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Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 76931

May 29, 1991

ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,

vs.
COURT
OF
APPEALS
and
AMERICAN
AIR-LINES
INCORPORATED,
respondents.
G.R. No. 76933

May 29, 1991

AMERICAN AIRLINES, INCORPORATED, petitioner,

vs.
COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES,
INCORPORATED, respondents.
Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air
Service and Hotel Representatives, Inc.
Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.
PADILLA, J.:
This case is a consolidation of two (2) petitions for review on
certiorari of a decision 1 of the Court of Appeals in CA-G.R. No.
CV-04294, entitled "American Airlines, Inc. vs. Orient Air
Services and Hotel Representatives, Inc." which affirmed, with
modification, the decision 2 of the Regional Trial Court of
Manila, Branch IV, which dismissed the complaint and granted
therein
defendant's
counterclaim
for
agent's
overriding
commission and damages.
The antecedent facts are as follows:
On 15 January 1977, American Airlines, Inc. (hereinafter referred
to as American Air), an air carrier offering passenger and air
cargo transportation in the Philippines, and Orient Air Services
and Hotel Representatives (hereinafter referred to as Orient
Air), entered into a General Sales Agency Agreement (hereinafter
referred to as the Agreement), whereby the former authorized the
latter to act as its exclusive general sales agent within the
Philippines for the sale of air passenger transportation.
Pertinent provisions of the agreement are reproduced, to wit:

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WITNESSETH
In consideration of the mutual convenants herein contained, the
parties hereto agree as follows:
1.

Representation of American by Orient Air Services

Orient Air Services will act on American's behalf as its

exclusive General Sales Agent within the Philippines, including
any United States military installation therein which are not
serviced by an Air Carrier Representation Office (ACRO), for the
sale of air passenger transportation. The services to be
performed by Orient Air Services shall include:
(a) soliciting and promoting passenger traffic for the services
of American and, if necessary, employing staff competent and
sufficient to do so;
(b) providing and maintaining a suitable area in its place of
business to be used exclusively for the transaction of the
business of American;
(c) arranging for distribution of American's timetables, tariffs
and promotional material to sales agents and the general public
in the assigned territory;
(d) servicing and supervising of sales agents (including such
sub-agents as may be appointed by Orient Air Services with the
prior written consent of American) in the assigned territory
including if required by American the control of remittances and
commissions retained; and
(e) holding out a passenger reservation facility to sales agents
and the general public in the assigned territory.
In connection with scheduled or non-scheduled air passenger
transportation within the United States, neither Orient Air
Services nor its sub-agents will perform services for any other
air carrier similar to those to be performed hereunder for
American without the prior written consent of American. Subject
to periodic instructions and continued consent from American,
Orient Air Services may sell air passenger transportation to be
performed within the United States by other scheduled air
carriers provided American does not provide substantially
equivalent schedules between the points involved.

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x x x
4.

x x x

x x x

Remittances

Orient Air Services shall remit in United States dollars to

American the ticket stock or exchange orders, less commissions to
which Orient Air Services is entitled hereunder, not less
frequently than semi-monthly, on the 15th and last days of each
month for sales made during the preceding half month.
All monies collected by Orient Air Services for transportation
sold hereunder on American's ticket stock or on exchange orders,
less applicable commissions to which Orient Air Services is
entitled hereunder, are the property of American and shall be
held in trust by Orient Air Services until satisfactorily
accounted for to American.
5.

Commissions

American
will
pay
Orient
Air
Services
commission
on
transportation sold hereunder by Orient Air Services or its subagents as follows:
(a)

Sales agency commission

American will pay Orient Air Services a sales agency commission

for all sales of transportation by Orient Air Services or its
sub-agents over American's services and any connecting through
air transportation, when made on American's ticket stock, equal
to the following percentages of the tariff fares and charges:
(i) For transportation solely between points within the United
States and between such points and Canada: 7% or such other
rate(s) as may be prescribed by the Air Traffic Conference of
America.
(ii) For transportation included in a through ticket covering
transportation between points other than those described above:
8% or such other rate(s) as may be prescribed by the
International Air Transport Association.
(b)

Overriding commission

In addition to the above commission American will pay Orient Air

Services an overriding commission of 3% of the tariff fares and
charges for all sales of transportation over American's service
by Orient Air Service or its sub-agents.

