ADDITIONAL CASES ATP (SEPT 9 2019)
Among other persons, Montelibano interviewed the
1.
G. R. No. 19001, November 11, 1922
HARRY E. KEELER ELECTRIC CO., INC., PLAINTIFF AND APPELLANT,
VS. DOMINGO RODRIGUEZ, DEFENDANT AND APPELLEE.
DECISION
STATEMENT
The plaintiff is a domestic corporation with its principal office in the
city of Manila and engaged in the electrical business, and among
other things in the sale of what is known as the "Matthews" electric
plant, and the defendant is a resident of Talisay, Occidental Negros,
and A. C. Montelibano was a resident of Iloilo.
Having this information, Montelibano approached plaintiff at its
Manila office, claiming that he was from Iloilo and lived with
Governor Yulo; that he could find purchasers for the "Matthews"
plant, and was told by the plaintiff that for any plant that he could
sell or any customer that he could find he would be paid a
commission of 10 per cent for his services, if the sale was
consummated.
defendant, and, through his efforts, one of the "Matthews" plants
was sold by the plaintiff (harry keeler electric) to the defendant
(Domingo), and was shipped from Manila to Iloilo, and later
installed on defendant's premises after which, without the
knowledge of the plaintiff, the defendant paid the purchase price
to Montelibano. As a result, plaintiff commenced this action against
the defendant, alleging that about August 18, 1920, it sold and
delivered to the defendant the electric plant at the agreed price of
P2,513.55 no part of which has been paid, and demands judgment
for the amount with interest from October 20, 1920.
For answer, the defendant admits the corporation of the plaintiff,
and denies all other material allegations of the complaint, and, as an
affirmative defense, alleges "that on or about the 18th of August,
1920, the plaintiff sold and delivered to the defendant a certain
electric plant and that the defendant paid the plaintiff the value of
said electric plant, to wit: P2,513.55."
Upon such issues the testimony was taken, and the lower court
rendered judgment for the defendant, from which the plaintiff
appeals, claiming that the court erred in holding that the payment to
A. C. Montelibano would discharge the debt of defendant, and in
holding that the bill was given to Montelibano for collection
purposes, and that the plaintiff had held out Montelibano to the
defendant as an agent authorized to collect, and in rendering
judgment for the defendant, and in not rendering judgment for the
plaintiff.
Johns, J.:
The testimony is conclusive that the defendant paid: the amount of
plaintiff's claim to Montelibano, and that no part of the money was
ever paid to the plaintiff. The defendant, having alleged that the
plaintiff sold and delivered the plant to him, and that he paid the
plaintiff the purchase price, it devolved upon the defendant to prove
the payment to the plaintiff by a preponderance of the evidence.
It appears from the testimony of H. E. Keeler that he was president
of the plaintiff and that the plant in question was shipped from
Manila to Iloilo and consigned to the plaintiff itself, and that at the
time of the shipment the plaintiff sent Juan Cenar, one of its
employees, with the shipment, for the purpose of installing the plant
on defendant's premises. That plaintiff gave Cenar a statement of
the account, including some extras and the expenses of the
mechanic, making a total of P2,563.95. That Montelibano had no
authority from the plaintiff to receive or receipt for money. That in
truth and in fact his services were limited and confined to the finding
of purchasers for the "Matthews" plant to whom the plaintiff would
later make and consummate the sale. That Montelibano was not an
electrician, could not install the plant and did not know anything
about its mechanism.
Cenar, as a witness for the plaintiff, testified that he went with the
shipment of the plant from Manila to IloIlo, for the purpose of
installing, testing it, and to see that everything was satisfactory. That
he was there" about nine days, and that he installed the plant, and
that it was tested and approved by the defendant. He also says that
he personally took with him the statement of account of the plaintiff
against the defendant, and that after he was there a few days, the
defendant asked to see the statement, and that he gave it to him,
and the defendant said, "he was going to keep it." I said that was all
right "if you want." "I made no effort at all to collect the amount
from him because Mr. Rodriguez told me he was going to pay for the
plant here in Manila." That after the plant was installed and
approved, he delivered it to the defendant and returned to Manila.
The only testimony on the part of the defendant is that of himself in
the form of a deposition in which he says that Montelibano sold and
delivered the plant to him, and "was the one who ordered the
installation of that electrical plant," and he introduced in evidence as
part of his deposition a statement and receipt which Montelibano
signed to whom he paid the money. When asked why he paid the
money to Montelibano, the witness says:
"Because he was the one who sold, delivered, and installed the
electrical plant, and he presented to me the account, Exhibits A and
A-I, and he assured me that he was duly authorized to collect the
value of the electrical plant." The receipt offered in evidence is
headed:
"STATEMENT Folio No. 2494 There is nothing on the face of this receipt to show that Montelibano
was the agent of, or that he was acting for, the plaintiff. It is his own
"Mr. DOMINGO RODRIGUEZ, personal receipt and his own personal signature. Outside of the fact
that Montelibano received the money and signed this receipt, there
"Iloilo, Iloilo, P. I. is no evidence that he had any authority, real or apparent, to receive
"In account with " or receipt for the money. Neither is there any evidence that the
plaintiff ever delivered the statement to Montelibano, or authorized
"HARRY E. KEELER ELECTRIC anyone to deliver it to him, and it is very apparent that the
COMPANY, INC. statement in question is the one which was delivered by the plaintiff
to Cenar, and is the one which Cenar delivered to the defendant at
"221 Calle Echague, Quiapo,
the request of the defendant.
Manila, P. I.

" MANILA, P. I., August The evidence of the defendant that Montelibano was the one who
18,1920." sold him the plant is in direct conflict with his own pleadings and the
receipted statement which he offered in evidence. This statement
also shows upon its face that P81.60 of the bill is for:
The answer alleges and the receipt shows upon its face ;hat the
plaintiff sold the plant to the defendant, and that tie bought it from "To Passage round trip, 1st Class @
the plaintiff. The receipt is signed as follows:
P40.80 a trip....................................P81.60."
"Received payment
and
"HARRY E. KEELER ELECTRIC CO. INC.,
"Plus Labor @ P5.00 per day—
"Recibi
"Machine's transportation.......... 9.85."
(Sgd.) "A. C. MONTELIBANO."
This claim must be for the expenses of Cenar in going to Iloilo from
Manila and return, to install the plant, and is strong evidence that it
was Cenar and not Montelibano who installed the plant. If
Montelibano installed the plant, as defendant claims, there would
not have been any necessity for Cenar to make this trip at the
expense of the defendant. After Cenar's return to Manila, the
plaintiff wrote a letter to the defendant requesting the payment of
its account, in answer to which the defendant on September 24 sent
the following telegram:
"Electric plant accessories and installation are paid to
Montelibano about three weeks Keeler Company did
not present bill."
This is in direct conflict with the receipted statement, which the
defendant offered in evidence, signed by Montelibano. That shows
upon its face that it was an itemized statement of the account of
plaintiff with the defendant. Again, it will be noted that the receipt
which Montelibano signed is not dated, and it does not show when
the money was paid: Speaking of Montelibano, the defendant also
testified: "and he assured me that he was duly authorized to collect
the value of the electrical plant." This shows upon its face that the
question of Montelibano's authority to receive the money must have
been discussed between them, and that, in making the payment,
defendant relied upon Montelibano's own statements and
representations, as to his authority, to receipt for the money.
In the final analysis, the plant was sold by the plaintiff to the
defendant, and was consigned by the plaintiff to the plaintiff at Iloilo
where it was installed by Cenar, acting for, and representing, the
plaintiff, whose expense for the trip is included in, and made a part
of, the bill which was receipted by Montelibano.
There is no evidence that the plaintiff ever delivered any statement
to Montelibano, or that he was authorized to receive or receipt for
the money, and defendant's own telegram shows that the plaintiff
"did not present bill" to defendant. He now claims that at the very
time this telegram was sent, he had the receipt of Montelibano for
the money upon the identical statement of account which it is
admitted the plaintiff did render to the defendant.
Article 1162 of the Civil Code provides:
"Payment must be made to the person in whose favor
the obligation is constituted, or to another authorized
to receive it in his name."
And article 1727 provides:
"The principal shall be liable as to matters with
respect to which the agent has exceeded his authority
only when he ratifies the same expressly or by
implication." In the case of Ormachea Tin-Congco vs.
Trillana (13 Phil., 194), this court held:
"The repayment of a debt must be made to the
person in whose favor the obligation is constituted, or
to another expressly authorized to receive the
payment in his name." Mechem on Agency, volume I,
section 743, says:
"In approaching the consideration of the inquiry
whether an assumed authority exists in a given case,
there are certain fundamental principles which must
not be overlooked. Among these are, as has been
seen, (1) that the law indulges in no bare
presumptions that an agency exists: it must be
proved or presumed from facts; (2) that the agent
cannot establish his own authority, either by his
representations or by assuming to exercise it; (3)
that an authority cannot be established by mere
rumor or general reputation; (4) that even a general
authority is not an unlimited one; and (5) that every
authority must find its ultimate source in some act or
omission of the principal. An assumption of authority
to act as agent for another of itself challenges inquiry.
Like a railroad crossing, it should be in itself a sign of
danger and suggest the duty to 'stop, look, and listen.'
It is therefore declared to be a fundamental rule,
never to be lost sight of and not easily to be
overestimated, that persons dealing with an assumed
agent, whether the assumed agency be a general or
special one, are bound at their peril, if they would
hold the principal, to ascertain not only the fact of the
agency but the nature and extent of the authority,
and in case either is controverted, the burden of proof
is upon them to establish it."
" * * * It is, moreover, in any case entirely within the
power of the person dealing with the agent to satisfy
himself that the agent has the authority he assumes
to exercise, or to decline to enter into relations with
him." (Mechem on Agency, vol. I, sec". 746.)
"The person dealing with the agent must also act with
ordinary prudence and reasonable diligence.
Obviously, if he knows or has good reason to believe
that the agent is exceeding his authority, he cannot
claim protection. So if the suggestions of probable
limitations be of such a clear and reasonable quality,
or if the character assumed by the agent is of such a
suspicious or unreasonable nature, or if the authority
which he seeks to exercise is of such an unusual or
improbable character, as would suffice to put an
ordinarily prudent man upon his guard, the party
dealing with him may not shut his eyes to the real
state of the case, but should either refuse to deal with
the agent at all, or should ascertain from the principal
 the true condition of affairs." (Mechem on Agency, vol. The judgment of the lower court is reversed, and one will be entered
I, sec. 752.) here in favor of the plaintiff and against the defendant for the sum of
P2,513.55 with interest at the legal rate from January 10, 1921, with
"And not only must the person dealing with the agent costs in favor of the appellant. So ordered.
ascertain the existence of the conditions, but he must
also, as in other cases, be able to trace the source of Araullo, C. J., Johnson, Street, Malcolm, Avanceña, Villamor, Ostrand,
his reliance to some word or act of the principal and Romualdez, JJ., concur.
himself if the latter is to be held responsible. As has
often been pointed out, the agent alone cannot
enlarge or extend his authority by his own acts or
statements, nor can he alone remove limitations or
waive conditions imposed by his principal. To charge
Batas.org
the principal in such a case, the principal's consent or
concurrence must be shown." (Mechem on Agency,
vol. I, section 757.)

This was a single transaction between the plaintiff and the

defendant.

Applying the above rules, the testimony is conclusive that the

plaintiff never authorized Montelibano to receive or receipt for
money in its behalf, and that the defendant had no right to assume
by any act or deed of the plaintiff that Montelibano was authorized
to receive the money, and that the defendant made the payment at
his own risk and on the sole representations of Montelibano that he
was authorized to receipt for the money.
Supreme Court of the Philippines
532 Phil. 147
SECOND DIVISION
G.R. NO. 150128, August 31, 2006
LAUREANO T. ANGELES, PETITIONER, VS. PHILIPPINE NATIONAL
RAILWAYS (PNR) AND RODOLFO FLORES,[1] RESPONDENTS.
DECISION
GARCIA, J.:
Under consideration is this petition for review under
Rule 45 of the Rules of Court assailing and seeking to
set aside the following issuances of the Court of
Appeals (CA) in CA-G.R. CV No. 54062, to wit:
1. Decision[2] dated June 4, 2001, affirming an
earlier decision of the Regional Trial Court (RTC)
of Quezon City, Branch 79, which dismissed
the complaint for specific performance and
damages thereat commenced by the
petitioner against the herein respondents; and
2. Resolution[3] dated September 17, 2001,
denying the petitioner's motion for
reconsideration.
The facts:
On May 5, 1980, the respondent Philippine National Railways (PNR)
informed a certain Gaudencio Romualdez (Romualdez, hereinafter)
that it has accepted the latter's offer to buy, on an "AS IS, WHERE IS"
basis, the PNR's scrap/unserviceable rails located in Del Carmen and
Lubao, Pampanga at P1,300.00 and P2,100.00 per metric ton,
respectively, for the total amount of P96,600.00. After paying the
stated purchase price, Romualdez addressed a letter to Atty.
Cipriano Dizon, PNR's Acting Purchasing Agent. Bearing date May 26,
1980, the letter reads:
Dear Atty. Dizon:
This is to inform you as President of San Juanico
Enterprises, that I have authorized the bearer, LIZETTE
R. WIJANCO of No. 1606 Aragon St., Sta. Cruz, Manila,
to be my lawful representative in the withdrawal of
the scrap/unserviceable rails awarded to me.
 For this reason, I have given her the original copy of
the award, dated May 5, 1980 and O.R. No. 8706855
dated May 20, 1980 which will indicate my waiver of
rights, interests and participation in favor of LIZETTE R.
WIJANCO.
Thank you for your cooperation.
Very truly yours,
(Sgd.) Gaudencio Romualdez
The Lizette R. Wijanco mentioned in the letter was Lizette Wijanco-
Angeles, petitioner's now deceased wife. That very same day – May
26, 1980 – Lizette requested the PNR to transfer the location of
withdrawal for the reason that the scrap/unserviceable rails located
in Del Carmen and Lubao, Pampanga were not ready for hauling. The
PNR granted said request and allowed Lizette to withdraw
scrap/unserviceable rails in Murcia, Capas and San Miguel, Tarlac
instead. However, the PNR subsequently suspended the withdrawal
in view of what it considered as documentary discrepancies coupled
by reported pilferages of over P500,000.00 worth of PNR scrap
properties in Tarlac.
Consequently, the spouses Angeles demanded the refund of the
amount of P96,000.00. The PNR, however, refused to pay, alleging
that as per delivery receipt duly signed by Lizette, 54.658 metric tons
of unserviceable rails had already been withdrawn which, at
P2,100.00 per metric ton, were worth P114,781.80, an amount that
exceeds the claim for refund.
On August 10, 1988, the spouses Angeles filed suit against the PNR
and its corporate secretary, Rodolfo Flores, among others, for
specific performance and damages before the Regional Trial Court of
Quezon City. In it, they prayed that PNR be directed to deliver 46
metric tons of scrap/unserviceable rails and to pay them damages
and attorney's fees.
Issues having been joined following the filing by PNR, et al., of their
answer, trial ensued. Meanwhile, Lizette W. Angeles passed away
and was substituted by her heirs, among whom is her husband,
herein petitioner Laureno T. Angeles.
On April 16, 1996, the trial court, on the postulate that the spouses
Angeles are not the real parties-in-interest, rendered judgment
dismissing their complaint for lack of cause of action. As held by the
court, Lizette was merely a representative of Romualdez in the
withdrawal of scrap or unserviceable rails awarded to him and not an
assignee to the latter's rights with respect to the award.
Aggrieved, the petitioner interposed an appeal with the CA, which,
as stated at the threshold hereof, in its decision of June 4, 2001,
dismissed the appeal and affirmed that of the trial court. The
affirmatory decision was reiterated by the CA in its resolution of
September 17, 2001, denying the petitioner's motion for
reconsideration.
Hence, the petitioner's present recourse on the submission that the
CA erred in affirming the trial court's holding that petitioner and his
spouse, as plaintiffs a quo, had no cause of action as they were not
the real parties-in-interest in this case.
We DENY the petition.
At the crux of the issue is the matter of how the aforequoted May 26,
1980 letter of Romualdez to Atty. Dizon of the PNR should be taken:
was it meant to designate, or has it the effect of designating, Lizette
W. Angeles as a mere agent or as an assignee of his (Romualdez's)
interest in the scrap rails awarded to San Juanico Enterprises? The
CA's conclusion, affirmatory of that of the trial court, is that Lizette
was not an assignee, but merely an agent whose authority was
limited to the withdrawal of the scrap rails, hence, without
personality to sue.
Where agency exists, the third party's (in this case, PNR's) liability on
a contract is to the principal and not to the agent and the
relationship of the third party to the principal is the same as that in a
contract in which there is no agent. Normally, the agent has neither
rights nor liabilities as against the third party. He cannot thus sue or
be sued on the contract. Since a contract may be violated only by the
parties thereto as against each other, the real party-in-interest,
either as plaintiff or defendant in an action upon that contract must,
generally, be a contracting party.
The legal situation is, however, different where an agent is
constituted as an assignee. In such a case, the agent may, in his own
behalf, sue on a contract made for his principal, as an assignee of
such contract. The rule requiring every action to be prosecuted in the
name of the real party-in-interest recognizes the assignment of rights
of action and also recognizes that when one has a right assigned to
him, he is then the real party-in-interest and may maintain an action
upon such claim or right.[4]
Upon scrutiny of the subject Romualdez's letter to Atty. Cipriano
Dizon dated May 26, 1980, it is at once apparent that Lizette was to
act just as a "representative" of Romualdez in the "withdrawal of
rails," and not an assignee. For perspective, we reproduce the
contents of said letter:
This is to inform you as President of San Juanico
Enterprises, that I have authorized the bearer, LIZETTE
R. WIJANCO x x x to be my lawful representative in
the withdrawal of the scrap/unserviceable rails
awarded to me.
For this reason, I have given her the original copy of
 the award, dated May 5, 1980 and O.R. No. 8706855
dated May 20, 1980 which will indicate my waiver of
rights, interests and participation in favor of LIZETTE R.
WIJANCO. (Emphasis added)
If Lizette was without legal standing to sue and appear in this case,
there is more reason to hold that her petitioner husband, either as
her conjugal partner or her heir, is also without such standing.
Petitioner makes much of the fact that the terms "agent" or
"attorney-in-fact" were not used in the Romualdez letter aforestated.
It bears to stress, however, that the words "principal" and "agent,"
are not the only terms used to designate the parties in an agency
relation. The agent may also be called an attorney, proxy, delegate
or, as here, representative.
It cannot be over emphasized that Romualdez's use of the active
verb "authorized," instead of "assigned," indicated an intent on his
part to keep and retain his interest in the subject matter. Stated a bit
differently, he intended to limit Lizette's role in the scrap transaction
to being the representative of his interest therein.
Petitioner submits that the second paragraph of the Romualdez
letter, stating - "I have given [Lizette] the original copy of the award x
x x which will indicate my waiver of rights, interests and participation
in favor of Lizette R. Wijanco" - clarifies that Lizette was intended to
be an assignee, and not a mere agent.
We are not persuaded. As it were, the petitioner conveniently
omitted an important phrase preceding the paragraph which would
have put the whole matter in context. The phrase is "For this
reason," and the antecedent thereof is his (Romualdez) having
appointed Lizette as his representative in the matter of the
withdrawal of the scrap items. In fine, the key phrase clearly conveys
the idea that Lizette was given the original copy of the contract
award to enable her to withdraw the rails as Romualdez's authorized
representative.
Article 1374 of the Civil Code provides that the various stipulations of
a contract shall be read and interpreted together, attributing to the
doubtful ones that sense which may result from all of them taken
jointly. In fine, the real intention of the parties is primarily to be
determined from the language used and gathered from the whole
instrument. When put into the context of the letter as a whole, it is
abundantly clear that the rights which Romualdez waived or ceded in
favor of Lizette were those in furtherance of the agency relation that
he had established for the withdrawal of the rails.
At any rate, any doubt as to the intent of Romualdez generated by
the way his letter was couched could be clarified by the acts of the
main players themselves. Article 1371 of the Civil Code provides that
to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally
considered. In other words, in case of doubt, resort may be made to
the situation, surroundings, and relations of the parties.
The fact of agency was, as the trial court aptly observed,[5] confirmed
in subsequent letters from the Angeles spouses in which they
themselves refer to Lizette as "authorized representative" of San
Juanico Enterprises. Mention may also be made that the withdrawal
receipt which Lizette had signed indicated that she was doing so in a
representative capacity. One professing to act as agent for another is
estopped to deny his agency both as against his asserted principal
and third persons interested in the transaction which he engaged in.
Whether or not an agency has been created is a question to be
determined by the fact that one represents and is acting for another.
The appellate court, and before it, the trial court, had peremptorily
determined that Lizette, with respect to the withdrawal of the scrap
in question, was acting for Romualdez. And with the view we take of
this case, there were substantial pieces of evidence adduced to
support this determination. The desired reversal urged by the
petitioner cannot, accordingly, be granted. For, factual findings of
the trial court, adopted and confirmed by the CA, are, as a rule, final
and conclusive and may not be disturbed on appeal.[6] So it must be
here.
Petitioner maintains that the Romualdez letter in question was not in
the form of a special power of attorney, implying that the latter had
not intended to merely authorize his wife, Lizette, to perform an act
for him (Romualdez). The contention is specious. In the absence of
statute, no form or method of execution is required for a valid power
of attorney; it may be in any form clearly showing on its face the
agent's authority.[7]
A power of attorney is only but an instrument in writing by which a
person, as principal, appoints another as his agent and confers upon
him the authority to perform certain specified acts on behalf of the
principal. The written authorization itself is the power of attorney,
and this is clearly indicated by the fact that it has also been called a
"letter of attorney." Its primary purpose is not to define the authority
of the agent as between himself and his principal but to evidence the
authority of the agent to third parties with whom the agent deals.[8]
The letter under consideration is sufficient to constitute a power of
attorney. Except as may be required by statute, a power of attorney
is valid although no notary public intervened in its execution.[9]
A power of attorney must be strictly construed and pursued. The
instrument will be held to grant only those powers which are
specified therein, and the agent may neither go beyond nor deviate
from the power of attorney.[10] Contextually, all that Lizette was
authorized to do was to withdraw the unserviceable/scrap railings.
Allowing her authority to sue therefor, especially in her own name,
would be to read something not intended, let alone written in the
Romualdez letter.
Finally, the petitioner's claim that Lizette paid the amount of [3] Id. at 75.
P96,000.00 to the PNR appears to be a mere afterthought; it ought
to be dismissed outright under the estoppel principle. In earlier [4]
Uy v. Court of Appeals, G.R. No. 120465, September 9, 1999, 314
proceedings, petitioner himself admitted in his complaint that it was SCRA 69.
Romualdez who paid this amount.
[5] RTC Decision, pp. 17-18; Rollo, pp. 71-72.
WHEREFORE, the petition is DENIED and the assailed decision of the
CA is AFFIRMED. [6] Lubos v. Galupo, G.R. No. 139136, January 16, 2002, 373 SCRA 618.

