.R. No.

L-24332 January 31, 1978

RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS, petitioner,

vs.
FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF APPEALS, respondents.

Seno, Mendoza & Associates for petitioner.

Ramon Duterte for private respondent.

MUÑOZ PALMA, J.:

This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of his principal,
Concepcion Rallos, sold the latter's undivided share in a parcel of land pursuant to a power of
attorney which the principal had executed in favor. The administrator of the estate of the went to
court to have the sale declared uneanforceable and to recover the disposed share. The trial court
granted the relief prayed for, but upon appeal the Court of Appeals uphold the validity of the sale and
the complaint.

Hence, this Petition for Review on certiorari.

The following facts are not disputed. Concepcion and Gerundia both surnamed Rallos were sisters
and registered co-owners of a parcel of land known as Lot No. 5983 of the Cadastral Survey of Cebu
covered by Transfer Certificate of Title No. 11116 of the Registry of Cebu. On April 21, 1954, the
sisters executed a special power of attorney in favor of their brother, Simeon Rallos, authorizing him
to sell for and in their behalf lot 5983. On March 3, 1955, Concepcion Rallos died. On September 12,
1955, Simeon Rallos sold the undivided shares of his sisters Concepcion and Gerundia in lot 5983
to Felix Go Chan & Sons Realty Corporation for the sum of P10,686.90. The deed of sale was
registered in the Registry of Deeds of Cebu, TCT No. 11118 was cancelled, and a new transfer
certificate of Title No. 12989 was issued in the named of the vendee.

On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of Concepcion Rallos filed a
complaint docketed as Civil Case No. R-4530 of the Court of First Instance of Cebu, praying (1) that
the sale of the undivided share of the deceased Concepcion Rallos in lot 5983 be d unenforceable,
and said share be reconveyed to her estate; (2) that the Certificate of 'title issued in the name of
Felix Go Chan & Sons Realty Corporation be cancelled and another title be issued in the names of
the corporation and the "Intestate estate of Concepcion Rallos" in equal undivided and (3) that
plaintiff be indemnified by way of attorney's fees and payment of costs of suit. Named party
defendants were Felix Go Chan & Sons Realty Corporation, Simeon Rallos, and the Register of
Deeds of Cebu, but subsequently, the latter was dropped from the complaint. The complaint was
amended twice; defendant Corporation's Answer contained a crossclaim against its co-defendant,
Simon Rallos while the latter filed third-party complaint against his sister, Gerundia Rallos While the
case was pending in the trial court, both Simon and his sister Gerundia died and they were
substituted by the respective administrators of their estates.

After trial the court a quo rendered judgment with the following dispositive portion:

A. On Plaintiffs Complaint —
 (1) Declaring the deed of sale, Exh. "C", null and void insofar as the
one-half pro-indiviso share of Concepcion Rallos in the property in
question, — Lot 5983 of the Cadastral Survey of Cebu — is
concerned;

(2) Ordering the Register of Deeds of Cebu City to cancel Transfer

Certificate of Title No. 12989 covering Lot 5983 and to issue in lieu
thereof another in the names of FELIX GO CHAN & SONS REALTY
CORPORATION and the Estate of Concepcion Rallos in the
proportion of one-half (1/2) share each pro-indiviso;

(3) Ordering Felix Go Chan & Sons Realty Corporation to deliver the
possession of an undivided one-half (1/2) share of Lot 5983 to the
herein plaintiff;

(4) Sentencing the defendant Juan T. Borromeo, administrator of the

Estate of Simeon Rallos, to pay to plaintiff in concept of reasonable
attorney's fees the sum of P1,000.00; and

(5) Ordering both defendants to pay the costs jointly and severally.

B. On GO CHANTS Cross-Claim:

(1) Sentencing the co-defendant Juan T. Borromeo, administrator of

the Estate of Simeon Rallos, to pay to defendant Felix Co Chan &
Sons Realty Corporation the sum of P5,343.45, representing the
price of one-half (1/2) share of lot 5983;

(2) Ordering co-defendant Juan T. Borromeo, administrator of the

Estate of Simeon Rallos, to pay in concept of reasonable attorney's
fees to Felix Go Chan & Sons Realty Corporation the sum of
P500.00.

C. On Third-Party Complaint of defendant Juan T. Borromeo administrator of Estate

of Simeon Rallos, against Josefina Rallos special administratrix of the Estate of
Gerundia Rallos:

(1) Dismissing the third-party complaint without prejudice to filing either a complaint
against the regular administrator of the Estate of Gerundia Rallos or a claim in the
Intestate-Estate of Cerundia Rallos, covering the same subject-matter of the third-
party complaint, at bar. (pp. 98-100, Record on Appeal)

Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of Appeals from the
foregoing judgment insofar as it set aside the sale of the one-half (1/2) share of Concepcion Rallos.
The appellate tribunal, as adverted to earlier, resolved the appeal on November 20, 1964 in favor of
the appellant corporation sustaining the sale in question. 1 The appellee administrator, Ramon
Rallos, moved for a reconsider of the decision but the same was denied in a resolution of March 4,
1965. 2

What is the legal effect of an act performed by an agent after the death of his principal? Applied
more particularly to the instant case, We have the query. is the sale of the undivided share of
Concepcion Rallos in lot 5983 valid although it was executed by the agent after the death of his
principal? What is the law in this jurisdiction as to the effect of the death of the principal on the
authority of the agent to act for and in behalf of the latter? Is the fact of knowledge of the death of the
principal a material factor in determining the legal effect of an act performed after such death?

Before proceedings to the issues, We shall briefly restate certain principles of law relevant to the
matter tinder consideration.

1. It is a basic axiom in civil law embodied in our Civil Code that no one may contract in the name of
another without being authorized by the latter, or unless he has by law a right to represent him. 3 A
contract entered into in the name of another by one who has no authority or the legal representation
or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or
impliedly, by the person on whose behalf it has been executed, before it is revoked by the other
contracting party.4 Article 1403 (1) of the same Code also provides:

ART. 1403. The following contracts are unenforceable, unless they are justified:

(1) Those entered into in the name of another person by one who hi - been given no
authority or legal representation or who has acted beyond his powers; ...

Out of the above given principles, sprung the creation and acceptance of the relationship of
agency whereby one party, caged the principal (mandante), authorizes another, called the agent
(mandatario), to act for and in his behalf in transactions with third persons. The essential elements of
agency are: (1) there is consent, express or implied of the parties to establish the relationship; (2)
the object is the execution of a juridical act in relation to a third person; (3) the agents acts as a
representative and not for himself, and (4) the agent acts within the scope of his authority. 5

Agency is basically personal representative, and derivative in nature. The authority of the agent to
act emanates from the powers granted to him by his principal; his act is the act of the principal if
done within the scope of the authority. Qui facit per alium facit se. "He who acts through another acts
himself". 6

2. There are various ways of extinguishing agency, 7 but her We are concerned only with one cause
— death of the principal Paragraph 3 of Art. 1919 of the Civil Code which was taken from Art. 1709
of the Spanish Civil Code provides:

ART. 1919. Agency is extinguished.

xxx xxx xxx

3. By the death, civil interdiction, insanity or insolvency of the principal or of the

agent; ... (Emphasis supplied)

By reason of the very nature of the relationship between Principal and agent, agency is extinguished
by the death of the principal or the agent. This is the law in this jurisdiction.8

Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the rationale for the law is
found in the juridical basis of agency which is representation Them being an in. integration of the
personality of the principal integration that of the agent it is not possible for the representation to
continue to exist once the death of either is establish. Pothier agrees with Manresa that by reason of
the nature of agency, death is a necessary cause for its extinction. Laurent says that the juridical tie
between the principal and the agent is severed ipso jure upon the death of either without necessity
for the heirs of the fact to notify the agent of the fact of death of the former. 9

The same rule prevails at common law — the death of the principal effects instantaneous and
absolute revocation of the authority of the agent unless the Power be coupled with an interest. 10 This
is the prevalent rule in American Jurisprudence where it is well-settled that a power without an
interest confer. red upon an agent is dissolved by the principal's death, and any attempted execution
of the power afterward is not binding on the heirs or representatives of the deceased. 11

3. Is the general rule provided for in Article 1919 that the death of the principal or of the agent
extinguishes the agency, subject to any exception, and if so, is the instant case within that
exception? That is the determinative point in issue in this litigation. It is the contention of respondent
corporation which was sustained by respondent court that notwithstanding the death of the principal
Concepcion Rallos the act of the attorney-in-fact, Simeon Rallos in selling the former's sham in the
property is valid and enforceable inasmuch as the corporation acted in good faith in buying the
property in question.

Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule afore-mentioned.

ART. 1930. The agency shall remain in full force and effect even after the death of
the principal, if it has been constituted in the common interest of the latter and of the
agent, or in the interest of a third person who has accepted the stipulation in his
favor.

ART. 1931. Anything done by the agent, without knowledge of the death of the
principal or of any other cause which extinguishes the agency, is valid and shall be
fully effective with respect to third persons who may have contracted with him in
good. faith.

Article 1930 is not involved because admittedly the special power of attorney executed in favor of
Simeon Rallos was not coupled with an interest.

Article 1931 is the applicable law. Under this provision, an act done by the agent after the death of
his principal is valid and effective only under two conditions, viz: (1) that the agent acted without
knowledge of the death of the principal and (2) that the third person who contracted with the agent
himself acted in good faith. Good faith here means that the third person was not aware of the death
of the principal at the time he contracted with said agent. These two requisites must concur the
absence of one will render the act of the agent invalid and unenforceable.

In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the death of his
principal at the time he sold the latter's share in Lot No. 5983 to respondent corporation. The
knowledge of the death is clearly to be inferred from the pleadings filed by Simon Rallos before the
trial court. 12 That Simeon Rallos knew of the death of his sister Concepcion is also a finding of fact of
the court a quo 13 and of respondent appellate court when the latter stated that Simon Rallos 'must
have known of the death of his sister, and yet he proceeded with the sale of the lot in the name of
both his sisters Concepcion and Gerundia Rallos without informing appellant (the realty corporation)
of the death of the former. 14

On the basis of the established knowledge of Simon Rallos concerning the death of his principal
Concepcion Rallos, Article 1931 of the Civil Code is inapplicable. The law expressly requires for its
application lack of knowledge on the part of the agent of the death of his principal; it is not enough
that the third person acted in good faith. Thus in Buason & Reyes v. Panuyas, the Court applying
Article 1738 of the old Civil rode now Art. 1931 of the new Civil Code sustained the validity , of a sale
made after the death of the principal because it was not shown that the agent knew of his principal's
demise. 15 To the same effect is the case of Herrera, et al., v. Luy Kim Guan, et al., 1961, where in
the words of Justice Jesus Barrera the Court stated:

... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs presented
no proof and there is no indication in the record, that the agent Luy Kim Guan was
aware of the death of his principal at the time he sold the property. The death 6f the
principal does not render the act of an agent unenforceable, where the latter had no
knowledge of such extinguishment of the agency. (1 SCRA 406, 412)

4. In sustaining the validity of the sale to respondent consideration the Court of Appeals reasoned
out that there is no provision in the Code which provides that whatever is done by an agent having
knowledge of the death of his principal is void even with respect to third persons who may have
contracted with him in good faith and without knowledge of the death of the principal. 16

We cannot see the merits of the foregoing argument as it ignores the existence of the general rule
enunciated in Article 1919 that the death of the principal extinguishes the agency. That being the
general rule it follows a fortiori that any act of an agent after the death of his principal is void ab
initio unless the same fags under the exception provided for in the aforementioned Articles 1930 and
1931. Article 1931, being an exception to the general rule, is to be strictly construed, it is not to be
given an interpretation or application beyond the clear import of its terms for otherwise the courts will
be involved in a process of legislation outside of their judicial function.

5. Another argument advanced by respondent court is that the vendee acting in good faith relied on
the power of attorney which was duly registered on the original certificate of title recorded in the
Register of Deeds of the province of Cebu, that no notice of the death was aver annotated on said
certificate of title by the heirs of the principal and accordingly they must suffer the consequences of
such omission. 17

To support such argument reference is made to a portion in Manresa's Commentaries which We

quote:

If the agency has been granted for the purpose of contracting with certain persons,
the revocation must be made known to them. But if the agency is general iii nature,
without reference to particular person with whom the agent is to contract, it is
sufficient that the principal exercise due diligence to make the revocation of the
agency publicity known.

In case of a general power which does not specify the persons to whom represents'
on should be made, it is the general opinion that all acts, executed with third persons
who contracted in good faith, Without knowledge of the revocation, are valid. In such
case, the principal may exercise his right against the agent, who, knowing of the
revocation, continued to assume a personality which he no longer had. (Manresa
Vol. 11, pp. 561 and 575; pp. 15-16, rollo)

The above discourse however, treats of revocation by an act of the principal as a mode of
terminating an agency which is to be distinguished from revocation by operation of law such as
death of the principal which obtains in this case. On page six of this Opinion We stressed that by
reason of the very nature of the relationship between principal and agent, agency is
extinguished ipso jure upon the death of either principal or agent. Although a revocation of a power
of attorney to be effective must be communicated to the parties concerned, 18 yet a revocation by
operation of law, such as by death of the principal is, as a rule, instantaneously effective inasmuch
as "by legal fiction the agent's exercise of authority is regarded as an execution of the
principal's continuing will. 19 With death, the principal's will ceases or is the of authority is
extinguished.

The Civil Code does not impose a duty on the heirs to notify the agent of the death of the principal
What the Code provides in Article 1932 is that, if the agent die his heirs must notify the principal
thereof, and in the meantime adopt such measures as the circumstances may demand in the
interest of the latter. Hence, the fact that no notice of the death of the principal was registered on the
certificate of title of the property in the Office of the Register of Deeds, is not fatal to the cause of the
estate of the principal

6. Holding that the good faith of a third person in said with an agent affords the former sufficient
protection, respondent court drew a "parallel" between the instant case and that of an innocent
purchaser for value of a land, stating that if a person purchases a registered land from one who
acquired it in bad faith — even to the extent of foregoing or falsifying the deed of sale in his favor —
the registered owner has no recourse against such innocent purchaser for value but only against the
forger. 20

To support the correctness of this respondent corporation, in its brief, cites the case of Blondeau, et
al., v. Nano and Vallejo, 61 Phil. 625. We quote from the brief:

In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630, one Vallejo
was a co-owner of lands with Agustin Nano. The latter had a power of attorney
supposedly executed by Vallejo Nano in his favor. Vallejo delivered to Nano his land
titles. The power was registered in the Office of the Register of Deeds. When the
lawyer-husband of Angela Blondeau went to that Office, he found all in order
including the power of attorney. But Vallejo denied having executed the power The
lower court sustained Vallejo and the plaintiff Blondeau appealed. Reversing the
decision of the court a quo, the Supreme Court, quoting the ruling in the case
of Eliason v. Wilborn, 261 U.S. 457, held:

But there is a narrower ground on which the defenses of the

defendant- appellee must be overruled. Agustin Nano had
possession of Jose Vallejo's title papers. Without those title papers
handed over to Nano with the acquiescence of Vallejo, a fraud could
not have been perpetuated. When Fernando de la Canters, a
member of the Philippine Bar and the husband of Angela Blondeau,
the principal plaintiff, searched the registration record, he found them
in due form including the power of attorney of Vallajo in favor of
Nano. If this had not been so and if thereafter the proper notation of
the encumbrance could not have been made, Angela Blondeau would
not have sent P12,000.00 to the defendant Vallejo.' An executed
transfer of registered lands placed by the registered owner thereof in
the hands of another operates as a representation to a third party that
the holder of the transfer is authorized to deal with the land.

As between two innocent persons, one of whom must suffer the

consequence of a breach of trust, the one who made it possible by
his act of coincidence bear the loss. (pp. 19-21)
The Blondeau decision, however, is not on all fours with the case before Us because here We are
confronted with one who admittedly was an agent of his sister and who sold the property of the latter
after her death with full knowledge of such death. The situation is expressly covered by a provision
of law on agency the terms of which are clear and unmistakable leaving no room for an interpretation
contrary to its tenor, in the same manner that the ruling in Blondeau and the cases cited therein
found a basis in Section 55 of the Land Registration Law which in part provides:

xxx xxx xxx

The production of the owner's duplicate certificate whenever any voluntary

instrument is presented for registration shall be conclusive authority from the
registered owner to the register of deeds to enter a new certificate or to make a
memorandum of registration in accordance with such instruments, and the new
certificate or memorandum Shall be binding upon the registered owner and upon all
persons claiming under him in favor of every purchaser for value and in good
faith: Provided however, That in all cases of registration provided by fraud, the owner
may pursue all his legal and equitable remedies against the parties to such fraud
without prejudice, however, to the right, of any innocent holder for value of a
certificate of title. ... (Act No. 496 as amended)

7. One last point raised by respondent corporation in support of the appealed decision is an 1842
ruling of the Supreme Court of Pennsylvania in Cassiday v. McKenzie wherein payments made to an
agent after the death of the principal were held to be "good", "the parties being ignorant of the
death". Let us take note that the Opinion of Justice Rogers was premised on the statement that
the parties were ignorant of the death of the principal. We quote from that decision the following:

... Here the precise point is, whether a payment to an agent when the Parties are
ignorant of the death is a good payment. in addition to the case in Campbell before
cited, the same judge Lord Ellenboruogh, has decided in 5 Esp. 117, the general
question that a payment after the death of principal is not good. Thus, a payment of
sailor's wages to a person having a power of attorney to receive them, has been held
void when the principal was dead at the time of the payment. If, by this case, it is
meant merely to decide the general proposition that by operation of law the death of
the principal is a revocation of the powers of the attorney, no objection can be taken
to it. But if it intended to say that his principle applies where there was 110 notice of
death, or opportunity of twice I must be permitted to dissent from it.