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x x x
10.

x x x

x x x

Default

If Orient Air Services shall at any time default in observing or

performing any of the provisions of this Agreement or shall
become bankrupt or make any assignment for the benefit of or
enter into any agreement or promise with its creditors or go into
liquidation, or suffer any of its goods to be taken in execution,
or if it ceases to be in business, this Agreement may, at the
option of American, be terminated forthwith and American may,
without prejudice to any of its rights under this Agreement, take
possession of any ticket forms, exchange orders, traffic material
or other property or funds belonging to American.
11.

IATA and ATC Rules

The provisions of this Agreement are subject to any applicable

rules or resolutions of the International Air Transport
Association and the Air Traffic Conference of America, and such
rules or resolutions shall control in the event of any conflict
with the provisions hereof.
x x x
13.

x x x

x x x

Termination

American may terminate the Agreement on two days' notice in the

event Orient Air Services is unable to transfer to the United
States the funds payable by Orient Air Services to American under
this Agreement. Either party may terminate the Agreement without
cause by giving the other 30 days' notice by letter, telegram or
cable.
x x x

x x x

x x x3

On 11 May 1981, alleging that Orient Air had reneged on its

obligations under the Agreement by failing to promptly remit the
net proceeds of sales for the months of January to March 1981 in
the amount of US $254,400.40, American Air by itself undertook
the collection of the proceeds of tickets sold originally by
Orient Air and terminated forthwith the Agreement in accordance
with Paragraph 13 thereof (Termination). Four (4) days later, or
on 15 May 1981, American Air instituted suit against Orient Air
with the Court of First Instance of Manila, Branch 24, for
Accounting with Preliminary Attachment or Garnishment, Mandatory

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Injunction and Restraining Order 4 averring the aforesaid basis

for the termination of the Agreement as well as therein
defendant's previous record of failures "to promptly settle past
outstanding refunds of which there were available funds in the
possession of the defendant, . . . to the damage and prejudice of
plaintiff." 5
In its Answer 6 with counterclaim dated 9 July 1981, defendant
Orient Air denied the material allegations of the complaint with
respect to plaintiff's entitlement to alleged unremitted amounts,
contending that after application thereof to the commissions due
it under the Agreement, plaintiff in fact still owed Orient Air a
balance in unpaid overriding commissions. Further, the defendant
contended that the actions taken by American Air in the course of
terminating the Agreement as well as the termination itself were
untenable, Orient Air claiming that American Air's precipitous
conduct had occasioned prejudice to its business interests.
Finding that the record and the evidence substantiated the
allegations of the defendant, the trial court ruled in its favor,
rendering a decision dated 16 July 1984, the dispositive portion
of which reads:
WHEREFORE, all the foregoing premises considered, judgment is
hereby rendered in favor of defendant and against plaintiff
dismissing the complaint and holding the termination made by the
latter as affecting the GSA agreement illegal and improper and
order the plaintiff to reinstate defendant as its general sales
agent for passenger tranportation in the Philippines in
accordance with said GSA agreement; plaintiff is ordered to pay
defendant the balance of the overriding commission on total flown
revenue covering the period from March 16, 1977 to December 31,
1980 in the amount of US$84,821.31 plus the additional amount of
US$8,000.00 by way of proper 3% overriding commission per month
commencing from January 1, 1981 until such reinstatement or said
amounts in its Philippine peso equivalent legally prevailing at
the time of payment plus legal interest to commence from the
filing of the counterclaim up to the time of payment. Further,
plaintiff is directed to pay defendant the amount of One Million
Five Hundred Thousand (Pl,500,000.00) pesos as and for exemplary
damages; and the amount of Three Hundred Thousand (P300,000.00)
pesos as and by way of attorney's fees.
Costs against plaintiff. 7
On appeal, the Intermediate Appellate Court (now Court of
Appeals) in a decision promulgated on 27 January 1986, affirmed

