying any words or acts which show
such assent and approval are ordinarily sufficient. (Sta. Catalina vs. Espitero, CA-
G.R. No. 27075-R, April 28, 1964, citing IV Padilla, CIVIL CODE. 1959 ed., pp. 478-
479; Roxas vs. Villanueva, CA-G.R. No. 18928-R, June 20, 1958). Moreover, the
relocation of agency does not prejudice third persons who acted in good faith without
knowledge of the revocation. (Joson vs. Garcia, CA-G.R. No. 29336-R. Nov. 19,
1962).

Indeed, Article 1922 of our Civil Code provides:

If the agent had general powers, revocation of the agency does not prejudice third
persons who acted in good faith and without knowledge of the revocation. Notice of
the revocation in a newspaper of general circulation is a sufficient warning to third
persons.

It is not disputed that petitioner has not caused to be published any notice of the revocation of Mrs.
Mesa's authority to issue surety bonds on its behalf, notwithstanding the fact that the powers of Mrs.
Mesa, as its branch manager in Iloilo, were of a general nature, for she had exclusive authority, in
the City of Iloilo, to represent petitioner herein, not with a particular person, but with the public in
general, "in all the negotiations, transactions, and business in wherein the Company may lawfully
transact or engage on subject only to the restrictions specified in their agreement, copy of which was
attached to petitioner's answer as Annex 3.  Contrary to petitioner's claim, Article 1922 applies
1

whenever an agent has general powers, not merely when the principal has published the same,
apart from the fact that the opening of petitioner's branch office amounted to a publication of the
grant of powers to the manager of said office. Then, again, by honoring several surety bonds issued
in its behalf by Mrs. Mesa subsequently to March 15, 1952, petitioner induced the public to believe
that she had authority to issue such bonds. As a consequence, petitioner is now estopped from
pleading, particularly against a regular customer thereof, like Hodges, the absence of said authority.

Let us now take up the third assignment of error and defer, until after the same has been disposed
of, the consideration of the second assignment of error. Under the third assignment of error,
petitioner maintains that, having been instituted on October 24, 1955 — or nine (9) months after the
expiration of petitioner's surety bond on January 23, 1955 — the present action is barred by the
provision in said bond to the effect that it:

...will not be liable for any claim not discovered and presented to the Company within
three (3) months from the expiration of this bond and that the obligee hereby waives
 his right to file any court action against the surety after the termination of the period
of three months above-mentioned.

Interpreting an identical provision,  court has, however, held "that the three-month period" prescribed
2

therein "established only a condition precedent, — not a limitation of action," and that, when a claim
has been presented within said period, the action to enforce the claim may be "filed within the
statutory time of prescription." This view was clarified in a subsequent case,  in the sense that the
3

above-quoted provision was "... merely interpreted to mean that presentation of the claim within
three months was a condition precedent to the filing of a court action. Since the obligee in said case
presented his claim seasonably although it did not file the action within the same period, this Court
ruled that the stipulation in the bond concerning the limitation being ambiguous, the ambiguity should
be resolved against the surety, which drafted the agreement, and that the action could be filed within
the statutory period of prescription." 4

In the case at bar, it is not contended that Hodges had not presented his claim within three (3)
months from January 23, 1955. In fact, he had repeatedly demanded from petitioner herein
compliance with its obligations under the surety bond in question, and, in reply to such demands,
petitioner asked extensions of time, on January 29, February 16, March 15, May 3, June 16, July 1
and 15, and October 15, 1955.  After thus securing extensions of time, even beyond three (3)
5

months from January 23, 1955, petitioner cannot plead the lapse of said period to bar the present
action.

The second assignment of error assails the finding of the Court of Appeals to the effect that the
petitioner is liable for the full amount of surety bond — despite the fact that it exceeded the sum of
P8,000.00 and hence, required, for its validity and binding effect as against petitioner herein, the
express approval and confirmation of its Manila office, which were not secured — in view of
petitioner's failure to deny under oath the genuineness and due execution of said bond, copy of
which was attached to the complaint. It is true that, pursuant to section 8 of Rule 8 of the Rules of
Court:

When an action or defense is founded upon a written instrument, copied in or

attached to the corresponding pleading as provided in the preceding section, 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; but this provision does not apply when the adverse party does not
appear to be a party to the instrument or when compliance with an order for an
inspection of the original instrument is refused.