... That a payment may be good today, or bad tomorrow, from the accident
circumstance of the death of the principal, which he did not know, and which by no
possibility could he know? It would be unjust to the agent and unjust to the debtor. In
the civil law, the acts of the agent, done bona fide in ignorance of the death of his
principal are held valid and binding upon the heirs of the latter. The same rule holds
in the Scottish law, and I cannot believe the common law is so unreasonable... (39
Am. Dec. 76, 80, 81; emphasis supplied)

To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may evoke, mention
may be made that the above represents the minority view in American jurisprudence. Thus
in Clayton v. Merrett, the Court said.—

There are several cases which seem to hold that although, as a general principle,
death revokes an agency and renders null every act of the agent thereafter
performed, yet that where a payment has been made in ignorance of the death, such
 payment will be good. The leading case so holding is that of Cassiday v. McKenzie, 4
Watts & S. (Pa) 282, 39 Am. 76, where, in an elaborate opinion, this view ii broadly
announced. It is referred to, and seems to have been followed, in the case of Dick v.
Page, 17 Mo. 234, 57 AmD 267; but in this latter case it appeared that the estate of
the deceased principal had received the benefit of the money paid, and therefore the
representative of the estate might well have been held to be estopped from suing for
it again. . . . These cases, in so far, at least, as they announce the doctrine under
discussion, are exceptional. The Pennsylvania Case, supra (Cassiday v. McKenzie 4
Watts & S. 282, 39 AmD 76), is believed to stand almost, if not quite, alone in
announcing the principle in its broadest scope. (52, Misc. 353, 357, cited in 2 C.J.
549)

So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out that the opinion,
except so far as it related to the particular facts, was a mere dictum, Baldwin J. said:

The opinion, therefore, of the learned Judge may be regarded more as an

extrajudicial indication of his views on the general subject, than as the adjudication of
the Court upon the point in question. But accordingly all power weight to this opinion,
as the judgment of a of great respectability, it stands alone among common law
authorities and is opposed by an array too formidable to permit us to following it. (15
Cal. 12,17, cited in 2 C.J. 549)

Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in American

jurisprudence, no such conflict exists in our own for the simple reason that our statute, the Civil
Code, expressly provides for two exceptions to the general rule that death of the principal revokes
ipso jure the agency, to wit: (1) that the agency is coupled with an interest (Art 1930), and (2) that
the act of the agent was executed without knowledge of the death of the principal and the third
person who contracted with the agent acted also in good faith (Art. 1931). Exception No. 2 is the
doctrine followed in Cassiday, and again We stress the indispensable requirement that the agent
acted without knowledge or notice of the death of the principal In the case before Us the agent
Ramon Rallos executed the sale notwithstanding notice of the death of his principal Accordingly, the
agent's act is unenforceable against the estate of his principal.

IN VIEW OF ALL THE FOREGOING, We set aside the ecision of respondent appellate court, and
We affirm en toto the judgment rendered by then Hon. Amador E. Gomez of the Court of First
Instance of Cebu, quoted in pages 2 and 3 of this Opinion, with costs against respondent realty
corporation at all instances.

So Ordered.

G.R. No. L-57339 December 29, 1983

AIR FRANCE, petitioner,

vs.
HONORABLE COURT OF APPEALS, JOSE G. GANA (Deceased), CLARA A. GANA, RAMON
GANA, MANUEL GANA, MARIA TERESA GANA, ROBERTO GANA, JAIME JAVIER GANA,
CLOTILDE VDA. DE AREVALO, and EMILY SAN JUAN, respondents.

Benjamin S. Valte for petitioner.

Napoleon Garcia for private respondents.

MELENCIO-HERRERA, J.:

In this petition for review on certiorari, petitioner AIR FRANCE assails the Decision of then
respondent Court of Appeals 1 promulgated on 15 December 1980 in CA-G.R. No. 58164-R, entitled
"Jose G. Gana, et al. vs. Sociedad Nacionale Air France", which reversed the Trial Court's judgment
dismissing the Complaint of private respondents for damages arising from breach of contract of
carriage, and awarding instead P90,000.00 as moral damages.

Sometime in February, 1970, the late Jose G. Gana and his family, numbering nine (the GANAS),
purchased from AIR FRANCE through Imperial Travels, Incorporated, a duly authorized travel agent,
nine (9) "open-dated" air passage tickets for the Manila/Osaka/Tokyo/Manila route. The GANAS paid
a total of US$2,528.85 for their economy and first class fares. Said tickets were bought at the then
prevailing exchange rate of P3.90 per US$1.00. The GANAS also paid travel taxes of P100.00 for
each passenger.

On 24 April 1970, AIR FRANCE exchanged or substituted the aforementioned tickets with other
tickets for the same route. At this time, the GANAS were booked for the Manila/Osaka segment on
AIR FRANCE Flight 184 for 8 May 1970, and for the Tokyo/Manila return trip on AIR FRANCE Flight
187 on 22 May 1970. The aforesaid tickets were valid until 8 May 1971, the date written under the
printed words "Non valuable apres de (meaning, "not valid after the").

The GANAS did not depart on 8 May 1970.

Sometime in January, 1971, Jose Gana sought the assistance of Teresita Manucdoc, a Secretary of
the Sta. Clara Lumber Company where Jose Gana was the Director and Treasurer, for the extension
of the validity of their tickets, which were due to expire on 8 May 1971. Teresita enlisted the help of
Lee Ella Manager of the Philippine Travel Bureau, who used to handle travel arrangements for the
personnel of the Sta. Clara Lumber Company. Ella sent the tickets to Cesar Rillo, Office Manager of
AIR FRANCE. The tickets were returned to Ella who was informed that extension was not possible
unless the fare differentials resulting from the increase in fares triggered by an increase of the
exchange rate of the US dollar to the Philippine peso and the increased travel tax were first paid.
Ella then returned the tickets to Teresita and informed her of the impossibility of extension.

In the meantime, the GANAS had scheduled their departure on 7 May 1971 or one day before the
expiry date. In the morning of the very day of their scheduled departure on the first leg of their trip,
Teresita requested travel agent Ella to arrange the revalidation of the tickets. Ella gave the same
negative answer and warned her that although the tickets could be used by the GANAS if they left
on 7 May 1971, the tickets would no longer be valid for the rest of their trip because the tickets would
then have expired on 8 May 1971. Teresita replied that it will be up to the GANAS to make the
arrangements. With that assurance, Ella on his own, attached to the tickets validating stickers for the
Osaka/Tokyo flight, one a JAL. sticker and the other an SAS (Scandinavian Airways System) sticker.
The SAS sticker indicates thereon that it was "Reevaluated by: the Philippine Travel Bureau, Branch
No. 2" (as shown by a circular rubber stamp) and signed "Ador", and the date is handwritten in the
center of the circle. Then appear under printed headings the notations: JL. 108 (Flight), 16 May
(Date), 1040 (Time), OK (status). Apparently, Ella made no more attempt to contact AIR FRANCE as
there was no more time.

Notwithstanding the warnings, the GANAS departed from Manila in the afternoon of 7 May 1971 on
board AIR FRANCE Flight 184 for Osaka, Japan. There is no question with respect to this leg of the
trip.
However, for the Osaka/Tokyo flight on 17 May 1971, Japan Airlines refused to honor the tickets
because of their expiration, and the GANAS had to purchase new tickets. They encountered the
same difficulty with respect to their return trip to Manila as AIR FRANCE also refused to honor their
tickets. They were able to return only after pre-payment in Manila, through their relatives, of the
readjusted rates. They finally flew back to Manila on separate Air France Frights on 19 May 1971 for
Jose Gana and 26 May 1971 for the rest of the family.

On 25 August 1971, the GANAS commenced before the then Court of First Instance of Manila,
Branch III, Civil Case No. 84111 for damages arising from breach of contract of carriage.

AIR FRANCE traversed the material allegations of the Complaint and alleged that the GANAS
brought upon themselves the predicament they found themselves in and assumed the consequential
risks; that travel agent Ella's affixing of validating stickers on the tickets without the knowledge and
consent of AIR FRANCE, violated airline tariff rules and regulations and was beyond the scope of his
authority as a travel agent; and that AIR FRANCE was not guilty of any fraudulent conduct or bad
faith.

On 29 May 1975, the Trial Court dismissed the Complaint based on Partial and Additional
Stipulations of Fact as wen as on the documentary and testimonial evidence.

The GANAS appealed to respondent Appellate Court. During the pendency of the appeal, Jose
Gana, the principal plaintiff, died.

On 15 December 1980, respondent Appellate Court set aside and reversed the Trial Court's
judgment in a Decision, which decreed:

WHEREFORE, the decision appealed from is set aside. Air France is hereby ordered
to pay appellants moral damages in the total sum of NINETY THOUSAND PESOS
(P90,000.00) plus costs.

SO ORDERED. 2

Reconsideration sought by AIR FRANCE was denied, hence, petitioner's recourse before this
instance, to which we gave due course.

The crucial issue is whether or not, under the environmental milieu the GANAS have made out a
case for breach of contract of carriage entitling them to an award of damages.

We are constrained to reverse respondent Appellate Court's affirmative ruling thereon.

Pursuant to tariff rules and regulations of the International Air Transportation Association (IATA),
included in paragraphs 9, 10, and 11 of the Stipulations of Fact between the parties in the Trial
Court, dated 31 March 1973, an airplane ticket is valid for one year. "The passenger must undertake
the final portion of his journey by departing from the last point at which he has made a voluntary stop
before the expiry of this limit (parag. 3.1.2. ) ... That is the time allowed a passenger to begin and to
complete his trip (parags. 3.2 and 3.3.). ... A ticket can no longer be used for travel if its validity has
expired before the passenger completes his trip (parag. 3.5.1.) ... To complete the trip, the
passenger must purchase a new ticket for the remaining portion of the journey" (ibid.) 3

From the foregoing rules, it is clear that AIR FRANCE cannot be faulted for breach of contract when
it dishonored the tickets of the GANAS after 8 May 1971 since those tickets expired on said date;
nor when it required the GANAS to buy new tickets or have their tickets re-issued for the
Tokyo/Manila segment of their trip. Neither can it be said that, when upon sale of the new tickets, it
imposed additional charges representing fare differentials, it was motivated by self-interest or unjust
enrichment considering that an increase of fares took effect, as authorized by the Civil Aeronautics
Board (CAB) in April, 1971. This procedure is well in accord with the IATA tariff rules which provide:

6. TARIFF RULES

7. APPLICABLE FARE ON THE DATE OF DEPARTURE

3.1 General Rule.

All journeys must be charged for at the fare (or charge) in effect on the date on which
transportation commences from the point of origin. Any ticket sold prior to a change
of fare or charge (increase or decrease) occurring between the date of
commencement of the journey, is subject to the above general rule and must be
adjusted accordingly. A new ticket must be issued and the difference is to be
collected or refunded as the case may be. No adjustment is necessary if the increase
or decrease in fare (or charge) occurs when the journey is already commenced. 4

The GANAS cannot defend by contending lack of knowledge of those rules since the evidence bears
out that Teresita, who handled travel arrangements for the GANAS, was duly informed by travel
agent Ella of the advice of Reno, the Office Manager of Air France, that the tickets in question could
not be extended beyond the period of their validity without paying the fare differentials and additional
travel taxes brought about by the increased fare rate and travel taxes.

ATTY. VALTE

Q What did you tell Mrs. Manucdoc, in turn after being told this by Mr.
Rillo?

A I told her, because that is the reason why they accepted again the
tickets when we returned the tickets spin, that they could not be
extended. They could be extended by paying the additional fare,
additional tax and additional exchange during that time.

Q You said so to Mrs. Manucdoc?

A Yes, sir." ... 5

The ruling relied on by respondent Appellate Court, therefore, in KLM. vs. Court of Appeals, 65
SCRA 237 (1975), holding that it would be unfair to charge respondents therein with automatic
knowledge or notice of conditions in contracts of adhesion, is inapplicable. To all legal intents and
purposes, Teresita was the agent of the GANAS and notice to her of the rejection of the request for
extension of the validity of the tickets was notice to the GANAS, her principals.

The SAS validating sticker for the Osaka/Tokyo flight affixed by Era showing reservations for JAL.
Flight 108 for 16 May 1971, without clearing the same with AIR FRANCE allegedly because of the
imminent departure of the GANAS on the same day so that he could not get in touch with Air
France 6 was certainly in contravention of IATA rules although as he had explained, he did so upon
Teresita's assurance that for the onward flight from Osaka and return, the GANAS would make other
arrangements.

Q Referring you to page 33 of the transcript of the last session, I had

this question which reads as follows: 'But did she say anything to you
when you said that the tickets were about to expire?' Your answer
was: 'I am the one who asked her. At that time I told her if the tickets
being used ... I was telling her what about their bookings on the
return. What about their travel on the return? She told me it is up for
the Ganas to make the arrangement.' May I know from you what did
you mean by this testimony of yours?

A That was on the day when they were asking me on May 7, 1971
when they were checking the tickets. I told Mrs. Manucdoc that I was
going to get the tickets. I asked her what about the tickets onward
from the return from Tokyo, and her answer was it is up for the Ganas
to make the arrangement, because I told her that they could leave on
the seventh, but they could take care of that when they arrived in
Osaka.

Q What do you mean?

A The Ganas will make the arrangement from Osaka, Tokyo and
Manila.

Q What arrangement?

A The arrangement for the airline because the tickets would expire on
May 7, and they insisted on leaving. I asked Mrs. Manucdoc what
about the return onward portion because they would be travelling to
Osaka, and her answer was, it is up to for the Ganas to make the
arrangement.

Q Exactly what were the words of Mrs. Manucdoc when you told her
that? If you can remember, what were her exact words?

A Her words only, it is up for the Ganas to make the arrangement.

Q This was in Tagalog or in English?

A I think it was in English. ... 7

The circumstances that AIR FRANCE personnel at the ticket counter in the airport allowed the
GANAS to leave is not tantamount to an implied ratification of travel agent Ella's irregular actuations.
It should be recalled that the GANAS left in Manila the day before the expiry date of their tickets and
that "other arrangements" were to be made with respect to the remaining segments. Besides, the
validating stickers that Ella affixed on his own merely reflect the status of reservations on the
specified flight and could not legally serve to extend the validity of a ticket or revive an expired one.

The conclusion is inevitable that the GANAS brought upon themselves the predicament they were in
for having insisted on using tickets that were due to expire in an effort, perhaps, to beat the deadline
and in the thought that by commencing the trip the day before the expiry date, they could complete
the trip even thereafter. It should be recalled that AIR FRANCE was even unaware of the validating
SAS and JAL. stickers that Ella had affixed spuriously. Consequently, Japan Air Lines and AIR
FRANCE merely acted within their contractual rights when they dishonored the tickets on the
remaining segments of the trip and when AIR FRANCE demanded payment of the adjusted fare
rates and travel taxes for the Tokyo/Manila flight.

WHEREFORE, the judgment under review is hereby reversed and set aside, and the Amended
Complaint filed by private respondents hereby dismissed.

No costs.

SO ORDERED.

.R. Nos. 86181-82 January 13, 1992

MANUEL T. SANTOS and RAFAEL G. CAMUS, petitioners,

vs.
HON. BENJAMIN M. AQUINO, JR., Judge, Regional Trial Court of Malabon-Navotas, FINASIA
INVESTMENTS & FINANCE CORP., JOSE T. VILLAROSA, TRIPLEX ENTERPRISES INC.,
JOMARIAS INTERNATIONAL CORP. (formerly Metro Realty Corp.), PHILIPPINE COMMERCIAL
AND INTERNATIONAL BANK, PHILIPPINE AMERICAN LIFE INSURANCE CORP., FAR EAST
BANK & TRUST CO., & THE REGISTERS OF DEEDS OF MAKATI AND
PARAÑAQUE, respondents.

Manuel T. Santos for petitioners.

Joselito L. Manalo for Philamlife.

Quasha, Asperilla, Ancheta, Peña and Nolasco for FINASIA.

Balgos & Perez for respondents Jomarias Int'l. Corp. and J. Villarosa.

Carpio, Villaraza & Cruz for Triplex Ent., Inc. and PCIB.

Buenconsejo, Fernandez, Peñalosa & Associates for FEBTC.

GRIÑO-AQUINO, J.:

Assailed in this petition for certiorari, mandamus and prohibition are the orders dated October 10,
1988 and December 10, 1988 of respondent Judge Benjamin M. Aquino, Jr., allowing the
substitution of attached properties in two civil cases for recovery of sums of money. As prayed for in
the petition, respondent Judge was temporarily restrained from further proceeding in those cases
during the pendency of this special civil action.

On November 3, 1983 and November 13, 1983, petitioners Manuel T. Santos and Rafael G. Camus
respectively filed Civil Case No. 365-MN and Civil Case No. 374-MN in the Regional Trial Court of
Malabon-Navotas against FINASIA Investments and Finance Corporation (hereafter "FINASIA"),
Jose T. Villarosa, Rodolfo Abiog, Benedict Go Alcantara, Willy Trinidad and Ceferino Sanchez (the
last five being, respectively, the president and directors of FINASIA) to recover their respective
money placements of P752,100 and P769,500, with interests, damages, and costs. They alleged
that through the defendants' fraudulent misrepresentations, they were lured to make the money
placements with FINASIA.