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the findings of the court a quo on their material points but with
some modifications with respect to the monetary awards granted.
The dispositive portion of the appellate court's decision is as
follows:
WHEREFORE, with the following modifications
1)
American is ordered to pay Orient the sum of US$53,491.11
representing the balance of the latter's overriding commission
covering the period March 16, 1977 to December 31, 1980, or its
Philippine peso equivalent in accordance with the official rate
of exchange legally prevailing on July 10, 1981, the date the
counterclaim was filed;
2)
American is ordered to pay Orient the sum of US$7,440.00 as
the latter's overriding commission per month starting January 1,
1981 until date of termination, May 9, 1981 or its Philippine
peso equivalent in accordance with the official rate of exchange
legally prevailing on July 10, 1981, the date the counterclaim
was filed
3)
American is ordered to pay interest of 12% on said amounts
from July 10, 1981 the date the answer with counterclaim was
filed, until full payment;
4)
American
P200,000.00;

is

ordered

to

pay

Orient

exemplary

damages

of

5)
American is ordered to pay Orient the sum of P25,000.00 as
attorney's fees.
the rest of the appealed decision is affirmed.
Costs against American.8
American Air moved for reconsideration of the aforementioned
decision, assailing the substance thereof and arguing for its
reversal. The appellate court's decision was also the subject of
a Motion for Partial Reconsideration by Orient Air which prayed
for the restoration of the trial court's ruling with respect to
the monetary awards. The Court of Appeals, by resolution
promulgated on 17 December 1986, denied American Air's motion and
with respect to that of Orient Air, ruled thus:
Orient's motion for partial reconsideration is denied insofar as
it prays for affirmance of the trial court's award of exemplary
damages and attorney's fees, but granted insofar as the rate of

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exchange is concerned. The decision of January 27, 1986 is

modified in paragraphs (1) and (2) of the dispositive part so
that the payment of the sums mentioned therein shall be at their
Philippine peso equivalent in accordance with the official rate
of exchange legally prevailing on the date of actual payment. 9
Both parties appealed the aforesaid resolution and decision of
the respondent court, Orient Air as petitioner in G.R. No. 76931
and American Air as petitioner in G.R. No. 76933. By resolution
10 of this Court dated 25 March 1987 both petitions were
consolidated, hence, the case at bar.
The principal issue for resolution by the Court is the extent of
Orient Air's right to the 3% overriding commission. It is the
stand of American Air that such commission is based only on sales
of its services actually negotiated or transacted by Orient Air,
otherwise referred to as "ticketed sales." As basis thereof,
primary reliance is placed upon paragraph 5(b) of the Agreement
which, in reiteration, is quoted as follows:
5.

Commissions

a)

. . .

b)

Overriding Commission

In addition to the above commission, American will pay Orient Air

Services an overriding commission of 3% of the tariff fees and
charges for all sales of transportation over American's services
by Orient Air Services or its sub-agents. (Emphasis supplied)
Since Orient Air was allowed to carry only the ticket stocks of
American Air, and the former not having opted to appoint any subagents, it is American Air's contention that Orient Air can claim
entitlement to the disputed overriding commission based only on
ticketed sales. This is supposed to be the clear meaning of the
underscored portion of the above provision. Thus, to be entitled
to the 3% overriding commission, the sale must be made by Orient
Air and the sale must be done with the use of American Air's
ticket stocks.
On the other hand, Orient Air contends that the contractual
stipulation of a 3% overriding commission covers the total
revenue of American Air and not merely that derived from ticketed
sales undertaken by Orient Air. The latter, in justification of
its submission, invokes its designation as the exclusive General
Sales Agent of American Air, with the corresponding obligations