We have however, held that:

... where a case has been tried in complete disregard of the rule and the plaintiff
having pleaded a document by copy, presents oral evidence to prove the due
execution of the document as well as the agent's authority and no objections are
made to the defendant's evidence in refutation, the rule will be considered waived. 6

The reason for such view was explained by this Court as follows:

Before entering upon a discussion of the questions raised by the assignments of

error, we may draw attention to a matter which has not been mentioned either by
counsel or by the court below, but which, to prevent misunderstanding, should be
briefly explained: It is averred in the complaint that it is accompanied by a copy of the
contract between the parties (Exhibit A) which copy, by the terms of the complaint, is
 made a part thereof. The copy is not set forth in the bill of exceptions and aside from
said averment, there is no indication that the copy actually accompanied the
complaint, but an examination of the record of the case in the Court of First Instance
shows that a translation of the contract was attached to the complaint and served
upon the defendant. As this translation may be considered a copy and as the
defendant failed to deny its authenticity under oath, it will perhaps be said that under
section 103 of the Code of Civil Procedure the omission to so deny it constitutes an
admission of the genuineness and due execution of the document as well as of the
agent's authority to bind the defendant. (Merchant vs. International Banking
Corporation, 6 Phil. 314.)

In ordinary circumstances that would be true. But this case appears to have been
tried upon the theory that the rule did not apply; at least, it was wholly overlooked or
disregarded by both parties.  The plaintiffs at the beginning of the trial presented a
lâwphî1.ñèt

number of witnesses to prove the due execution of the document as well as the
agent's authority; no objection were made to the defendant's evidence in refutation;
all no exceptions taken; and the matter is not mentioned in the decision of the trial
court.

The object of the rule is 'to relieve a party of the trouble and expense of proving in
the first instance an alleged fact, the existence or nonexistence of which is
necessarily within the knowledge of the adverse party, and of the necessity (to his
opponent's case) of establishing which such adverse party is notified by his
opponent's pleading.' (Nery Lim-Chingco vs. Terariray, 5 Phil., at p. 124.)

The plaintiff may, of course, waive the rule and that is what he must be considered to
have done in the present case by introducing evidence as to the execution of the
document and failing to object to the defendant's evidence in refutation; all this
evidence is now competent and the case must be decided thereupon. .... Nothing of
what has here been said is in conflict with former decisions of this court; it will be
found upon examination that in all cases where the applicability of the rule has been
sustained the party invoking it has relied on it in the court below and conducted his
case accordingly." 7

In the case at bar, the parties acted in complete disregard of or wholly overlooked the rule above-
quoted. Hodges had neither objected to the evidence introduced by petitioner herein in order to
prove that Mrs. Mesa had no authority to issue a surety bond, much less one in excess of
P8,000.00, and took no exception to the admission of said evidence. Hence, Hodges must be
deemed to have waived the benefits of said rule and petitioner herein cannot be held liable in excess
of the sum of P8,000.00.

WHEREFORE, with the modification that petitioner's liability to Hodges is limited to said sum of
P8,000.00 the period, the petitioner was, on January 18, 1956, declared it is hereby affirmed in all
other respects, without costs. It is so ordered.
G.R. No. L-40681             October 2, 1934

DY BUNCIO & COMPANY, INC., plaintiff-appelle,

vs.
ONG GUAN CAN, ET AL., defendants.
JUAN TONG and PUA GIOK ENG, appellants.

This is a suit over a rice mill and camarin situated at Dao, Province of Capiz. Plaintiff claims that the
property belongs to its judgment debtor, Ong Guan Can, while defendants Juan Tong and Pua Giok
Eng claim as owner and lessee of the owner by virtue of a deed dated July 31, 1931, by Ong Guan
Can, Jr.

After trial the Court of First Instance of Capiz held that the deed was invalid and that the property
was subject to the execution which has been levied on said properties by the judgment creditor of
the owner. Defendants Juan Tong and Pua Giok bring this appeal and insist that the deed of the
31st of July, 1931, is valid.