Costs against the petitioner. [7] 3 Am Jur. 2d, Agency, Sec. 25.

SO ORDERED. [8] Ibid. Sec. 23.

Puno, (Chairperson), Sandoval-Gutierrez and Azcuna, JJ., concur. [9] Reyes v. Santiago, CA-G.R. No. 47996-7-R, Nov. 27, 1975.
Corona, J., on leave.
[10] 3 Am. Jur. 2d, Agency, Sec. 31.

[1]As filed, the petition impleads the Court of Appeals as among the Batas.org
respondents. Pursuant to Sec. 4, Rule 45, the CA need not be
impleaded.

[2]
Penned by Associate Justice Martin S. Villarama, Jr., with Associate
Justices Conrado M. Vasquez, Jr. and Alicia L. Santos, concurring;
Rollo, pp. 46-53.
Supreme Court of the Philippines
332 Phil. 948
FIRST DIVISION
G.R. No. 114311, November 29, 1996
COSMIC LUMBER CORPORATION, PETITIONER, VS. COURT OF
APPEALS AND ISIDRO PEREZ, RESPONDENTS.
DECISION
BELLOSILLO, J.:
COSMIC LUMBER CORPORATION through its General
Manager executed on 28 January 1985 a Special
Power of Attorney appointing Paz G. Villamil-Estrada
as attorney-in-fact -
x x x to initiate, institute and file any court action for
the ejectment of third persons and/or squatters of the
entire lot 9127 and 443 and covered by TCT Nos.
37648 and 37649, for the said squatters to remove
their houses and vacate the premises in order that the
corporation may take material possession of the
entire lot, and for this purpose, to appear at the
pre-trial conference and enter into any stipulation of
facts and/or compromise agreement so far as it shall
protect the rights and interest of the corporation in
the aforementioned lots.[1]
On 11 March 1985 Paz G. Villamil-Estrada, by virtue of her power of
attorney, instituted an action for the ejectment of private
respondent Isidro Perez and recover the possession of a portion of
Lot No. 443 before the Regional Trial Court of Dagupan, docketed as
Civil Case No. D-7750.[2]
On 25 November 1985 Villamil-Estrada entered into a Compromise
Agreement with respondent Perez, the terms of which follow:
1. That as per relocation sketch plan dated June 5,
1985 prepared by Engineer Rodolfo dela Cruz the area
at present occupied by defendant wherein his house is
located is 333 square meters on the easternmost part
of lot 443 and which portion has been occupied by
defendant for several years now;
2. That to buy peace said defendant pays unto the
plaintiff through herein attorney-in-fact the sum of
P26,640.00 computed at P80.00/square meter;
3. That plaintiff hereby recognizes ownership and
 possession of the defendant by virtue of this
compromise agreement over said portion of 333
square m. of lot 443 which portion will be located on
the easternmost part as indicated in the sketch as
annex A;
4. Whatever expenses of subdivision, registration, and
other incidental expenses shall be shouldered by the
defendant.[3]
On 27 November 1985 the "Compromise Agreement" was approved
by the trial court and judgment was rendered in accordance
therewith.[4]
Although the decision became final and executory it was not
executed within the 5-year period from date of its finality allegedly
due to the failure of petitioner to produce the owner’s duplicate
copy of Title No. 37649 needed to segregate from Lot No. 443 the
portion sold by the attorney-in-fact, Paz G. Villamil-Estrada, to
private respondent under the compromise agreement. Thus on 25
January 1993 respondent filed a complaint to revive the judgment,
docketed as Civil Case No. D-10459.[5]
Petitioner asserts that it was only when the summons in Civil Case
No. D-10459 for the revival of judgment was served upon it that it
came to know of the compromise agreement entered into between
Paz G. Villamil-Estrada and respondent Isidro Perez upon which the
trial court based its decision of 26 July 1993 in Civil Case No.
D-7750. Forthwith, upon learning of the fraudulent transaction,
petitioner sought annulment of the decision of the trial court before
respondent Court of Appeals on the ground that the compromise
agreement was void because: (a) the attorney-in-fact did not have
the authority to dispose of, sell, encumber or divest the plaintiff of
its ownership over its real property or any portion thereof; (b) the
authority of the attorney-in-fact was confined to the institution and
filing of an ejectment case against third persons/squatters on the
property of the plaintiff, and to cause their eviction therefrom; (c)
while the special power of attorney made mention of an authority to
enter into a compromise agreement, such authority was in
connection with, and limited to, the eviction of third
persons/squatters thereat, in order that "the corporation may take
material possession of the entire lot;" (d) the amount of P26,640.00
alluded to as alleged consideration of said agreement was never
received by the plaintiff; (e) the private defendant acted in bad faith
in the execution of said agreement knowing fully well the want of
authority of the attorney-in-fact to sell, encumber or dispose of the
real property of plaintiff; and, (f) the disposal of a corporate property
indispensably requires a Board Resolution of its Directors, a fact
which is wanting in said Civil Case No. D-7750, and the General
Manager is not the proper officer to encumber a corporate
property.[6]
On 29 October 1993 respondent court dismissed the complaint on
the basis of its finding that not one of the grounds for annulment,
namely, lack of jurisdiction, fraud or illegality was shown to exist.[7] It
also denied the motion for reconsideration filed by petitioner,
discoursing that the alleged nullity of the compromise judgment on
the ground that petitioner’s attorney in fact Villamit-Estrada was not
authorized to sell the subject property may be raised as a defense in
the execution of the compromise judgment as it does not bind
petitioner, but not as a ground for annulment of judgment because it
does not affect the jurisdiction of the trial court over the action nor
does it amount to extrinsic fraud.[8]
Petitioner challenges this verdict. It argues that the decision of the
trial court is void because the compromise agreement upon which it
was based is void. Attorney-in-fact Villamil-Estrada did not possess
the authority to sell or was she armed with a Board Resolution
authorizing the sale of its property. She was merely empowered to
enter into a compromise agreement in the recovery suit she was
authorized to file against persons squatting on Lot No. 443, such
authority being expressly confined to the "ejectment of third persons
or squatters of x x x lot x x x (No.) 443 x x x for the said squatters to
remove their houses and vacate the premises in order that the
corporation may take material possession of the entire lot x x x x"
We agree with petitioner. The authority granted Villamil-Estrada
under the special power of attorney was explicit and
exclusionary: for her to institute any action in court to eject all
persons found on Lots Nos. 9127 and 443 so that petitioner could
take material possession thereof, and for this purpose, to appear at
the pre-trial and enter into any stipulation of facts and/or
compromise agreement but only insofar as this was protective of the
rights and interests of petitioner in the property. Nowhere in this
authorization was Villamil-Estrada granted expressly or impliedly any
power to sell the subject property nor a portion thereof. Neither
can a conferment of the power to sell be validly inferred from the
specific authority "to enter into a compromise agreement" because
of the explicit limitation fixed by the grantor that the compromise
entered into shall only be "so far as it shall protect the rights and
interest of the corporation in the aforementioned lots." In the
context of the specific investiture of powers to Villamil-Estrada,
alienation by sale of an immovable certainly cannot be deemed
protective of the right of petitioner to physically possess the same,
more so when the land was being sold for a price of P80.00 per
square meter, very much less than its assessed value of P250.00 per
square meter, and considering further that petitioner never received
the proceeds of the sale.
When the sale of a piece of land or any interest thereon is through
an agent, the authority of the latter shall be in writing; otherwise,
the sale shall be void.[9] Thus the authority of an agent to execute a
contract for the sale of real estate must be conferred in writing and
must give him specific authority, either to conduct the general
business of the principal or to execute a binding contract containing
terms and conditions which are in the contract he did execute.[10] A
special power of attorney is necessary to enter into any contract by
which the ownership of an immovable is transmitted or acquired
either gratuitously or for a valuable consideration.[11] The express
mandate required by law to enable an appointee of an agency
(couched) in general terms to sell must be one that expressly
mentions a sale or that includes a sale as a necessary ingredient of
the act mentioned.[12] For the principal to confer the right upon an
agent to sell real estate, a power of attorney must so express the
powers of the agent in clear and unmistakable language. When
there is any reasonable doubt that the language so used conveys
such power, no such construction shall be given the document.[13]
x x x x this court does not hesitate to hold that the
judgment in question is null and void ab initio. It is
not binding upon and cannot be executed against the
petitioners. It is evident that the compromise upon
which the judgment was based was not subscribed by
them x x x x Neither could Attorney Ortega bind them
validly in the compromise because he had no special
authority x x x x
As the judgment in question is null and void ab initio,
it is evident that the court acquired no jurisdiction to
render it, much less to order the execution thereof x x
x

It is therefore clear that by selling to respondent Perez a portion of x x x x A judgment, which is null and void ab initio,
petitioner’s land through a compromise agreement, Villamil-Estrada rendered by a court without jurisdiction to do so, is
acted without or in obvious authority. The sale ipso jure is without legal efficacy and may properly be impugned
consequently void. So is the compromise agreement. This being in any proceeding by the party against whom it is
the case, the judgment based thereon is necessarily void. Antipodal sought to be enforced x x x x
to the opinion expressed by respondent court in resolving
This ruling was adopted in Jacinto v. Montesa,[15] by Mr. Justice J.B.L.
petitioner’s motion for reconsideration, the nullity of the settlement
Reyes, a much-respected authority on civil law, where the Court
between Villamil-Estrada and Perez impaired the jurisdiction of the
declared that a judgment based on a compromise entered into by an
trial court to render its decision based on the compromise
attorney without specific authority from the client is void. Such
agreement. In Alviar v. Court of First Instance of La Union,[14] the
judgment may be impugned and its execution restrained in any
Court held -
proceeding by the party against whom it is sought to be
enforced. The Court also observed that a defendant against whom a
judgment based on a compromise is sought to be enforced may file a
petition for certiorari to quash the execution. He could not move to
have the compromise set aside and then appeal from the order of
denial since he was not a party to the compromise. Thus it would
appear that the obiter of the appellate court that the alleged nullity
of the compromise agreement should be raised as a defense against
its enforcement is not legally feasible. Petitioner could not be in a
position to question the compromise agreement in the action to
revive the compromise judgment since it was never privy to such
agreement. Villamil-Estrada who signed the compromise agreement
may have been the attorney-in-fact but she could not legally bind
petitioner thereto as she was not entrusted with a special authority
to sell the land, as required in Art. 1878, par. (5), of the Civil Code.
Under authority of Sec. 9, par. (2), of B.P. Blg. 129, a party may now
petition the Court of Appeals to annul and set aside judgments of
Regional Trial Courts.[16] "Thus, the Intermediate Appellate Court
(now Court of Appeals) shall exercise x x x x (2) Exclusive original
jurisdiction over action for annulment of judgments of the Regional
Trial Courts x x x x" However, certain requisites must first be
established before a final and executory judgment can be the subject
of an action for annulment. It must either be void for want of
jurisdiction or for lack of due process of law, or it has been obtained
by fraud.[17]
Conformably with law and the above-cited authorities, the petition
to annul the decision of the trial court in Civil Case No. D-7750 before
the Court of Appeals was proper. Emanating as it did from a void
compromise agreement, the trial court had no jurisdiction to render
a judgment based thereon.[18]
It would also appear, and quite contrary to the finding of the
appellate court that the highly reprehensible conduct of
attorney-in-fact Villamil-Estrada in Civil Case No. 7750 constituted an
extrinsic or collateral fraud by reason of which the judgment
rendered thereon should have been struck down. Not all the legal
semantics in the world can becloud the unassailable fact that
petitioner was deceived and betrayed by its
attorney-in-fact. Villamil-Estrada deliberately concealed from
petitioner, her principal, that a compromise agreement had been
forged with the end-result that a portion of petitioner’s property was
sold to the deforciant, literally for a song. Thus completely kept
unaware of its agent’s artifice, petitioner was not accorded even a
fighting chance to repudiate the settlement so much so that the
judgment based thereon became final and executory.
For sure, the Court of Appeals restricted the concept of fraudulent
acts within too narrow limits. Fraud may assume different shapes
and be committed in as many different ways and here lies the danger
of attempting to define fraud. For man in his ingenuity and fertile
imagination will always contrive new schemes to fool the unwary.
There is extrinsic fraud within the meaning of Sec. 9, par. (2), of B.P.
Blg. 129, where it is one the effect of which prevents a party from
hearing a trial, or real contest, or from presenting all of his case to
the court, or where it operates upon matters, not pertaining to the
judgment itself, but to the manner in which it was procured so that
there is not a fair submission of the controversy. In other words,
extrinsic fraud refers to any fraudulent act of the prevailing party in
the litigation which is committed outside of the trial of the case,
whereby the defeated party has been prevented from exhibiting fully
his side of the case by fraud or deception practiced on him by his
opponent.[19] Fraud is extrinsic where the unsuccessful party has
been prevented from exhibiting fully his case, by fraud or deception
practiced on him by his opponent, as by keeping him away from
court, a false promise of a compromise; or where the defendant
never had knowledge of the suit, being kept in ignorance by the acts
of the plaintiff; or where an attorney fraudulently or without
authority connives at his defeat; these and similar cases which show
that there has never been a real contest in the trial or hearing of the
case are reasons for which a new suit may be sustained to set aside
and annul the former judgment and open the case for a new and fair
hearing.[20]
It may be argued that petitioner knew of the compromise agreement
since the principal is chargeable with and bound by the knowledge of
or notice to his agent received while the agent was acting as
such. But the general rule is intended to protect those who exercise
good faith and not as a shield for unfair dealing. Hence there is a
well-established exception to the general rule as where the conduct
and dealings of the agent are such as to raise a clear presumption
that he will not communicate to the principal the facts in
controversy.[21] The logical reason for this exception is that where the
agent is committing a fraud, it would be contrary to common sense
to presume or to expect that he would communicate the facts to the
principal. Verily, when an agent is engaged in the perpetration of a
fraud upon his principal for his own exclusive benefit, he is not really
acting for the principal but is really acting for himself, entirely
outside the scope of his agency.[22] Indeed, the basic tenets of agency
rest on the highest considerations of justice, equity and fair play, and
an agent will not be permitted to pervert his authority to his own
personal advantage, and his act in secret hostility to the interests of
his principal transcends the power afforded him.[23]
WHEREFORE, the petition is GRANTED. The decision and resolution
of respondent Court of Appeals dated 29 October 1993 and 10
March 1994, respectively, as well as the decision of the Regional Trial
Court of Dagupan City in Civil Case No. D-7750 dated 27 November
1985, are NULLIFIED and SET ASIDE. The "Compromise Agreement"
entered into between Attorney-in-fact Paz G. Villamil-Estrada and
respondent Isidro Perez is declared VOID. This is without prejudice
to the right of petitioner to pursue its complaint against private
respondent Isidro Perez in Civil Case No. D-7750 for the recovery of
possession of a portion of Lot No. 443.
 [9] Art. 1874, Civil Code of the Philippines.
SO ORDERED.
[10] Johnson v. Lennox, 55 Colo. 125, 133 P 744.
Padilla, (Chairman), Vitug, and Hermosisima, Jr., JJ., concur.
Kapunan, J., no part, having participated in the CA's Decision. [11] Art. 1878, par. (5), Civil Code of the Philippines.

[12] Strong v. Gutierrez Repide, 6 Phil. 680 (1906).

[1] [13] Liñan v. Puno, 31 Phil. 259 (1915).

CA Rollo, p. 11.

[2] [14] 64 Phil. 301, 305-306 (1937).

Assigned to Br. 44.

[3] [15]
No. L-23098, 28 February 1967, 19 SCRA 513, 518-519. See also
CA Rollo, p. 17.
Quiban v. Butalid, G.R. No. 90974, 27 August 1990, 189 SCRA 107.
[4] Penned by Judge Crispin C. Laron; id., p. 19.
[16]
Goldloop Properties, Inc. v. Court of Appeals, G.R. No. 99431, 11
[5] Assigned to Br. 42. August 1992, 212 SCRA 498; Mercado v. Ubay, No. L-36830, 24 July
1990, 187 SCRA 719; Gerardo v. De la Peña, G.R. No. 61527, 26
[6] CA Rollo, pp. 5-6. December 1990, 192 SCRA 691.

[7] [17]
Islamic Da ‘Wah Council of the Philippines v. Court of Appeals, G.R.
Penned by Justice Minerva P. Gonzaga-Reyes with the concurrence
of Justices Santiago M. Kapunan and Eduardo G. Montenegro; Rollo, No. 80892, 29 September 1989, 178 SCRA 178; Ramirez v. Court of
p. 43. Appeals, G.R. No. 76366, 3 July 1990, 187 SCRA 153; Ruiz v. Court of
Appeals, G.R. No. 93454, 13 September 1991, 210 SCRA 577; Santos
[8] Rollo, p. 49. v. Court of Appeals, G.R. No. 59771, 21 July 1993, 224 SCRA
673. See also Parcon v. Court of Appeals, G.R. No. 85740, 9
November 1990, 191 SCRA 284.

[18] See notes 14 and 15.

[19]
Macabingkil v. PHHC, No. L-29080, 17 August 1976, 72 SCRA 326,
343-344.

[20] Id., p. 344 citing US v. Throckmorton, 25 L. Ed. 93, 95.

[21] Mutual Life Ins. Co. v. Hilton Green, 241 US 613, 60 L Ed. 1202.

[22]
Aetna Casualty and Surety Co. v. Local Bldg. and Loan Assoc., 19
P2d 612, 616.

[23] Strong v. Strong, 36 A2d 410, 415.