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arising from such agency, such as, the promotion and solicitation
for the services of its principal. In effect, by virtue of such
exclusivity, "all sales of transportation over American Air's
services are necessarily by Orient Air." 11
It is a well settled legal principle that in the interpretation
of a contract, the entirety thereof must be taken into
consideration to ascertain the meaning of its provisions. 12 The
various stipulations in the contract must be read together to
give effect to all. 13 After a careful examination of the
records, the Court finds merit in the contention of Orient Air
that the Agreement, when interpreted in accordance with the
foregoing principles, entitles it to the 3% overriding commission
based on total revenue, or as referred to by the parties, "total
flown revenue."
As the designated exclusive General Sales Agent of American Air,
Orient Air was responsible for the promotion and marketing of
American Air's services for air passenger transportation, and the
solicitation of sales therefor. In return for such efforts and
services, Orient Air was to be paid commissions of two (2) kinds:
first, a sales agency commission, ranging from 7-8% of tariff
fares and charges from sales by Orient Air when made on American
Air ticket stock; and second, an overriding commission of 3% of
tariff
fares
and
charges
for
all
sales
of
passenger
transportation over American Air services. It is immediately
observed that the precondition attached to the first type of
commission does not obtain for the second type of commissions.
The latter type of commissions would accrue for sales of American
Air services made not on its ticket stock but on the ticket stock
of other air carriers sold by such carriers or other authorized
ticketing facilities or travel agents. To rule otherwise, i.e.,
to limit the basis of such overriding commissions to sales from
American Air ticket stock would erase any distinction between the
two (2) types of commissions and would lead to the absurd
conclusion that the parties had entered into a contract with
meaningless provisions. Such an interpretation must at all times
be avoided with every effort exerted to harmonize the entire
Agreement.
An additional point before finally disposing of this issue. It is
clear from the records that American Air was the party
responsible for the preparation of the Agreement. Consequently,
any ambiguity in this "contract of adhesion" is to be taken
"contra proferentem", i.e., construed against the party who
caused the ambiguity and could have avoided it by the exercise of
a little more care. Thus, Article 1377 of the Civil Code provides

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that the interpretation of obscure words or stipulations in a

contract shall not favor the party who caused the obscurity. 14
To put it differently, when several interpretations of a
provision are otherwise equally proper, that interpretation or
construction is to be adopted which is most favorable to the
party in whose favor the provision was made and who did not cause
the ambiguity. 15 We therefore agree with the respondent
appellate court's declaration that:
Any ambiguity in a contract, whose terms are susceptible of
different interpretations, must be read against the party who
drafted it. 16
We now turn to the propriety of American Air's termination of the
Agreement. The respondent appellate court, on this issue, ruled
thus:
It is not denied that Orient withheld remittances but such action
finds justification from paragraph 4 of the Agreement, Exh. F,
which provides for remittances to American less commissions to
which Orient is entitled, and from paragraph 5(d) which
specifically allows Orient to retain the full amount of its
commissions. Since, as stated ante, Orient is entitled to the 3%
override. American's premise, therefore, for the cancellation of
the Agreement did not exist. . . ."
We agree with the findings of the respondent appellate court. As
earlier established, Orient Air was entitled to an overriding
commission based on total flown revenue. American Air's
perception that Orient Air was remiss or in default of its
obligations under the Agreement was, in fact, a situation where
the latter acted in accordance with the Agreementthat of
retaining from the sales proceeds its accrued commissions before
remitting the balance to American Air. Since the latter was still
obligated to Orient Air by way of such commissions. Orient Air
was clearly justified in retaining and refusing to remit the sums
claimed by American Air. The latter's termination of the
Agreement was, therefore, without cause and basis, for which it
should be held liable to Orient Air.
On the matter of damages, the respondent appellate court modified
by reduction the trial court's award of exemplary damages and
attorney's fees. This Court sees no error in such modification
and, thus, affirms the same.
It is believed, however, that respondent appellate court erred in
affirming the rest of the decision of the trial court.1wphi1 We

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refer particularly to the lower court's decision ordering

American Air to "reinstate defendant as its general sales agent
for passenger transportation in the Philippines in accordance
with said GSA Agreement."
By affirming this ruling of the trial court, respondent appellate
court, in effect, compels American Air to extend its personality
to Orient Air. Such would be violative of the principles and
essence of agency, defined by law as a contract whereby "a person
binds himself to render some service or to do something in
representation or on behalf of another, WITH THE CONSENT OR
AUTHORITY OF THE LATTER . 17 (emphasis supplied) In an agentprincipal relationship, the personality of the principal is
extended through the facility of the agent. In so doing, the
agent, by legal fiction, becomes the principal, authorized to
perform all acts which the latter would have him do. Such a
relationship can only be effected with the consent of the
principal, which must not, in any way, be compelled by law or by
any court. The Agreement itself between the parties states that
"either party may terminate the Agreement without cause by giving
the other 30 days' notice by letter, telegram or cable."
(emphasis supplied) We, therefore, set aside the portion of the
ruling of the respondent appellate court reinstating Orient Air
as general sales agent of American Air.
WHEREFORE, with the foregoing modification, the Court AFFIRMS the
decision and resolution of the respondent Court of Appeals, dated
27 January 1986 and 17 December 1986, respectively. Costs against
petitioner American Air.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
G.R. No. L-24332

January 31, 1978

RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS,

petitioner,
vs.