Upon the petitioners' application, and on the strength of the attachment bonds in the total sum of
P1,276,058 posted by them, preliminary attachments were issued by the court on the following
properties of FINASIA and Jose Villarosa:

TCT No. Registered Owner Description at the

Time of Attachment

13350-A Spouses Jose T. & 411 sq.m., Pasay City

Amelita Villarosa

13351-A -ditto- 364 sq.m., Pasay City

120450-A FINASIA 4,000 sq.m. at Pasong

Tamo, Makati,
mortgaged to UCPB for P5,947,000

56352 Ann Tunnheim Pasay City, what was

attached was FINASIA's
right to repurchase

56355 -ditto- -ditto-

83398 Rosita de Castro Pasay City, mortgaged

(48695-A) to FINASIA to secure

the debt of Felicisimo Francisco. The mortgage credit was allegedly assigned by
FINASIA to Pioneer Savings & Loan Bank, Inc.

On January 9, 1984, or less than three (3) months later, the proceedings against FINASIA were
suspended because it was placed under receivership by the Securities and Exchange Commission
(SEC) for operating without prior SEC registration and for failure to pay maturing money market
placements.

FINASIA and Villarosa filed separate motions to lift the attachments on their respective properties by
offering counterbonds. The petitioners opposed the motions for insufficiency of the counterbonds
and unreliability of the bonding companies — AFISCO and Interworld Assurance Company.

On August 1, 1988 and June 2, 1988, FINASIA and Villarosa filed separate motions to substitute
their attached properties with other properties supposedly worth P3.5 million and free from liens and
encumbrances. Villarosa alleged that the existing attachment on his two Pasay City lots was
excessive.
Petitioners opposed the motions for substitution. The hearing of the motions was set on August 16,
1988 and later reset on September 22, 1988.

On September 21, 1988, petitioners' (plaintiffs') counsel, Atty. Eriberto D. Ignacio, telephoned
Santos that the hearing on September 22, 1988 had been cancelled because the judge would be
attending a seminar for Regional Trial Court judges. Santos checked with the branch clerk of court
who promised to inform him and/or his lawyer of the next setting.

In view of that circumstance, the petitioners-plaintiffs did not appear in court on September 22, 1988.
Unfortunately, instead of resetting the hearing of FINASIA's and Villarosa's motions for substitution
of their attached properties, respondent Judge issued on that date an Order declaring them
"submitted for resolution."

The next day, September 23, 1988, FINASIA filed "Additional Argument in Support of Motion for
Substitution of Attached Properties." Three (3) days later, respondent Judge issued an Order
resetting for the last time, on October 6, 1988, the hearing of the motions for substitution of
properties. Petitioners' counsel, Atty. Ignacio, received a copy of that order, but, for some
unexplained reason, he failed to inform his clients about it and he also absented himself from the
hearing. The result was that on October 10, 1988, respondent Judge granted the motions on the
ground:

. . . that the properties being offered as substitutes for the attached ones appear to
be worth at least P3.415 million, per appraisal report of the Valencia Appraisal
Corporation (P3.5 million according to the Rehabilitation Receiver of defendant
Finasia) and considering that the attachment bonds in these cases are only for the
total amount of P1,276,050 . . . (p. 30, Rollo.)

Respondent Judge discharged all the attached properties of Villarosa and ordered the attachment of
eight (8) small lots in Pasay City of FINASIA, which was then already under receivership.

On November 30 1988, Attorney Ignacio filed a "Motion to Reconsider or Recall" the order of
substitution but it was too late to mollify his client, Santos. Santos discharged his lawyer and decided
to appear as his own counsel. He filed his own motion for reconsideration of the court's order of
substitution. Santos alleged that he and Camus had been denied due process through their lawyer's
gross negligence, and that the order of substitution was issued in excess of the court's jurisdiction (p.
169, Rollo).

Before the order lifting the attachment was recorded on Villarosa's titles, the latter had already sold
for P232,500 the two (2) Pasay City lots covered by his TCTs Nos. 13350-A and 13351-A, to Metro
Realty Corporation, later renamed Jomarias International. Inc. Mrs. Villarosa herself is the president
of Jomarias. New TCTs Nos. 93264 and 93265 were issued to Jomarias. The order lifting the
attachment was annotated on Jomarias' new TCTs on October 11, 1988. Two months later,
Jomarias mortgaged the properties to the Philippine Commercial and International Bank (PCIB) for
P1.5 million on December 12, 1988. Similarly, Triplex mortgaged the Pasong Tamo property to
Philamlife as security for a P10 million loan.

On December 29, 1988, their motions for reconsideration having been denied, Santos and Camus
filed this petition for certiorari, prohibition and mandamus with a prayer for the issuance of a
restraining order against Judge Benjamin M. Aquino, Jr., FINASIA Investments and Finance
Corporation, Jose T. Villarosa, Triplex Enterprises, Inc., Jomarias International Corporation,
Philippine Commercial & International Bank, Philippine American Life Insurance Corporation, Far
East Bank and Trust Company, and the Registers of Deeds of Makati and Parañaque, praying the
Court to:

1. Issue a restraining Order and writ of preliminary injunction enjoining respondent

Judge from further proceeding with Civil Case Nos. 365-MN and 374-MN, entitled
Santos vs. Finasia, et al. and Camus vs. Finasia, et al. respectively;

2. Declare the Orders issued by respondent Judge dated October 10, 1988 and
December 10, 1988 to be null and void for being illegal and for having been issued
without jurisdiction and [with] grave abuse of discretion;

3. Declare the levy on attachment on the properties covered by TCTs Nos. 13550-A,
13551-A, 56352, 56353, S-83398 and 120450 as having subsisted from the date of
the original levy and without having been interrupted by the erroneous lifting of said
attachment;

4. Declare null and void all transactions affecting the above properties which
occurred after the so-called "substitution of attached properties;"

5. Direct the Registers of Deeds of Makati and Parañaque to re-annotate the original
attachments obtained by petitioners in the above-entitled cases on TCTs Nos.
13550-A, 13551-A, 120450, 56352, 56353 and S-83898 and on their successor titles
and to cancel from said titles all inscriptions of the order of the respondent Judge
dated October 10, 1988. (pp. 13-14, Rollo.)

By Resolution dated March 16, 1989, the Court gave due course to the petition and required the
parties to submit simultaneous memoranda.

Did respondent Judge gravely abuse his discretion and/or exceed his jurisdiction in allowing the
substitution of the attached properties?

After deliberating on the petition, the comments and memoranda of the parties, we conclude that the
petition is meritorious.

The trial court's order allowing the substitution of the attached properties was premised on the
defendants' allegation that the properties offered by them in substitution for the attached properties
are supposedly worth P3.5 million and are unencumbered. However, respondent Judge received no
evidence of the value of the properties offered as substitutes except the self-serving allegations in
the motions for substitution and the Appraisal Report of a private appraiser whom the plaintiffs had
no chance to cross-examine because, through the gross negligence of their counsel, they were
neither heard nor represented at the hearing of defendants' motions.

The rule is that when real property, or an interest therein, of the judgment debtor is attached, the
levy creates a lien which nothing can subsequently destroy except by the dissolution of the
attachment. Prior registration of the lien creates a preference, since the act of registration is the
operative act to convey and affect the land (Lu vs. IAC, et al., 169 SCRA 595; Vda. de Carvajal vs.
Coronado, 18 SCRA 635, 641). Because an attachment is a proceeding in rem against particular
property/properties, the attaching creditor acquires a specific lien upon the attached properties which
ripens into a judgment against the res when the order of sale is made. Such a proceeding is in effect
a finding that the properties attached are indebted things considered as a virtual condemnation to
pay the owners' debt. (Art. 2242[7] of the Civil Code; Rules 39 and 57 of the Rules of Court; 7 CJS
433.) The lien obtained by attachment stands upon as high equitable ground as a mortgage lien, a
fixed and positive security which must necessarily continue until the debt is paid. (Roa vs. CA, 190
SCRA 262, citing Government vs. Mercado, 67 Phil. 409.) It necessarily follows that the attached
properties cannot be interfered with until sold to satisfy the judgment, or discharged in the manner
provided by the Rules of Court requiring the conduct of a proper hearing by the court (Uy vs. CA,
191 SCRA 275, citing Manila Herald Publishing Co., Inc. vs. Ramos, 88 Phil. 94 and BF Homes, Inc.
vs. CA, 190 SCRA 263, on Secs, 12 and 13, Rule 57 of the Rules of Court).

The writ of attachment is substantially a writ of execution except that it emanates at the beginning,
instead of at the termination, of a suit. It places the attached properties in custodia
legis, obtaining pendente lite a lien until the judgment of the proper tribunal on the plaintiff's claim is
established, when the lien becomes effective as of the date of the levy (pp. 407-503, 83 CJS, citing
Bank of Missouri vs. Matson, 26 No. 243, 73 Amd 208; Forrier vs. Masters, 83 459, 473, 2 SE 927).

There is no rule allowing substitution of attached property although an attachment may be

discharged wholly or in part upon the security of a counterbond offered by the defendant upon
application to the court, with notice to, and after hearing, the attaching creditor (Sec. 12, Rule 57,
Rules of Court), or upon application of the defendant, with notice to the applicant and after hearing, if
it appears that the attachment was improperly or irregularly issued (Sec. 13, Rule 57, Rules of
Court).

If an attachment is excessive, the remedy of the defendant is to apply to the court for a reduction or
partial discharge of the attachment, not the total discharge and substitution of the attached
properties. The reason for this is that the lien acquired by the plaintiff-creditor as of the date of the
original levy would be lost. It would in effect constitute a deprivation without due process of law of
the attaching creditors' interest in the attached property as security for the satisfaction of the
judgment which he may obtain in the action.

The notice of levy in Civil Cases 365-MN and 374-MN was annotated on FINASIA's TCTs Nos.
120450 on November 22 and 23, 1983 and on Villarosa's TCTs Nos. 13350-A and 13351-A on
November 7 and 30, 1983. By ordering the substitution on October 11, 1988, the Court obliterated
the petitioners' earlier lien under the original attachment and in effect deprived the petitioners of their
interest in the attached properties without due process of law.

The substitution of Villarosa's and FINASIA's properties was done in bad faith to defeat the
petitioners' chances of collecting their claims against both defendants. The two properties of
Villarosa (who is not insolvent and against whom actions have not been suspended) were released
from the attachment without substituting other property of Villarosa for them. The court arbitrarily
allowed Villarosa's properties to be replaced with properties of FINASIA, an insolvent corporation
under receivership, against whom actions have been suspended.

The new owners of the released properties, TRIPLEX and JOMARIAS International, Inc. (Mrs.
Villarosa is the president of Jomarias) may not claim to be innocent purchasers for value because
the deeds of sale in their favor were executed before the court had ordered the substitution or
discharge of the attachment. They are bound by the attachment as if it was not discharged at all.

A purchaser of the attached property subsequent to the attachment takes the

property subject thereto. (Joaquin vs. Arellano, 6 Phil. 551.)

Section 51 of Act 496 provides that every attachment affecting registered land shall,
if registered in the office of the register of deeds, be a notice to all persons from the
time of such "registering, filing or entering," and Section 50 of the same Act provides
that the act of registration constitutes the operative act that affects the land and binds
 the whole world. This is the essence of registration that constitutes a cardinal feature
of the Torrens System. (Guerrero vs. Agustin, 7 SCRA 773.)

It is settled that if there is an attachment or sequestration of the goods or estate of

the defendant in an action which is removed to a bankruptcy court, such an
attachment or sequestration will continue in existence and hold the goods or estate
to answer the final judgment or decree in the same manner as they would have been
held to answer the final judgment or decree rendered by the Court from which the
action was removed, unless the attachment or sequestration is invalidated under
applicable law (28 USCS No. 1479[a], 9 AM. Jur. 2d). (BF Homes, Inc. vs. CA, 190
SCRA 271.)

The grounds for the dissolution of an attachment are fixed in the Rules of Court and the power of the
court to dissolve an attachment is limited to the grounds specified therein. Before an attachment lien
will be deemed abandoned there must be an affirmative act or conduct of the creditor inconsistent
with the continuance of the lien (6 Am Jur 412). The fact that more property has been attached than
an amount sufficient to satisfy the recovery of an action is NOT a ground for dissolution (6 Am Jur 2d
868, citing National Reefer Service vs. Felman, 164 Neb 783, 83 NW 2d 547).

Respondent Judge gravely abused his discretion in ordering the substitution of the attached
properties over the vigorous opposition of the petitioners and without hearing them. His orders dated
October 10, 1988 and December 10, 1988 are hereby annulled and set aside. The original writ of
attachment should be deemed to have subsisted on the attached properties from the date of the
original levy in November, 1983, without interruption, and to have followed said properties into the
hands of the new owners thereof, Triplex Enterprises, Inc. and Jomarias International Corporation.

Corollarily, the real estate mortgage in favor of the Philippine American Life Insurance Corporation
over the Pasong Tamo property of Triplex Enterprises, Inc. and the mortgage of the Philippine
Commercial and International Bank (PCIB) over the Pasay lots of Jomarias International Corporation
are without prejudice to the subsisting attachment liens of the petitioners in this case. For both PCIB
and Philamlife are mortgagees in bad faith. PCIB was aware of the attachment on the property which
Jomarias mortgaged to it because the order lifting it was annotated on the title of Jomarias. If PCIB
had taken the trouble to ascertain from the records of Civil Cases Nos. 365-MN and 374-MN
whether that order was already final, it would have known that the court's order lifting the writ of
attachment was not yet final and was in fact being contested by the plaintiffs (herein petitioners).

The same may be said of Philamlife. FINASIA's Pasong Tamo property (covered by TCT No.
120450-Makati) was sold to Triplex for P14,600,000 on May 11, 1988, five (5) months before the
attachment was lifted on October 10, 1988. Triplex applied for a P10 million loan from Philamlife with
a mortgage on the Pasong Tamo property as collateral, but Philamlife delayed the release of the
loan until the very day, November 14, 1988, that a new TCT No. 158036 was issued in the name of
TRIPLEX — a clear indication that Philamlife waited for the writ of attachment to be lifted before it
released the loan to Triplex. But, like PCIB, Philamlife did not wait for the finality of the order lifting
the attachment. Therefore, both PCIB and Philamlife may not claim to be mortgagees in good faith,
for good faith is "an honest intention to abstain from taking any unconscientious advantage of
another" (Duran vs. IAC, 138 SCRA 489). In the following cases, we held:

A purchaser cannot close his eyes to facts which should put a reasonable man upon
his guard and then claim that he acted in good faith under the belief that there was
no defect in the title of the vendor. (J.M. Tuason & Co., Inc. vs. CA, 94 SCRA 413.)
 A buyer of land who is aware of sufficient facts to induce a reasonably prudent man
to inquire into the status of the title to the land can not legally claim the right of a
purchaser in good faith. (Mañacop, Jr. vs. Cansino, 1 SCRA 572.)

A purchaser who has knowledge of facts which should put him upon inquiry and
investigation as to possible defects of the title of the vendor and fails to make such
inquiry and investigation, cannot claim that he is a purchaser in good faith. (Paylago
vs. Jarabe, 22 SCRA 1247.)

These rulings are also applicable to mortgagees.

WHEREFORE the petition for certiorari and mandamus is granted. The order dated October 10,
1988 of respondent Judge is hereby annulled and set aside. The Registers of Deeds of Makati and
Parañaque are hereby ordered:
(1) to re-annotate on the titles of the properties in question, namely, TCT No. 158036 in the name of
TRIPLEX Enterprises, Inc. and TCTs Nos. 93264 and 93265 in the name of JOMARIAS International
Corporation, the original writ of preliminary attachment obtained by petitioners in Civil Cases Nos.
365-MN and 374-MN; and (2) to cancel or delete from the new titles the inscriptions of the assailed
order dated October 10, 1988 of respondent judge in the aforesaid cases. The temporary restraining
order issued by this Court is hereby lifted and respondent Judge is ordered to proceed immediately
with the trial of Civil Cases Nos. 365-MN and 374-MN.

SO ORDERED.

G.R. No. L-20726 December 20, 1923

ALBALADEJO Y CIA., S. en C., plaintiff-appellant,

vs.
The PHILIPPINE REFINING CO., as successor to The Visayan Refining Co., defendant-
appellant.

Eduardo Gutierrez Repide and Felix Socias for plaintiff.

Manly, Goddard and Lockwood for defendant-appellant.
Fisher, DeWitt, Perkins and Brady of counsel.

STREET, J.:

This action was instituted in the Court of First Instance of the Province of Albay by Albaladejo y Cia.,
S. en C., to recover a sum of money from the Philippine Refining Co., as successor to the Visayan
Refining Co., two causes of action being stated in the complaint. Upon hearing the cause the trial
judge absolved the defendant from the first cause of action but gave judgment for the plaintiff to
recover the sum of P49,626.68, with costs, upon the second cause of action. From this judgment the
plaintiff appealed with respect to the action taken upon the first cause of action, and the defendant
appealed with respect to the action taken upon the second cause of action. It results that, by the
appeal of the two parties, the decision of the lower court is here under review as regards the action
taken upon both grounds of action set forth in the complaint.
It appears that Albaladejo y Cia. is a limited partnership, organized in conformity with the laws of
these Islands, and having its principal place of business at Legaspi, in the Province of Albay; and
during the transactions which gave origin to this litigation said firm was engaged in the buying and
selling of the products of the country, especially copra, and in the conduct of a general mercantile
business in Legaspi and in other places where it maintained agencies, or sub-agencies, for the
prosecution of its commercial enterprises.

The Visayan Refining Co. is a corporation organized under the laws of the Philippine Islands; and
prior to July 9, 1920, it was engaged in operating its extensive plant at Opon, Cebu, for the
manufacture of coconut oil.