Batas.org
Supreme Court of the Philippines
424 Phil. 446
THIRD DIVISION
G.R. No. 111448, January 16, 2002
AF REALTY & DEVELOPMENT, INC. AND ZENAIDA R. RANULLO,
PETITIONERS, VS. DIESELMAN FREIGHT SERVICES, CO., MANUEL C.
CRUZ, JR. AND MIDAS DEVELOPMENT CORPORATION,
RESPONDENTS.
DECISION
SANDOVAL-GUTIERREZ, J.:
Petition for review on certiorari assailing the Decision
dated December 10, 1992 and the Resolution
(Amending Decision) dated August 5, 1993 of the
Court of Appeals in CA-G.R. CV No. 30133.
Dieselman Freight Service Co. (Dieselman for brevity)
is a domestic corporation and a registered owner of a
parcel of commercial lot consisting of 2,094 square
meters, located at 104 E. Rodriguez Avenue, Barrio
Ugong, Pasig City, Metro Manila. The property is
covered by Transfer Certificate of Title No. 39849
issued by the Registry of Deeds of the Province
of Rizal.[1]
On May 10, 1988, Manuel C. Cruz, Jr., a member of
the board of directors of Dieselman, issued a letter
denominated as "Authority To Sell Real Estate"[2] to
Cristeta N. Polintan, a real estate broker of the CNP
Real Estate Brokerage. Cruz, Jr. authorized
Polintan "to look for a buyer/buyers and negotiate
the sale" of the lot at P3,000.00 per square meter,
or a total of P6,282,000.00. Cruz, Jr. has no written
authority from Dieselman to sell the lot.
In turn, Cristeta Polintan, through a letter[3] dated
May 19, 1988, authorized Felicisima ("Mimi")
Noble[4] to sell the same lot.
Felicisima Noble then offered for sale the property to
AF Realty & Development, Inc. (AF Realty) at
P2,500.00 per square meter.[5] Zenaida Ranullo,
board member and vice-president of AF Realty,
accepted the offer and issued a check in the amount
of P300,000.00 payable to the order of
Dieselman. Polintan received the check and signed
an "Acknowledgement Receipt"[6] indicating that the
amount of P300,000.00 represents the partial
payment of the property but refundable within two
weeks should AF Realty disapprove Ranullo's action
on the matter.
On June 29, 1988, AF Realty confirmed its intention to
buy the lot. Hence, Ranullo asked Polintan for the
board resolution of Dieselman authorizing the sale of
the property. However, Polintan could only give
Ranullo the original copy of TCT No. 39849, the tax
declaration and tax receipt for the lot, and a
photocopy of the Articles of Incorporation of
Dieselman.[7]
On August 2, 1988, Manuel F. Cruz, Sr., president of
Dieselman, acknowledged receipt of the said
P300,000.00 as "earnest money" but required AF
Realty to finalize the sale at P4,000.00 per square
meter.[8] AF Realty replied that it has paid an initial
down payment of P300,000.00 and is willing to pay
the balance.[9]
However, on August 13, 1988, Mr. Cruz, Sr.
terminated the offer and demanded from AF Realty
the return of the title of the lot earlier delivered by
Polintan.[10]
Claiming that there was a perfected contract of sale
between them, AF Realty filed with the Regional Trial
Court, Branch 160, Pasig City a complaint for specific
performance (Civil Case No. 56278) against
Dieselman and Cruz, Jr.. The complaint prays that
Dieselman be ordered to execute and deliver a final
deed of sale in favor of AF Realty.[11] In its amended
complaint,[12] AF Realty asked for payment of
P1,500,000.00 as compensatory damages;
P400,000.00 as attorney’s fees; and P500,000.00 as
exemplary damages.
In its answer, Dieselman alleged that there was no
meeting of the minds between the parties in the sale
of the property and that it did not authorize any
person to enter into such transaction on its behalf.
Meanwhile, on July 30, 1988, Dieselman and Midas
Development Corporation (Midas) executed a Deed
of Absolute Sale[13] of the same property. The
agreed price was P2,800.00 per square
meter. Midas delivered to Dieselman P500,000.00
as down payment and deposited the balance of
P5,300,000.00 in escrow account with the PCIBank.
Constrained to protect its interest in the property,
Midas filed on April 3, 1989 a Motion for Leave to
Intervene in Civil Case No. 56278. Midas alleged that
it has purchased the property and took possession
thereof, hence Dieselman cannot be compelled to sell
and convey it to AF Realty. The trial court granted
Midas' motion.
After trial, the lower court rendered the challenged
Decision holding that the acts of Cruz, Jr. bound
Dieselman in the sale of the lot to AF Realty.[14]
Consequently, the perfected contract of sale between
Dieselman and AF Realty bars Midas'
intervention. The trial court also held that Midas
acted in bad faith when it initially paid Dieselman
P500,000.00 even without seeing the latter's title to
the property. Moreover, the notarial report of the
sale was not submitted to the Clerk of Court of the
Quezon City RTC and the balance of P5,300,000.00
purportedly deposited in escrow by Midas with a
bank was not established.
The dispositive portion of the trial court’s Decision
reads:
“WHEREFORE, foregoing considered, judgment is
hereby rendered ordering defendant to execute and
deliver to plaintiffs the final deed of sale of the
property co vered by the Transfer Certificate of Title
No. 39849 of the Registry of Deed of Rizal, Metro
Manila District II, including the improvements thereon,
and ordering defendants to pay plaintiffs attorney’s
fees in the amount of P50,000.00 and to pay the costs.
"The counterclaim of defendants is necessarily
dismissed.
"The counterclaim and/or the complaint in
intervention are likewise dismissed
"SO ORDERED.”[15]
Dissatisfied, all the parties appealed to the Court of Appeals.
AF Realty alleged that the trial court erred in not holding Dieselman
liable for moral, compensatory and exemplary damages, and in
dismissing its counterclaim against Midas.
Upon the other hand, Dieselman and Midas claimed that the trial
court erred in finding that a contract of sale between Dieselman and
AF Realty was perfected. Midas further averred that there was no
bad faith on its part when it purchased the lot from Dieselman.
In its Decision dated December 10, 1992, the Court of Appeals
reversed the judgment of the trial court holding that since Cruz, Jr.
was not authorized in writing by Dieselman to sell the subject
property to AF Realty, the sale was not perfected; and that the Deed
of Absolute Sale between Dieselman and Midas is valid, there being
no bad faith on the part of the latter. The Court of Appeals then
declared Dieselman and Cruz, Jr. jointly and severally liable to AF
Realty for P100,000.00 as moral damages; P100,000.00 as exemplary
damages; and P100,000.00 as attorney's fees.[16]
On August 5, 1993, the Court of Appeals, upon motions for
reconsideration filed by the parties, promulgated an Amending
Decision, the dispositive portion of which reads:
“WHEREFORE, The Decision promulgated on October
10, 1992, is hereby AMENDED in the sense that only
defendant Mr. Manuel Cruz, Jr. should be made liable
to pay the plaintiffs the damages and attorney’s fees
awarded therein, plus the amount of P300,000.00
unless, in the case of the said P300,000.00, the same
is still deposited with the Court which should be
restituted to plaintiffs.
"SO ORDERED.”[17]
AF Realty now comes to this Court via the instant petition alleging
that the Court of Appeals committed errors of law.
The focal issue for consideration by this Court is who between
petitioner AF Realty and respondent Midas has a right over the
subject lot.
The Court of Appeals, in reversing the judgment of the trial court,
made the following ratiocination:
“From the foregoing scenario, the fact that the board
of directors of Dieselman never authorized, verbally
and in writing, Cruz, Jr. to sell the property in question
or to look for buyers and negotiate the sale of the
subject property is undeniable.
"While Cristeta Polintan was actually authorized by
Cruz, Jr. to look for buyers and negotiate the sale of
the subject property, it should be noted that Cruz, Jr.
could not confer on Polintan any authority which he
himself did not have. Nemo dat quod non habet. In
the same manner, Felicisima Noble could not have
possessed authority broader in scope, being a mere
extension of Polintan’s purported authority, for it is a
legal truism in our jurisdiction that a spring cannot rise
higher than its source. Succinctly stated, the alleged
sale of the subject property was effected through
persons who were absolutely without any authority
whatsoever from Dieselman.
"The argument that Dieselman ratified the contract by
accepting the P300,000.00 as partial payment of the Appellate Court, 169 SCRA617; Joson vs. Baltazar, 194
purchase price of the subject property is equally SCRA 114) and to prove the defects and lack of
untenable. The sale of land through an agent without consent in the execution thereof, the evidence must
any written authority is void. be strong and not merely preponderant x x x.”[18]

xxx xxx xxx We agree with the Court of Appeals.

Section 23 of the Corporation Code expressly provides that the

"On the contrary, anent the sale of the subject
corporate powers of all corporations shall be exercised by the board
property by Dieselman to intervenor Midas, the
of directors. Just as a natural person may authorize another to do
records bear out that Midas purchased the same from
certain acts in his behalf, so may the board of directors of a
Dieselman on 30 July 1988. The notice of lis pendens
corporation validly delegate some of its functions to individual
was subsequently annotated on the title of the
officers or agents appointed by it.[19] Thus, contracts or acts of a
property by plaintiffs on 15 August 1988. However,
corporation must be made either by the board of directors or by a
this subsequent annotation of the notice of lis
corporate agent duly authorized by the board.[20] Absent such valid
pendens certainly operated prospectively and did not
delegation/authorization, the rule is that the declarations of an
retroact to make the previous sale of the property to
individual director relating to the affairs of the corporation, but not
Midas a conveyance in bad faith. A subsequently
in the course of, or connected with, the performance of authorized
registered notice of lis pendens surely is not proof of
duties of such director, are held not binding on the corporation. [21]
bad faith. It must therefore be borne in mind that
the 30 July 1988 deed of sale between Midas and
In the instant case, it is undisputed that respondent Cruz, Jr. has no
Dieselman is a document duly certified by notary
written authority from the board of directors of respondent
public under his hand and seal. x x x. Such a deed
Dieselman to sell or to negotiate the sale of the lot, much less to
of sale being public document acknowledged before a
appoint other persons for the same purpose. Respondent Cruz, Jr.’s
notary public is admissible as to the date and fact of
lack of such authority precludes him from conferring any authority to
its execution without further proof of its due
Polintan involving the subject realty. Necessarily, neither could
execution and delivery (Bael vs. Intermediate
Polintan authorize Felicisima Noble. Clearly, the collective acts of
respondent Cruz, Jr., Polintan and Noble cannot bind Dieselman in
the purported contract of sale.
Petitioner AF Realty maintains that the sale of land by an
unauthorized agent may be ratified where, as here, there is
acceptance of the benefits involved. In this case the receipt by
respondent Cruz, Jr. from AF Realty of the P300,000.00 as partial
payment of the lot effectively binds respondent Dieselman.[22]
We are not persuaded.
Involved in this case is a sale of land through an agent. Thus, the
law on agency under the Civil Code takes precedence. This is well
stressed in Yao Ka Sin Trading vs. Court of Appeals:[23]
“Since a corporation, such as the private respondent,
can act only through its officers and agents, all acts
within the powers of said corporation may be
performed by agents of its selection; and, except so
far as limitations or restrictions may be imposed by
special charter, by-law, or statutory provisions, the
same general principles of law which govern the
relation of agency for a natural person govern the
officer or agent of a corporation, of whatever status
or rank, in respect to his power to act for the
corporation; and agents when once appointed, or
members acting in their stead, are subject to the
same rules, liabilities, and incapacities as are agents
of individuals and private persons.” (Emphasis
supplied)
Pertinently, Article 1874 of the same Code provides:
“ART. 1874. When a sale of piece of land or any
interest therein is through an agent, the authority of
the latter shall be in writing; otherwise, the sale shall
be void.” (Emphasis supplied)
Considering that respondent Cruz, Jr., Cristeta Polintan and
Felicisima Ranullo were not authorized by respondent Dieselman to
sell its lot, the supposed contract is void. Being a void contract, it is
not susceptible of ratification by clear mandate of Article 1409 of the
Civil Code, thus:
“ART. 1409. The following contracts are inexistent
and void from the very beginning:
xxx
(7) Those expressly prohibited or declared void by
law.
“These contracts cannot be ratified. Neither can the
 right to set up the defense of illegality be Dieselman is ordered to return to petitioner AF Realty its partial
waived.” (Emphasis supplied) payment of P300,000.00. Costs against petitioners.
Upon the other hand, the validity of the sale of the subject lot to
SO ORDERED.
respondent Midas is unquestionable. As aptly noted by the Court
of Appeals,[24] the sale was authorized by a board resolution of
Melo, (Chairman), Vitug, Panganiban, and Carpio, JJ., concur.
respondent Dieselman dated May 27, 1988.

The Court of Appeals awarded attorney's fees and moral and

exemplary damages in favor of petitioner AF Realty and against
[1] Rollo, p. 129.
respondent Cruz, Jr.. The award was made by reason of a breach of
contract imputable to respondent Cruz, Jr. for having acted in bad
[2] Exhibit "J," Records of RTC, p. 112.
faith. We are no persuaded. It bears stressing that petitioner
Zenaida Ranullo, board member and vice-president of petitioner AF
[3] Exhibit "I," ibid, p. 111.
Realty who accepted the offer to sell the property, admitted in her
testimony[25] that a board resolution from respondent Dieselman
[4] A real estate broker of Noblehaus Realty and Marketing.
authorizing the sale is necessary to bind the latter in the transaction;
and that respondent Cruz, Jr. has no such written authority. In fact,
[5] Exhibit "A", ibid., p. 102.
despite demand, such written authority was not presented to her.[26]
This notwithstanding, petitioner Ranullo tendered a partial payment
[6] Exhibit "C", ibid., p. 104.
for the unauthorized transaction. Clearly, respondent Cruz, Jr.
should not be held liable for damages and attorney's fees.
[7] Transcript of Stenographic Notes (TSN), December 7, 1988, p. 18.
WHEREFORE, the assailed Decision and Resolution of the Court of
[8] Exhibit "F", Records of RTC, p. 107.
Appeals are hereby AFFIRMED with MODIFICATION in the sense that
the award of damages and attorney's fees is deleted. Respondent
[9] Exhibit "G", ibid., p.108.
 [22] Rollo, pp. 22 and 24.
[10] Exhibit "4", ibid., p. 242.
[23] 209 SCRA 763 (1992).
[11] Records of RTC, p. 6.
[24]
See assailed Resolution (Amending Decision) dated August 5,
[12] Ibid., pp. 11-17. 1993, p. 12; Rollo, p. 84.

[13] Exhibit "M", ibid., p. 193. [25] TSN, December 7, 1988, pp. 18-20; pp. 53-54.

[14] Rollo, pp. 13-15. [26] Ibid.

[15] Ibid, pp. 17-18.

[16]
Batas.org
Rollo, pp. 51-71.

[17] Ibid., pp.15-16.

[18] Ibid. pp. 12-13.

[19] Citibank, N.A. vs. Chua, 220 SCRA 75 (1993).

[20] Baretto vs. La Previsora Filipina, 57 Phil. 649 (1932).

[21]
Mendezona vs. Philippine Sugar Estates Development Co., 41 Phil.
475 (1921).
Supreme Court of the Philippines 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
243 Phil. 340 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
SECOND DIVISION the party of the second part for the prompt payment of the monthly
rental agreed on. When the branch office was opened, the same was
G.R. Nos. L-41182-3, April 15, 1988
run by the herein appellant Lina O. Sevilla payable to Tourist World
DR. CARLOS L. SEVILLA AND LINA O. SEVILLA, Service Inc. by any airline for any fare brought in on the efforts of
PETITIONERS-APPELLANTS, VS. THE COURT OF APPEALS, TOURIST Mrs. Lina Sevilla, 4% was to go to Lina Sevilla and 3% was to be
WORLD SERVICE, INC., ELISEO S. CANILAO, AND SEGUNDINA withheld by the Tourist World Service, Inc.
NOGUERA, RESPONDENTS-APPELLEES.
On or about November 24, 1961 (Exhibit 16) the Tourist World
DECISION Service, Inc. appears to have been informed that Lina Sevilla was
connected with a rival firm, the Philippine Travel Bureau, and, since
SARMIENTO, J.: the branch office was anyhow losing, the Tourist World Service
considered closing down its office. This was firmed up by two
The petitioners invoke the provisions on human resolutions of the board of directors of Tourist World Service, Inc.
relations of the Civil Code in this appeal by certiorari. dated Dec. 2, 1961 (Exhibits 12 and 13), the first abolishing the office
The facts are beyond dispute: of the manager and vice-president of the Tourist World Service, Inc.,
Ermita Branch, and the second, authorizing the corporate secretary
xxx xxx xxx
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
On the strength of a contract (Exhibit A for the appellant Exhibit 2 for contract with the appellees for the use of the Branch Office premises
the appellees) entered into on Oct. 19, 1960 by and between Mrs. 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 "I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE
since Nov. 1961. Because of this, and to comply with the mandate of OF PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'S COMPLAINT.
the Tourist World Service, the corporate secretary Gabino Canilao
went over to the branch office, and, finding the premises locked, and,
"II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS.
being unable to contact Lina Sevilla, he padlocked the premises on LINA O. SEVILLA'S ARRANGEMENT ('WITH APPELLEE TOURIST
June 4, 1962 to protect the interests of the Tourist World Service. WORLD SERVICE, INC.) WAS ONE MERELY OF
When neither the appellant Lina Sevilla nor any of her employees EMPLOYER-EMPLOYEE RELATION AND IN FAILING TO HOLD THAT
could enter the locked premises, a complaint was filed by the herein THE SAID ARRANGEMENT WAS ONE OF JOINT BUSINESS
appellants against the appellees with a prayer for the issuance of VENTURE.
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. “III. THE LOWER COURT ERRED IN RULING THAT
PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA IS ESTOPPED FROM
The appellee Segundina Noguera sought reconsideration of the order DENYING THAT SHE WAS A MERE EMPLOYEE OF
dismissing her counterclaim which the court a quo, in an order dated DEFENDANT-APPELLEE TOURIST WORLD SERVICE, INC. EVEN AS
June 8, 1963, granted permitting her to present evidence in support AGAINST THE LATTER.
of her counterclaim.

On June 17, 1963, the 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 dismissed for lack of merit, on the basis of
which was elevated the instant appeal on the following assignment
of errors:
“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 MRS.
 LINA O. SEVILLA'S FORCIBLE DISPOSSESSION OF THE A. MABINI
PREMISES.
"VI.THE LOWER COURT ERRED IN FINDING THAT APPELLANT MRS.
LINA O. SEVILLA SIGNED MERELY AS GUARANTOR FOR RENTALS."
On the foregoing facts and in the light of the errors assigned the
isues to be resolved are:
1. Whether the appellee Tourist World Service
unilaterally disconnected 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 appellee TWS or TWS and the appellant.
In this appeal, appellant Lina Sevilla claims that a joint business
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 O. Sevilla, a prominent social figure and wife
of an eminent eye, ear and nose specialist as well as a society
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, Inc. 3% thereof and 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 designing the office furniture and supplying some office
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 commissions 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
admitting that it was just a title for dignity (p. 36 tsn. June 18,
1965 -- testimony of appellee Eliseo Canilao; pp. 38-39 tsn. April
6, 1965 -- 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[2] held for the private respondents on the premise that
the private respondent, Tourist World Service, Inc., being the true
lessee, it was within its prerogative to terminate the lease and
padlock the premises.[3] It likewise found the petitioner, Lina Sevilla,
to be a more employee of said Tourist World Service, Inc. and as
such, she was bound by the acts of her employer.[4] The respondent
Court of Appeals[5] rendered an affirmance.
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 X X X WITHOUT NOTIFYING MRS. LINA O.
SEVILLA OR ANY OF HER EMPLOYEES AND WITHOUT
INFORMING COUNSEL FOR THE APPELLANT (SEVILLA),
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 ATTEMPT TO AMICABLY
SETTLE THE CONTROVERSY BETWEEN THE APPELLANT
(SEVILLA) AND THE TOURIST WORLD SERVICE X X X
(DID NOT) ENTITLE THE LATTER TO THE RELIEF OF
DAMAGES" (ANNEX "A" PP. 7, 8 AND ANNEX "B" P. 2) -
A 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 COMPLAINT
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 SEVILLA'S CAUSE OF ACTION FOUNDED
ON ARTICLES 19, 20 AND 21 OF THE CIVIL CODE ON
HUMAN RELATIONS.
IV
THE COURT OF APPEALS ERRED ON A QUESTION OF
LAW AND GRAVELY ABUSED ITS DISCRETION IN
DENYING 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 Appeals did not 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.” [7]
Tourist World Service, Inc., insists, on the other hand, that Lina
Sevilla was a mere 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 parties was
one of joint venture, but concede that "whatever might have been
the true relationship between Sevilla and Touristir World Service,"
the Rule of Law enjoined Tourist World Service and Canilao from
taking the law into their own hands,"[8] in 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
existence 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."[10] Subsequently, however, we have considered, in
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 World's Ermita office, she had bound
herself in solidum as and for rental payments, an arrangement that
would belie claims of a master-servant relationship. True, the
respondent Court would later minimize her participation in the lease
as one of mere guaranty,[12] that does not make her an 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."[13]
Under these circumstances, it 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,”[14] in effect, accepting Tourist
World Service, Inc.'s control over the manner in which the business
was run. A joint venture, including a partnership, presupposes
generally a parity of standing between the joint co-venturers or
partners, in which each party has an equal proprietary interest in the
capital or property contributed[15] and where each party exercises
equal rights in the conduct of the business.[16] Furthermore, the
parties did not hold themselves out as partners, and the building
itself was embellished with the electric sign "Tourist World Service,
Inc.,"[17] in lieu of a distinct partnership name.
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."[18] In
the case at bar, Sevilla solicited airline fares, but she did 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, presumed 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 parties had contemplated a principal-agent relationship, rather
than a joint management 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 the mutual interest of
the agent and the principal.[19] It 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 limited 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."[20] Yet, what cannot be denied is the fact that Tourist World
Service, Inc. did not take pains to have them re-connected. 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 contract did not
accord it any authority to terminate that contract without notice to
its actual occupant, and to padlock the premises in such blitzkrieg
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."[22] It is strange indeed that Tourist
World Service, Inc. did not find such a need when it cancelled the
lease five months earlier. While Tourist World Service, Inc. would
now 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 of her
participation therein.
This conduct on the part of Tourist World Service, Inc. betrays a
sinister effort to punish Sevilla for what 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 arising 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.
ART. 2219. Moral damages may be recovered in the following and
analogous cases:
xxx xxx xxx
(10) Acts and actions referred to in articles 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 co-tortfeasor.
The Court considers the sums of P25,000.00 as and for moral
damages,[24] P10,000.00 as exemplary damages,[25] and P5,000.00 as [3] Rollo, id., 55; Record on Appeal, 38.
nominal[26] and/or temperate[27] damages, to be just, fair, and
reasonable under the circumstances. [4] Record on Appeal, id., 37-38.

WHEREFORE, the Decision promulgated on January 23, 1975 as well [5]

Gaviola, Jr., Ramon, J., Reyes, Luis, and De Castro, Pacifico, JJ.,
as the Resolution issued on July 31, 1975, by the respondent Court of Concurring.
Appeals is hereby REVERSED and SET ASIDE. The private respondent,
Tourist World Service, Inc., and Eliseo Canilao, are ORDERED jointly [6] Rollo, id., 124; Brief for Petitioners, 1-2.
and severally to indemnify the petitioner, Lina Sevilla, the sum of
P25,000.00, as and for moral damages, the sum of P10,000.00, as [7] Rollo, id., 36.
and for exemplary damages, and the sum of P5,000.00, as and for
nominal and/or temperate damages. [8] Id., 21; emphasis in the original.