The first recital of the deed is that Ong Guan Can, Jr., as agent of Ong Guan Can, the proprietor of
the commercial firm of Ong Guan Can & Sons, sells the rice-mill and camarin for P13,000 and gives
as his authority the power of attorney dated the 23d of May, 1928, a copy of this public instrument
being attached to the deed and recorded with the deed in the office of the register of deeds of Capiz.
The receipt of the money acknowledged in the deed was to the agent, and the deed was signed by
the agent in his own name and without any words indicating that he was signing it for the principal.

Leaving aside the irregularities of the deed and coming to the power of attorney referred to in the
deed and registered therewith, it is at once seen that it is not a general power of attorney but a
limited one and does not give the express power to alienate the properties in question. (Article 1713
of the Civil Code.)

Appellants claim that this defect is cured by Exhibit 1, which purports to be a general power of
attorney given to the same agent in 1920. Article 1732 of the Civil Code is silent over the partial
termination of an agency. The making and accepting of a new power of attorney, whether it enlarges
or decreases the power of the agent under a prior power of attorney, must be held to supplant and
revoke the latter when the two are inconsistent. If the new appointment with limited powers does not
revoke the general power of attorney, the execution of the second power of attorney would be a
mere futile gesture.lawphi1 .net

The title of Ong Guan Can not having been divested by the so-called deed of July 31, 1931, his
properties are subject to attachment and execution.

The judgment appealed from is therefore affirmed. Costs against appellants. So ordered.
G.R. No. L-14248             April 28, 1960

NEW MANILA LUMBER COMPANY, INC., plaintiff-appellant,

vs.
REPUBLIC OF THE PHILIPPINES, defendant-appellee.

Appeal from an order of dismissal of the Court of First Instance of Manila.

On May 8, 1958, the plaintiff lumber company filed in the court below a complaint against the
defendant Republic of the Philippines for the recovery of a sum of money. The complaint alleges,
among other things, that defendant, thru the Director of Schools, entered into a contract with one
Alfonso Mendoza to build two school houses; that plaintiff furnished the lumber materials in the
construction of the said buildings; that prior to the payment by defendant of any amount due the
contractor, the latter executed powers of attorney in favor of the plaintiff "constituting it as his sole,
true and lawful attorney-in-fact with specific and exclusive authority to collect and receive from the
defendant any and all amounts due or may be due to said contractor from the defendant in
connection with the construction of the aforesaid school buildings, as may be necessary to pay
materials supplied by the plaintiff"; and that originals of the powers of attorney were received by
defendant (thru the Director of Public Schools) who promised to pay plaintiff, but that it,
nevertheless, paid the contractor several amounts on different occasions without first making
payment to plaintiff. The complaint, therefore, prays that defendant be ordered to pay plaintiff the
sum of P18,327.15, the unpaid balance of the cost of lumber supplied and used in the construction
of the school buildings, with interest at the legal rate from the date same was due, plus attorney's
fees and costs.

Served with a copy of the complaint, the defendant Republic of the Philippines, through the Solicitor
General, moved to dismiss the same on the grounds (1) that it does not allege a sufficient cause of
action, (2) that plaintiff has no right to institute the action under Act No. 3688, and (3) that the court is
without jurisdiction to entertain the same against the defendant.

The motion was opposed by plaintiff, but after hearing, the court below — holding that "there is no
juridical tie between plaintiff-supplier and defendant-owner — sustained the motion to dismiss on the
first ground, and on June 23, 1958 issued an order dismissing plaintiff's complaint. Its motion for
reconsideration having been denied, plaintiff took the present appeal.

The appeal is without merit.

Briefly stated, plaintiff's complaint seeks to enforce against the Republic of the Philippines a money
claim for the payment of materials it furnished for the construction of two public school buildings
undertaken by contractor Alfonso Mendoza, on the basis of powers of attorney executed by the latter
authorizing said plaintiff to collect and receive from defendant Republic any amount due or may be
due to said contractor as contract price for the payment of the materials so supplied.
Section one of Public Act No. 3688, entitled "An Act for the protection of persons furnishing material
and labor for the construction of public works", reads in part as follows:

SECTION 1. Any person, partnership or corporation entering into a formal contract with the
Government of the Philippine Islands for the construction of any public building, or the
prosecution and completion of any public work, or for repairs upon any public building or
public work, shall be required, before commencing such work, to execute the usual penal
bond, with good and sufficient sureties, with the additional obligation that such contractor or
his or its sub-contractors shall promptly make payments to all persons supplying him or them
with labor and materials in the prosecution of the work provided for in such contract; and any
person, company or corporation who has furnished labor or materials in the construction or
repair of any public building or public work, and payment for which has not been made, shall
have the right to intervene and be made a party to any action instituted by the Government
of the Philippine Islands on the bond of the contractor, and to have their rights and claims
adjudicated in such action and judgment rendered thereon, subject, however, to the priority
of the claim and judgment of the Government of the Philippine Islands. If the full amount of
the liability of the surety on said bond is insufficient to pay the full amount of said claims and
demands, then, after paying the full amount due the Government, the remainder shall be
distributed pro rata among said intervenors. If no suit should be brought by the Government
of the Philippine Islands within six months from the completion and final settlement of said
contract, or if the Government expressly waives its right to institute action on the penal bond,
then the person or persons supplying the contractor with labor and materials shall, upon
application therefor, and furnishing affidavit to the department under the direction of which
said work has been prosecuted, that labor or materials for the prosecution of such work have
been supplied by him or them, and payment for which has not been made, be furnished with
a certified copy of said contract and bond, upon which he or they shall have a right of action,
and shall be, and are hereby, authorized to bring suit in the name of the Government of the
Philippine Islands in the Court of First Instance in the district in which said contract was to be
performed and executed, and not elsewhere, for his or their use and benefit, against said
contractor and his sureties, and to prosecute the same to final judgment and execution, . . . .

In the case at bar, it is not disputed that defendant Republic has already instituted a suit against the
contractor for the forfeiture of the latter's bond posted to secure the faithful performance of
stipulations in the construction contract with regards to one of the two school buildings (Civil Case
No. 26815, Court of First Instance of Manila). The contractor has a similar bond with respect to the
other school building. Pursuant to Act 3688, plaintiff's legal remedy is, not to bring suit against the
Government, there being no privity of contract between them, but to intervene in the civil case
above-mentioned as an unpaid supplier of materials to the contractor, or file an action in the name of
the Republic against said contractor on the latter's other bond.

Plaintiff argues that an implied contract between it and the defendant Republic arose, when the
latter, thru the Director of Public Schools, on being furnished copies of the powers of attorney
executed by the contractor, promised to make payment to plaintiff for the materials supplied for the
construction of the school buildings. It will be observed, however, that defendant was not a party to
the execution of the powers of attorney. Besides, the Director of Public Schools had no authority to
bind defendant on the payment. While he was the official who entered into contract with the
contractor for the construction of the school buildings, payment of the contract price was not within
his exclusive control but subject to approval under existing laws not only by the Department Head
(Sec. 568, Rev. Adm, Code), but also by the Auditor General.

At any rate, under the facts alleged in the complaint, the powers of attorney in question made
plaintiff the contractor's agent in the collection of whatever amounts may be due the contractor from
the defendant. And since it is also alleged that, after the execution of the powers of attorney, the
contractor (principal) demanded and collected from defendant the money the collection of which he
entrusted to plaintiff, the agency apparently has already been revoked. (Articles 1920 and 1924, new
Civil Code.)

The point is made by plaintiff that the powers of attorney executed by the contractor in its favor are
irrevocable and are coupled with interest. But even supposing that they are, still their alleged
irrevocability cannot affect defendant who is not a party thereto. They are obligatory only on the
principal who executed the agency.

Plaintiff also cites Article 1729 of the new Civil Code, which provides that —

Those who put their labor upon or furnish materials for a piece of work undertaken by the
contractor have an action against the owner up to the amount owing from the latter to the
contractor at the time the claim is made. . . .

This article, however, as expressly provided in its last paragraph, "is subject to the provisions of
special law." The special law governing in the present case, as already seen, is Act No. 3688.

There is another reason for upholding the order of dismissal complained of. Plaintiff's action being a
claim for sum of money arising from an alleged implied contract between it and the Republic of the
Philippines, the same should have been lodged with the Auditor General. The state cannot be sued
without its consent.

In view of the foregoing, the order of dismissal appealed from is affirmed, with costs against plaintiff-
appellant.