On August 28, 1918, the plaintiff made a contract with the Visayan Refining Co., the material parts of
which are as follows:

Memorandum of Agreement Re Purchase of Copra. — This memorandum of agreement,

made and entered into by and between Albaladejo y Compania, S. en C., of Legaspi,
Province of Albay, Philippine Islands, party of the first part, and the Visayan Refining
Company, Inc., of Opon, Province of Cebu, Philippine Islands, party of the second part,

Witnesseth That. — Whereas, the party of the first part is engaged in the purchase of copra
in the Province of Albay; and Whereas, the party of the second part is engaged in the
business of the manufacture of coconut oil, or which purpose it must continually purchase
large quantities of copra; Now, Therefore, in consideration of the premises and covenants
hereinafter set forth, the said parties have agreed and do hereby contract and agree as
follows, to wit:

1. The party of the first part agrees and binds itself to sell to the party of the second part, and
the party of the second part agrees and binds itself to buy from the party of the first part, for a
period of one (1) year from the date of these presents, all the copra purchased by the party
of the first part in Province of Albay.

2. The party of the second part agrees to pay the party of the first part for the said copra the
market price thereof in Cebu at date (of) purchase, deducting, however, from such price the
cost of transportation by sea to the factory of the party of second part at Opon, Cebu, the
amount deducted to be ascertained from the rates established, from time to time, by the
public utility commission, or such entity as shall succeed to its functions, and also a further
deduction for the shrinkage of the copra from the time of its delivery to the party of the
second part to its arrival at Opon, Cebu, plus one-half of a real per picul in the event the
copra is delivered to boats which will unload it on the pier of the party of the second part at
Opon, Cebu, plus one real per picul in the event that the party of the first part shall employ its
own capital exclusively in its purchase.

3. During the continuance of this contract the party of the second part will not appoint any
other agent for the purchase of copra in Legaspi, nor buy copra from any vendor in Legaspi.

4. The party of the second part will, so far as practicable, keep the party of the first part
advised of the prevailing prices paid for copra in the Cebu market.

5. The party of the second part will provide transportation by sea to Opon, Cebu, for the
copra delivered to it by the party of the first part, but the party of the first part must deliver
such copra to the party of the second part free on board the boats of the latter's ships or on
the pier alongside the latter's ships, as the case may be.
Pursuant to this agreement the plaintiff, during the year therein contemplated, bought copra
extensively for the Visayan Refining Co. At the end of said year both parties found themselves
satisfied with the existing arrangement, and they therefore continued by tacit consent to govern their
future relations by the same agreement. In this situation affairs remained until July 9, 1920, when the
Visayan Refining Co. closed down its factory at Opon and withdrew from the copra market.

When the contract above referred to was originally made, Albaladejo y Cia. apparently had only one
commercial establishment, i.e., that at Legaspi; but the large requirements of the Visayan Refining
Co. for copra appeared so far to justify the extension of the plaintiff's business that during the course
of the next two or three years it established some twenty agencies, or subagencies, in various ports
and places of the Province of Albay and neighboring provinces.

After the Visayan Refining Co. had ceased to buy copra, as above stated, of which fact the plaintiff
was duly notified, the supplies of copra already purchased by the plaintiff were gradually shipped out
and accepted by the Visayan Refining Co., and in the course of the next eight or ten months the
accounts between the two parties were liquidated. The last account rendered by the Visayan
Refining Co. to the plaintiff was for the month of April, 1921, and it showed a balance of P288 in
favor of the defendant. Under date of June 25, 1921, the plaintiff company addressed a letter from
Legaspi to the Philippine Refining Co. (which had now succeeded to the rights and liabilities of the
Visayan Refining Co.), expressing its approval of said account. In this letter no dissatisfaction was
expressed by the plaintiff as to the state of affairs between the parties; but about six weeks
thereafter the present action was begun.

Upon reference to paragraph five of the contract reproduced above it will be seen that the Visayan
Refining Co. obligated itself to provide transportation by sea to Opon, Cebu, for the copra which
should be delivered to it by the plaintiff; and the first cause of action set forth in the complaint is
planted upon the alleged negligent failure of the Visayan Refining Co. to provide opportune
transportation for the copra collected by the plaintiff and deposited for shipment at various places. In
this connection we reproduce the following allegations from the complaint:

6. That, from the month of September, 1918, until the month of June, 1920, the plaintiff
opportunely advised the Visayan of the stocks that the former had for shipment, and, from
time to time, requested the Visayan to send vessels to take up said stocks; but that the
Visayan culpably and negligently allowed a great number of days to elapse before sending
the boats for the transportation of the copra to Opon, Cebu, and that due to the fault and
negligence of the Visayan, the stocks of copra prepared for shipment by the plaintiff had to
remain an unnecessary length of time in warehouses and could not be delivered to the
Visayan, nor could they be transmitted to this latter because of the lack of boats, and that for
this reason the copra gathered by the plaintiff and prepared for delivery to the Visayan
suffered the diminishment of weight herein below specified, through shrinkage or excessive
drying, and, in consequence thereof, an important diminishment in its value.

xxx xxx xxx

8. That the diminishment in weight suffered as shrinkage through excessive drying by all the
lots of copra sold by the plaintiff to the Visayan, due to the fault and negligence of the
Visayan in the sending of boats to take up said copra, represents a total of 9,695 piculs and
56 cates, the just and reasonable value of which, at the rates fixed by the purchaser as the
price in its liquidation, is a total of two hundred and one thousand, five hundred and ninety-
nine pesos and fifty-three centavos (P201,599.53), Philippine currency, in which amount the
plaintiff has been damaged and injured by the negligent and culpable acts and omissions of
the Visayan, as herein above stated and alleged.
In the course of the appealed decision the trial judge makes a careful examination of the proof
relative to the movements of the fleet of boats maintained by the Visayan Refining Co. for the
purpose of collecting copra from the various ports where it was gathered for said company, as well
as of the movements of other boats chartered or hired by said company for the same purpose; and
upon consideration of all the facts revealed in evidence, his Honor found that the Visayan Refining
Co. had used reasonable promptitude in its efforts to get out the copra from the places where it had
been deposited for shipment, notwithstanding occasional irregularities due at times to the condition
of the weather as related to transportation by sea and at other times to the inability of the Visayan
Refining Co. to dispatch boats to the more remote ports. This finding of the trial judge, that no
negligence of the kind alleged can properly be imputed to the Visayan Refining Co., is in our opinion
supported by the proof.

Upon the point of the loss of weight of the copra by shrinkage, the trial judge found that this is a
product which necessarily undergoes considerable shrinkage in the process of drying, and intelligent
witnesses who are conversant with the matter testified at the trial that shrinkage of cobra varies from
twenty to thirty per centum of the original gross weight. It is agreed that the shrinkage shown in all of
the copra which the plaintiff delivered to the Visayan Refining Co. amounted to only 8.187 per
centum of the whole, an amount which is notably below the normal. This showing was undoubtedly
due in part, as the trial judge suggests, to the fact that in purchasing the copra directly from the
producers the plaintiff's buyers sometimes estimated the picul at sixty-eight kilos, or somewhat less,
but in no case at the true weight of 63.25 kilos. The plaintiff was therefore protected in a great
measure from loss by shrinkage by purchasing upon a different basis of weight from that upon which
he sold, otherwise the shrinkage shown in the result must have been much greater than that which
actually appeared. But even considering this fact, it is quite evident that the demonstrated shrinkage
of 8.187 per centum was extremely moderate average; and this fact goes to show that there was no
undue delay on the part of the Visayan Refining Co. in supplying transportation for the copra
collected by the plaintiff.

In the course of his well-reasoned opinion upon this branch of the case, the trial judge calls attention
to the fact that it is expressly provided in paragraph two of the contract that the shrinkage of copra
from the time of its delivery to the party of the second part till its arrival at Opon should fall upon the
plaintiff, from whence it is to be interfered that the parties intended that the copra should be paid for
according to its weight upon arrival at Opon regardless of its weight when first purchased; and such
appears to have been the uniform practice of the parties in settling their accounts for the copra
delivered over a period of nearly two years.

From what has been said it follows that the first cause of action set forth in the complaint is not well
founded, and the trial judge committed no error in absolving the plaintiff therefrom.

It appears that in the first six months of the year 1919, the plaintiff found that its transactions with the
Visayan Refining Co. had not been productive of reasonable profit, a circumstance which the plaintiff
attributed to loss of weight or shrinkage in the copra from the time of purchase to its arrival at Opon;
and the matter was taken up with the officials of said company, with the result that a bounty
amounting to P15,610.41 was paid to the plaintiff by the Visayan Refining Co. In the ninth paragraph
of the complaint the plaintiff alleges that this payment was made upon account of shrinkage, for
which the Visayan Refining Co. admitted itself to be liable; and it is suggested that the making of this
payment operated as a recognition on the part of the Visayan refining Co. of the justice of the
plaintiff's claim with respect to the shrinkage in all subsequent transactions. With this proposition we
cannot agree. At most the payment appears to have been made in recognition of an existing claim,
without involving any commitment as to liability on the part of the defendant in the future; and
furthermore it appears to have been in the nature of a mere gratuity given by the company in order
to encourage the plaintiff and to assure that the plaintiff's organization would be kept in an efficient
state for future activities. It is certain that no general liability for plaintiff's losses was assumed for the
future; and the defendant on more than one occasion thereafter expressly disclaimed liability for
such losses.

As already stated purchases of copra by the defendant were suspended in the month of July, 1920.
At this time the plaintiff had an expensive organization which had been built up chiefly, we suppose,
with a view to the buying of copra; and this organization was maintained practically intact for nearly a
year after the suspension of purchases by the Visayan Refining Co. Indeed in October, 1920, the
plaintiff added an additional agency at Gubat to the twenty or more already in existence. As a
second cause of action the plaintiff seeks to recover the sum of P110,000, the alleged amount
expended by the plaintiff in maintaining and extending its organization as above stated. As a basis
for the defendant's liability in this respect it is alleged that said organization was maintained and
extended at the express request, or requirement, of the defendant, in conjunction with repeated
assurances that the defendant would soon resume activity as a purchaser of copra.

With reference to this cause of action the trial judge found that the plaintiff, as claimed, had incurred
expenses at the request of the defendant and upon its representation that the plaintiff would be fully
compensated therefor in the future. Instead, however, of allowing the plaintiff the entire amount
claimed, his Honor gave judgment for only thirty per centum of said amount, in view of the fact that
the plaintiff's transactions in copra had amounted in the past only to about thirty per centum of the
total business transacted by it. Estimated upon this basis, the amount recognized as constituting a
just claim was found to be P49,626.68, and for this amount judgment was rendered against the
defendant.

The discussion of this branch of the appeal involves the sole question whether the plaintiff's expense
in maintaining and extending its organization for the purchase of copra in the period between July,
1920, to July, 1921, were incurred at the instance and request of the defendant, or upon any
promise of the defendant to make the expenditure good. A careful examination of the evidence,
mostly of a documentary character, is, in our opinion, convincing that the supposed liability does not
exist.

By recurring to paragraph four of the contract between the plaintiff and the Visayan Refining Co. it
will be seen that the latter agreed to keep the plaintiff advised of the prevailing prices paid for the
copra in the Cebu market. In compliance with this obligation the Visayan Refining Co. was
accustomed to send out "trade letters" from time to time its various clients in the southern provinces
of whom the plaintiff was one. In these letters the manager of the company was accustomed to
make comment upon the state of the market and to give such information as might be of interest or
value to the recipients of the letters. From the series of letters thus sent to Albaladejo y Cia. during
the latter half of 1920, we here reproduce the following excerpts:

(Letter of July 2, 1920, from K.B. Day, General Manager of the Visayan Refining Co., to Albaladejo y
Cia.)

The copra market is still very weak. I have spent the past two weeks in Manila studying
conditions and find that practically no business at all is being done. A few of the mills having
provincial agents are accepting small deliveries, but I do not suppose that 500 piculs of copra
are changing hands a day. Buyers are offering from P13 to P15, depending on quality, and
sellers are offering to sell at anywhere from P16 to P18, but no business can be done for the
simple reason that the banks will not lend the mills any money to buy copra with at this time.

Reports from the United States are to the effect that the oil market is in a very serious and
depressed condition and that large quantities of oil cannot be disposed of at any price.
 xxx xxx xxx

Under this conditions it is imperative that this mill buy no more copra than it can possibly help
at the present time. We are not anxious to compete, nor do we wish to purchase same in
competition with others. We do, however, desire to keep our agents doing business and trust
that they will continue to hold their parroquianos (customers), buying only minimum
quantities at present.

The local market has not changed since last week, and our liquidating price is P14.

(Letter of July 9, 1920, from Visayan Refining Co. to Albaladejo y Cia.)

Notify your subagents to drop out of the market temporarily. We do not desire to purchase at
present.

(Letter of July 10, 1920, from K. B. Day, General Manager, to Albaladejo y Cia.)

The market continues to grow weaker. Conditions are so uncertain that this company desires
to drop out of the copra market until conditions have a chance to readjust themselves. We
request therefore that our agents drop out of active competition for copra temporarily. Stocks
that are at present on hand will, of course, be liquidated, but no new stocks should be
acquired. Agents should do their best to keep their organizations together temporarily, for we
expect to be in the market again soon stronger than ever. We expect the cooperation of
agents in making this effective; and if they give us this cooperation, we will endeavor to see
that they do not lose by the transaction in the long run. This company has been receiving
copra from its agents for a long time at prices which have netted it a loss. The company has
been supporting its agents during this period. It now expects the same support from its
agents. Agents having stocks actually on hand in their bodegas should telegraph us the
quantity immediately and we will protect same. But stocks not actually in bodegas cannot be
considered.

(Letter of July 17, 1920, from K.B. Day to Albaladejo y Cia.)

Conditions have changed very little in the copra market since last reports. . . . We are in the
same position as last week and are out of the market.

For the benefit of our agents, we wish to explain in a few words just why we are have been
forced to close down our mill until the arrival of a boat to load some of our stocks on hand.
We have large stocks of copra. The market for oil is so uncertain that we do not care to
increase these stocks until such time as we know that the market has touched the bottom.
As soon as this period of uncertainty is over, we expect to be in the market again stronger
than ever, but it is only the part of business wisdom to play safe at such times as these.

Owing to the very small amounts of copra now in the provinces, we do not think that our
agents will lose anything by our being out of the market. On the contrary, the producers of
copra will have a chance to allow their nuts to mature on the trees so that the quality of copra
which you will receive when we again are in the market should be much better than what you
have been receiving in the past. Due to the high prices and scarcity of copra a large
proportion of the copra we have received has been made from unripe coconuts and in order
to keep revenue coming in the producers have kept harvesting these coconuts without giving
them a chance to reach maturity. This period now should give them the chance to let their
nuts ripen and should give you a better copra in the future which will shrink less and be more
 satisfactory both from your standpoint and ours. Please do all you can to assist us at this
time. We shall greatly appreciate your cooperation. lawphi1.net

(Letter of August 7, 1920, from H.U. Umstead, Assistant General Manager, to Albaladejo y Cia.)

The copra situation in Manila remains unchanged and the outlook is still uncertain. Arrivals
continue small.

We are still out of the market and are not yet in a position to give you buying orders. We
trust, however, that within the next few days weeks we may be able to reenter the market
and resume our former activity.

xxx xxx xxx

While we are not of the market we have no objection whatever to our agents selling copra to
other purchasers, if by doing so they are able to keep themselves in the market and retain
their parroquianos (customers). We do not, however, wish you to use our money, for this
purpose, nor do we want you to buy copra on speculation with the idea in mind that we will
take it off of your hands at high prices when we reenter the market. We wish to warn you
against this now so that you will not be working under any misapprehension.

In this same mail, we are sending you a notice of change of organization. In your dealings
with us hereafter, will you kindly address all communications to the Philippine Refining
Corporation, Cebu, which you will understand will be delivered to us.

(Letter of August 21, 1920, from Philippine Refining Corporation, by K.B. Day, to Albaladejo y Cia.)

We are not yet in the market, but, as we have indicated before, are hopeful of renewing our
activities soon. We shall advise all our agents seasonably of our return to the market. . . .

We are preparing new form of agreement between ourselves and our agents and hope to
have them completed in time to refer them to our agents in the course of the next week or
ten days.

All agents should endeavor to liquidate outstanding advances at this time because this is a
particularly good time to clean out old accounts and be on a business basis when we return
to the market. We request that our agents concentrate their attention on this point during the
coming week. lawphi1.net

(Letter of October 16, 1920, from K.B. Day, Manager, to Albaladejo y Cia.)

Copra in Manila and coconut oil in the United States have taken a severe drop during the
past week. The Cebu price seems to have remained unchanged, but we look for an early
drop in the local market.

We have received orders from our president in New York to buy no more copra until the
situation becomes more favorable. We had hoped and expected to be in the market actively
before this time, but this most unexpected reaction in the market makes the date of our entry
in it more doubtful.
 With this in view, we hereby notify our agents that we can accept no more copra and
advance no more money until we have permission from our president to do so. We request,
therefore, that you go entirely out of the market, so far as we are concerned, with the
exception of receiving copra against outstanding accounts.

In case any agent be compelled to take in copra and desire to send same to us, we will be
glad to sell same for him to the highest bidder in Cebu. We will make no charge for our
services in this connection, but the copra must be forwarded to us on consignment only so
that we will not appear as buyers and be required to pay the internal-revenue tax.