Costs against said private respondents. [9]

SO ORDERED.
Yap, (Chairman), Melencio-Herrera, Paras, and Padilla, JJ., concur.
See Rep. Act No. 875, as amended. See also Rep. Act No. 1052, as
amended by Rep. Act No. 1787.
[10]LVN Pictures, Inc. v. Philippine Musicians Guild, No. L-12582,
January 28, 1961, 1 SCRA 132, 173 (1961); emphasis in the original.

[11]
Visayan Stevedore Trans. Co., et al. v. C.I.R., et al., No. L-21696,
February 25, 1967, 19 SCRA 426 (1967).
[1] Rollo, 30-35.
[12] Rollo, id., 40.
[2]Court of First Instance of Manila, Branch XIX, Montesa, Agustin,
[13] Id., 31.
Presiding Judge.
[14] Id., 47. [24] Supra.

[15] BAUTISTA, TREATISE ON PHILIPPINE PARTNERSHIP LAW 34 (1978). [25] Supra, art. 2232.

[16]Op Cit., 37. In Tuason v. Bolaños [95 Phil. 106 (1954)], this Court [26] Supra, art. 2221.
distinguished between a joint venture and a partnership but this
view has since raised questions from authorities. According to [27] Supra, art. 2224.
Campos, there seems to be no fundamental distinction between the
two forms of business combinations. [See CAMPOS, THE
CORPORATION CODE 12 (1981).] For purposes of this case, we use
Batas.org
the terms interchangeably.

[17] See rollo, id.

[18] CIVIL CODE, art. 1868.

[19] See VI PADILLA, CIVIL LAW 350 (1974).

[20] Rollo, id., 36.

[21] Id., 31.

[22] Id.

[23] CIVIL CODE, art. 2220.

Supreme Court of the Philippines
100 Phil. 757
G.R. No. L-8169, January 29, 1957
THE SHELL COMPANY OF THE PHILIPPINES, LTD., PETITIONER, VS.
FIREMEN'S INSURANCE COMPANY OF NEWARK, NEW JERSEY
COMMERCIAL CASUALTY INSURANCE CO., SALVADOR SISON,
PORFIRIO DE LA FUENTE AND THE COURT OF APPEALS (FIRST
DIVISION), RESPONDENTS.
DECISION
PADILLA, J.:
Appeal by certiorari under Rule 46 to review a
judgment of the Court of Appeals which reversed that
of the Court of First Instance of Manila and sentenced
"* * * the defendants-appellees to pay, jointly and
severally, the plaintiffs-appellants the sum of
P1,651.38, with legal interest from December 6, 1947
(Gutierrez vs. Gutierrez, 56 Phil., 177, 180), and the
costs in both instances."
The Court of Appeals found the following:
Inasmuch as both the Plaintiffs-Appellants and the
Defendant-Appellee, the Shell Company of the
Philippine Islands, Ltd. accept the statement of facts
made by the trial court in its decision and appearing
on pages 23 to 37 of the Record on Appeal, we quote
hereunder such statement:
"This is an action for recovery of sum of money, based
on alleged negligence of the defendants.
"It is a fact that a Plymouth car owned by Salvador R.
Sison was brought, on September 3, 1947 to the Shell
Gasoline and Service Station, located at the corner of
Marques de Comillas and Isaac Peral Streets, Manila,
for washing, greasing and spraying. The operator of
the station, having agreed to do service upon
payment of P8.00, the car was placed on the hydraulic
lifter under the direction of the personnel of the
station.
"What happened to the car is recounted by Perlito
Sison, as follows:
 'Q. Will you please describe how they proceeded to thedo
damaged
the car was taken to the shops of the Philippine Motors,
work? Incorporated, for repair upon order of the Firemen's Insurance
Company and the Commercial Casualty Company, with the consent
A. Yes, sir. The first thing that was done, as I saw, was to drive
of Salvador R. Sison. The car was restored to running condition after
the car over the lifter. Then by the aid of the two
grease-men they raised up my car up to six feet repairs amounting to P1,651.38, and was delivered to Salvador R.
high, and
then washing was done. After, washing the nextSison, who, in turn made assignment of his rights to recover
step was
greasing. Before greasing was finished, there is adamages
part nearin favor of the Firemen's Insurance Company and the
the shelf of the right fender, right frontfertder, of my car to Casualty Insurance Company.
Commercial
be greased, but the grease-men cannot reach that part, so
"On the other hand, the fall of the car from the
the next thing to be done was to loosen the lifter just a few
hydraulic lifter has been explained by Alfonse M.
feet lower. Then upon releasing the valve to make the car
Adriano, a greaseman in the Shell Gasoline and
lower, a little bit lower ...
Service Station, as follows:
Q. Who released the valve?
A. The greaseman, for the escape of the air. As the escape of
the air is too strong for my ear I faced backward. I faced
toward Isaac Peral Street, and covered my ear. After the
escape of the air has been finished, the air coming out from
the valve, I turned to face the car and I saw the car swaying
'Q. Were you able to lift the car on the hydraulic lifter on the
at that time, and just for a few second the car fell., (t.s.n.,
occasion, September 3, 1947?
pp. 22-23.)
A. Yes, sir.
The case was immediately reported to the Manila Adjustor Company,
Q. To what height did you raise more or less?
the adjustor for the Firemen's Insurance Company and the
Commercial Casualty Insurance Company, as the car was insured A. More or less five feet, sir.
with these insurance companies. After having been inspected by Q. After lifting that car that height, what did you do with the
one Mr. Baylon, representative of the Manila Adjustors Company,
 car? The position of Defendant Porfirio de la Fuente is stated in his
counter-statement of facts which is hereunder also reproduced:
A. I also washed it, sir.
"In the afternoon of September 3, 1947, an
Q. And after washing?
automobile belonging to the plaintiff Salvador Sison
A. I greased it. was brought by his son, Perlito Sison, to the gasoline
and service station at the corner of Marques de
On that occasion, have you been able to finish greasing and
Q. Comillas and Isaac Peral Streets, City of Manila,
washing the car?
Philippines, owned by the defendant The Shell
A. There is one point which I could not reach. Company of the Philippine Islands, Limited, but
operated by the defendant Porfirio de la Fuente, for
Q. And what did you do then?
the purpose of having said car washed and greased for
A. I lowered the lifter in order to reach that point. a consideration of P8.00. (t.s.n., pp. 19-20.) Said car
was insured against loss or damage by Firemen's
Q. After lowering it a little, what did you do then? Insurance Company of Newark, New Jersey, and
A. I pushed and pressed the valve in its gradual pressure. Commercial Casualty Insurance Company jointly for
the sum of P10,000 (Exhibits "A", "B", and "D").
Were you able to reach the portion which you were not
Q.
able to reach while it was lower? "The job of washing and greasing was undertaken by
A. No more, sir. defendant Porfirio de la Fuente through his two
employees, Alfonso M. Adriano, as greaseman and
Q. Why? one surnamed de los Reyes, a helper and washer
(t.s.n., pp. 65-67). To perform the job the car was
Because when I was lowering the lifter I saw that, the car
A. carefully and centrally placed on the platform of the
was swinging and it fell. THE COURT. Why did the car swing
and fall? lifter in the gasoline and service station
aforementioned before raising up said platform to a
WITNESS:'That is what I do not know, sir.' (t.s.n., p. 67.)" height of about 5 feet and then the servicing job was
started. After more than one hour of washing and
 greasing, the job was about to be completed except
for an ungreased portion underneath the vehicle
which could not be reached by the greasemen. So, the
lifter was lowered a little by Alfonso M. Adriano and
while doing so, the car for unknown reason
accidentally fell and suffered damage to the value of
P1,651.38 (t.s.n., pp. 65-67).
"The insurance companies after paying the sum of
P1,651.38 for the damage and charging the balance of
P100.00 to Salvador Sison in accordance with the
terms of the insurance contracts, have filed this action
together with said Salvador Sison for the recovery of
the total amount of the damage from the defendants
on the ground of negligence (Record on Appeal, pp.
1-6).
"The defendant Porfirio de la Fuente denied
negligence in the operation of the lifter in his separate
answer and contended further that the accidental fall
of the car was caused by unforseen event (Record on
Appeal, pp. 17-19)."
The owner of the car forthwith notified the insurers who ordered
their adjustor, the Manila Adjustors Company, to investigate the
incident and after such investigation the damaged car, upon order of
the insurers and with the consent of the owner, was brought to the
shop of the Philippine Motors, Inc. The car was restored to running
condition after repairs thereon which amounted to P1,651.38 and
returned to the owner who assigned his right to collect the aforesaid
amount to the Firemen's Insurance Company and the Commercial
Casualty Insurance Company.
On 6 December 1947 the insurers and the owner of the car brought
an action in the Court of First Instance of Manila against the Shell
Company of the Philippines, Ltd. and Porfirio de la Fuente to recover
from them, jointly and severally, the sum of P1,651.38, interest
thereon at the legal rate from the filing of the complaint until fully
paid, and costs. After trial the Court dismissed the complaint. The
plaintiffs appealed. The Court of Appeals reversed the judgment and
sentenced the defendant to pay the amount sought to be recovered,
legal interest and costs, as stated at the beginning of this
opinion. In arriving at the conclusion that on 3 September
1947 when the car was brought to the station for servicing Porfirio
de la Fuente, the operator of the gasoline and service station, was an
agent of the Shell Company of the Philippines, Ltd., the Court of
Appeals found that—
* * * De la Fuente owed his position to the Shell
Company which could remove him or terminate his
services at any time from the said Company, and he
undertook to sell the Shell Company's products
exclusively at the said Station. For this purpose, De
la Fuente was placed in possession of the gasoline and
service station under consideration, and was provided
with all the equipments needed to operate it, by the
said Company, such as the tools and articles listed on
Exhibit 2 which included the hydraulic lifter (hoist) and
accessories, from which Sison's automobile fell on the
date in question (Exhibits 1 and 2). These
equipments were delivered to De la Fuente on a
so-called 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. Witness Antonio
Tiongson, who was sales superintendent of the Shell
Company, and witness Augusto Sawyer, foreman of
the same Company, supervised the operators and
conducted periodic inspections of
the Company's gasoline and service stations,
the service station in question inclusive. Explaining
his duties and responsibilities and the reason for the
loan, Tiongson said: "mainly on the supervision of
sales or (of) our dealers and routinary inspection of
the equipment loaned by the company" (t.s.n., 107);
"we merely inquire about how the equipments are,
whether they have complaint, and whether if said
equipments are in proper order * * *", (t.s.n., 110);
station equipments are "loaned for the exclusive use
of the dealer on condition that all supplies to be sold
by said dealer should be exclusively Shell, so as a
concession we loan equipments for their use * * *,"
"for the proper functioning of the equipments, we
answer and see to it that the equipments are in good
running order and usable condition * * *," "with
respect to the public." (t.s.n., 111-112). De la Fuente,
as operator, was given special prices by the Company
for the gasoline products sold therein. Exhibit 1—Shell,
which was a receipt by Antonio Tiongson and signed
by De la Fuente, acknowledging the delivery of
equipments of the gasoline and service station in
question was subsequently replaced by Exhibit
2—Shell, an official form of the inventory of the
equipment which De la Fuente signed above the
words: "Agent's signature". And the service station in
question had been marked "SHELL, and all
advertisements therein bore the same sign.
* * *. * * * De la Fuente was the operator of the
station "by grace" of the Defendant Company which
could and did remove him as it pleased; that all the
equipments needed to operate the station was.
owned by the Defendant Company which took charge
of their proper care and maintenance, despite the fact
that they were loaned to him; that the Defendant
company did not leave the fixing of price for gasoline
to De la Fuente; on the other hand, the Defendant
company had complete control thereof; and that
 Tiongsqn, the sales representative of the Defendant
Company, had supervision over De la Fuente in the
operation of the station, and in the sale of Defendant
Company's products therein. * * *.
Taking into consideration the fact that the operator owed his
position to the company and the latter could remove him or
terminate his services at will; that the service station belonged to the
company and bore its tradename and the operator sold only the
products of the company; that the equipment used by the operator
belonged to the company and were just loaned to the operator and
the company took charge of their repair and maintenance; that an
employee of the Company supervised the operator and conducted
periodic inspection of the company's gasoline and service station;
that the price of the products sold by the operator was fixed by the
company and not by the operator; and that the receipts signed by
the operator indicated that He was a mere agent, the finding of the
Court of Appeals that the operator was an agent of the
764 PHILIPPINE REPORTS Shell Co, of the Phils., Ltd. vs. Firemen's
Ins. Co. of Newark, N. J., et al, company and not an independent
contractor should not be disturbed.
To determine the nature of a contract courts do not have or are not
bound to rely upon the name or title given it by the contracting
parties, should there be a controversy as to what they really had
intended to enter into, but the way the contracting parties do or
perform their respective obligations stipulated or agreed upon may
be shown and inquired into, and should such performance conflict
with the name or title given the contract by the parties, the former
must" prevail over the latter.
It was admitted by the operator of the gasoline and service station
that "the car was carefully and centrally placed on the platform of
the lifter * * *" and the Court of Appeals found that-
* * * the fall of Appellant Sison's car from the
hydraulic lift and the damage caused therefor, were
the result of the jerking and swaying- of the lift when
the valve was released, and that the jerking was due
to some accident and unforeseen shortcoming of the
mechanism itself, which caused its faulty or defective
operation or functioning, and that -
* * *the servicing
'job on Appellant Sison's automobile was
accepted by De la Fuente in the normal and ordinary
conduct of his business as operator of his
co-appellee's service station, and that the jerking and
swaying of the hydraulic lift which caused the fall of
the subject car were due to its defective condition,
resulting in its faulty operation. * * *.
As the act of the agent or his employees acting within the scope of
his authority is the act of the principal, the breach of the undertaking
by the agent is one for which the principal is answerable. Moreover,
the company undertook to "answer and see to it that the
equipments are in good running order and usable condition;" and
the Court of Appeals found that the Company's mechanic failed to
make a thorough check up of the hydraulic lifter and the check up
made by its mechanic was "merely VOL. 100, JANUARY 29,
1957, 765 People vs. Arpon, et al. routine" by raising "the lifter once
or twice and after observing that the operation was satisfactory, he
(the mechanic) left the place." The latter was negligent and the
company must answer for the negligent act of its mechanic which
was the caiise of the fall of the car from the hydraulic lifter.

The judgment under review is affirmed, with costs against the

petitioner.

Paras, C. J., Bengzon, Montemayor, Reyes, A., Bautista Angelo,

Labrador, Conception, Reyes, J. B. L., Endencia and Felix, JJ., concur.

Batas.org
Supreme Court of the Philippines
34 Phil. 122
G.R. No. 10918, March 04, 1916
WILLIAM FRESSEL ET AL., PLAINTIFFS AND APPELLANTS, VS.
MARIANO UY CHACO SONS & COMPANY, DEFENDANT AND
APPELLEE.
DECISION
TRENT, J.:
This is an appeal from a judgment sustaining the
demurrer on the ground that the complaint does not
state a cause of action, followed by an order
dismissing the case after the plaintiffs declined to
amend.
The complaint, omitting the caption, etc., reads:
"2. That during the latter part of the year 1913, the
defendant entered into a contract with one E. Merritt,
whereby the said Merritt undertook and agreed with
the defendant to build for the defendant a costly
edifice in the city of Manila at the corner of Calle
Rosario and Plaza del Padre Moraga. In the contract it
was agreed between the parties thereto, that the
defendant at any time, upon certain contingencies,
before the completion of said edifice could take
possession of said edifice in the course of construction
and of all the materials in and about said premises
acquired by Merritt for the construction of said
edifice.
"3. That during the month of August last past, the
plaintiffs delivered to Merritt at the said edifice in the
course of construction certain materials of the value
of P1,381.21, as per detailed list hereto attached and
marked Exhibit A, which price Merritt had agreed to
pay on the 1st day of September, 1914.
"4. That on the 28th day of August, 1914, the
defendant under and by virtue of its contract with
Merritt took possession of the incomplete edifice in
course of construction together with all the materials
on said premises including the materials delivered by
plaintiffs and mentioned in Exhibit A aforesaid.
"5. That neither Merritt nor the defendant has paid
for the materials mentioned in Exhibit A, although
 payment has been demanded, and that on the 2d day
of September, 1914, the plaintiffs demanded of the
defendant the return or permission to enter upon said
premises and retake said materials at the time still
unused which was refused by defendant.
"6. That in pursuance of the contract between Merritt
and the defendant, Merritt acted as the agent for
defendant in the acquisition of the materials from
plaintiffs."
The appellants insist that the above quoted allegations show that
Merritt acted as the agent of the defendant in purchasing the
materials in question and that the defendant, by taking over and
using such materials, accepted and ratified the purchase, thereby
obligating itself to pay for the same. Or, viewed in another light, if
the defendant 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 became in fact the
successor or assignee of the first builder, 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. While, on the
other hand, the appellee contends that Merritt, being "by the very
terms of the contract" an independent contractor, is the only person
liable for the amount claimed.
It is urged that, as the demurrer admits the truth of all the
allegations of fact set out in the complaint, the allegation in
paragraph 6 to the effect that Merritt "acted as the agent for
defendant in the acquisition of the materials from plaintiffs," must
be, at this stage of the proceedings, considered as true. The rule, as
thus broadly stated, has many limitations and restrictions.
"A more accurate statement of the rule is that a
demurrer admits the truth of all material and relevant
facts which are well pleaded. * * * The admission of
the truth of material and relevant facts well pleaded
does not extend to render a demurrer an admission of
inferences or conclusions drawn therefrom, even if
alleged in the pleading; nor mere inferences or
conclusions from facts not stated; nor conclusions of
law." (Alzua and Arnalot vs. Johnson, 21 Phil. Rep.,
308, 350.)
Upon the question of construction of pleadings, section 106 of the
Code of Civil Procedure provides that:
"In the construction of a pleading, for the purpose of
determining its effects, its allegations shall be liberally
construed, with a view to substantial justice between
the parties."
 "This section is essentially the same as section 452 of
the California Code of Civil Procedure. "Substantial
justice," as used in the two sections, means
substantial justice to be ascertained and determined
by fixed rules and positive statutes. (Stevens vs. Ross,
1 Cal. 94, 95.) "Where the language of a pleading is
ambiguous, after giving to it a reasonable intendment,
it should be resolved against the pleader. This is
especially true on appeal from a judgment rendered
after refusal to amend; where a general and special
demurrer to a complaint has been sustained, and the
plaintiff has refused to amend, all ambiguities and
uncertainties must be construed against
him." (Sutherland on Code Pleading, vol. 1, sec. 85,
and cases cited.)
The allegations in paragraphs 1 to 5, inclusive, above set forth, do
not even intimate that the relation existing between Merritt and the
defendant was that of principal and agent, but, on the contrary, they
demonstrate that Merritt was an independent contractor and that
the materials were purchased by him as such contractor without the
intervention of the defendant. The fact that "the defendant entered
into a contract with one E. Merritt, whereby the said Merritt
undertook and agreed with the defendant to build for the defendant
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 to Merritt * * * certain materials (the materials
in question) of the value of P1,381.21, * * * which price Merritt
agreed to pay," show that there were no contractual relations
whatever between the sellers and. the defendant. The mere fact that
Merritt and the defendant had stipulated in their building contract
that the latter could, "upon certain contingencies," take possession
of the incompleted building and all materials on the ground, did not
change Merritt from an independent contractor to an
agent. Suppose that, at the time the building was taken over
Merritt had actually used in the construction thus far P100,000
worth of materials and supplies which he had purchased on a credit,
could those creditors maintain an action against the defendant for
the value of such supplies? Certainly not. The fact that the P100,000
worth of supplies had been actually used in the building would place
those creditors in no worse position to recover than that of the
plaintiffs, although the materials which the plaintiffs sold to Merritt
had not actually gone into the construction. To hold that either
group of creditors can recover would have the effect of compelling
the defendants to pay, as we have indicated, just such prices for
materials as Merritt and the sellers saw fit to fix. In the absence of a
statute creating what is known as mechanics' liens, the owner of a
building is not liable for the value of materials purchased by an
independent contractor either as such owner or as the assignee of
the contractor.
The allegation in paragraph 6 that Merritt was the agent of the
defendant contradicts all the other allegations and is a mere
conclusion drawn from them. Such conclusion is not admitted, as we
have said, by the demurrer.

The allegations in the complaint not being sufficient to constitute a

cause of action against the defendant, the judgment appealed from
is affirmed, with costs against the appellants. So ordered.

Arellano, C. J., Torres, Johnson and Araullo, JJ., concur.

Moreland, J., concurs in the result.
Carson, J., dissents.