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

respondents.
Seno, Mendoza & Associates for petitioner.
Ramon Duterte for private respondent.

MUOZ 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

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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
severally.
B.

both

defendants

to

pay

the

costs

jointly

and

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;

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(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

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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.
xxx

xxx

Agency is extinguished.
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.

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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 wellsettled 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-infact, 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.

16 | P a g e

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,

17 | P a g e

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
Manresa's Commentaries which We quote:

made

to

portion

in

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

18 | P a g e

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

19 | P a g e

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

20 | P a g e

all cases of registration provided by

all his legal and equitable remedies
fraud without prejudice, however, to
holder for value of a certificate of
amended)

fraud, the owner may pursue

against the parties to such
the right, of any innocent
title. ... (Act No. 496 as

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

21 | P a g e

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.

22 | P a g e

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.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
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.

23 | P a g e

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

24 | P a g e

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

25 | P a g e

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
affirmative ruling thereon.

respondent

Appellate

Court's

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

26 | P a g e

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

27 | P a g e

additional fare, additional tax and additional exchange during

that time.
Q

You said so to Mrs. Manucdoc?

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.

28 | P a g e

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
arrangement.

only,

it

is

up

for

This was in Tagalog or in English?

I think it was in English. ... 7

the

Ganas

to

make

the

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.

29 | P a g e

No costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-20136

June 23, 1965

IN RE: PETITION FOR ISSUANCE OF SEPARATE CERTIFICATE OF TITLE.

JOSE A. SANTOS Y Diaz, petitioner-appellant,
vs.
ANATOLIO BUENCONSEJO, ET AL., respondents-appellees.
Segundo C. Mastrili for petitioner-appellant.
Manuel Calleja Rafael S. Lucila and Jose
respondents-appellees.

T.

Rubio

for

CONCEPCION, J.:
Petitioner Jose A. Santos y Diaz seeks the reversal of an order
of the Court of First Instance of Albay, denying his petition,
filed in Cadastral Case No. M-2197, LRC Cad. Rec. No. 1035, for

30 | P a g e

the cancellation of original certificate of title No. RO-3848

(25322), issued in the name of Anatolio Buenconsejo, Lorenzo Bon
and Santiago Bon, and covering Lot No. 1917 of the Cadastral
Survey of Tabaco, Albay, and the issuance in lieu thereof, of a
separate transfer certificate of title in his name, covering part
of said Lot No. 1917, namely Lot No. 1917-A of Subdivision Plan
PSD-63379.
The main facts are not disputed. They are set forth in the order
appealed from, from which we quote:
It appears that the aforementioned Lot No. 1917 covered by
Original Certificate of Title No. RO-3848 (25322) was originally
owned in common by Anatolio Buenconsejo to the extent of
undivided portion and Lorenzo Bon and Santiago Bon to the extent
of the other (Exh. B); that Anatolio Buenconsejo's rights,
interests and participation over the portion abovementioned were
on January 3, 1961 and by a Certificate of Sale executed by the
Provincial Sheriff of Albay, transferred and conveyed to Atty.
Tecla San Andres Ziga, awardee in the corresponding auction sale
conducted by said Sheriff in connection with the execution of the
decision of the Juvenile Delinquency and Domestic Relations Court
in Civil Case No. 25267, entitled "Yolanda Buenconsejo, et al.
vs. Anatolio Buenconsejo"; that on December 26, 1961 and by a
certificate of redemption issued by the Provincial Sheriff of
Albay, the rights, interest, claim and/or or participation which
Atty. Tecla San Andres Ziga may have acquired over the property
in question by reason of the aforementioned auction sale award,
were transferred and conveyed to the herein petitioner in his
capacity as Attorney-in-fact of the children of Anatolio
Buenconsejo, namely, Anastacio Buenconsejo, Elena Buenconsejo and
Azucena Buenconsejo (Exh. C).
It would appear, also, that petitioner Santos had redeemed the
aforementioned share of Anatolio Buenconsejo, upon the authority
of a special power of attorney executed in his favor by the
children of Anatolio Buenconsejo; that relying upon this power of
attorney and redemption made by him, Santos now claims to have
acquired the share of Anatolio Buenconsejo in the aforementioned
Lot No. 1917; that as the alleged present owner of said share,
Santos caused a subdivision plan of said Lot No. 1917 to be made,
in which the portion he claims as his share thereof has been
marked as Lot No. 1917-A; and that he wants said subdivision at
No. 1917-A to be segregated from Lot No. 1917 and a certificate
of title issued in his name exclusively for said subdivision Lot
No. 1917-A.