We are extremely sorry to be compelled to make the present announcement to you, but the
market is such that our president does not deem it wise for us to purchase copra at present,
and, with this in view, we have no alternative other than to comply with his orders. We hope
that our agents will realize the spirit in which these orders are given, and will do all they can
to remain faithful to us until such time as we can reenter the market, which we hope and
believe will be within a comparatively short time.

(Special Letter of October 16, 1920, from Philippine Refining Corporation, by K.B. Day, to Albaladejo
y Cia.)

We have received very strict instructions from New York temporarily to suspend the
purchase of copra, and of course we must comply therewith. However, should you find
yourselves obliged to buy copra in connection with your business activities, and cannot
dispose of it advantageously in Cebu, we shall be glad to receive your copra under the
condition that we shall sell it in the market on your account to the highest bidder, or, in other
words, we offer you our services free, to sell your copra to the best possible advantages that
the local market may offer, provided that, in doing so, we be not obliged to accept your copra
as a purchase when there be no market for this product.

Whenever you find yourselves obliged to buy copra in order to liquidate pending advances,
we can accept it provided that, so long as present conditions prevail, we be not required to
make further cash advances.

We shall quote no further from letters written by the management of the Philippine Refining
Corporation to the plaintiff, as we find nothing in the correspondence which reflects an attitude
different from that reflected in the matter above quoted. It is only necessary to add that the hope so
frequently expressed in the letters, to the effect that the Philippine Refining Corporation would soon
enter the market as a buyer of copra on a more extensive scale than its predecessor, was not
destined to be realized, and the factory at Opon remained closed.

But it is quite obvious that there is nothing in these letters on which to hold the defendant liable for
the expenses incurred by the plaintiff in keeping its organization intact during the period now under
consideration. Nor does the oral testimony submitted by the plaintiff materially change the situation
in any respect. Furthermore, the allegation in the complaint that one agency in particular (Gubat) had
been opened on October 1, 1920, at the special instance and request of the defendant, is not at all
sustained by the evidence.

We note that in his letter of July 10, 1920, Mr. Day suggested that if the various purchasing agents of
the Visayan Refining Co. would keep their organization intact, the company would endeavor to see
that they should not lose by the transaction in the long run. These words afford no sufficient basis for
the conclusion, which the trial judge deduced therefrom, that the defendant is bound to compensate
the plaintiff for the expenses incurred in maintaining its organization. The correspondence sufficiently
shows on its face that there was no intention on the part of the company to lay a basis for
contractual liability of any sort; and the plaintiff must have understood the letters in that light. The
parties could undoubtedly have contracted about it, but there was clearly no intention to enter into
contractual relation; and the law will not raise a contract by implication against the intention of the
parties. The inducement held forth was that, when purchasing should be resumed, the plaintiff would
be compensated by the profits then to be earned for any expense that would be incurred in keeping
its organization intact. It is needless to say that there is no proof showing that the officials of the
defendant acted in bad faith in holding out this hope.

In the appellant's brief the contention is advanced that the contract between the plaintiff and the
Visayan Refining Co. created the relation of principal and agent between the parties, and the
reliance is placed upon article 1729 of the Civil Code which requires the principal to indemnify the
agent for damages incurred in carrying out the agency. Attentive perusal of the contract is, however,
convincing to the effect that the relation between the parties was not that of principal and agent in so
far as relates to the purchase of copra by the plaintiff. It is true that the Visayan Refining Co. made
the plaintiff one of its instruments for the collection of copra; but it is clear that in making its
purchases from the producers the plaintiff was buying upon its own account and that when it turned
over the copra to the Visayan Refining Co., pursuant to that agreement, a second sale was effected.
In paragraph three of the contract it is declared that during the continuance of this contract the
Visayan Refining Co. would not appoint any other agent for the purchase of copra in Legaspi; and
this gives rise indirectly to the inference that the plaintiff was considered its buying agent. But the
use of this term in one clause of the contract cannot dominate the real nature of the agreement as
revealed in other clauses, no less than in the caption of the agreement itself. In some of the trade
letters also the various instrumentalities used by the Visayan Refining Co. for the collection of copra
are spoken of as agents. But this designation was evidently used for convenience; and it is very
clear that in its activities as a buyer the plaintiff was acting upon its own account and not as agents,
in the legal sense, of the Visayan Refining Co. The title to all of the copra purchased by the plaintiff
undoubtedly remained in it until it was delivered by way of subsequent sale to said company.

For the reasons stated we are of the opinion that no liability on the part of the defendant is shown
upon the plaintiff's second cause of action, and the judgment of the trial court on this part of the case
is erroneous.

The appealed judgment will therefore be affirmed in so far as it absolves the defendant from the first
cause of action and will be reversed in so far as it gives judgment against the defendant upon the
second cause of action; and the defendant will be completely absolved from the complaint. So
ordered, without express findings as to costs of either instance.

G.R. No. L-21601 December 17, 1966

NIELSON & COMPANY, INC., plaintiff-appellant,

vs.
LEPANTO CONSOLIDATED MINING COMPANY, defendant-appellee.

W. H. Quasha and Associates for plaintiff-appellant.

Ponce Enrile, Siguion-Reyna, Montecillo and Belo for defendant-appellee.

ZALDIVAR, J.:

On February 6, 1958, plaintiff brought this action against defendant before the Court of First Instance
of Manila to recover certain sums of money representing damages allegedly suffered by the former
in view of the refusal of the latter to comply with the terms of a management contract entered into
between them on January 30, 1937, including attorney's fees and costs.

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 remembering (Exhibits "D" and
"E"). The rehabilitation and reconstruction of the mine and mill was not completed until 1948
(Exhibit "F"). On June 26, 1948 the mines resumed operation under the exclusive
management of LEPANTO (Exhibit "F-l").

Shortly after the mines were liberated from the Japanese invaders in 1945, a disagreement
arose between NIELSON and LEPANTO over the status of the operating contract in question
which as renewed expired in 1947. Under the terms thereof, the management contract shall
remain in suspense in case fortuitous event or force majeure, such as war or civil
commotion, adversely affects the work of mining and milling.
 "In the event of inundations, floodings of mine, typhoon, earthquake or any other
force majeure, war, insurrection, civil commotion, organized strike, riot, injury to the
machinery or other event or cause reasonably beyond the control of NIELSON and
which adversely affects the work of mining and milling; NIELSON shall report such
fact to LEPANTO and without liability or breach of the terms of this Agreement, the
same shall remain in suspense, wholly or partially during the terms of such inability."
(Clause II of Exhibit "C").

NIELSON held the view that, on account of the war, the contract was suspended during the
war; hence the life of the contract should be considered extended for such time of the period
of suspension. On the other hand, LEPANTO contended that the contract should expire in
1947 as originally agreed upon because the period of suspension accorded by virtue of the
war did not operate to extend further the life of the contract.

No understanding appeared from the record to have been bad by the parties to resolve the
disagreement. In the meantime, LEPANTO rebuilt and reconstructed the mines and was able
to bring the property into operation only in June of 1948, . . . .

Appellant in its brief makes an alternative assignment of errors depending on whether or not the
management contract basis of the action has been extended for a period equivalent to the period of
suspension. If the agreement is suspended our attention should be focused on the first set of errors
claimed to have been committed by the court a quo; but if the contrary is true, the discussion will
then be switched to the alternative set that is claimed to have been committed. We will first take up
the question whether the management agreement has been extended as a result of the supervening
war, and after this question shall have been determined in the sense sustained by appellant, then
the discussion of the defense of laches and prescription will follow as a consequence.

The pertinent portion of the management contract (Exh. C) which refers to suspension should any
event constituting force majeure happen appears in Clause II thereof which we quote hereunder:

In the event of inundations, floodings of the mine, typhoon, earthquake or any other force
majeure, war, insurrection, civil commotion, organized strike, riot, injury to the machinery or
other event or cause reasonably beyond the control of NIELSON and which adversely affects
the work of mining and milling; NIELSON shall report such fact to LEPANTO and without
liability or breach of the terms of this Agreement, the same shall remain in suspense, wholly
or partially during the terms of such inability.

A careful scrutiny of the clause above-quoted will at once reveal that in order that the management
contract may be deemed suspended two events must take place which must be brought in a
satisfactory manner to the attention of defendant within a reasonable time, to wit: (1) the event
constituting the force majeure must be reasonably beyond the control of Nielson, and (2) it must
adversely affect the work of mining and milling the company is called upon to undertake. As long as
these two condition exist the agreement is deem suspended.

Does the evidence on record show that these two conditions had existed which may justify the
conclusion that the management agreement had been suspended in the sense entertained by
appellant? Let us go to the evidence.

It is a matter that this Court can take judicial notice of that war supervened in our country and that
the mines in the Philippines were either destroyed or taken over by the occupation forces with a view
to their operation. The Lepanto mines were no exception for not was the mine itself destroyed but
the mill, power plant, supplies on hand, equipment and the like that were being used there were
destroyed as well. Thus, the following is what appears in the Lepanto Company Mining Report dated
March 13, 1946 submitted by its President C. A. DeWitt to the defendant:1 "In February of 1942, our
mill, power plant, supplies on hand, equipment, concentrates on hand, and mine, were destroyed
upon orders of the U.S. Army to prevent their utilization by the enemy." The report also mentions the
report submitted by Mr. Blessing, an official of Nielson, that "the original mill was destroyed in 1942"
and "the original power plant and all the installed equipment were destroyed in 1942." It is then
undeniable that beginning February, 1942 the operation of the Lepanto mines stopped or became
suspended as a result of the destruction of the mill, power plant and other important equipment
necessary for such operation in view of a cause which was clearly beyond the control of Nielson and
that as a consequence such destruction adversely affected the work of mining and milling which the
latter was called upon to undertake under the management contract. Consequently, by virtue of the
very terms of said contract the same may be deemed suspended from February, 1942 and as of that
month the contract still had 60 months to go.

On the other hand, the record shows that the defendant admitted that the occupation forces
operated its mining properties subject of the management contract,2 and from the very report
submitted by President DeWitt it appears that the date of the liberation of the mine was August 1,
1945 although at the time there were still many booby traps.3 Similarly, in a report submitted by the
defendant to its stockholders dated August 25, 1948, the following appears: "Your Directors take
pleasure in reporting that June 26, 1948 marked the official return to operations of this Company of
its properties in Mankayan, Mountain Province, Philippines."4

It is, therefore, clear from the foregoing that the Lepanto mines were liberated on August 1, 1945,
but because of the period of rehabilitation and reconstruction that had to be made as a result of the
destruction of the mill, power plant and other necessary equipment for its operation it cannot be said
that the suspension of the contract ended on that date. Hence, the contract must still be deemed
suspended during the succeeding years of reconstruction and rehabilitation, and this period can only
be said to have ended on June 26, 1948 when, as reported by the defendant, the company officially
resumed the mining operations of the Lepanto. It should here be stated that this period of
suspension from February, 1942 to June 26, 1948 is the one urged by plaintiff.5

It having been shown that the operation of the Lepanto mines on the part of Nielson had been
suspended during the period set out above within the purview of the management contract, the next
question that needs to be determined is the effect of such suspension. Stated in another way, the
question now to be determined is whether such suspension had the effect of extending the period of
the management contract for the period of said suspension. To elucidate this matter, we again need
to resort to the evidence.

For appellant Nielson two witnesses testified, declaring that the suspension had the effect of
extending the period of the contract, namely, George T. Scholey and Mark Nestle. Scholey was a
mining engineer since 1929, an incorporator, general manager and director of Nielson and
Company; and for some time he was also the vice-president and director of the Lepanto Company
during the pre-war days and, as such, he was an officer of both appellant and appellee companies.
As vice-president of Lepanto and general manager of Nielson, Scholey participated in the
negotiation of the management contract to the extent that he initialed the same both as witness and
as an officer of both corporations. This witness testified in this case to the effect that the
standard force majeure clause embodied in the management contract was taken from similar mining
contracts regarding mining operations and the understanding regarding the nature and effect of said
clause was that when there is suspension of the operation that suspension meant the extension of
the contract. Thus, to the question, "Before the war, what was the understanding of the people in the
particular trend of business with respect to the force majeure clause?", Scholey answered: "That was
our understanding that the suspension meant the extension of time lost."6
Mark Nestle, the other witness, testified along similar line. He had been connected with Nielson
since 1937 until the time he took the witness stand and had been a director, manager, and president
of the same company. When he was propounded the question: "Do you know what was the custom
or usage at that time in connection 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 rated is suspended but that, however, he expressed the belief
that the period was extended because of the provision contained therein suspending the effects
thereof should any of the case of force majeure happen like in the present case, and that even if
such provision did not exist the law would have the effect of suspending it on account of the war. In
substance, Atty. DeWitt expressed the opinion that as a result of the suspension of the mining
operation because of the effects of the war the period of the contract had been extended.

Contrary to what appellant's evidence reflects insofar as the interpretation of the force
majeure clause is concerned, however, appellee gives Us an opposite interpretation invoking in
support thereof not only a letter Atty. DeWitt sent to Nielson on October 20, 1945,9 wherein he
expressed for the first time an opinion contrary to what he reported to the Board of Directors of
Lepanto Company as stated in the portion of the minutes of its Board of Directors as quoted above,
but also the ruling laid down by our Supreme Court in some cases decided sometime ago, to the
effect that the war does not have the effect of extending the term of a contract that the parties may
enter into regarding a particular transaction, citing in this connection the cases of Victorias Planters
Association v. Victorias Milling Company, 51 O.G. 4010; Rosario S. Vda. de Lacson, et al. v.
Abelardo G. Diaz, 87 Phil. 150; 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 ancilliary to the ascertainment of
the meaning intended by the parties. And once this intention has been ascertained it becomes an
integral part of the contract as though it had been originally expressed therein in unequivocal terms
(Shoreline Oil Corp. v. Guy, App. 189, So., 348, cited in 17A C.J.S., p. 47). How is this intention
determined?

One pattern is to ascertain the contemporaneous and subsequent acts of the contracting parties in
relation to the transaction under consideration (Article 1371, Civil Code). In this particular case, it is
worthy of note what Atty. C. A. DeWitt has stated in the special meeting of the Board of Directors of
Lepanto in the portion of the minutes already quoted above wherein, as already stated, he
expressed the opinion that the life of the contract, if not extended, would last only until January, 1947
and yet he said that there is a provision in the contract that the war had the effect of suspending the
agreement and that the effect of that suspension was that the agreement would have to continue
with the result that Lepanto would have to pay the monthly retaining fee of P2,500.00. And this belief
that the war suspended the agreement and that the suspension meant its extension was so firm that
he went to the extent that even if there was no provision for suspension in the agreement the law
itself would suspend it.

It is true that Mr. DeWitt later sent a letter to Nielson dated October 20, 1945 wherein apparently he
changed his mind because there he stated that the contract was merely suspended, but not
extended, by reason of the war, contrary to the opinion he expressed in the meeting of the Board of
Directors already adverted to, but between the two opinions of Atty. DeWitt We are inclined to give
more weight and validity to the former not only because such was given by him against his own
interest but also because it was given before the Board of Directors of Lepanto and in the presence,
of some Nielson officials 10 who, on that occasion were naturally led to believe that that was the true
meaning of the suspension clause, while the second opinion was merely self-serving and was given
as a mere afterthought.

Appellee also claims that the issue of true intent of the parties was not brought out in the complaint,
but anent this matter suffice it to state that in paragraph No. 19 of the complaint appellant pleaded
that the contract was extended. 11 This is a sufficient allegation considering that the rules on
pleadings must as a rule be liberally construed.

It is likewise noteworthy that in this issue of the intention of the parties regarding the meaning and
usage concerning the force majeure clause, the testimony adduced by appellant is uncontradicted. If
such were not true, appellee should have at least attempted to offer contradictory evidence. This it
did not do. Not even Lepanto's President, Mr. V. E. Lednicky who took the witness stand,
contradicted said evidence.

In holding that the suspension of the agreement meant the extension of the same for a period
equivalent to the suspension, We do not have the least intention of overruling the cases cited by
appellee. We simply want to say that the ruling laid down in said cases does not apply here because
the material facts involved therein are not the same as those obtaining in the present. The rule
of stare decisis cannot be invoked where there is no analogy between the material facts of the
decision relied upon and those of the instant case.
Thus, in Victorias Planters Association vs. Victorias Milling Company, 51 O.G. 4010, there was no
evidence at all regarding the intention of the parties to extend the contract equivalent to the period of
suspension caused by the war. Neither was there evidence that the parties understood the
suspension to mean extension; nor was there evidence of usage and custom in the industry that the
suspension meant the extension of the agreement. All these matters, however, obtain in the instant
case.

Again, in the case of Rosario S. Vda. de Lacson vs. Abelardo G. Diaz, 87 Phil. 150, the issue
referred to the interpretation of a pre-war contract of lease of sugar cane lands and the liability of the
lessee to pay rent during and immediately following the Japanese occupation and where the
defendant claimed the right of an extension of the lease to make up for the time when no cane was
planted. This Court, in holding that the years which the lessee could not use the land because of the
war could not be discounted from the period agreed upon, held that "Nowhere is there any
insinuation that the defendant-lessee was to have possession of lands for seven years excluding
years on which he could not harvest sugar." Clearly, this ratio decidendi is not applicable to the case
at bar wherein there is evidence that the parties understood the "suspension clause by force
majeure" to mean the extension of the period of agreement.