Batas.org
Supreme Court of the Philippines
125 Phil. 204
G.R. No. L-21601, December 17, 1966
NIELSON & COMPANY, INC., PLAINTIFF-APPELLANT, VS. LEPANTO
CONSOLIDATED MINING COMPANY, DEFENDANT-APPELLEE.
DECISION
ZALDIVAR. J.:
On February 6, 1958, plaintiff brought this action against defendant
before the Court of First Instance of Manila to recover certain sums
of money representing damages allegedly suffered by the former in
view of the refusal of the latter to comply with the terms of a
manage ment contract entered into between them on January 30,
1937, including attorney's fees and costs.
Defendant in its answer denied the material allegations of the
complaint and set up certain special defenses, among them,
prescription and laches, as bars against the Institution of the present
action.
After trial, during which the parties presented testimonial and
numerous documentary evidence, the court a quo rendered a
decision dismissing the complaint with costs. The court stated that it
did not find sufficient evidence to establish defendant's counterclaim
and so it likewise dismissed the same.
The present appeal was taken to this Court directly by the plaintiff in
view of the amount involved in the case.
The facts of this case, as stated in the decision appealed from, are
hereunder quoted for purposes of this decision:
"It appears that the suit involves an operating
agreement executed before World War II between the
plaintiff and the defendant whereby the former
operated and managed the mining properties owned
by the latter for a management fee of P2,500.00 a
month and a 10% participation in the net profits
resulting from the operation of the mining properties.
For brevity and convenience, hereafter the plaintiff
shall be referred to as NIELSON and the defendant,
LEPANTO.
"The antecedents of the case are: The contract in
question (Exhibit 'C') was made by the parties on
January 30, 1937 for a period of five (5) years. In the
latter part of 1941,the parties agreed to renew the
contract for another period of five (5) years, but in the
meantime, the Pacific War broke out in December,
1941.
"In January, 1942 operation of the mining properties
was disrupted on account of the war. In February of
1942, the mill, power plant, supplies on hand,
equipment, concentrates on hand and mines, were
destroyed upon orders of the United States Army, to
prevent their utilization by the invading Japanese
Army. The Japanese forces thereafter occupied the
mining properties, operated the mines during the
continuance of the war, and who were ousted from
the mining properties only in August of 1945.
"After the mining properties were liberated from the
Japanese forces, LEPANTO took possession thereof
and embarked in rebuilding and reconstructing the
mines and mill; setting up new organization; clearing
the mill site; repairing the mines; erecting staff
quarters and bodegas and repairing existing structures;
installing new machinery and equipment; repairing
roads and maintaining the same; salvaging equipment
and storing the same within the bodegas; doing police
work necessary to take care of the materials and
equipment recovered; repairing and renewing the
water system; and retimbering (Exhibits 'D' and 'E').
The rehabilitation and reconstruction of the mine and
mill was not completed until 1948 (Exhibit 'F'). On
June 26, 1948 the mines resumed operation under the
exclusive management of LEPANTO (Exhibit 'F-1').
"Shortly after the mines were liberated from the
Japanese invaders in 1945, a disagreement arose
between NIELSON and LEPANTO over the status of the
operating contract in question which as renewed
expired in 1947. Under the terms thereof, the
management contract shall remain in suspense in case
fortuitous event or force majeure, such as war or civil
commotion, adversely affects the work of mining and
milling.
'In the event of inundations, floodings
of mine, typhoon, earthquake or any
other force majeure, war, insurrection,
civil commotion, organized strike, riot,
injury to the machinery or other event
or cause reasonably beyond the control
of NIELSON and which adversely affects
the work of mining and milling;
NIELSON shall report such fact to
LEPANTO and without liability or
breach of the terms of this Agreement,
the same shall remain in suspense,
 wholly or partially during the terms of
such Inability.' (Clause II of Exhibit 'C').
NIELSON hold the view that, on account of the war,
the contract was suspended during the war; hence the
life of the contract should be considered extended for
such time of the period of suspension. On the other
hand, LEPANTO contended that the contract should
expire in 1947 as originally agreed upon because the
period of suspension accorded by virtue of the war did
not operate to extend further the life of the contract.
"No understanding appeared from the record to have
been had by the parties to resolve the disagreement.
In the meantime, LEPANTO rebuilt and reconstructed
the mines and was able to bring the property into
operation only in June of 1948, xxx."
Appellant in its brief makes an alternative assignment of errors
depending on whether or not the management contract basis of the
action has been extended for a period equivalent to the period of
suspension. If the agreement is suspended our attention should be
focused on the first set of errors claimed to have been committed by
the court a quo; but if the contrary is true, the discussion will then be
switched to the alternative set that is claimed to have been
committed. We will first take up the question whether the
management agreement has been extended as a result of the
supervening war, and after this question shall have been determined
in the sense sustained by appellant, then the discussion of the
defense of laches and prescription will follow as a consequence.
The pertinent portion of the management contract (Exh. C) which
refers to suspension should any event constituting force majeure
happen appears in Clause II thereof which we quote hereunder:
"In the event of inundations, floodings of the mine,
typhoon, earthquake or any other force majeure, war,
insurrection, civil commotion, organized strike, riot,
injury to the machinery or other event or cause
reasonably beyond the control of NIELSON and which
adversely affects the work of mining and milling;
NIELSON shall report such fact to LEPANTO and
without liability or breach of the terms of this
Agreement, the same shall remain in suspense, wholly
or partially during the terms of such inability."
A careful scrutiny of the clause above-quoted will at once reveal that
in order that the management contract may be deemed suspended
two events must take place which must be brought in a satisfactory
manner to the attention of defendant within reasonable time, to wit:
(1) the event constituting the force majeure must be reasonably
beyond the control of Nielson, and (2) it must adversely affect the
work of mining and milling the company is called upon to undertake.
As long as these two conditions exist the agreement is deemed
suspended.
Does the evidence on record show that these two conditions had
existed which may justify the conclusion that the management
agreement had been suspended in the sense entertained by
appellant? Let us go to the evidence.
It is a matter that this Court can take judicial notice of that war
supervened in our country and that the mines in the Philippines were
either destroyed or taken over by the occupation forces with a view
to their operation. The Lepanto mines were no exception for not
only was the mine itself destroyed but the mill, power plant, supplies
on hand, equipment and the like that were being used there were
destroyed as well. Thus, the following is what appears in the Lepanto
Company Mining Report dated March 13, 1946 submitted by its
President C. A. DeWitt to the defendant:[1] "In February of 1942, our
mill, power plant, supplies on hand, equipment, concentrates on
hand, and mine, were destroyed upon orders of the U.S. Army to
prevent their utilization by the enemy. The report also mentions the
report submitted by Mr. Blessing, an official of Nlelson, that "the
original mill was destroyed in 1942" and "the original power plant
and all the installed equipment were destroyed in 1942." It is then
undeniable that beginning February, 1942 the operation of the
Lepanto mines stopped or became suspended as a result of the
destruction of the mill, power plant and other important equipment
necessary for such operation in view of a cause which was clearly
beyond the control of Nielson and that as a consequence such
destruction adversely affected the work of mining and milling which
the latter was called upon to undertake under the management
contract. Consequently, by virtue of the very terms of said contract
the same may be deemed suspended from February, 1942 and as of
that month the contract still had 60 months to go.
On the other hand, the record shows that the defendant admitted
that the occupation forces operated its mining properties subject of
the management contract,[2] and from the very report submitted by
President DeWitt it appears that the date of the liberation of the
mine was August 1, 1945 although at the time there were still many
booby traps.[3] Similarly, in a report submitted by the defendant to its
stockholders dated August 25, 1948, the following appears: "Your
Directors take pleasure in reporting that June 26, 1948 marked the
official return to operations of this Company of its properties in
Mankayan, Mountain Province, Philippines.[4]
It is, therefore, clear from the foregoing that the Lepanto mines were
liberated on August 1, 1945, but because of the period of
rehabilitation and reconstruction that had to be made as a result of
the destruction of the mill, power plant and other necessary
equipment for its operation it cannot be said that the suspension of
the contract ended on that date. Hence, the contract must still be
deemed suspended during the succeeding years of reconstruction
and rehabilitation, and this period can only be said to have ended on
June 26, 1948 when, as reported by the defendant, the company
officially resumed the mining operations of the Lepanto. It should
here be stated that this period of suspension from February, 1942 to
June 26, 1948 is the one urged by plaintiff.[5]
It having been shown that the operation of the Lepanto mines on the
part of Nielson had been suspended during the period set out above
within the purview of the management contract, the next question
that needs to be determined is the effect of such suspension. Stated
in another way, the question now to be determined is whether such
suspension had the effect of extending the period of the
management contract for the period of said suspension. To elucidate
this matter, we again need to resort to the evidence.
For appellant Nielson two witnesses testified, declaring that the
suspension had the effect of extending the period of the contract,
namely, George T. Scholey and Mark Nestle. Scholey was a mining
engineer since 1929, an incorporator, general manager and director
of Nielson and Company; and for some time he was also the
vice-president and director of the Lepanto Company during the
pre-war days and, as such, he was an officer of both appellant and
appellee companies. As vice-president of Lepanto and general
manager of Nielson, Scholey participated in the negotiation of the
management contract to the extent that he initialed the same bobh
as a witness and as an officer of both corporations. This witness
testified in this case to the effect that the standard force majeure
clause embodied in the management contract was taken from similar
mining contracts regarding mining operations and the understanding
regarding the nature and effect of said clause was that when there is
suspension of the operation that suspension meant the extension of
the contract. Thus, to the question, "Before the war, what was the
understanding of the people in the particular trend of business with
respect to the force majeure clause?", Scholey answered: "That was
our understanding that the suspension meant the extension of time
lost.[6]
Mark Nestle, the other witness, testified along similar line. He had
been connected with Nielson since 1937 until the time he took the
witness stand and had been a director, manager, and president of
the same company. When he was propounded the question: "Do you
know what was the custom or usage at that time in connection with
force majeure clause?", Nestle answered, "In the mining world the
force majeure clause is generally considered. When a calamity comes
up and stops the work like in war, flood, inundation, or fire, etc., the
work is suspended for the duration of the calamity, and the period of
the contract is extended after the calamity is over to enable the
person to do the big work or recover his money which he has
invested, or accomplish what his obligation is to a third person."[7]
And the above testimonial evidence finds support in the very
minutes of the special meeting of the Board of Directors of the
Lepanto Company issued on March 10, 1945 which was then
chairmaned by Atty. C. A. DeWitt. We read the following from said
report:
 "The Chairman also stated that the contract with
Nielson and Company would soon expire if the
obligations were not suspended, in which case we
should have to pay them the retaining fee of
P2,500.00 a month. He believes however, that there is
a provision in the contract suspending the effects
thereof in cases like the present, and that even if it
were not there, the law itself would suspend the
operations of the contract on account of the war.
Anyhow, he stated, we shall have no difficulty in
solving satisfactorily any problem we may have with
Nielson and Company."[8]
Thus, we can see from the above that even in the opinion of Mr.
DeWitt himself, who at the time was the chairman of the Board of
Directors of the Lepanto Company, the management contract would
then expire unless the period therein stated is suspended but that,
however, he expressed the belief that the period was extended
because of the provision contained therein suspending the effects
thereof should any of the case of force majeure happen like in the
present case, and that even if such provision did not exist the law
would have the effect of suspending it on account of the war. In
substance, Atty. DeWitt expressed the opinion that as a result of the
suspension of the mining operation because of the effects of the war
the period of the contract had been extended.
Contrary to what appellant's evidence reflects insofar as the
interpretation of the force majeure clause is concerned, however,
appellee gives Us an opposite interpretation invoking in support
thereof not only a letter Atty. DeWitt sent to Nielson on October 20,
1945,[9] wherein he expressed for the first time an opinion contrary
to what he reported to the Board of Directors of Lepanto Company
as stated in the portion of the minutes of its Board of Directors as
quoted above, but also the ruling laid down by our Supreme Court in
some cases decided sometime ago, to the effect that the war does
not have the effect of extending the term of a contract that the
parties may enter into regarding a particular transaction, citing infills
connection the cases of Victorias Planters Association v. Victorias
Hilling Company, 51 0.G. 4010; Rosario S. Vda. de Lacson, et al. v.
Abelardo 6. Diaz, 87 Phil., 150; and Lo Ching y So Young Chong Co. v.
Court of Appeals, et al., 81 Phil., 601.
To bolster up its theory, appellee also contends that the evidence
regarding the alleged custom or usage in mining contract that
appellant's witnesses tried to introduce was incompetent because (a)
said custom was not specifically pleaded; (b) Lepanto made timely
and repeated objections to the introduction of said evidence; (c)
Nielson failed to show the essential elements of usage which must
be shown to exist before any proof thereof can be given to affect the
contract; and (d) the testimony of its witnesses cannot prevail over
the very terms of the management contract which, as a rule, is
supposed to contain all the terms and conditions by which the
parties intended to be bound.
It is here necessary to analyze the contradictory evidence which the
parties have presented regarding the interpretation of the force
majeure clause in the management contract.
At the outset, it should be stated that, as a rule, in the construction
and interpretation of a document the intention of the parties must
be sought (Rule 130, Section 10, Rules of Court). This is the basic rule
in the interpretation of contracts because all other rules are but
ancillary to the ascertainment of the meaning intended by the
parties. And once this intention has been ascertained it becomes an
integral part of the contract as though it had been originally
expressed therein in unequivocal terms (Shoreline Oil Corp. v. Guy,
App. 189, So., 348, cited in 17A C.J.S. p. 47). How is this intention
determined?
One pattern is to ascertain the contemporaneous and subsequent
acts of the contracting parties in relation to the transaction under
consideration (Article 1371, Civil Code). In this particular case, it is
worthy of note what Atty. C. A. DeWitt has stated in the special
meeting of the Board of Directors of Lepanto in the portion of the
minutes already quoted above wherein, as already stated, he
expressed the opinion that the life of the contract, if not extended,
would last only until January, 1947 and yet he said that there is a
provision in the contract that the war has the effect of suspending
the agreement and that the effect of that suspension was that the
agreement would have to continue with the result that Lepanto
would have to pay the monthly retaining fee of P2,500.00. And this
belief that the war suspended the agreement and that the
suspension meant its extension was so firm that he went to the
extent of intimating that even if there was no provision for
suspension in the agreement the law Itself would suspend it.
It is true that Mr. DeWitt later sent a letter to Nielson dated October
20, 1945 wherein apparently he changed his mind because there he
stated that the con- tract was merely suspended, but not extended,
by reason of the war, contrary to the opinion he expressed in the
meeting of the Board of Directors already adverted to, but between
the two opinions of Atty. DeWitt We are inclined to give more weight
and validity to the former not only because such was given by him
against his own interest but also because it was given before the
Board of Directors of Lepanto and in the presence of some Nielson
officials[10] who, on that occasion were naturally led to believe that
that was the true meaning of the suspension clause, while the
second opinion was merely self-serving and was given as a mere
afterthought.
Appellee also claims that the issue of true intent of the parties was
not brought out in the complaint, but anent this matter suffice it to
state that in paragraph No. 19 of the complaint appellant pleaded
that the contract was extended.[11] This is a sufficient allegation
considering that the rules on pleadings must as a rule be liberally
construed.
It is likewise noteworthy that in this issue of the intention of the
parties regarding the meaning and usage concerning the force
majeure clause,the testimony adduced by appellant is
uncontradicted. If such were not true, appellee should have at least
attempted to offer contradictory evidence. This it did not do. Not
even Lepanto's President, Mr. V. E. Lednicky, who took the witness
stand, contradicted said evidence.
In holding that the suspension of the agreement meant the
extension of the same for a period equivalent to the suspension, We
do not have the least intention of overruling the cases cited by
appellee. We simply want to say that the ruling laid down in said
cases does not apply here because the material facts involved
therein are not the same as those obtaining in the present. The rule
of stare decisis cannot be invoked where there is no analogy
between the material facts of the decision relied upon and those of
the instant case.
Thus, in Victorias Planters Association v. Victorias Milling Company,
51 0.G. 4010, there was no evidence at all regarding the intention of
the parties to extend the contract equivalent to the period of
suspension caused by the war. Neither was there evidence that the
parties understood the suspension to mean extension; nor was there
evidence of usage and custom in the industry that the suspension
meant the extension of the agreement. All these matters, however,
obtain in the instant case.
Again, in the case of Rosario S. Vda. de Lacson v. Abelardo G. Diaz, 87
Phil., 150, the issue referred to the interpretation of a pre-war
contract of lease of sugar cane lands and the liability of the lessee to
pay rent during and immediately following the Japanese occupation
and where the defendant claimed the right of an extension of the
lease to make up for the time when no cane was planted. This Court,
in holding that the years which the lessee could not use the land
because of the war could not be discounted from the period agreed
upon, held that "Nowhere is there any insinuation that the
defendant-lessee was to have possession of lands for seven years
excluding years on which he could not harvest sugar." Clearly, this
ratio decidendi is not applicable to the case at bar wherein there is
evidence that the parties understood the "suspension clause by force
majeure" to mean the extension of the period of the agreement.
Lastly, in the case of Lo Ching y So Young Chong Co. v. Court of
Appeals, et al., 81 Phil., 601, appellant leased a building from
appellee beginning September 13, 1940 for three years, renewable
for two years. The lessee's possession was interrupted in February,
1942 when he was ousted by the Japanese who turned the same
over to German Otto Schulze, the latter occupying the same until
January, 1945 upon the arrival of the liberation forces. Appellant
contended that the period during which he did not enjoy the leased
premises because of his dispossession by the Japanese had to be
deducted from the period of the lease, but this was overruled by this
Court, reasoning, that such dispossession was merely a simple
"perturbacion de mero hecho y de la cual no responde el
arrendador" under Article 1560 of the old Civil Code (now Art. 1664).
This ruling is also not applicable in the instant case because in that
case there was no evidence of the intention of the parties that any
suspension of the lease by force majeure would be understood to
extend the period of the agreement.
In resumé, there is sufficient justification for Us to conclude that the
cases cited by appellee are inapplicable because the facts therein
involved do not run parallel to those obtaining in the present case.
We shall now consider appellee's defense of laches. Appellee is
correct in its contention that the defense of laches applies
independently of prescription. Laches is different from the statute of
limitations. Prescription is concerned with the fact of delay, whereas
laches is concerned with the effect of delay. Prescription is a matter
of time; laches is principally a question of inequity of permitting a
claim to be enforced, this inequity being founded on some change in
the condition of the property or the relation of the parties.
Prescription is statutory; laches is not. Laches applies in equity,
whereas prescription applies at law. Prescription is based on fixed
time, laches is not. (30 C.J.S., p. 522; See also Pomeroy's Equity
Jurisprudence, Vol. 2, 5th ed., 177.)
The question to determine is whether appellant Nielson is guilty of
laches within the meaning contemplated by the authorities on the
matter. In the leading case of Go Chi Gun, et al. v. Go Cho, et al., 96
Phil., 622, this Court enumerated the essential elements of laches as
follows:
"(1) conduct on the part of the defendant, or of one
under whom he claims, giving rise to the situation of
which complaint is made and for which the complaint
seeks a remedy; (2) delay in asserting the
complainant's rights, the complainant having had
knowledge or notice of the defendant's conduct and
having been afforded an opportunity to institute a suit;
(3) lack of knowledge or notice on the part of the
defendant that the complainant would assert the right
on which he bases his suit; and (4) injury or prejudice
to the defendant in the event relief is accorded to the
complainant, or the suit is not held barred."
Are these requisites present in the case at bar?
The first element is conceded by appellant Nielson when it claimed
that defendant refused to pay its management fees, its percentage
of profits and refused to allow it to resume the management
operation.
Anent the second element, while it is true that appellant Nielson
knew since 1945 that appellee Lepanto has refused to permit it to
resume management and that since 1948 appellee has resumed
operation of the mines and it filed its complaint only on February 6,
1958, there being apparent delay in filing the present action, We find
the delay justified and as such cannot constitute laches. It appears
that appellant had not abandoned its right to operate the mines for
even before the termination of the suspension of the agreement as
early as January 20, 1946[12] and even before March 10, 1945, it
already claimed its right to the extension of the contract [13] and it
pressed its claim for the balance of its share in the profits from the
1941 operation[14] by reason of which negotiations had taken place
for the settlement of the claim[15] and it was only on June 25, 1957
that appellee finally denied the claim. There is, therefore, only a
period of less than one year that had elapsed from the date of the
final denial of the claim to the date of the filing of the complaint,
which certainly cannot be considered as unreasonable delay.
The third element of laches is absent in this case. It cannot be said
that appellee Lepanto did not know that appellant would assert its
rights on which it based its suit. The evidence shows that Niels on
had been claiming for sometime its rights under the contract, as
already shown above.
Neither is the fourth element present, for if there has been some
delay in bringing the case to court it was mainly due to the attempts
at arbitration and negotiation made by both parties. If Lepanto's
documents were lost, it was not caused by the delay of the filing of
the suit but because of the war.
Another reason why appellant Nielson cannot be held guilty of laches
is that the delay in the filing of the complaint in the present case was
the inevitable result of the protracted negotiations between the
parties concerning the settlement of their differences. It appears
that Nielson asked for arbitration[16] which was granted. A committee
consisting of Messrs. DeWitt, Farnell and Blessing was appointed to
act on said differences but Mr. DeWitt always tried to evade the
issue[17] until he was taken ill and died. Mr. Farnell offered to Nielson
the sum of P13,000.58 by way of compromise of all its claim arising
from the management contract[18] but apparently the offer was
refused. Negotiations continued with the exchange of letters
between the parties but with no satisfactory result.[19] It can be said
that the delay due to protracted negotiations was caused by both
parties. Lepanto, therefore, cannot be permitted to take advantage
of such delay or to question the propriety of the action taken by
Nielson. The defense of laches is an equitable one and equity should
be applied with an even hand. A person will not be permitted to take
advantage of, or to question the validity, or propriety of, any act or
omission of another which was committed or omitted upon his own
request or was caused by bis conduct (R. H. Stearns Co. v. United
States, 291 U.S. 54, 78 L. Ed., 647, 54 S. Ct., 325; United States v.
Henry Frentiss & Co., 288 U.S. 73, 77 L. Ed., 626, 53 S. Ct., 283).
Had the action of Nielson prescribed? The court a quo held that the
action of Nielson is already barred by the statute of limitations, and
that ruling is now assailed by the appellant in this appeal. In urging
that the court a quo erred in reaching that conclusion the appellant
has discussed the issue with reference to particular claims.
The first claim is with regard to the 10% share in profits of 1941
operations. Inasmuch as appellee Lepanto alleges that the correct
basis of the computation of the sharing in the net profits shall be as
provided for in Clause V of the Management Contract, while
appellant Nielson maintains that the basis should be what is
contained in the minutes of the special meeting of the Board of
Directors of Lepanto on August 21, 1940,[20] this question must first
be elucidated before the main issue is discussed.
The facts relative to the matter of profit sharing follow: In the
management contract entered into between the parties on January
30, 1937, which was renewed for another five years, it was stipulated
that Nielson would receive a compensation of P2,500.00 a month
plus 10% of the net profits from the operation of the properties for
the preceding month. In 1940, a dispute arose regarding the
computation of the 10% share of Nielson in the profits. The Board of
Directors of Lepanto, realizing that the mechanics of the contract
was unfair to Nielson, authorized its President to enter into an
agreement with Nielson modifying the pertinent provision of the
contract effective January 1, 1940 in such a way that Nielson shall
receive (1) 10% of the dividends declared and paid, when and as paid,
during the period of the contract and at the end of each year, (2)
10% of any depletion reserve that may be set up, and (3) 10% of any
amount expended during the year out of surplus earnings for capital
account.[21] Counsel for the appellee admitted during the trial that
the extract of the minutes as found in Exhibit B is a faithful copy from
the original.[22] Mr. George Scholey testified that the foregoing
modification was duly agreed upon.[23]
Lepanto claims that this new basis of computation should be
rejected (1) because the contract was clear on the point of the 10%
share and it was so alleged by Nielson in its complaint, and (2) the
minutes of the special meeting held on August 21,1940 was not
signed.
It appearing that the issue concerning the sharing of the profits had
been raised in appellant's complaint and evidence on the matter was
introduced[24] the same can be taken into account even if no
amendment of the pleading to make it conform to the evidence has
been made, for the same is authorized by Section 4, Rule 17, of the
old Rules of Court (now Section 5, Rule 10, of the new Rules of
Court).
Coming now to the question of prescription raised by defendant
Lepanto, it is contended by the latter that the period to be
considered for the prescription of the claim regarding participation in
the profits is only four years, because the modification of the sharing
embodied in the management contract is merely verbal, no written
document to that effect having been presented. This contention is
untenable. The modification appears in the minutes of the special
meeting of the Board of Directors of Lepanto held on August 21,
1940, it having been made upon the authority of its President, and in
said minutes the terms of the modification had been specified. This is
sufficient to have the agreement considered, for the purpose of
applying the statute of limitations, as a written contract even if the
minutes were not signed by the parties (3 A.L.R., 2d, p. 831). It has
been held that a writing containing the terms of a contract if
adopted by two persons may constitute a contract in writing even if
the same is not signed by either of the parties (3 A.L. R., 2d, pp.
812-813). Another authority says that an unsigned agreement the
terms of which are embodied in a document undonditionally
accepted by both parties is a written contract (Corbin on Contracts,
Vol. I, p. 85)
The modification, therefore, made in the management contract
relative to the participation in the profits by appellant, as contained
in the minutes of the special meeting of the Board of Directors of
Lepanto held on August 21, 1940, should be considered as a written
contract insofar as the application of the statutes of limitations is
concerned. Hence, the action thereon prescribes within 10 years
pursuant to Section 43 of Act 190.
Coming now to the facts, We find that the right of Nielson to its 10%
participation in the 1941 operations accrued on December 31, 1941
and the right to commence an action thereon began on January 1,
1942 so that the action may be brought within 10 years from the
latter date. It is true that the complaint was filed only on February 6,
1958, that is 16 years, 1 month and 5 days after the right of action
accrued, but the action has not yet prescribed for various reasons
which We will hereafter discuss.
The first reason is the operation of the Moratorium Law, for
appellant's claim is undeniably a claim for money. Said claim accrued
on December 31, 1941, and Lepanto is a war sufferer. Hence the
claim was covered by Executive Order No. 32 of March 10, 1945. It is
well-settled that the operation of the Moratorium Law suspends the
running of the statute of limitations (Pacific Commercial Co. v.
Aquino, G. R. No. L-10274, February 27, 1957).
This Court has held that the Moratorium Law had been enforced for
8 years, 2 months and 8 days (Tioseco v. Day, et al., L-9944, April 30,
1957; Levy Hermanos, Inc. v. Perez, L-14487, April 29, 1960), and
deducting this period from the time that had elapsed since the
accrual of the right of action to the date of the filing of the complaint,
the extent of which is 16 years, 1 month and 5 days, we would have
less than 8 years to be counted for purposes of prescription. Hence
appellant's action on Its claim of 10% on the 1941 profits has not yet
prescribed.
Another reason that may be taken into account in support of the
no-bar theory of appellant is the arbitration clause embodied in the
management contract which requires that any disagreement as to
any amount of profits before an action may be taken to court shall
be subject to arbitration.[25] This agreement to arbitrate is valid and
binding.[26] It cannot be ignored by Lepanto. Hence Nielson could not
bring an action on its participation in the 1941 operations-profits
until the condition relative to arbitration had been first complied
with.[27] The evidence shows that an arbitration committee was
constituted but it failed to accomplish its purpose on June 25,
1957.[28] From this date to the filing of the complaint the required
period for prescription has not yet elapsed.
Nielson claims the following: (1) 10% share in the dividends declared
in 1941, exclusive of interest, amounting to P17,500.00; (2) 10% in
the depletion reserves for 1941; and (3) 10% in the profits for years
prior to 1948 anounting to P19,764.70.
With regard to the first claim, the Lepanto's report for the calendar
year of 1954[29] shows that it declared a 10% cash dividend in
December, 1941, the amount of which is P175,000.00. The evidence
in this connection (Exhibits L and Q) was admitted without objection
by counsel for Lepanto.[30] Nielson claims 10% share in said amount
with interest thereon at 6% per annum. The document (Exhibit L)
was even recognized by Lepanto's President V. L. Lednicky,[31] and
this claim is predicated on the provision of paragraph V of the
management contract as modified pursuant to the proposal of
Lepanto at the special meeting of the Board of Directors on August
21, 1940 (Exh. B), whereby it was provided that Nielson would be
entitled to 10% of any dividends to be declared and paid during the
period of the contract.
With regard to the second claim, Nielson admits that there is no
evidence regarding the amount set aside by Lepanto for depletion
reserve for 1941[32] and so the 10% participation claimed thereon
cannot be assessed.
Anent the third claim relative to the 10% participation of Nielson on
the sum of P197,647.08, which appears in Lepanto's annual report
for 1948[33] and entered as profit for prior years in the statement of
income and surplus, which amount consisted "almost in its entirety
of proceeds of copper concentrates shipped to the United States
during 1947", this claim should be denied because the amount is not
"dividend declared and paid" within the purview of the management
contract.
The fifth assignment of error of appellant refers to the failure of the
lower court to order Lepanto to pay its management fees for January,
1942, and for the full period of extension amounting to P150,000.00,
or P2,500. 00 a month for sixty (60) months, a total of P152,500.00
— with interest thereon from the date of judicial demand.
It is true that the claim of management fee for January, 1942 was not
among the causes of action in the complaint, but inasmuch as the
contract was suspended in February, 1942 and the management fees
asked for included that of January, 1942, the fact that such claim was
not included in a specific manner in the complaint is of no moment
because an appellate court may treat the pleading as amended to
conform to the evidence where the facts show that the plaintiff is
entitled to relief other than what is asked for in the complaint
(Alonzo v. Villamor, 16 Phil., 315). The evidence shows that the last
payment made by Lepanto for management fee was for November
and and December, 1941.[34] If, as We have declared the
management contract was suspended beginning February 1942, it
follows that Nielson is entitled to the management fee for January,
1942.
Let us now come to the management fees claimed by Nielson for the
period of extension. In this respect, it has been shown that the
managment contract was extended from June 27, 1948 to June 26,
1953, or for a period of sixty months. During this period Nielson had
a right to continue in the management of the mining properties of
Lepanto and Lepanto was under obligation to let Nielson do it and to
pay the corresponding management fees. Appellant Nielson insisted
in performing its part of the contract but Lepanto prevented it from
doing so. Hence, by virtue of Article 1186 of the Civil Code, there was
a constructive fulfillment on the part of Nielson of its obligation to
manage said mining properties in accordance with the contract and
Lepanto had the reciprocal obligation to pay the corresponding
management fees and other benefits that would have accrued to
Nielson if Lepanto allowed it (Nielson) to continue in the
management of the mines during the extended period of five years.
We find that the preponderance of evidence is to the effect that
Nielson had insisted in managing the mining properties soon after
liberation. In the report[35] of Lepanto, submitted to its stockholders,
for the period from 1941 to March 13, 1946, are stated the activities
of Nielson's officials in relation to Nielson's insistence in continuing
the management. This report was admitted in evidence without
objection. We find the following in the report:
Mr. Blessing, in May, 1945, accompanied Clark and Stanford to San
Fernando (La Union) to await the liberation of the mines. (Mr.
Blessing was the Treasurer and Metallurgist of Nielson), Blessing with
Clark and Stanford went to the property on July 16 and found that
while the mill site had been cleared of the enemy the latter was still
holding the area around the staff houses and putting up a strong
defense. As a result, they returned to San Fernando and later went
back to the mines on July 26. Mr. Blessing made the report, dated
August 6, recommending a program of operation. Mr. Nielson
himself spent a day in the mine early in December, 1945 and
reiterated the program which Mr. Blessing had outlined. Two or
three weeks before the date of the report, Mr. Coldren of the
Nielson organization also visited the mine and told President C. A.
DeWitt of Lepanto that he thought that the mine could be put in
condition for the delivery of the ore within 10 days. And according to
Mark Nestle, a witness of appellant, Nielson had several men
including engineers to do the job in the mines and to resume the
work. These engineers were in fact sent to the mine site and
submitted reports of what they had done.[36]
On the other hand, appellee claims that Nielson was not ready and
able to resume the work in the mines, relying mainly on the
testimony of Dr. Juan Nabong, former secretary of both Nielson and
Lepanto, given in the separate case of Nancy Irving Romero v.
Lepanto Consolidated Mining Company (Civil Case No. 652, CFI,
Baguio), to the effect that as far as he knew "Nielson and Company
had not attempted to operate the Lepanto Consolidated Mining
Company because Mr. Nielson was not here in the Philippines after
the last war. He came back later," and that Nielson and Company
had no money nor stocks with which to start the operation. He was
asked by counsel for the appellee if he had testified that way in Civil
Case No. 652 of the Court of First Instance of Baguio, and he
answered that he did not confirm it fully. When this witness was
asked later by the same counsel whether he confirmed that
testimony, he said that when he testified in that case he was not
fully aware of what happened and that after he learned more about
the officials of the corporation it was only then that he became
aware that Nielson had really sent his men to the mines along with
Mr. Blessing and that he was aware of this fact personally. He further
said that Mr. Nielson was here in 1945 and "he was going out and
contacting his people."[37]
Lepanto admits, in its own brief, that Nielson had really insisted in
taking over the management and operation of the mines but that it
(Lepanto) unequivocally refused to allow it. The following is what
appears in the brief of the appellee:
"It was while defendant was in the midst of the
rehabilitation work which was fully described earlier,
still reeling under the terrible devastation and
destruction wrought by war on its mine that Nielson
insisted in taking over the management and operation
of the mine. Nielson thus put Lepanto in a position
where defendant, under the circumstances, had to
refuse, as in fact it did, Nielson's insistence in taking
over the management and operation because, as was
obvious, it was impossible, as a result of the
destruction of the mine, for the plaintiff to manage
and operate the same and because, as provided in the
agreement, the contract was suspended by reason of
the war. The stand of Lepanto in disallowing Nielson
to assume again the management of the mine in 1945
was unequivocal and cannot be misinterpreted,
infra."[38]
Based on the foregoing facts and circumstances, and Our conclusion
that the management contract was extended, We believe that
Nielson is entitled to the management fees for the period of
extension. Nielson should be awarded on this claim sixty times its
monthly pay of P2,500.00, or a total of P150,000.00.
In its sixth assignment of error Nielson contends that the lower court
erred in not ordering Lepanto to pay it (Nielson) the 10% share in the
profits of operation realized during the period of five years from the
resumption of its post-war operations of the Mankayan mines," in
the total sum of P2,403,053.20 with interest thereon at the rate of March
1 20
6% per annum from February 6, 1958 until full payment.[39] 1951 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,000,000.00
2 %
...
The above claim of Nielson refers to four categories, namely: (1) cash
June
dividends; (2) stock dividends; (3) depletion reserves; and (4) amount 1 20
expended on capital investment. 1951 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,000,000.00
3 %
....
Anent the first category, Lepanto's report for the calendar year 1 20 September
1954[40] contains a record of the cash dividends it paid up to the date 1,000,000.00
4 % 1951 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
of said report, and the post-war dividends paid by it corresponding
to the years included in the period of extension of the management 1 40 December
2,000,000.00
contract are as follows: 5 % 1951 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March
"POST-WAR 1 20
1952 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,000,000.00
6 %
...
10 November
8 P2,000,000.00
% 1949 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . May
1 20
1952 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,000,000.00
July 7 %
10 ....
9 1950 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3,000,000.00
%
.... July
1 20
1952 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,000,000.00
October 8 %
1 10 ....
1950 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5,000,000.00
0 %
. 1 20 September
1,000,000.00
9 % 1952 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1 20 December
1,000,000.00
1 % 1950 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 20 December 1,000,000.00
 0 % 1952 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Appellant's claim that it should be given 10% of the cash value of said
stock dividends with interest thereon at 6% from February 6, 1958
March
2 20 cannot be granted for that would not be in accordance with the
1953 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,000,000.00
1 % management contract which entitles Nielson to 10% of any dividends
...
declared paid, when and as paid. Nielson, therefore, is entitled to
June 10% of the stock dividends and to the fruits that may have accrued
2 20
1953 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1.000,000.00 to said stock dividends pursuant to Article 1164 of the Civil Code.
2 %
.... Hence to Nielson is due shares of stock worth P100,000.00, as per
stock dividends declared on November 28, 1949 and all the fruits
----------------
accruing to said shares after said date; and also shares of stock worth
P14,000,000.0 P200,000.00 as per stock dividends declared on August 20, 1950 and
0" all fruits accruing thereto after said date.