31 | P a g e

As correctly held by the lower court, petitioner's claim is

clearly untenable, for: (1) said special power of attorney
authorized him to act on behalf of the children of Anatolio
Buenconsejo, and, hence, it could not have possibly vested in him
any property right in his own name; (2) the children of Anatolio
Buenconsejo had no authority to execute said power of attorney,
because their father is still alive and, in fact, he and his wife
opposed the petition of Santos; (3) in consequence of said power
of attorney (if valid) and redemption, Santos could have acquired
no more than the share pro indiviso of Anatolio Buenconsejo in
Lot No. 1917, so that petitioner cannot without the conformity
of the other co-owners (Lorenzo and Santiago Bon), or a judicial
decree of partition issued pursuant to the provisions of Rule 69
of the new Rules of Court (Rule 71 of the old Rules of Court)
which have not been followed By Santos adjudicate to himself in
fee simple a determinate portion of said Lot No. 1917, as his
share therein, to the exclusion of the other co-owners.
Inasmuch as the appeal is patently devoid of merit, the order
appealed from is hereby affirmed, with treble cost against
petitioner-appellant Jose A. Santos y Diaz. It is so ordered.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
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

32 | P a g e

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:

33 | P a g e

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.

34 | P a g e

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

35 | P a g e

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.
x x x

x x x

x x x

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

36 | P a g e

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

37 | P a g e

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.

38 | P a g e

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.
x x x

x x x

x x x

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
liquidating price is P14.

changed

since

last

week,

and

our

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

y Cia.)

39 | P a g e

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

40 | P a g e

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.
x x x

x x x

x x x

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. . . .

41 | P a g e

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
Albaladejo y Cia.)

16,

1920,

from

K.B.

Day,

Manager,

to

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.

42 | P a g e

(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

43 | P a g e

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.

44 | P a g e

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.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-2411

June 28, 1951

DAVID (DAVE) THOMAS, plaintiff-appellant,

vs.
HERMOGENES S. PINEDA, defendant-appellant.
Matias E. Vergara and Perkins, Ponce Enrile, Contreras and Gomez
for plaintiff-appellant.
Laurel, Sabido, Almario and Laurel for defendant-appellant.
TUASON, J.:
For a first cause of action the plaintiff sought to compel an
accounting of the defendant's operation of a saloon and
restaurant of which the plaintiff claims to have been the sole
owner. For a second cause of action the court was asked to enjoin
the defendant from using the name of that business, Silver Dollar
Cafe. The court below found for the defendant on the suit for
accounting and for the plaintiff on the suit for injunction.
On the first cause of action it is alleged that the defendant
managed the business as plaintiff's employee or trustee during
the Japanese occupation of the City of Manila and on a share of
the profits basis after liberation. Grounded on different
relationships
between
the
parties
before
and
after
the
occupation, this cause of action evolves two different acts of
evidence, which it may be well to take up separately for the sake
of clarity. We will set out the material facts in so far as they

45 | P a g e

are uncontroverted, leaving for later

which the parties are in disagreement.