Lastly, in the case of Lo Ching y So Young Chong Co. vs. Court of Appeals, et al., 81 Phil. 601,
appellant leased a building from appellee beginning September 13, 1940 for three years, renewable
for two years. The lessee's possession was interrupted in February, 1942 when he was ousted by
the Japanese who turned the same over to German Otto Schulze, the latter occupying the same
until January, 1945 upon the arrival of the liberation forces. Appellant contended that the period
during which he did not enjoy the leased premises because of his dispossession by the Japanese
had to be deducted from the period of the lease, but this was overruled by this Court, reasoning that
such dispossession was merely a simple "perturbacion de merohecho y de la cual no responde el
arrendador" under Article 1560 of the old Civil Code Art. 1664). This ruling is also not applicable in
the instant case because in that case there was no evidence of the intention of the parties that any
suspension of the lease by force majeure would be understood to extend the period of the
agreement.

In resume, there is sufficient justification for Us to conclude that the cases cited by appellee are
inapplicable because the facts therein involved do not run parallel to those obtaining in the present
case.

We shall now consider appellee's defense of laches. Appellee is correct in its contention that the
defense of laches applies independently of prescription. Laches is different from the statute of
limitations. Prescription is concerned with the fact of delay, whereas laches is concerned with the
effect of delay. Prescription is a matter of time; laches is principally a question of inequity of
permitting a claim to be enforced, this inequity being founded on some change in the condition of the
property or the relation of the parties. Prescription is statutory; laches is not. Laches applies in
equity, whereas prescription applies at law. Prescription is based on fixed time, laches is not. (30
C.J.S., p. 522; See also Pomeroy's Equity Jurisprudence, Vol. 2, 5th ed., p. 177).

The question to determine is whether appellant Nielson is guilty of laches within the meaning
contemplated by the authorities on the matter. In the leading case of Go Chi Gun, et al. vs. Go Cho,
et al., 96 Phil. 622, this Court enumerated the essential elements of laches as follows:

(1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the
situation of which complaint is made and for which the complaint seeks a remedy; (2) delay
in asserting the complainant's rights, the complainant having had knowledge or notice of the
defendant's conduct and having been afforded an opportunity to institute a suit; (3) lack of
 knowledge or notice on the part of the defendant that the complainant would assert the right
on which he bases his suit; and (4) injury or prejudice to the defendant in the event relief is
accorded to the complainant, or the suit is not held barred.

Are these requisites present in the case at bar?

The first element is conceded by appellant Nielson when it claimed that defendant refused to pay its
management fees, its percentage of profits and refused to allow it to resume the management
operation.

Anent the second element, while it is true that appellant Nielson knew since 1945 that appellee
Lepanto has refused to permit it to resume management and that since 1948 appellee has resumed
operation of the mines and it filed its complaint only on February 6, 1958, there being apparent delay
in filing the present action, We find the delay justified and as such cannot constitute laches. It
appears that appellant had not abandoned its right to operate the mines for even before the
termination of the suspension of the agreement as early as January 20, 194612 and even before
March 10, 1945, it already claimed its right to the extension of the contract,13 and it pressed its claim
for the balance of its share in the profits from the 1941 operation14 by reason of which negotiations
had taken place for the settlement of the claim15 and it was only on June 25, 1957 that appellee
finally denied the claim. There is, therefore, only a period of less than one year that had elapsed
from the date of the final denial of the claim to the date of the filing of the complaint, which certainly
cannot be considered as unreasonable delay.

The third element of laches is absent in this case. It cannot be said that appellee Lepanto did not
know that appellant would assert its rights on which it based suit. The evidence shows that Nielson
had been claiming for some time its rights under the contract, as already shown above.

Neither is the fourth element present, for if there has been some delay in bringing the case to court it
was mainly due to the attempts at arbitration and negotiation made by both parties. If Lepanto's
documents were lost, it was not caused by the delay of the filing of the suit but because of the war.

Another reason why appellant Nielson cannot be held guilty of laches is that the delay in the filing of
the complaint in the present case was the inevitable of the protracted negotiations between the
parties concerning the settlement of their differences. It appears that Nielson asked for
arbitration16 which was granted. A committee consisting of Messrs. DeWitt, Farnell and Blessing was
appointed to act on said differences but Mr. DeWitt always tried to evade the issue17 until he was
taken ill and died. Mr. Farnell offered to Nielson the sum of P13,000.58 by way of compromise of all
its claim arising from the management contract18 but apparently the offer was refused. Negotiations
continued with the exchange of letters between the parties but with no satisfactory result.19 It can be
said that the delay due to protracted negotiations was caused by both parties. Lepanto, therefore,
cannot be permitted to take advantage of such delay or to question the propriety of the action taken
by Nielson. The defense of laches is an equitable one and equity should be applied with an even
hand. A person will not be permitted to take advantage of, or to question the validity, or propriety of,
any act or omission of another which was committed or omitted upon his own request or was caused
by his conduct (R. H. Stearns Co. vs. United States, 291 U.S. 54, 78 L. Ed. 647, 54 S. Ct., 325;
United States vs. Henry Prentiss & Co., 288 U.S. 73, 77 L. Ed., 626, 53 S. Ct., 283).

Had the action of Nielson prescribed? The court a quo held that the action of Nielson is already
barred by the statute of limitations, and that ruling is now assailed by the appellant in this appeal. In
urging that the court a 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, this question must first be elucidated before the main issue is
discussed.

The facts relative to the matter of profit sharing follow: In the management contract entered into
between the parties on January 30, 1937, which was renewed for another five years, it was
stipulated that Nielson would receive a compensation of P2,500.00 a month plus 10% of the net
profits from the operation of the properties for the preceding month. In 1940, a dispute arose
regarding the computation of the 10% share of Nielson in the profits. The Board of Directors of
Lepanto, realizing that the mechanics of the contract was unfair to Nielson, authorized its President
to enter into an agreement with Nielson modifying the pertinent provision of the contract effective
January 1, 1940 in such a way that Nielson shall receive (1) 10% of the dividends declared and paid,
when and as paid, during the period of the contract and at the end of each year, (2) 10% of any
depletion reserve that may be set up, and (3) 10% of any amount expended during the year out of
surplus earnings for capital account. 20 Counsel for the appellee admitted during the trial that the
extract of the minutes as found in Exhibit B is a faithful copy from the original. 21 Mr. George Scholey
testified that the foregoing modification was agreed upon. 22

Lepanto claims that this new basis of computation should be rejected (1) because the contract was
clear on the point of the 10% share and it was so alleged by Nielson in its complaint, and (2) the
minutes of the special meeting held on August 21, 1940 was not signed.

It appearing that the issue concerning the sharing of the profits had been raised in appellant's
complaint and evidence on the matter was introduced 23 the same can be taken into account even if
no amendment of the pleading to make it conform to the evidence has been made, for the same is
authorized by Section 4, Rule 17, of the old Rules of Court (now Section 5, Rule 10, of the new
Rules of Court).

Coming now to the question of prescription raised by defendant Lepanto, it is contended by the latter
that the period to be considered for the prescription of the claim regarding participation in the profits
is only four years, because the modification of the sharing embodied in the management contract is
merely verbal, no written document to that effect having been presented. This contention is
untenable. The modification appears in the minutes of the special meeting of the Board of Directors
of Lepanto held on August 21, 1940, it having been made upon the authority of its President, and in
said minutes the terms of the modification had been specified. This is sufficient to have the
agreement considered, for the purpose of applying the statute of limitations, as a written contract
even if the minutes were not signed by the parties (3 A.L.R., 2d, p. 831). It has been held that a
writing containing the terms of a contract if adopted by two persons may constitute a contract in
writing even if the same is not signed by either of the parties (3 A.L.R., 2d, pp. 812-813). Another
authority says that an unsigned agreement the terms of which are embodied in a document
unconditionally accepted by both parties is a written contract (Corbin on Contracts, Vol. 1, p. 85)

The modification, therefore, made in the management contract relative to the participation in the
profits by appellant, as contained in the minutes of the special meeting of the Board of Directors of
Lepanto held on August 21, 1940, should be considered as a written contract insofar as the
application of the statutes of limitations is concerned. Hence, the action thereon prescribes within ten
(10) years pursuant to Section 43 of Act 190.
Coming now to the facts, We find that the right of Nielson to its 10% participation in the 1941
operations accrued on December 21, 1941 and the right to commence an action thereon began on
January 1, 1942 so that the action must be brought within ten (10) years from the latter date. It is
true that the complaint was filed only on February 6, 1958, that is sixteen (16) years, one (1) month
and five (5) days after the right of action accrued, but the action has not yet prescribed for various
reasons which We will hereafter discuss.

The first reason is the operation of the Moratorium Law, for appellant's claim is undeniably a claim
for money. Said claim accrued on December 31, 1941, and Lepanto is a war sufferer. Hence the
claim was covered by Executive Order No. 32 of March 10, 1945. It is well settled that the operation
of the Moratorium Law suspends the running of the statue of limitations (Pacific Commercial Co. vs.
Aquino, G.R. No. L-10274, February 27, 1957).

This Court has held that the Moratorium Law had been enforced for eight (8) years, two (2) months
and eight (8) days (Tioseco vs. Day, et al., L-9944, April 30, 1957; Levy Hermanos, Inc. vs. Perez, L-
14487, April 29, 1960), and deducting this period from the time that had elapsed since the accrual of
the right of action to the date of the filing of the complaint, the extent of which is sixteen (16) years,
one (1) month and five (5) days, we would have less than eight (8) years to be counted for purposes
of prescription. Hence appellant's action on its claim of 10% on the 1941 profits had not yet
prescribed.

Another reason that may be taken into account in support of the no-bar theory of appellant is the
arbitration clause embodied in the management contract which requires that any disagreement as to
any amount of profits before an action may be taken to court shall be subject to arbitration. 24 This
agreement to arbitrate is valid and binding. 25 It cannot be ignored by Lepanto. Hence Nielson could
not bring an action on its participation in the 1941 operations-profits until the condition relative to
arbitration had been first complied with. 26 The evidence shows that an arbitration committee was
constituted but it failed to accomplish its purpose on June 25, 1957. 27 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 amounting to P19,764.70.

With regard to the first claim, the Lepanto's report for the calendar year of 1954 28 shows that it
declared a 10% cash dividend in December, 1941, the amount of which is P175,000.00. The
evidence in this connection (Exhibits L and O) was admitted without objection by counsel for
Lepanto. 29 Nielson claims 10% share in said amount with interest thereon at 6% per annum. The
document (Exhibit L) was even recognized by Lepanto's President V. L. Lednicky, 30 and this claim is
predicated on the provision of paragraph V of the management contract as modified pursuant to the
proposal of Lepanto at the special meeting of the Board of Directors on August 21, 1940 (Exh. B),
whereby it was provided that Nielson would be entitled to 10% of any dividends to be declared and
paid during the period of the contract.

With regard to the second claim, Nielson admits that there is no evidence regarding the amount set
aside by Lepanto for depletion reserve for 1941 31 and so the 10% participation claimed thereon
cannot be assessed.

Anent the third claim relative to the 10% participation of Nielson on the sum of P197,647.08, which
appears in Lepanto's annual report for 1948 32 and entered as profit for prior years in the statement
of income and surplus, which amount consisted "almost in its entirety of proceeds of copper
concentrates shipped to the United States during 1947," this claim should to denied because the
amount is not "dividend declared and paid" within the purview of the management contract.

The fifth assignment of error of appellant refers to the failure of the lower court to order Lepanto to
pay its management fees for January, 1942, and for the full period of extension amounting to
P150,000.00, or P2,500.00 a month for sixty (60) months, — a total of P152,500.00 — with interest
thereon from the date of judicial demand.

It is true that the claim of management fee for January, 1942 was not among the causes of action in
the complaint, but inasmuch as the contract was suspended in February, 1942 and the management
fees asked for included that of January, 1942, the fact that such claim was not included in a specific
manner in the complaint is of no moment because an appellate court may treat the pleading as
amended to conform to the evidence where the facts show that the plaintiff is entitled to relief other
than what is asked for in the complaint (Alonzo vs. Villamor, 16 Phil. 315). The evidence shows that
the last payment made by Lepanto for management fee was for November and December,
1941. 33 If, as We have declared, the management contract was suspended beginning February
1942, it follows that Nielson is entitled to the management fee for January, 1942.

Let us now come to the management fees claimed by Nielson for the period of extension. In this
respect, it has been shown that the management contract was extended from June 27, 1948 to June
26, 1953, or for a period of sixty (60) months. During this period Nielson had a right to continue in
the management of the mining properties of Lepanto and Lepanto was under obligation to let
Nielson do it and to pay the corresponding management fees. Appellant Nielson insisted in
performing its part of the contract but Lepanto prevented it from doing so. Hence, by virtue of Article
1186 of the Civil Code, there was a constructive fulfillment an the part of Nielson of its obligation to
manage said mining properties in accordance with the contract and Lepanto had the reciprocal
obligation to pay the corresponding management fees and other benefits that would have accrued to
Nielson if Lepanto allowed it (Nielson) to continue in the management of the mines during the
extended period of five (5) years.

We find that the preponderance of evidence is to the effect that Nielson had insisted in managing the
mining properties soon after liberation. In the report 34 of Lepanto, submitted to its stockholders for
the period from 1941 to March 13, 1946, are stated the activities of Nielson's officials in relation to
Nielson's insistence in continuing the management. This report was admitted in evidence without
objection. We find the following in the report:

Mr. Blessing, in May, 1945, accompanied Clark and Stanford to San Fernando (La Union) to await
the liberation of the mines. (Mr. Blessing was the Treasurer and Metallurgist of Nielson). Blessing
with Clark and Stanford went to the property on July 16 and found that while the mill site had been
cleared of the enemy the latter was still holding the area around the staff houses and putting up a
strong defense. As a result, they returned to San Fernando and later went back to the mines on July
26. Mr. Blessing made the report, dated August 6, recommending a program of operation. Mr.
Nielson himself spent a day in the mine early in December, 1945 and reiterated the program which
Mr. Blessing had outlined. Two or three weeks before the date of the report, Mr. Coldren of the
Nielson organization also visited the mine and told President C. A. DeWitt of Lepanto that he thought
that the mine could be put in condition for the delivery of the ore within ten (10) days. And according
to Mark Nestle, a witness of appellant, Nielson had several men including engineers to do the job in
the mines and to resume the work. These engineers were in fact sent to the mine site and submitted
reports of what they had done. 35

On the other hand, appellee claims that Nielson was not ready and able to resume the work in the
mines, relying mainly on the testimony of Dr. Juan Nabong, former secretary of both Nielson and
Lepanto, given in the separate case of Nancy Irving Romero vs. Lepanto Consolidated Mining
Company (Civil Case No. 652, CFI, Baguio), to the effect that as far as he knew "Nielson and
Company had not attempted to operate the Lepanto Consolidated Mining Company because Mr.
Nielson was not here in the Philippines after the last war. He came back later," and that Nielson and
Company had no money nor stocks with which to start the operation. He was asked by counsel for
the appellee if he had testified that way in Civil Case No. 652 of the Court of First Instance of
Baguio, and he answered that he did not confirm it fully. When this witness was asked by the same
counsel whether he confirmed that testimony, he said that when he testified in that case he was not
fully aware of what happened and that after he learned more about the officials of the corporation it
was only then that he became aware that Nielson had really sent his men to the mines along with
Mr. Blessing and that he was aware of this fact personally. He further said that Mr. Nielson was here
in 1945 and "he was going out and contacting his people." 36

Lepanto admits, in its own brief, that Nielson had really insisted in taking over the management and
operation of the mines but that it (Lepanto) unequivocally refuse to allow it. The following is what
appears in the brief of the appellee:

It was while defendant was in the midst of the rehabilitation work which was fully described
earlier, still reeling under the terrible devastation and destruction wrought by war on its mine
that Nielson insisted in taking over the management and operation of the mine. Nielson thus
put Lepanto in a position where defendant, under the circumstances, had to refuse, as in fact
it did, Nielson's insistence in taking over the management and operation because, as was
obvious, it was impossible, as a result of the destruction of the mine, for the plaintiff to
manage and operate the same and because, as provided in the agreement, the contract was
suspended by reason of the war. The stand of Lepanto in disallowing Nielson to assume
again the management of the mine in 1945 was unequivocal and cannot be
misinterpreted, infra.37

Based on the foregoing facts and circumstances, and Our conclusion that the management contract
was extended, We believe that Nielson is entitled to the management fees for the period of
extension. Nielson should be awarded on this claim sixty times its monthly pay of P2,500.00, or a
total of P150,000.00.

In its sixth assignment of error Nielson contends that the lower court erred in not ordering Lepanto to
pay it (Nielson) the 10% share in the profits of operation realized during the period of five (5) years
from the resumption of its post-war operations of the Mankayan mines, in the total sum of
P2,403,053.20 with interest thereon at the rate of 6% per annum from February 6, 1958 until full
payment. 38

The above claim of Nielson refers to four categories, namely: (1) cash dividends; (2) stock dividends;
(3) depletion reserves; and (4) amount expended on capital investment.

Anent the first category, Lepanto's report for the calendar year 1954 39 contains a record of the cash
dividends it paid up to the date of said report, and the post-war dividends paid by it corresponding to
the years included in the period of extension of the management contract are as follows:

POST-WAR

8 10% November 1949 P 200,000.00

9 10% July 1950 300,000.00

 10 10% October 1950 500,000.00

11 20% December 1950 1,000,000.00

12 20% March 1951 1,000,000.00

13 20% June 1951 1,000,000.00

14 20% September 1951 1,000,000.00

15 40% December 1951 2,000,000.00

16 20% March 1952 1,000,000.00

17 20% May 1952 1,000,000.00

18 20% July 1952 1,000,000.00

19 20% September 1952 1,000,000.00

20 20% December 1952 1,000,000.00

21 20% March 1953 1,000,000.00

22 20% June 1953 1,000,000.00

TOTAL P14,000,000.00

According to the terms of the management contract as modified, appellant is entitled to 10% of the
P14,000,000.00 cash dividends that had been distributed, as stated in the above-mentioned report,
or the sum of P1,400,000.00.