Anent the third category, the depletion reserve appearing in the

According to the terms of the management contract as modified,t
appellant is entitled to 10% of the P14,000,000.00 cash dividends
that had been distributed, as stated in the above-mentioned report,
or the sum of P1,400,000.00.
With regard to the second category, the stock dividends declared by
Lepanto during the period of extension of the contract are: On
November 28, 1949, the stock dividend declared was 50% of the
outstanding authorized capital of P2,000,000.00 of the company, or
stock dividends worth P1,000,000.00; and on August 22, 1950, the
dividend declared was 66-2/3% of the standing authorized capital of
P3,000,000,00 of the company, or stock dividends worth
P2,000,000.00.[41]
statement of income and surplus submitted by Lepanto
corresponding to the years covered by the period of extension of the
contract, may be itemized as follows:
In 1948, as per Exh. F. p. 36 and Exh. Q, p. 5, the depletion reserve
set up was P11,602.80.
In 1949, as per Exh. G, p. 49 and Exh. Q, p. 5, the depletion reserve
set up was P33,556.07.
In 1950, as per Exh. H, p. 37, Exh. Q, p. 6 and Exh. I, p. 37, the
depletion reserve set up was P84,963.30.
In 1951 as per Exh. I, p. 45, Exh. Q, p. 6, and Exh. J, p. 45, the
depletion reserve set up was P129,089.88.
In 1952, as per Exh. J, p. 45, Exh. Q, p. 6 and Exh. K, p. 41, the
depletion reserve was P147,141.54.
In 1953, as per Exh. K, p. 41, and Exh. Q, p. 6, the depletion reserve
set up was P277,493.25.
Regarding the depletion reserve set up in 1948 it should be noted
that the amount given was for the whole year. Inasmuch as the
contract was extended only for the last half of the year 1948, said
amount of P11,602.80 should be divided by two, and so Nielson is
only entitled to 10% of the half amounting to P5,801.40.
Likewise, the amount of depletion reserve for the year 1953 was for
the whole year and since the contract was extended only until the
first half of the year, said amount of P277,493.25 should be divided
by two, and so Nielson is only entitled to 10% of the half amounting
to — P138,746.62. Summing up the entire depletion reserves, from
the middle of 1948 to the middle of 1953, we would have a total of
P539,298.81, of which Nielson is entitled to 107.,or to the sum of
P53,928.88.
Finally, with regard to the fourth category, there is no figure in the
record representing the value of the fixed assets as of the beginning
of the period of extension on June 27, 1948. It is possible, however,
to arrive at thi amount needed by adding to the value of the fixed
assets as of December 31, 1947 one-half of the amount spent for
capital account in the year 1948. As of December 31, 1947, the value
of the fixed assets was P1,061,878.88[42] and as of December 31,
1948, the value of the fixed assets was P3,270,408.07.[43] Hence, the
increase in the value of the fixed assets for the year 1948 was
P2,208,529.19, one-half of which is P1,104,264.59, which amount
represents the expenses for capital account for the first half of the
year 1948. If to this amount we add the fixed assets as of December
31, 1947 amounting to P1,061,878.88, we would have a total of
P2,166,143.47 which represents the fixed assets at the begining of
the second half of the year 1948.
There is also no figure representing the value of the fixed assets
when the contract, as extended, ended on June 26, 1953; but this
may be computed by getting one-half of the expenses for capital
account made in 1953 and adding the same to the value of the fixed
assets as of December 31, 1952. The value of the fixed assets as of
December 31, 1953 is P9,755,840,41[44] while the value of the fixed
assets as of December 31, 1952 is P8,463,741.82, the difference
being P1,292,098.69. One-half of this amount is P646,049.34 which
would represent the expenses for capital account up to June, 1953.
This amount added to the value of the fixed assets as of December
31, 1952 would give a total of P9,109,791.16 which would be the
value of fixed assets at the end of June, 1953.
The increase, therefore, of the value of the fixed assets of Lepanto
from June, 1948 to June, 1953 is P6,943,647.69, which amount
represents the difference between the value of the fixed assets of
Lepanto In the year 1948 and in the year 1953, as stated above. On
this amount Nielson is entitled to a share of 10%, or to the amount of
P694,364.76.
Considering that most of the claims of appellant have been
entertained, as pointed out in this decision, We believe that
appellant is entitled to be awarded attorney's fees, especially when,
according to the undisputed testimony of Mr. Mark Nestle, Nielson
obliged himself to pay attorney's fees in connection with the
institution of the present case. In this respect, We believe,
considering the Intricate nature of the case, an award of fifty
thousand (P50,000.00) pesos for attorney's fees would be
reasonable.
IN VIEW OF THE FOREGOING CONSIDERATIONS, We hereby reverse
the decision of the court a quo and enter in lieu thereof another,
ordering the appellee Lepanto to pay appellant Nielson the different
amounts as specified herein below:
(1) 10% share of cash dividends of December, 1941 in the amount of
P17,500.00, with legal interest thereon from the date of the filing of
the complaint;
(2) management fee for January, 1942 in the amount of P2,500.00,
with legal interest thereon from the date of the filing of the
complaint;
(3) management fees for the sixty-months period of extension of the
management contract, amounting to P150,000.00, with legal interest
from the date of the filing of the complaint;
(4) 10% share in the cash dividends during the period of extension of
the management contract, amounting to P1,400,000.00, with legal
interest thereon from the date of the filing of the complaint;
(5) 10% of the depletion reserve set up during the period of
extension, amounting to P53,928.88, with legal interest thereon
from the date of the filing of the complaint;
(6) 10% of the expenses for capital account during the period of
extension, amounting to P694,364.76, with legal interest thereon
from the date of the filing of the complaint;
(7) to issue and deliver to Nielson and Co. Inc. shares of stock of
Lepanto Consolidated Mining Co. at par value Equivalent to the total
of Nielson's 10% share in the stock dividends declared on November
28, 1949 and August 22, 1950, together with all cash and stock
dividends, if any, as may have been declared and issued subsequent
to November 28, 1949 and August 22, 1950, as fruits that accrued to
said shares;
If sufficient shares of stock of Lepanto's are not available to satisfy
this judgment, defendant-appellee shall pay plaintiff-appellant an
amount in cash equivalent to the market value of said shares at the
time of default (12 C.J.S., p. 130), that is, all shares of stock that
 [5] Appellant's Brief, pp. 86-87.
should have been delivered to Nielson before the filing of the
complaint must be paid at their market value as of the date of the
filing of the complaint; and all shares, if any, that should have been [6] T.s.n., June 27, 1962, p. 25.
delivered after the filing of the complaint at the market value of the
shares at the time Lepanto disposed of all its available shares, for it is [7] T.s.n., July 3, 1962, pp. 24-25.
only then that Lepanto placed itself in condition of not being able to
perform its obligation (Article 1160, Civil Code); [8] Page 4, Exhibit B.

(8) the sum of P50,000.00 as attorney's fees; and [9] Exhibit O.

(9) the costs. [10] Exh. B, p. 3; Exh. N, p. 4.
IT IS SO ORDERED.
[11] Page 7, Record on Appeal.
Concepcion, C.J., Regala, Makalintal, Bengzon, J.P., Sanchez and Ruiz
[12] Exhibit P.
Castro, JJ., concur.