With regard to the second category, the stock dividends declared by Lepanto during the period of
extension of the contract are: On November 28, 1949, the stock dividend declared was 50% of the
outstanding authorized capital of P2,000,000.00 of the company, or stock dividends worth
P1,000,000.00; and on August 22, 1950, the stock dividends declared was 66-2/3% of the standing
authorized capital of P3,000,000.00 of the company, or stock dividends worth P2,000,000.00. 40

Appellant's claim that it should be given 10% of the cash value of said stock dividends with interest
thereon at 6% from February 6, 1958 cannot be granted for that would not be in accordance with the
management contract which entitles Nielson to 10% of any dividends declared paid, when and as
paid. Nielson, therefore, is entitled to 10% of the stock dividends and to the fruits that may have
accrued to said stock dividends pursuant to Article 1164 of the Civil Code. Hence to Nielson is due
shares of stock worth P100,000.00, as per stock dividends declared on November 28, 1949 and all
the fruits accruing to said shares after said date; and also shares of stock worth P200,000.00 as per
stock dividends declared on August 20, 1950 and all fruits accruing thereto after said date.

Anent the third category, the depletion reserve appearing in the statement of income and surplus
submitted by Lepanto corresponding to the years covered by the period of extension of the contract,
may be itemized as follows:

In 1948, as per Exh. F, p. 36 and Exh. Q, p. 5, the depletion reserve set up was P11,602.80.
 In 1949, as per Exh. G, p. 49 and Exh. Q, p. 5, the depletion reserve set up was P33,556.07.

In 1950, as per Exh. H, p. 37, Exh. Q, p. 6 and Exh. I, p. 37, the depletion reserve set up was
P84,963.30.

In 1951, as per Exh. I, p. 45, Exh. Q, p. 6, and Exh. J, p. 45, the depletion reserve set up was
P129,089.88.

In 1952, as per Exh. J, p. 45, Exh. Q, p. 6 and Exh. K p. 41, the depletion reserve was
P147,141.54.

In 1953, as per Exh. K, p. 41, and Exh. Q, p. 6, the depletion reserve set up as P277,493.25.

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

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

Finally, with regard to the fourth category, there is no figure in the record representing the value of
the fixed assets as of the beginning of the period of extension on June 27, 1948. It is possible,
however, to arrive at the amount needed by adding to the value of the fixed assets as of December
31, 1947 one-half of the amount spent for capital account in the year 1948. As of December 31,
1947, the value of the fixed assets was P1,061,878.88 41 and as of December 31, 1948, the value of
the fixed assets was P3,270,408.07. 42 Hence, the increase in the value of the fixed assets for the
year 1948 was P2,208,529.19, 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 beginning of the second half of the year
1948.

There is also no figure representing the value of the fixed assets when the contract, as extended,
ended on June 26, 1953; but this may be computed by getting one-half of the expenses for capital
account made in 1953 and adding the same to the value of the fixed assets as of December 31,
1953 is P9,755,840.41 43 which the value of the fixed assets as of December 31, 1952 is
P8,463,741.82, the difference being P1,292,098.69. One-half of this amount is P646,049.34 which
would represent the expenses for capital account up to June, 1953. This amount added to the value
of the fixed assets as of December 31, 1952 would give a total of P9,109,791.16 which would be the
value of fixed assets at the end of June, 1953.

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 hereinbelow:

(1) 10% share of cash dividends of December, 1941 in the amount of P17,500.00, with legal interest
thereon from the date of the filing of the complaint;

(2) management fee for January, 1942 in the amount of P2,500.00, with legal interest thereon from
the date of the filing of the complaint;

(3) management fees for the sixty-month period of extension of the management contract,
amounting to P150,000.00, with legal interest from the date of the filing of the complaint;

(4) 10% share in the cash dividends during the period of extension of the management contract,
amounting to P1,400,000.00, with legal interest thereon from the date of the filing of the complaint;

(5) 10% of the depletion reserve set up during the period of extension, amounting to P53,928.88,
with legal interest thereon from the date of the filing of the complaint;

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

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

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

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

(9) the costs. It is so ordered.

G.R. No. L-41182-3 April 16, 1988

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

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

SARMIENTO , J.:

The petitioners invoke the provisions on human relations of the Civil Code in this appeal by certiorari. The facts are beyond dispute:

xxx xxx xxx

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

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

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

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

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

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

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

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

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

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

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

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

VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT APPELLANT

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

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

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

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

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

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

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

eminent eye, ear and nose specialist as well as a imediately
columnist had been in the travel business prior to the establishment
of the joint business venture with appellee Tourist World Service, Inc.
and appellee Eliseo Canilao, her compadre, she being the godmother
 of one of his children, with her own clientele, coming mostly from her
own social circle (pp. 3-6 tsn. February 16,1965).

2. Appellant Mrs. Sevilla was signatory to a lease agreement dated

19 October 1960 (Exh. 'A') covering the premises at A. Mabini St.,
she expressly warranting and holding [sic] herself 'solidarily' liable
with appellee Tourist World Service, Inc. for the prompt payment of
the monthly rentals thereof to other appellee Mrs. Noguera (pp. 14-
15, tsn. Jan. 18,1964).

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

4. Appellant Mrs. Sevilla earned commissions for her own

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

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

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

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

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

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

xxx xxx xxx

The trial court2 held for the private respondent 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 mere employee of said
Tourist World Service, Inc. and as such, she was bound by the acts of her employer. 4 The
respondent Court of Appeal 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 ... WITHOUT NOTIFYING MRS. LINA O. SEVILLA OR ANY OF HER EMPLOYEES AND
WITHOUT INFORMING COUNSEL FOR THE APPELLANT (SEVILIA), WHO IMMEDIATELY
BEFORE THE PADLOCKING INCIDENT, WAS IN CONFERENCE WITH THE CORPORATE
SECRETARY OF TOURIST WORLD SERVICE (ADMITTEDLY THE PERSON WHO PADLOCKED
THE SAID OFFICE), IN THEIR ATTEMP AMICABLY SETTLE THE CONTROVERSY BETWEEN
THE APPELLANT (SEVILLA) AND THE TOURIST WORLD SERVICE ... (DID NOT) ENTITLE THE
LATTER TO THE RELIEF OF DAMAGES" (ANNEX "A" PP. 7,8 AND ANNEX "B" P. 2) DECISION
AGAINST DUE PROCESS WHICH ADHERES TO THE RULE OF LAW.

II

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

III

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

IV

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

As a preliminary inquiry, the Court is asked to declare the true nature of the relation between Lina
Sevilla and Tourist World Service, Inc. The respondent Court of see fit to rule on the question, the
crucial issue, in its opinion being "whether or not the padlocking of the premises by the Tourist World
Service, Inc. without the knowledge and consent of the appellant Lina Sevilla entitled the latter to the
relief of damages prayed for and whether or not the evidence for the said appellant supports the
contention that the appellee Tourist World Service, Inc. unilaterally and without the consent of the
appellant disconnected the telephone lines of the Ermita branch office of the appellee Tourist World
Service, Inc.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 between parties was one of joint venture, but concede
that "whatever might have been the true relationship between Sevilla and Tourist World Service," the
Rule of Law enjoined Tourist World Service and Canilao from taking the law into their own hands, 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 evidence of an employer-
employee relation. In general, we have relied on the so-called right of control test, "where the person
for whom the services are performed reserves a right to control not only the end to be achieved but
also the means to be used in reaching such end." 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
Worlds Ermita office, she had bound herself in solidum as and for rental payments, an arrangement
that would be like claims of a master-servant relationship. True the respondent Court would later
minimize her participation in the lease as one of mere guaranty, 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 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. 17in 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, pre-assumed her principal's authority as owner of the business undertaking.
We are convinced, considering the circumstances and from the respondent Court's recital of facts,
that the ties had contemplated a principal agent relationship, rather than a joint managament or a
partnership..

But unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible
with the intent of the parties, cannot be revoked at will. The reason is that it is one coupled with an
interest, the agency having been created for mutual interest, of the agent and the principal. 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 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 reconnected. Assuming, therefore, that it had no hand
in the disconnection now complained of, it had clearly condoned it, and as owner of the telephone
lines, it must shoulder responsibility therefor.

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

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

It was only on June 4, 1962, and after office hours significantly, that the Ermita office was padlocked,
personally by the respondent Canilao, on the pretext that it was necessary to Protect the interests of
the Tourist World Service. " 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 not
pretend that it sought to locate Sevilla to inform her of the closure, but surely, it was aware that after office
hours, she could not have been anywhere near the premises. Capping these series of "offensives," it cut the office's telephone lines,
paralyzing completely its business operations, and in the process, depriving Sevilla articipation therein.

This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish Sevillsa it
had perceived to be disloyalty on her part. It is offensive, in any event, to elementary norms of justice
and fair play.

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

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

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

ART. 2219. Moral damages25 may be recovered in the following and analogous
cases:

xxx xxx xxx

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

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

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

The Court considers the sums of P25,000.00 as and for moral damages,24 P10,000.00 as
exemplary damages, 25 and P5,000.00 as nominal 26 and/or temperate27 damages, to be just, fair, and
reasonable under the circumstances.

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

Costs against said private respondents.

SO ORDERED.

G.R. No. L-34338 November 21, 1984

LOURDES VALERIO LIM, petitioner,
vs.
PEOPLE OF THE PHILIPPINES, respondent.

RELOVA, J.:

Petitioner Lourdes Valerio Lim was found guilty of the crime of estafa and was sentenced "to suffer
an imprisonment of four (4) months and one (1) day as minimum to two (2) years and four (4)
months as maximum, to indemnify the offended party in the amount of P559.50, with subsidize
imprisonment in case of insolvency, and to pay the costs." (p. 14, Rollo)

From this judgment, appeal was taken to the then Court of Appeals which affirmed the decision of
the lower court but modified the penalty imposed by sentencing her "to suffer an indeterminate
penalty of one (1) month and one (1) day of arresto mayor as minimum to one (1) year and one (1)
day of prision correccional as maximum, to indemnify the complainant in the amount of P550.50
without subsidiary imprisonment, and to pay the costs of suit." (p. 24, Rollo)

The question involved in this case is whether the receipt, Exhibit "A", is a contract of agency to sell
or a contract of sale of the subject tobacco between petitioner and the complainant, Maria de
Guzman Vda. de Ayroso, thereby precluding criminal liability of petitioner for the crime charged.

The findings of facts of the appellate court are as follows:

... The appellant is a businesswoman. On January 10, 1966, the appellant went to
the house of Maria Ayroso and proposed to sell Ayroso's tobacco. Ayroso agreed to
the proposition of the appellant to sell her tobacco consisting of 615 kilos at P1.30 a
kilo. The appellant was to receive the overprice for which she could sell the tobacco.
This agreement was made in the presence of plaintiff's sister, Salud G. Bantug.
Salvador Bantug drew the document, Exh. A, dated January 10, 1966, which reads:

To Whom It May Concern:

This is to certify that I have received from Mrs. Maria de Guzman

Vda. de Ayroso. of Gapan, Nueva Ecija, six hundred fifteen kilos of
leaf tobacco to be sold at Pl.30 per kilo. The proceed in the amount of
Seven Hundred Ninety Nine Pesos and 50/100 (P 799.50) will be
given to her as soon as it was sold.

This was signed by the appellant and witnessed by the complainant's sister, Salud
Bantug, and the latter's maid, Genoveva Ruiz. The appellant at that time was
bringing a jeep, and the tobacco was loaded in the jeep and brought by the appellant.
Of the total value of P799.50, the appellant had paid to Ayroso only P240.00, and
this was paid on three different times. Demands for the payment of the balance of the
value of the tobacco were made upon the appellant by Ayroso, and particularly by
her sister, Salud Bantug. Salud Bantug further testified that she had gone to the
house of the appellant several times, but the appellant often eluded her; and that the
"camarin" the appellant was empty. Although the appellant denied that demands for
payment were made upon her, it is a fact that on October 19, 1966, she wrote a letter
to Salud Bantug which reads as follows:

Dear Salud,
 Hindi ako nakapunta dian noon a 17 nitong nakaraan, dahil kokonte
pa ang nasisingil kong pera, magintay ka hanggang dito sa linggo ito
at tiak na ako ay magdadala sa iyo. Gosto ko Salud ay
makapagbigay man lang ako ng marami para hindi masiadong
kahiyahiya sa iyo. Ngayon kung gosto mo ay kahit konte muna ay
bibigyan kita. Pupunta lang kami ni Mina sa Maynila ngayon. Salud
kung talagang kailangan mo ay bukas ay dadalhan kita ng pera.

Medio mahirap ang maningil sa palengke ng Cabanatuan dahil

nagsisilipat ang mga suki ko ng puesto. Huwag kang mabahala at
tiyak na babayaran kita.

Patnubayan tayo ng mahal na panginoon Dios. (Exh. B).

Pursuant to this letter, the appellant sent a money order for P100.00 on October 24,
1967, Exh. 4, and another for P50.00 on March 8, 1967; and she paid P90.00 on
April 18, 1967 as evidenced by the receipt Exh. 2, dated April 18, 1967, or a total of
P240.00. As no further amount was paid, the complainant filed a complaint against
the appellant for estafa. (pp. 14, 15, 16, Rollo)

In this petition for review by certiorari, Lourdes Valerio Lim poses the following questions of law, to
wit:

1. Whether or not the Honorable Court of Appeals was legally right in holding that the
foregoing document (Exhibit "A") "fixed a period" and "the obligation was therefore,
immediately demandable as soon as the tobacco was sold" (Decision, p. 6) as
against the theory of the petitioner that the obligation does not fix a period, but from
its nature and the circumstances it can be inferred that a period was intended in
which case the only action that can be maintained is a petition to ask the court to fix
the duration thereof;

2. Whether or not the Honorable Court of Appeals was legally right in holding that
"Art. 1197 of the New Civil Code does not apply" as against the alternative theory of
the petitioner that the fore. going receipt (Exhibit "A") gives rise to an obligation
wherein the duration of the period depends upon the will of the debtor in which case
the only action that can be maintained is a petition to ask the court to fix the duration
of the period; and

3. Whether or not the honorable Court of Appeals was legally right in holding that the
foregoing receipt is a contract of agency to sell as against the theory of the petitioner
that it is a contract of sale. (pp. 3-4, Rollo)

It is clear in the agreement, Exhibit "A", that the proceeds of the sale of the tobacco should be turned
over to the complainant as soon as the same was sold, or, that the obligation was immediately
demandable as soon as the tobacco was disposed of. Hence, Article 1197 of the New Civil Code,
which provides that the courts may fix the duration of the obligation if it does not fix a period, does
not apply.
Anent the argument that petitioner was not an agent because Exhibit "A" does not say that she
would be paid the commission if the goods were sold, the Court of Appeals correctly resolved the
matter as follows:

... Aside from the fact that Maria Ayroso testified that the appellant asked her to be
her agent in selling Ayroso's tobacco, the appellant herself admitted that there was
an agreement that upon the sale of the tobacco she would be given something. The
appellant is a businesswoman, and it is unbelievable that she would go to the extent
of going to Ayroso's house and take the tobacco with a jeep which she had brought if
she did not intend to make a profit out of the transaction. Certainly, if she was doing
a favor to Maria Ayroso and it was Ayroso who had requested her to sell her tobacco,
it would not have been the appellant who would have gone to the house of Ayroso,
but it would have been Ayroso who would have gone to the house of the appellant
and deliver the tobacco to the appellant. (p. 19, Rollo)

The fact that appellant received the tobacco to be sold at P1.30 per kilo and the proceeds to be
given to complainant as soon as it was sold, strongly negates transfer of ownership of the goods to
the petitioner. The agreement (Exhibit "A') constituted her as an agent with the obligation to return
the tobacco if the same was not sold.

ACCORDINGLY, the petition for review on certiorari is dismissed for lack of merit. With costs.

SO ORDERED.

.R. No. L-19265 May 29, 1964

MOISES SAN DIEGO, SR., petitioner,

vs.
ADELO NOMBRE and PEDRO ESCANLAR, respondents.

A. R. Castañeda and M. S. Roxas for petitioner.

Amado B. Parreño Law Office for respondents.

PAREDES, J.:

The case at bar had its origin in Special Proceedings No. 7279 of the CFI of Negros Occidental
wherein respondent Adelo Nombre was the duly constituted judicial administrator. On May 1, 1960,
Nombre, in his capacity was judicial administrator of the intestate estate subject of the Sp. Proc.
stated above, leased one of the properties of the estate (a fishpond identified as Lot No. 1617 of the
cadastral survey of Kabankaban, Negros Occidental), to Pedro Escanlar, the other respondent. The
terms of the lease was for three (3) years, with a yearly rental of P3,000.00 to expire on May 1,
1963, the transaction having been done, admittedly, without previous authority or approval of the
Court where the proceedings was pending. On January 17, 1961, Nombre was removed as
administrator by Order of the court and one Sofronio Campillanos was appointed in his stead. The
appeal on the Order of Nombre's removal is supposedly pending with the Court of Appeals.
Respondent Escanlar was cited for contempt, allegedly for his refusal to surrender the fishpond to
the newly appointed administrator. On March 20, 1961, Campillanos filed a motion asking for
authority to execute a lease contract of the same fishpond, in favor of petitioner herein, Moises San
Diego, Sr., for 5 years from 1961, at a yearly rental of P5,000.00. Escanlar was not notified of such
motion. Nombre, the deposed administrator, presented a written opposition to the motion of
Campillanos on April 11, 1964, pointing out that the fishpond had been leased by him to Escanlar for
3 years, the period of which was going to expire on May 1, 1963. In a supplemental opposition, he
also invited the attention of the Court that to grant the motion of the new administrator would in effect
nullify the contract in favor of Escanlar, a person on whom the Court had no jurisdiction. He also
intimated that the validity of the lease contract entered into by a judicial administrator, must be
recognized unless so declared void in a separate action. The opposition notwithstanding, the Court
on April 8, 1961, in effect declared that the contract in favor of Escanlar was null and void, for want
of judicial authority and that unless he would offer the same as or better conditions than the
prospective lessee, San Diego, there was no good reason why the motion for authority to lease the
property to San Diego should not be granted. Nombre moved to reconsider the Order of April 8,
stating that Escanlar was willing to increase the rental of P5,000.00, but only after the termination of
his original contract. The motion for reconsideration was denied on April 24, 1961, the trial judge
stating that the contract in favor of Escanlar was executed in bad faith and was fraudulent because
of the imminence of Nombre's removal as administrator, one of the causes of which was his
indiscriminate pleasant, of the property with inadequate rentals.