[13] Exhibit B, p. 4.

[1] [14] Exhibit P.

Exhibit D.

[2] [15] Exhibit U.

Par. 15, Defendant's Answer, pp. 63-64, Record on Appeal.

[3] [16] T.s.n., July 3, 1962, p. 37.

Page 7, Exhibit D.

[4] [17] Exhibit 3, p. 3.

Page 1, Exhibit F-1.
[18] Exhibit U. [30] T.s.n., October 24, 1962, p. 3.

[19] Exhibit V to V-5. [31] T.s.n., July 6, 1962, p. 34.

[20] Exhibit B, B-1, pp. 2-3. [32] Appellant's Brief, p. 59.

[21] Exhibits B, B-1, pp. 2-3. [33] Exhibit F, p. 36.

[22] T.s.n., July 3, 1962, p. 7. [34] Lepanto's Exhibit 1.

[23] T.s.n., June 27, 1962, p. 14. [35] Exhibit D, pp. 7, 11, 12.

[24]
Exhibit B is admitted as evidence without objection by counsel for [36] T.s.n., July 3, 1962, pp. 32-34.
the appellee, t.s.n., October 24, 1962, p. 3.
[37] T.s.n., November 29, 1962, pp. 6-9.
[25] Clause XIII, Exh. C; See Record on Appeal pp. 54-55.
[38] Appellee's Brief, pp. 9-10.
[26] Chong v. Assurance Corp., 8 Phil., 399.
[39] Appellant's Brief, pp. 97, 98, 111.
[27]13-A C.J.S., pp. 918, 919; Chitty on Contracts, 22nd ed., 1961, Vol.
I, pp. 315-316. [40] Exhibit L, p. 3.

[28] Exhibit V-6. [41] Exhibit L, p. 2.

[29] Exhibit L, p. 3; Exhibit Q, p. 7. [42] Exhibit E, p. 6.

[43] Exhibit E, p. 6.

[44] Exhibit K, p. 39.

Batas.org
Supreme Court of the Philippines
38 Phil. 501
G.R. No. 11491, August 23, 1918
ANDRES QUIROGA, PLAINTIFF AND APPELLANT, VS. PARSONS
HARDWARE CO., DEFENDANT AND APPELLEE.
DECISION
AVANCEÑA, J.:
On January 24, 1911, in this city of Manila, a contract
in the following tenor was entered into by and
between the plaintiff, as party of the first part, and J.
Parsons (to whose rights and obligations the present
defendant later subrogated itself), as party of the
second part:
"CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J.
PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA, FOR THE
EXCLUSIVE SALE OF 'QUIROGA' BEDS IN THE VISAYAN ISLANDS.
"Article 1. Don Andres Quiroga grants the exclusive right to sell his
beds in the Visayan Islands to J. Parsons uncjer 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 an allowance of a discount of 25 per cent of the invoiced prices,
as commission on the sales; 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 he 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 within 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 toA 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, reduces itself to
a determination as to whether the defendant, by reason of the
contract hereinbefore transcribed, was a purchaser or any 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. I 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 Tloilo. 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
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 purpose of making this
return, the defendant, in its 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.
Arellano, C. J., Torres, Johnson, Street, and Malcolm, JJ., concur.
Batas.org
Supreme Court of the Philippines
72 Phil. 402
G.R. No. 47538, June 20, 1941
GONZALO PUYAT & SONS, INC., PETITIONER, VS. ARCO AMUSE
MENT COMPANY (FORMERLY KNOWN AS TEATRO ARCO),
RESPONDENT.
DECISION
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 decision in civil case G. R. No.
1023, entitled "Arco 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 al- legedly 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 ad-
mitted 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 cinematograph
equipment and ma- chinery, and the Arco Amusement Company
desiring to equip 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 hebalf of the plaintiff, order sound reproducing equipment
from the Star 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 with-out 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 defendant,
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 above mentioned was not
the net price but rather the list price, and that the
defendant 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 expenses. 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 peti- tioner 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 there- on
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 incurri6 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 transacci6n de que
se trata, en vez de la de vendedora a compradora
como ha declarado el Juzgado de Primera Instancia de
Manila, presidido entonces por el hoy Magistrado
Honorable Marceliano Montemayor.
"II. El Tribunal de Apelaciones incurri6 en error de
derecho al declarar que, suponiendo que dicha
relaci6n fuera 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 a devolver a la recurrida la diferencia o
descuento de 25 por ciento que 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 pur- chase 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 inelude 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. (Nol- brook v. Conner, 56 So., 576, 11 Am. Rep., 212;
Bank v. Brosscell, 120 111., 161; Bank v. Palmer, 47 111., 92; Hosser v.
Copper, 8 Allen, 334; Doles v. Merrill, 173 Mass., 411.) The letters,
Exhibits 1 and 2, by which the respondent ac- cepted 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 of no other interpretation than that the
respondent agreed to purchase from the petitioner the equipment in
question at the prices indicated which are fixed and determinate.
The respond- ent admitted in its complaint hied with the Court of
First Instance of Manila that the petitioner agreed to sell to 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,
un- der 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 con- nection with the purchase and
delivery of such equipment, such as cost^ of telegrams, freight, and
similar expenses." (Italics ours.)
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 or- ders 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 prin- cipal 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).
While the letters, 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 sti- pulation 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 machin- ery 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 mer- chants or middleman would not exist.
The respondent 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 respondent 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 per cent 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 of purchase and sale, is
no ground for rescinding 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 better that, within
certain limits, business acumen permit of the loosening1 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 and Sons, Inc.,
defendant-appellee," without pronouncement regarding costs. So
ordered.
Avanceña, C. J., Diaz, Moran and Horrilleno, JJ., concur.
Batas.org
Supreme Court of the Philippines
148 Phil. 541
G.R. No. L-20871, April 30, 1971
KER & CO., LTD., PETITIONER, VS. JOSE B. LINGAD, AS ACTING
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
DECISION
FERNANDO, J.:
Petitioner Ker & Co., Ltd. would have us reverse a
decision of the Court of Tax Appeals, holding it liable
as a commercial broker under Section 194 (t) of the
National Internal Revenue Code. Its plea,
notwithstanding the vigorous effort of its counsel, is
not sufficiently persuasive. An obstacle, well-nigh
insuperable, stands in the way. The decision under
review conforms to and is in accordance with the
controlling doctrine announced in the recent case of
Commissioner of Internal Revenue v. Constantino.[1]
The decisive test, as therein set forth, is the retention
of the ownership of the goods delivered to the
possession of the dealer, like herein petitioner, for
resale to customers, the price and terms remaining
subject to the control of the firm consigning such
goods. The facts, as found by respondent Court, to
which we defer, unmistakably indicate that such a
situation does exist. The juridical consequences must
inevitably follow. We affirm.
It was shown that petitioner was assessed by the then Commissioner
of Internal Revenue Melecio R. Domingo the sum of P20,272.33 as
the commercial broker's percentage tax, surcharge, and compromise
penalty for the period from July 1, 1949 to December 31, 1953.
There was a request on the part of petitioner for the cancellation of
such assessment, which request was turned down. As a result, it filed
a petition for review with the Court of Tax Appeals. In its answer, the
then Commissioner Domingo maintained his stand that petitioner
should be taxed in such amount as a commercial broker. In the
decision now under review, promulgated on October 19, 1962, the
Court of Tax Appeals held petitioner taxable except as to the
compromise penalty of P500.00, the amount due from it being fixed
at P19,772.33.
Such liability arose from a contract of petitioner with the United
States Rubber International, the former being referred to as the
Distributor and the latter specifically designated as the Company.
The contract was to apply to transactions between the former and
petitioner, as Distributor, from July 1, 1948 to continue in force until
terminated by either party giving to the other sixty days' notice.[2]
The shipments would cover products "for consumption in Cebu,
Bohol, Leyte, Samar, Jolo, Negros Oriental, and Mindanao except
[the] province of Davao," petitioner, as Distributor, being precluded
from disposing such products elsewhere than in the above places
unless written consent would first be obtained from the Company.[3]
Petitioner, as Distributor, is required to exert every effort to have the
shipment of the products in the maximum quantity and to promote
in every way the sale thereof.[4] The prices, discounts, terms of
payment, terms of delivery and other conditions of sale were subject
to change in the discretion of the Company.[5]
Then came this crucial stipulation: "The Company shall from time to
time consign to the Distributor and the Distributor will receive,
accept and/or hold upon consignment the products specified under
the terms of this agreement in such quantities as in the judgment of
the Company may be necessary for the successful solicitation and
maintenance of business in the territory, and the Distributor agrees
that responsibility for the final sale of all goods delivered shall rest
with him. All goods on consignment shall remain the property of the
Company until sold by the Distributor to the purchaser or purchasers,
but all sales made by the Distributor shall be in his name, in which
case the sale price of all goods sold less the discount given to the
Distributor by the Company in accordance with the provision of
paragraph 13 of this agreement, whether or not such sale price shall
have been collected by the Distributor from the purchaser or
purchasers, shall immediately be paid and remitted by the
Distributor to the Company. It is further agreed that this agreement
does not constitute Distributor the agent or legal representative of
the Company for any purpose whatsoever. Distributor is not granted
any right or authority to assume or to create any obligation or
responsibility, express or implied, in behalf of or in the name of the
Company, or to bind the Company in any manner or thing
whatsoever."[6]
All specifications for the goods ordered were subject to acceptance
by the Company with petitioner, as Distributor, required to accept
such goods shipped as well as to clear the same through customs
and to arrange for delivery in its warehouse in Cebu City. Moreover,
orders are to be filled in whole or in part from the stocks carried by
the Company's neighboring branches, subsidiaries or other sources
of company's brands.[7] Shipments were to be invoiced at prices to
be agreed upon, with the customs duties being paid by petitioner, as
Distributor, for account of the Company.[8] Moreover, all resale
prices, lists, discounts and general terms and conditions of local
resale were to be subject to the approval of the Company and to
change from time to time in its discretion.[9] The dealer, as
Distributor, is allowed a discount of ten percent on the net amount
of sales of merchandise made under such agreement.[10] On a date to
be determined by the Company, the petitioner, as Distributor, was
required to report to it data showing in detail all sales during the
month immediately preceding, specifying therein the quantities,
sizes and types together with such information as may be required
for accounting purposes, with the Company rendering an invoice on
sales as described to be dated as of the date of inventory and sales
report. As Distributor, petitioner had to make payment on such
invoice or invoices on due date with the Company being privileged at
its option to terminate and cancel the agreement forthwith upon the
failure to comply with this obligation.[11] The Company, at its own
expense, was to keep the consigned stock fully insured against loss
or damage by fire or as a result of fire, the policy of such insurance to
be payable to it in the event of loss. Petitioner, as Distributor,
assumed full responsibility with reference to the stock and its safety
at all times; and upon request of the Company at any time, it was to
render inventory of the existing stock which could be subject to
change.[12] There was furthermore this equally tell-tale covenant:
"Upon the termination or any cancellation of this agreement all
goods held on consignment shall be held by the Distributor for the
account of the Company, without expense to the Company, until
such time as provision can be made by the Company for
disposition."[13]
The issue with the Court of Tax Appeals, as with us now, is whether
the relationship thus created is one of vendor and vendee or of
broker and principal. Not that there would have been the slightest
doubt were it not for the categorical denial in the contract that
petitioner was not constituted as "the agent or legal representative
of the Company for any purpose whatsoever." It would be, however,
to impart to such an express disclaimer a meaning it should not
possess to ignore what is manifestly the role assigned to petitioner
considering the instrument as a whole. That would be to lose sight
altogether of what has been agreed upon. The Court of Tax Appeals
was not misled. In the language of the decision now on appeal: "That
the petitioner Ker & Co., Ltd. is, by contractual stipulation, an agent
of U.S. Rubber International is borne out by the facts that petitioner
can dispose of the products of the Company only to certain persons
or entities and within stipulated limits, unless excepted by the
contract or by the Rubber Company (Par. 2); that it merely receives,
accepts and/or holds upon consignment the products, which remain
properties of the latter company (Par. 8); that every effort shall be
made by petitioner to promote in every way the sale of the products
(Par. 3); that sales made by petitioner are subject to approval by the
company (Par. 12); that on dates determined by the rubber company,
petitioner shall render a detailed report showing sales during the
month (Par. 14); that the rubber company shall invoice the sales as
of the dates of inventory and sales report (Par. 14); that the rubber
company agrees to keep the consigned goods fully insured under
insurance policies payable to it in case of loss (Par. 15); that upon
request of the rubber company at any time, petitioner shall render
an inventory of the existing stock which may be checked by an
authorized representative of the former (Par. 15); and that upon
termination or cancellation of the Agreement, all goods held on
consignment shall be held by petitioner for the account of the rubber
company until their disposition is provided for by the latter (Par. 19).
All these circumstances are irreconcilably antagonistic to the idea of
an independent merchant."[14] Hence its conclusion: "However, upon
analysis of the contract, as a whole, together with the actual conduct
of the parties in respect thereto, we have arrived at the conclusion
that the relationship between them is one of brokerage or
agency."[15] We find ourselves in agreement, notwithstanding the
able brief filed on behalf of petitioner by its counsel. As noted at the
outset, we cannot heed petitioner's plea for reversal.
1. According to the National Internal Revenue Code, a com-
mercial broker "includes all persons, other than importers,
manufacturers, producers, or bona fide employees, who, for
compensation or profit, sell or bring about sales or purchases
of merchandise for other persons or bring proposed buyers
and sellers together, or negotiate freights or other business
for owners of vessels or other means of transportation, or for
the shippers, or consignors or consignees of freight carried by
vessels or other means of transportation. The term includes
commission merchants."[16] The controlling decision as to the
test to be followed as to who falls within the above definition
of a commercial broker is that of Commissioner of Internal
Revenue v. Constantino.[17] In the language of Justice J.B.L.
Reyes, who penned the opinion: "Since the company retained
ownership of the goods, even as it delivered possession unto
the dealer for resale to customers, the price and terms of
which were subject to the company's control, the relationship
between the company and the dealer is one of agency, * *
*."[18] An excerpt from Salisbury v. Brooks[19] cited in support
of such a view follows: '" The difficulty in distinguishing
between contracts of sale and the creation of an agency to
sell has led to the establishment of rules by the application of
which this difficulty may be solved. The decisions say the
transfer of title or agreement to transfer it for a price paid or
promised is the essence of sale. If such transfer puts the
transferee in the attitude or position of an owner and makes
him liable to the transferor as a debtor for the agreed price,
and not merely as an agent who must account for the
proceeds of a resale, the transaction is a sale; while the
essence of an agency to sell is the delivery to an agent, not as
his property, but as the property of the principal, who
remains the owner and has the right to control sales, fix the
price, and terms, demand and receive the proceeds less the
agent's commission upon sales made.'"[20] The opinion relied
on the work of Mechem on Sales as well as Mechem on
Agency. Williston and Tiedman, both of whom wrote treatises
on Sales, were likewise referred to.
Equally relevant is this portion of the Salibury opinion: "It is difficult
to understand or appreciate the necessity or presence of these
mutual requirements and obligations on any theory other, than that
of a contract of agency. Salisbury was to furnish the mill and put the
timber owned by him into a marketable condition in the form of
lumber; Brooks was to fumish the funds necessary for that purpose,
sell the manufactured product, and account therefor to Salisbury
upon the specific terms of the agreement, less the compensation
fixed by the parties in lieu of interest on the money advanced and for
services as agent. These requirements and stipulations are
inconsistent with any other conception of the contract. If it
constitutes an agreement to sell, they are meaningless. But they
cannot be ignored. They were placed there for some purpose,
doubtless as the result of definite antecedent negotiations therefore,
consummated by the final written expression of the agreement.[21]
Hence the Constantino opinion could categorically affirm that the
mere disclaimer in a contract that an entity like petitioner is not "the
agent or legal representative * * * for any purpose whatsoever" does
not suffice to yield the conclusion that it is an independent merchant
if the control over the goods for resale of the goods consigned is
pervasive in character. The Court of Tax Appeals decision now under
review pays fealty to such an applicable doctrine.
1. No merit therefore attaches to the first error imputed by
petitioner to the Court of Tax Appeals. Neither did such Court
fail to appreciate in its true significance the act and conduct
pursued in the implementation of the contract by both the
United States Rubber International and petitioner, as was
contended in the second assignment of error. Petitioner
ought to have been aware that there was no need for,such an
inquiry. The terms of the contract, as noted, speak quite
clearly. There is lacking that degree of ambiguity sufficient to
give rise to serious doubt as to what was contemplated by
the parties. A reading thereof discloses that the relationship
arising therefrom was not one of seller and purchaser. If it
were thus intended, then it would not have included
covenants which in their totality would negate the concept of
a firm acquiring as vendee goods from another. Instead, the
stipulations were so worded as to lead to no other conclusion
than that the control by the United States Rubber
International over the goods in question is, in the language of
the Constantino opinion, "pervasive." The insistence on a
relationship opposed to that apparent from the language
employed might even yield the impression that such a mode
of construction was resorted to in order that the applicability
of a taxing statute might be rendered nugatory. Certainly,
such a result is to be avoided.
Nor is it to be lost sight of that on a matter left to the discretion of
the Court of Tax Appeals which has developed an expertise in view of
its function being limited solely to the interpretation of revenue laws,
this Court is not prepared to substitute its own judgment unless a
grave abuse of discretion is manifest. It would be to frustrate the
objective for which administrative tribunals are created if the
judiciary, absent such a showing, is to ignore their appraisal on a
matter that forms the staple of their specialized competence. While
it is to be admitted that counsel for petitioner did scrutinize with
care the decision under review with a view to exposing what was
considered its flaws, it cannot be said that there was such a failure to
apply what the law commands as to call for its reversal. Instead,
what cannot be denied is that the Court of Tax Appeals reached a
result to which the Court in the recent Constantino decision gave the
imprimatur of its approval,
 [9] Ibid, par. 12, p. 4.
WHEREFORE, the Court of Tax Appeals decision of October 19, 1962
is affirmed. With costs against petitioner.
[10] Ibid., par. 13, p. 4.
Concepcion, C.J., Reyes, J.B.L, Dizon, Makalintal, Zaldivar, Ruiz Castro,
[11] Ibid., par. 14, p. 5.
Teehankee, Barredo, Villamor and Makasiar, JJ., concur.

[12] Ibid., par. 15, p. 5.

[13] Ibid., par. 19, p. 6.

[14] Decision, Annex A to the Petition, pp. 10-11.

[1] L-25926, February 27, 1970, 31 SCRA 779.
[15] Ibid., p. 10.
[2]Contract between the United States Rubber International and
petitioner, par. 1 quoted in the Decision of the Court of Tax Appeals, [16] Section 194(t).
Annex A to Petition, p.2.
[17] L-25926, February 27, 1970, 31 SCRA 779.
[3] Ibid., par. 2, p. 2.
[18] Ibid., p. 785.
[4] Ibid., par. 3, p. 2.
[19] 94SE 117(1917).
[5] Ibid., par. 7, p. 3.
[20] L-25926, February 27, 1970, 31 SCRA 779, 785.
[6] Ibid., par. 8, pp. 3 and 4.
[21] 94 SE 117, 118(1917).
[7] Ibid., par. 9, p. 4

[8] Ibid., par. 10, p. 4.

Batas.org
Supreme Court of the Philippines Petitioner Alfred Hahn is a Filipino citizen doing
business under the name and style "Hahn-Manila." On
the other hand, private respondent Bayerische
Motoren Werke Aktiengesellschaft (BMW) is a
334 Phil. 491 nonresident foreign corporation existing under the
laws of the former Federal Republic of Germany, with
SECOND DIVISION principal office at Munich, Germany.