From this Order, a petition for Certiorari asking for the annulment of the Orders of April 8 and 24,
1961 was presented by Nombre and Escanlar with the Court of Appeals. A Writ of preliminary
injunction was likewise prayed for to restrain the new administrator Campillanos from possessing the
fishpond and from executing a new lease contract covering it; requiring him to return the possession
thereof to Escanlar, plus damages and attorney's fees in the amount of P10,000.00 and costs. The
Court of Appeals issued the injunctive writ and required respondents therein to Answer. Campillanos
insisted on the invalidity of the contract in favor of Escanlar; the lower court alleged that it did not
exactly annul or invalidate the lease in his questioned orders but suggested merely that Escanlar
"may file a separate ordinary action in the Court of general jurisdiction."

The Court of Appeals, in dismissing the petition for certiorari, among others said —

The controlling issue in this case is the legality of the contract of lease entered into by the
former administrator Nombre, and Pedro Escanlar on May 1, 1960.

Respondents contend that this contract, not having been authorized or approved by the
Court, is null and void and cannot be an obstacle to the execution of another of lease by the
new administrator, Campillanos. This contention is without merit. ... . It has been held that
even in the absence of such special powers, a contract or lease for more than 6 years is not
entirely invalid; it is invalid only in so far as it exceeds the six-year limit (Enrique v. Watson
Company, et al., 6 Phil. 84). 1

No such limitation on the power of a judicial administrator to grant a lease of property placed
under his custody is provided for in the present law. Under Article 1647 of the present Civil
Code, it is only when the lease is to be recorded in the Registry of Property that it cannot be
instituted without special authority. Thus, regardless of the period of lease, there is no need
of special authority unless the contract is to be recorded in the Registry of Property. As to
whether the contract in favor of Escanlar is to be so recorded is not material to our inquiry. 1äw phï1.ñët

On the contrary, Rule 85, Section 3, of the Rules of Court authorizes a judicial administrator,
among other things, to administer the estate of the deceased not disposed of by will.
Commenting on this Section in the light of several Supreme Court decisions (Jocson de
Hilado v. Nava, 69 Phil. 1; Gamboa v. Gamboa, 68 Phil. 304; Ferraris v. Rodas, 65 Phil. 732;
Rodriguez v. Borromeo, 43 Phil. 479), Moran says: "Under this provision, the executor or
administrator has the power of administering the estate of the deceased for purposes of
liquidation and distribution. He may, therefore, exercise all acts of administration without
special authority of the Court. For instance, he may lease the property without securing
previously any permission from the court. And where the lease has formally been entered
 into, the court cannot, in the same proceeding, annul the same, to the prejudice of the
lessee, over whose person it had no jurisdiction. The proper remedy would be a separate
action by the administrator or the heirs to annul the lease. ... .

On September 13, 1961, petitioner herein Moises San Diego, Sr., who was not a party in the case,
intervened and moved for a reconsideration of the above judgment. The original parties (the new
administrator and respondent judge) also filed Motions for reconsideration, but we do not find them
in the record. On November 18, 1961, the Court of Appeals denied the motions for reconsideration.
With the denial of the said motions, only San Diego, appealed therefrom, raising legal questions,
which center on "Whether a judicial administrator can validly lease property of the estate without
prior judicial authority and approval", and "whether the provisions of the New Civil Code on Agency
should apply to judicial administrators."

The Rules of Court provide that —

An executor or administrator shall have the right to the possession of the real as well as the
personal estate of the deceased so long as it is necessary for the payment of the debts and
the expenses of administration, and shall administer the estate of the deceased not disposed
of by his will. (Sec. 3, Rule 85, old Rules).

Lease has been considered an act of administration (Jocson v. Nava; Gamboa v. Gamboa;
Rodriguez v. Borromeo; Ferraris v. Rodas, supra).

The Civil Code, on lease, provides:

If a lease is to be recorded in the Registry of Property, the following persons cannot

constitute the same without proper authority, the husband with respect to the wife's
paraphernal real estate, the father or guardian as to the property of the minor or ward, and
the manager without special power. (Art. 1647).

The same Code, on Agency, states:

Special powers of attorneys are necessary in the following cases:

(8) To lease any real property to another person for more than one year. (Art. 1878)

Petitioner contends, that No. 8, Art. 1878 is the limitation to the right of a judicial administrator to
lease real property without prior court authority and approval, if it exceeds one year. The lease
contract in favor of Escanlar being for 3 years and without such court approval and authority is,
therefore, null and void. Upon the other hand, respondents maintain that there is no limitation of
such right; and that Article 1878 does not apply in the instant case.

We believe that the Court of Appeals was correct in sustaining the validity of the contract of lease in
favor of Escanlar, notwithstanding the lack of prior authority and approval. The law and prevailing
jurisprudence on the matter militates in favor of this view. While it may be admitted that the duties of
a judicial administrator and an agent (petitioner alleges that both act in representative capacity), are
in some respects, identical, the provisions on agency (Art. 1878, C.C.), should not apply to a judicial
administrator. A judicial administrator is appointed by the Court. He is not only the representative of
said Court, but also the heirs and creditors of the estate (Chua Tan v. Del Rosario, 57 Phil. 411). A
judicial administrator before entering into his duties, is required to file a bond. These circumstances
are not true in case of agency. The agent is only answerable to his principal. The protection which
the law gives the principal, in limiting the powers and rights of an agent, stems from the fact that
control by the principal can only be thru agreements, whereas the acts of a judicial administrator are
subject to specific provisions of law and orders of the appointing court. The observation of former
Chief Justice Moran, as quoted in the decision of the Court of Appeals, is indeed sound, and We are
not prone to alter the same, at the moment.

We, likewise, seriously doubt petitioner's legal standing to pursue this appeal. And, if We consider
the fact that after the expiration of the original period of the lease contract executed by respondent
Nombre in favor of Escanlar, a new contract in favor of said Escanlar, was executed on May 1, 1963,
by the new administrator Campillanos. who, incidentally, did not take any active participation in the
present appeal, the right of petitioner to the fishpond becomes a moot and academic issue, which
We need not pass upon.

WHEREFORE, the decision appealed from should be, as it is hereby affirmed, in all respects, with
costs against petitioner Moises San Diego, Sr.

G.R. No. L-40242 December 15, 1982

DOMINGA CONDE, petitioner,

vs.
THE HONORABLE COURT OF APPEALS, MANILA PACIENTE CORDERO, together with his
wife, NICETAS ALTERA, RAMON CONDE, together with his wife, CATALINA T.
CONDE, respondents.

MELENCIO-HERRERA, J.:

An appeal by certiorari from the Decision of respondent Court of Appeals 1 (CA-G.R. No. 48133- R)
affirming the judgment of the Court of First Instance of Leyte, Branch IX, Tacloban City (Civil Case No. B-
110), which dismissed petitioner's Complaint for Quieting of Title and ordered her to vacate the property
in dispute and deliver its possession to private respondents Ramon Conde and Catalina Conde.

The established facts, as found by the Court of Appeals, show that on 7 April 1938. Margarita
Conde, Bernardo Conde and the petitioner Dominga Conde, as heirs of Santiago Conde, sold with
right of repurchase, within ten (10) years from said date, a parcel of agricultural land located in
Maghubas Burauen Leyte, (Lot 840), with an approximate area of one (1) hectare, to Casimira
Pasagui, married to Pio Altera (hereinafter referred to as the Alteras), for P165.00. The "Pacto de
Retro Sale" further provided:

... (4) if at the end of 10 years the said land is not repurchased, a new agreement
shall be made between the parties and in no case title and ownership shall be vested
in the hand of the party of the SECOND PART (the Alteras).

xxx xxx xxx (Exhibit "B")

On 17 April 1941, the Cadastral Court of Leyte adjudicated Lot No. 840 to the Alteras "subject to the
right of redemption by Dominga Conde, within ten (10) years counting from April 7, 1983, after
returning the amount of P165.00 and the amounts paid by the spouses in concept of land tax ... "
(Exhibit "1"). Original Certificate of Title No. N-534 in the name of the spouses Pio Altera and
Casimira Pasagui, subject to said right of repurchase, was transcribed in the "Registration Book" of
the Registry of Deeds of Leyte on 14 November 1956 (Exhibit "2").
On 28 November 1945, private respondent Paciente Cordero, son-in-law of the Alteras, signed a
document in the Visayan dialect, the English translation of which reads:

MEMORANDUM OF REPURCHASE OVER A PARCEL OF LAND SOLD WITH

REPURCHASE WHICH DOCUMENT GOT LOST

WE, PIO ALTERA and PACIENTE CORDERO, both of legal age, and residents of
Burauen Leyte, Philippines, after having been duly sworn to in accordance with law
free from threats and intimidation, do hereby depose and say:

1. That I, PIO ALTERA bought with the right of repurchase two

parcels of land from DOMINGA CONDE, BERNARDO CONDE AND
MARGARITA CONDE, all brother and sisters.

2. That these two parcels of land were all inherited by the three.

3. That the document of SALE WITH THE RIGHT OF REPURCHASE

got lost in spite of the diligent efforts to locate the same which was
lost during the war.

4. That these two parcels of land which was the subject matter of a
Deed of Sale with the Right of Repurchase consists only of one
document which was lost.

5. Because it is about time to repurchase the land, I have allowed the

representative of Dominga Conde, Bernardo Conde and Margarita
Conde in the name of EUSEBIO AMARILLE to repurchase the same.

6. Now, this very day November 28, 1945, 1 or We have received

together with Paciente Cordero who is my son-in-law the amount of
ONE HUNDRED SIXTY-FIVE PESOS (P165. 00) Philippine Currency
of legal tender which was the consideration in that sale with the right
of repurchase with respect to the two parcels of land.

That we further covenant together with Paciente Cordero who is my son-in-law that
from this day the said Dominga Conde, Bernardo Conde and Margarita Conde will
again take possession of the aforementioned parcel of land because they
repurchased the same from me. If and when their possession over the said parcel of
land be disturbed by other persons, I and Paciente Cordero who is my son-in-law will
defend in behalf of the herein brother and sisters mentioned above, because the
same was already repurchased by them.

IN WITNESS WHEREOF, I or We have hereunto affixed our thumbmark or signature

to our respective names below this document or memorandum this 28th day of
November 1945 at Burauen Leyte, Philippines, in the presence of two witnesses.

PIO ALTERA (Sgd.) PACIENTE CORDERO

WITNESSES:

1. (SGD.) TEODORO C. AGUILLON

To be noted is the fact that neither of the vendees-a-retro, Pio Altera nor Casimira Pasagui, was a
signatory to the deed. Petitioner maintains that because Pio Altera was very ill at the time, Paciente
Cordero executed the deed of resale for and on behalf of his father-in-law. Petitioner further states
that she redeemed the property with her own money as her co-heirs were bereft of funds for the
purpose.

The pacto de retro document was eventually found.

On 30 June 1965 Pio Altera sold the disputed lot to the spouses Ramon Conde and Catalina T.
Conde, who are also private respondents herein. Their relationship to petitioner does not appear
from the records. Nor has the document of sale been exhibited.

Contending that she had validly repurchased the lot in question in 1945, petitioner filed, on 16
January 1969, in the Court of First Instance of Leyte, Branch IX, Tacloban City, a Complaint (Civil
Case No. B-110), against Paciente Cordero and his wife Nicetas Altera, Ramon Conde and his wife
Catalina T. Conde, and Casimira Pasagui Pio Altera having died in 1966), for quieting of title to real
property and declaration of ownership.

Petitioner's evidence is that Paciente Cordero signed the Memorandum of Repurchase in

representation of his father-in-law Pio Altera, who was seriously sick on that occasion, and of his
mother-in-law who was in Manila at the time, and that Cordero received the repurchase price of
P65.00.

Private respondents, for their part, adduced evidence that Paciente Cordero signed the document of
repurchase merely to show that he had no objection to the repurchase; and that he did not receive
the amount of P165.00 from petitioner inasmuch as he had no authority from his parents-in-law who
were the vendees-a-retro.

After trial, the lower Court rendered its Decision dismissing the Complaint and the counterclaim and
ordering petitioner "to vacate the property in dispute and deliver its peaceful possession to the
defendants Ramon Conde and Catalina T. Conde".

On appeal, the Court of Appeals upheld the findings of the Court a quo that petitioner had failed to
validly exercise her right of repurchase in view of the fact that the Memorandum of Repurchase was
signed by Paciente Cordero and not by Pio Altera, the vendee-a-retro, and that there is nothing in
said document to show that Cordero was specifically authorized to act for and on behalf of the
vendee a retro, Pio Altera.

Reconsideration having been denied by the Appellate Court, the case is before us on review.

There is no question that neither of the vendees-a-retro signed the "Memorandum of Repurchase",
and that there was no formal authorization from the vendees for Paciente Cordero to act for and on
their behalf.

Of significance, however, is the fact that from the execution of the repurchase document in 1945,
possession, which heretofore had been with the Alteras, has been in the hands of petitioner as
stipulated therein. Land taxes have also been paid for by petitioner yearly from 1947 to 1969
inclusive (Exhibits "D" to "D-15"; and "E"). If, as opined by both the Court a quo and the Appellate
Court, petitioner had done nothing to formalize her repurchase, by the same token, neither have the
vendees-a-retro done anything to clear their title of the encumbrance therein regarding petitioner's
right to repurchase. No new agreement was entered into by the parties as stipulated in the deed
of pacto de retro, if the vendors a retro failed to exercise their right of redemption after ten years. If,
as alleged, petitioner exerted no effort to procure the signature of Pio Altera after he had recovered
from his illness, neither did the Alteras repudiate the deed that their son-in-law had signed. Thus, an
implied agency must be held to have been created from their silence or lack of action, or their failure
to repudiate the agency. 2

Possession of the lot in dispute having been adversely and uninterruptedly with petitioner from 1945
when the document of repurchase was executed, to 1969, when she instituted this action, or for 24
years, the Alteras must be deemed to have incurred in laches. 3 That petitioner merely took advantage
of the abandonment of the land by the Alteras due to the separation of said spouses, and that petitioner's
possession was in the concept of a tenant, remain bare assertions without proof.

Private respondents Ramon Conde and Catalina Conde, to whom Pio Altera sold the disputed
property in 1965, assuming that there was, indeed, such a sale, cannot be said to be purchasers in
good faith. OCT No. 534 in the name of the Alteras specifically contained the condition that it was
subject to the right of repurchase within 10 years from 1938. Although the ten-year period had
lapsed in 1965 and there was no annotation of any repurchase by petitioner, neither had the title
been cleared of that encumbrance. The purchasers were put on notice that some other person could
have a right to or interest in the property. It behooved Ramon Conde and Catalina Conde to have
looked into the right of redemption inscribed on the title, and particularly the matter of possession,
which, as also admitted by them at the pre-trial, had been with petitioner since 1945.

Private respondent must be held bound by the clear terms of the Memorandum of Repurchase that
he had signed wherein he acknowledged the receipt of P165.00 and assumed the obligation to
maintain the repurchasers in peaceful possession should they be "disturbed by other persons". It
was executed in the Visayan dialect which he understood. He cannot now be allowed to dispute the
same. "... If the contract is plain and unequivocal in its terms he is ordinarily bound thereby. It is the
duty of every contracting party to learn and know its contents before he signs and delivers it." 4

There is nothing in the document of repurchase to show that Paciente Cordero had signed the same
merely to indicate that he had no objection to petitioner's right of repurchase. Besides, he would have had
no personality to object. To uphold his oral testimony on that point, would be a departure from the parol
evidence rule 5 and would defeat the purpose for which the doctrine is intended.

... The purpose of the rule is to give stability to written agreements, and to remove
the temptation and possibility of perjury, which would be afforded if parol evidence
was admissible. 6

In sum, although the contending parties were legally wanting in their respective actuations, the
repurchase by petitioner is supported by the admissions at the pre-trial that petitioner has been in
possession since the year 1945, the date of the deed of repurchase, and has been paying land taxes
thereon since then. The imperatives of substantial justice, and the equitable principle of laches
brought about by private respondents' inaction and neglect for 24 years, loom in petitioner's favor.

WHEREFORE, the judgment of respondent Court of Appeals is hereby REVERSED and SET
ASIDE, and petitioner is hereby declared the owner of the disputed property. If the original of OCT
No. N-534 of the Province of Leyte is still extant at the office of the Register of Deeds, then said
official is hereby ordered to cancel the same and, in lieu thereof, issue a new Transfer Certificate of
Title in the name of petitioner, Dominga Conde.

No costs.