G.R. No. 113074, January 22, 1997 On March 7, 1967, petitioner executed in favor of private respondent
a "Deed of Assignment with Special Power of Attorney," which reads
ALFRED HAHN, PETITIONER, VS. COURT OF APPEALS AND in full as follows:
BAYERISCHE MOTOREN WERKE AKTIENGESELLSCHAFT (BMW),
WHEREAS, the ASSIGNOR is the present owner and
RESPONDENTS.
holder of the BMW trademark and device in the
DECISION
Philippines which ASSIGNOR uses and has been using
on the products manufactured by ASSIGNEE, and for
MENDOZA, J.:
which ASSIGNOR is the authorized exclusive Dealer of
the ASSIGNEE in the Philippines, the same being
This is a petition for review of the decision[1] of the
evidenced by certificate of registration issued by the
Court of Appeals dismissing a complaint for specific
Director of Patents on 12 December 1963 and is
performance which petitioner had filed against
referred to as Trademark No. 10625;
private respondent on the ground that the Regional
Trial Court of Quezon City did not acquire jurisdiction
WHEREAS, the ASSIGNOR has agreed to transfer and
over private respondent, a nonresident foreign
consequently record said transfer of the said BMW
corporation, and of the appellate court's order
trademark and device in favor of the ASSIGNEE herein
denying petitioner's motion for reconsideration.
with the Philippines Patent Office;
The following are the facts:
NOW THEREFORE, in view of the foregoing and in
 consideration of the stipulations hereunder stated,
the ASSIGNOR hereby affirms the said assignment and
transfer in favor of the ASSIGNEE under the following
terms and conditions:
1. The ASSIGNEE shall take appropriate steps against any user other
than ASSIGNOR or infringer of the BMW trademark in the Philippines,
for such purpose, the ASSIGNOR shall inform the ASSIGNEE
immediately of any such use or infringement of the said trademark
which comes to his knowledge and upon such information the
ASSIGNOR shall automatically act as Attorney-In-Fact of the
ASSIGNEE for such case, with full power, authority and responsibility
to prosecute unilaterally or in concert with ASSIGNEE, any such
infringer of the subject mark and for purposes hereof the ASSIGNOR
is hereby named and constituted as ASSIGNEE's Attorney-In-Fact, but
any such suit without ASSIGNEE's consent will exclusively be the
responsibility and for the account of the ASSIGNOR,
2. That the ASSIGNOR and the ASSIGNEE shall continue business
relations as has been usual in the past without a formal contract, and
for that purpose, the dealership of ASSIGNOR shall cover the
ASSIGNEE's complete production program with the only limitation
that, for the present, in view of ASSIGNEE's limited production, the
latter shall not be able to supply automobiles to ASSIGNOR.
Per the agreement, the parties "continue[d] business relations as has
been usual in the past without a formal contract." But on February
16, 1993, in a meeting with a BMW representative and the president
of Columbia Motors Corporation (CMC), Jose Alvarez, petitioner was
informed that BMW was arranging to grant the exclusive dealership
of BMW cars and products to CMC, which had expressed interest in
acquiring the same. On February 24, 1993, petitioner received
confirmation of the information from BMW which, in a letter,
expressed dissatisfaction with various aspects of petitioner's
business, mentioning among other things, decline in sales,
deteriorating services, and inadequate showroom and warehouse
facilities, and petitioner's alleged failure to comply with the
standards for an exclusive BMW dealer.[2] Nonetheless, BMW
expressed willingness to continue business relations with the
petitioner on the basis of a "standard BMW importer" contract,
otherwise, it said, if this was not acceptable to petitioner, BMW
would have no alternative but to terminate petitioner's exclusive
dealership effective June 30, 1993.
Petitioner protested, claiming that the termination of his exclusive
dealership would be a breach of the Deed of Assignment.[3] Hahn
insisted that as long as the assignment of its trademark and device
subsisted, he remained BMW's exclusive dealer in the Philippines
because the assignment was made in consideration of the exclusive
dealership. In the same letter petitioner explained that the decline in
sales was due to lower prices offered for BMW cars in the United
States and the fact that few customers returned for repairs and
servicing because of the durability of BMW parts and the efficiency
of petitioner's service.
Because of Hahn's insistence on the former business relation, BMW
withdrew on March 26, 1993 its offer of a "standard importer
contract" and terminated the exclusive dealer relationship effective
June 30, 1993.[4] At a conference of BMW Regional Importers held on
April 26, 1993 in Singapore, Hahn was surprised to find Alvarez
among those invited from the Asian region. On April 29, 1993, BMW
proposed that Hahn and CMC jointly import and distribute BMW cars
and parts.
Hahn found the proposal unacceptable. On May 14, 1993, he filed a
complaint for specific performance and damages against BMW to
compel it to continue the exclusive dealership. Later he filed an
amended complaint to include an application for temporary
restraining order and for writs of preliminary, mandatory and
prohibitory injunction to enjoin BMW from terminating his exclusive
dealership. Hahn's amended complaint alleged in pertinent parts:
2. Defendant [BMW] is a foreign corporation doing
business in the Philippines with principal offices at
Munich, Germany. It may be served with summons
and other court processes through the Secretary of
the Department of Trade and Industry of the
Philippines. . . .
....
5. On March 7, 1967, Plaintiff executed in favor of
defendant BMW a Deed of Assignment with Special
Power of Attorney covering the trademark and in
consideration thereof, under its first whereas clause,
Plaintiff was duly acknowledged as the "exclusive
Dealer of the Assignee in the Philippines" . . . .
....
8. From the time the trademark "BMW & DEVICE" was
first used by the Plaintiff in the Philippines up to the
present, Plaintiff, through its firm name "HAHN
MANILA" and without any monetary contribution
from defendant BMW, established BMW's goodwill
and market presence in the Philippines. Pursuant
thereto, Plaintiff has invested a lot of money and
resources in order to single-handedly compete against
other motorcycle and car companies .... Moreover,
Plaintiff has built buildings and other infrastructures
such as service centers and showrooms to maintain
and promote the car and products of defendant BMW.
....
 10. In a letter dated February 24, 1993, defendant
BMW advised Plaintiff that it was willing to maintain
with Plaintiff a relationship but only "on the basis of a
standard BMW importer contract as adjusted to
reflect the particular situation in the Philippines"
subject to certain conditions, otherwise, defendant
BMW would terminate Plaintiff's exclusive dealership
and any relationship for cause effective June 30,
1993. . . .
....
15. The actuations of defendant BMW are in breach of
the assignment agreement between itself and plaintiff
since the consideration for the assignment of the
BMW trademark is the continuance of the exclusive
dealership agreement. It thus, follows that the
exclusive dealership should continue for so long as
defendant BMW enjoys the use and ownership of the
trademark assigned to it by Plaintiff.
The case was docketed as Civil Case No. Q-93-15933 and raffled to
Branch 104 of the Quezon City Regional Trial Court, which on June 14,
1993 issued a temporary restraining order. Summons and copies of
the complaint and amended complaint were thereafter served on
the private respondent through the Department of Trade and
Industry, pursuant to Rule 14, § 14 of the Rules of Court. The order,
summons and copies of the complaint and amended complaint were
later sent by the DTI to BMW via registered mail on June 15, 1993 [5]
and received by the latter on June 24, 1993.
On June 17, 1993, without proof of service on BMW, the hearing on
the application for the writ of preliminary injunction proceeded ex
parte, with petitioner Hahn testifying. On June 30, 1993, the trial
court issued an order granting the writ of preliminary injunction
upon the filing of a bond of P100,000.00. On July 13, 1993, following
the posting of the required bond, a writ of preliminary injunction was
issued.
On July 1, 1993, BMW moved to dismiss the case, contending that
the trial court did not acquire jurisdiction over it through the service
of summons on the Department of Trade and Industry, because it
(BMW) was a foreign corporation and it was not doing business in
the Philippines. It contended that the execution of the Deed of
Assignment was an isolated transaction; that Hahn was not its agent
because the latter undertook to assemble and sell BMW cars and
products without the participation of BMW and sold other products;
and that Hahn was an indentor or middleman transacting business in
his own name and for his own account.
Petitioner Alfred Hahn opposed the motion. He argued that BMW
was doing business in the Philippines through him as its agent, as
shown by the fact that BMW invoices and order forms were used to
document his transactions; that he gave warranties as exclusive
BMW dealer; that BMW officials periodically inspected standards of
service rendered by him; and that he was described in service
booklets and international publications of BMW as a "BMW
Importer" or "BMW Trading Company" in the Philippines.
The trial court[6] deferred resolution of the Motion to dismiss until
after trial on the merits for the reason that the grounds advanced by
BMW in its motion did not seem to be indubitable.
Without seeking reconsideration of the aforementioned order, BMW
filed a petition for certiorari with the Court of Appeals alleging that:
I. THE RESPONDENT JUDGE ACTED WITH UNDUE
HASTE OR OTHERWISE INJUDICIOUSLY IN
PROCEEDINGS LEADING TOWARD THE ISSUANCE OF
THE WRIT OF PRELIMINARY INJUNCTION, AND IN
PRESCRIBING THE TERMS FOR THE ISSUANCE
THEREOF.
II. THE RESPONDENT JUDGE PATENTLY ERRED IN
DEFERRING RESOLUTION OF THE MOTION TO DISMISS
ON THE GROUND OF LACK OF JURISDICTION, AND
THEREBY FAILING TO IMMEDIATELY DISMISS THE
CASE A QUO.
BMW asked for the immediate issuance of a temporary restraining
order and, after hearing, for a writ of preliminary injunction, to
enjoin the trial court from proceeding further in Civil Case No.
Q-93-15933. Private respondent pointed out that, unless the trial
court's order was set aside, it would be forced to submit to the
jurisdiction of the court by filing its answer or to accept judgment in
default, when the very question was whether the court had
jurisdiction over it.
The Court of Appeals enjoined the trial court from hearing
petitioner's complaint. On December 20, 1993, it rendered judgment
finding the trial court guilty of grave abuse of discretion in deferring
resolution of the motion to dismiss. It stated:
Going by the pleadings already filed with the
respondent court before it came out with its
questioned order of July 26, 1993, we rule and so hold
that petitioner's (BMW) motion to dismiss could be
resolved then and there, and that the respondent
judge's deferment of his action thereon until after
trial on the merit constitutes, to our mind, grave
abuse of discretion.
....
. . . [T]here is not much appreciable disagreement as
regards the factual matters relating, to the motion to
dismiss. What truly divide (sic) the parties and to
 which they greatly differ is the legal conclusions they
respectively draw from such facts, (sic) with Hahn
maintaining that on the basis thereof, BMW is doing
business in the Philippines while the latter asserts that
it is not.
Then, after stating that any ruling which the trial court might make
on the motion to dismiss would anyway be elevated to it on appeal,
the Court of Appeals itself resolved the motion. It ruled that BMW
was not doing business in the country and, therefore, jurisdiction
over it could not be acquired through service of summons on the DTI
pursuant to Rule 14, Section 14. The court upheld private
respondent's contention that Hahn acted in his own name and for his
own account and independently of BMW, based on Alfred Hahn's
allegations that he had invested his own money and resources in
establishing BMW's goodwill in the Philippines and on BMW's claim
that Hahn sold products other than those of BMW. It held that
petitioner was a mere indentor or broker and not an agent through
whom private respondent BMW transacted business in the
Philippines. Consequently, the Court of Appeals dismissed
petitioner's complaint against BMW.
Hence, this appeal. Petitioner contends that the Court of Appeals
erred (1) in finding that the trial court gravely abused its discretion in
deferring action on the motion to dismiss and (2) in finding that
private respondent BMW is not doing business in the Philippines and,
for this reason, dismissing petitioner's case.
Petitioner's appeal is well taken. Rule 14, § 14 provides:
§14. Service upon foreign corporations. — If the
defendant is a foreign corporation, or a nonresident
joint stock company or association, doing business in
the Philippines, service may be made on its resident
agent designated in accordance with law for that
purpose, or, if there be no such agent, on the
government official designated by law to that effect,
or on any of its officers or agents within the
Philippines. (Emphasis added)
What acts are considered "doing business in the Philippines" are
enumerated in §3(d) of the Foreign Investments Act of 1991 (R.A. No.
7042) as follows:[7]
d) the phrase "doing business" shall include soliciting
orders, service contracts, opening offices, whether
called "liaison" offices or branches, appointing
representatives or distributors domiciled in the
Philippines or who in any calendar year stay in the
country for a period or periods totalling one hundred
eighty (180) days or more; participating in the
management, supervision or control of any domestic
business, firm, entity or corporation in the Philippines;
and any other act or acts that imply a continuity of
commercial dealings or arrangements and
 contemplate to that extent the performance of acts or
works, or the exercise of some of the functions
normally incident to, and in progressive prosecution
of, commercial gain or of the purpose and object of
the business organization: Provided, however, That
the phrase "doing business" shall not be deemed to
include mere investment as a shareholder by a foreign
entity in domestic corporations duly registered to do
business, and/or the exercise of rights as such investor;
nor having, a nominee director or officer to represent
its interests in such corporation; nor appointing a
representative or distributor domiciled in the
Philippines which transacts business in its own name
and for its own account. (Emphasis supplied)
Thus, the phrase includes "appointing representatives or distributors
in the Philippines" but not when the representative or distributor
"transacts business in its name and for its own account." In addition,
Section 1(f)(1) of the Rules and Regulations implementing (IRR) the
Omnibus Investment Code of 1987 (E.O. No. 226) provided:
(f) "Doing business" shall be any act or combination of
acts, enumerated in Article 44 of the Code. In
particular, "doing business" includes:
(1).... A foreign firm which does business through middlemen acting
in their own names, such as indentors, commercial brokers or
commission merchants, shall not be deemed doing business in the
Philippines. But such indentors, commercial brokers or commission
merchants shall be the ones deemed to be doing business in the
Philippines.
The question is whether petitioner Alfred Hahn is the agent or
distributor in the Philippines of private respondent BMW. If he is,
BMW may be considered doing business in the Philippines and the
trial court acquired jurisdiction over it (BMW) by virtue of the service
of summons on the Department of Trade and Industry. Otherwise, if
Hahn is not the agent of BMW but an independent dealer, albeit of
BMW cars and products, BMW, a foreign corporation, is not
considered doing business in the Philippines within the meaning of
the Foreign Investments Act of 1991 and the IRR, and the trial court
did not acquire jurisdiction over it (BMW).
The Court of Appeals held that petitioner Alfred Hahn acted in his
own name and for his own account and not as agent or distributor in
the Philippines of BMW on the ground that "he alone had contacts
with individuals or entities interested in acquiring BMW vehicles.
Independence characterizes Hahn's undertakings, for which reason
he is to be considered, under governing statutes, as doing business."
(p. 13) In support of this conclusion, the appellate court cited the
following allegations in Hahn's amended complaint:
8. From the time the trademark "BMW & DEVICE" was
first used by the Plaintiff in the Philippines up to the
 present, Plaintiff, through its firm name "HAHN
MANILA" and without any monetary contributions
from defendant BMW; established BMW's goodwill
and market presence in the Philippines. Pursuant
thereto, Plaintiff invested a lot of money and
resources in order to single-handedly compete against
other motorcycle and car companies.... Moreover,
Plaintiff has built buildings and other infrastructures
such as service centers and showrooms to maintain
and promote the car and products of defendant
BMW.
As the above quoted allegations of the amended complaint show,
however, there is nothing to support the appellate court's finding
that Hahn solicited orders alone and for his own account and without
"interference from, let alone direction of, BMW." (p. 13) To the
contrary, Hahn claimed he took orders for BMW cars and
transmitted them to BMW. Upon receipt of the orders, BMW fixed
the down payment and pricing charges, notified Hahn of the
scheduled production month for the orders, and reconfirmed the
orders by signing and returning to Hahn the acceptance sheets.
Payment was made by the buyer directly to BMW. Title to cars
purchased passed directly to the buyer and Hahn never paid for the
purchase price of BMW cars sold in the Philippines. Hahn was
credited with a commission equal to 14% of the purchase price upon
the invoicing of a vehicle order by BMW. Upon confirmation in
writing that the vehicles had been registered in the Philippines and
serviced by him, Hahn received an additional 3% of the full purchase
price. Hahn performed after-sale services, including, warranty
services, for which he received reimbursement from BMW. All orders
were on invoices and forms of BMW.[8]
These allegations were substantially admitted by BMW which, in its
petition for certiorari before the Court of Appeals, stated:[9]
9.4. As soon as the vehicles are fully manufactured
and full payment of the purchase prices are made, the
vehicles are shipped to the Philippines. (The payments
may be made by the purchasers or third-persons or
even by Hahn.) The bills of lading are made up in the
name of the purchasers, but Hahn-Manila is therein
indicated as the person to be notified.
9.5. It is Hahn who picks up the vehicles from the
Philippine ports, for purposes of conducting
pre-delivery inspections. Thereafter, he delivers the
vehicles to the purchasers.
9.6. As soon as BMW invoices the vehicle ordered,
Hahn is credited with a commission of fourteen
percent (14%) of the full purchase price thereof, and
as soon as he confirms in writing, that the vehicles
have been registered in the Philippines and have been
serviced by him, he will receive an additional three
 percent (3%) of the full purchase prices as
commission.
Contrary to the appellate court's conclusion, this arrangement shows
an agency. An agent receives a commission upon the successful
conclusion of a sale. On the other hand, a broker earns his pay
merely by bringing the buyer and the seller together, even if no sale
is eventually made.
As to the service centers and showrooms which he said he had put
up at his own expense, Hahn said that he had to follow BMW
specifications as exclusive dealer of BMW in the Philippines.
According to Hahn, BMW periodically inspected the service centers
to see to it that BMW standards were maintained. Indeed, it would
seem from BMW's letter to Hahn that it was for Hahn's alleged
failure to maintain BMW standards that BMW was terminating
Hahn's dealership.
The fact that Hahn invested his own money to put up these service
centers and showrooms does not necessarily prove that he is not an
agent of BMW. For as already noted, there are facts in the record
which suggest that BMW exercised control over Hahn's activities as a
dealer and made regular inspections of Hahn's premises to enforce
compliance with BMW standards and specifications.[10] For example,
in its letter to Hahn dated February 23, 1996, BMW stated:
In the last years we have pointed out to you in several
discussions and letters that we have to tackle the
Philippine market more professionally and that we are
through your present activities not adequately
prepared to cope with the forthcoming challenges.[11]
In effect, BMW was holding Hahn accountable to it under the 1967
Agreement.
This case fits into the mould of Communications Materials, Inc. v.
Court of Appeals,[12] in which the foreign corporation entered into a
"Representative Agreement" and a "Licensing Agreement" with a
domestic corporation, by virtue of which the latter was appointed
"exclusive representative" in the Philippines for a stipulated
commission. Pursuant to these contracts, the domestic corporation
sold products exported by the foreign corporation and put up a
service center for the products sold locally. This Court held that these
acts constituted doing business in the Philippines. The arrangement
showed that the foreign corporation's purpose was to penetrate the
Philippine market and establish its presence in the Philippines.
In addition, BMW held out private respondent Hahn as its exclusive
distributor in the Philippines, even as it announced in the Asian
region that Hahn was the "official BMW agent" in the Philippines.[13]
The Court of Appeals also found that petitioner Alfred Hahn dealt in
other products, and not exclusively in BMW products, and, on this
basis, ruled that Hahn was not an agent of BMW. (p. 14) This finding
is based entirely on allegations of BMW in its motion to dismiss filed
in the trial court and in its petition for certiorari before the Court of
Appeals.[14] But this allegation was denied by Hahn[15] and therefore
the Court of Appeals should not have cited it as if it were the fact.
Indeed this is not the only factual issue raised, which should have
indicated to the Court of Appeals the necessity of affirming the trial
court's order deferring resolution of BMW's motion to dismiss.
Petitioner alleged that whether or not he is considered an agent of
BMW, the fact is that BMW did business in the Philippines because it
sold cars directly to Philippine buyers. [16] This was denied by BMW,
which claimed that Hahn was not its agent and that, while it was true
that it had sold cars to Philippine buyers, this was done without
solicitation on its part.[17]
It is not true then that the question whether BMW is doing business
could have been resolved simply by considering the parties'
pleadings. There are genuine issues of facts which can only be
determined on the basis of evidence duly presented. BMW cannot
short circuit the process on the plea that to compel it to go to trial
would be to deny its right not to submit to the jurisdiction of the trial
court which precisely it denies. Rule 16, §3 authorizes courts to defer
the resolution of a motion to dismiss until after the trial if the ground
on which the motion is based does not appear to be indubitable.
Here the record of the case bristles with factual issues and it is not at
all clear whether some allegations correspond to the proof.
Anyway, private respondent need not apprehend that by responding
to the summons it would be waiving its objection to the trial court's
jurisdiction. It is now settled that. for purposes of having summons
served on a foreign corporation in accordance with Rule 14, §14, it is
sufficient that it be alleged in the complaint that the foreign
corporation is doing business in the Philippines. The court need not
go beyond the allegations of the complaint in order to determine
whether it has jurisdiction.[18] A determination that the foreign
corporation is doing business is only tentative and is made only for
the purpose of enabling the local court to acquire jurisdiction over
the foreign corporation through service of summons pursuant to
Rule 14, §14. Such determination does not foreclose a contrary
finding should evidence later show that it is not transacting business
in the country. As this Court has explained:
This is not to say, however, that the petitioner's right
to question the jurisdiction of the court over its
person is now to be deemed a foreclosed matter. If it
is true, as Signetics claims, that its only involvement in
the Philippines was through a passive investment in
Sigfil, which it even later disposed of, and that TEAM
Pacific is not its agent, then it cannot really be said to
be doing business in the Philippines. It is a defense,
however, that requires the contravention of the
allegations of the complaint, as well as a full
ventilation, in effect, of the main merits of the case, be heard on his cause of action. Nor was there
which should not thus be within the province of a justification for nullifying the writ of preliminary
mere motion to dismiss. So, also, the issue posed by injunction issued by the trial court. Although the
the petitioner as to whether a foreign corporation injunction was issued ex parte, the fact is that BMW
which has done business in the country, but which has was subsequently heard on its defense by filing a
ceased to do business at the time of the filing, of a motion to dismiss.
complaint, can still be made to answer for a cause of
action which accrued while it was doing, business, is WHEREFORE, the decision of the Court of Appeals is
another matter that would yet have to await the REVERSED and the case is REMANDED to the trial
reception and admission of evidence. Since these court for further proceedings.
points have seasonably been raised by the petitioner, SO ORDERED.
there should be no real cause for what may
understandably be its apprehension, i.e., that by its
participation during the trial on the merits, it may,
absent an invocation of separate or independent
reliefs of its own, be considered to have voluntarily
submitted itself to the court's jurisdiction.[19]
Far from committing an abuse of discretion, the trial
court properly deferred resolution of the motion to
dismiss and thus avoided prematurely deciding a
question which requires a factual basis, with the
same result if it had denied the motion and
conditionally assumed jurisdiction. It is the Court of
Appeals which, by ruling that BMW is not doing
business on the basis merely of uncertain allegations
in the pleadings, disposed of the whole case with
finality and thereby deprived petitioner of his right to