discussion

those

about

It appears that in 1931, the plaintiff bought the bar and

restaurant known as Silver Dollar Cafe located at Plaza Santa
Cruz, Manila, from one Dell Clark, paying P20,000 for its
physical assets and good will. Thereafter he employed the
defendant, Clark's former employee, as a bartender with a salary
of P60. In the course of time, the defendant became successively
cashier and manager of the business. The outbreak of war found
him holding the latter position with a monthly compensation of
P250.
To prevent the business and its property from falling into enemy
hands, the plaintiff being a citizen of the United States, David
Thomas on or about December 28, 1941, made a fictitious sale
thereof to the defendant; and to clothe the sale with a semblance
of reality, the bill of sale was antedated November 29, 1941.
Though this document was said to have been destroyed and no copy
thereof
was
available,
the
fictitiousness
and
lack
of
consideration of the conveyance was expressly admitted in the
answer. Besides this admission, it is agreed that simultaneously
with or soon after the execution of the simulated sale, the
plaintiff and the defendant signed a private or secret document,
identified as Exhibit "F", which was kept by the plaintiff.
Because of its important bearing on the case, it is convenient to
copy this instrument in full.
PRIVATE AGREEMENT
KNOW ALL MEN BY THESE PRESENTS THAT:
On November 29, 1941, a document which purported to be a deed of
sale of the bar and restaurant business known as the SILVER
DOLLAR CAFE entered into by and between David (Dave) Thomas and
Hermogenes Pineda and acknowledged before Julian Lim, a notary
public for and in the City of Manila and entered in his notarial
register as Document No. 127, Page No. 27, Book I and Series of
1941, witnessed by the Misses Florence Thomas and Esther Thomas.
The said document was prepared and executed only for the purpose
of avoiding the seizure of the said establishment if and when the
enemy forces entered the City of Manila.
Upon the restoration of peace and order and the absence of the
danger abovementioned, the said document automatically becomes

46 | P a g e

null and void and of no effect, the consideration of Ten Thousand

Pesos (P10,000), Philippine Currency, mentioned therein, being
fictitious and not paid to the Vendor.
In witness whereof, we have hereunto set our hands in the City of
Manila, Philippines, this 29th day of November, 1941.
(Sgd.) DAVID THOMAS
Vendor
(Sgd.) H. PINEDA
Vendee
In the presence of:
(Sgd.) ESTHER THOMAS
(Sgd.) FLORENCE THOMAS
Thomas was interred at Santo Tomas during the greater part of the
war, and his business was operated by the defendant exclusively
throughout that period in accordance with the aforequoted
stipulation. On February 3, 1945, the building was destroyed by
fire but the defendant had been able to remove some of its
furniture, the cash register, the piano, the safe, and a
considerable quantity of stocks to a place of safety. According
to the defendant, all of these goods were accounted for and
turned over to the plaintiff after the City of Manila had been
retaken by the American Forces.
On May 8, 1945, a bar was opened on Calle Bambang, district of
Sta. Cruz, under the old name of Silver Dollar Cafe. Housed in a
makeshift structure, which was erected on a lot belonging to the
defendant, the Bambang shop was conducted for about four months,
i.e., until September of the same year, when it was transferred
to the original location of the Silver Dollar Cafe at No. 15
Plaza Sta. Cruz.
It is asserted and denied that the plaintiff as well as the
defendant took a more or less active part in the management of
the post-liberation business until about the middle of September
of the following year, when, it is also alleged, the plaintiff
brought a certified public accountant to the establishment in
Sta. Cruz for the purpose of examining the books of the business
and the defendant threatened the plaintiff and his companion with
a gun if they persisted in their purpose. As a result of that
incident, the plaintiff forthwith filed the present action, and

47 | P a g e

set up a separate business under the same trade-name, Silver

Dollar Cafe, on Echague Street. The defendant remained with the
Silver Dollar Cafe at Plaza Sta. Cruz, which was burn down on
December 15, 1946. In the face of Exhibit "F" before transcribed,
there is no denying that throughout the Japanese military regime
the Silver Dollar Cafe belonged exclusively to the plaintiff and
that the defendant had charge of it merely as plaintiff's
employee, trustee, or manager. There is no pretense that the
defendant invested in the business within that period any capital
of his own in the form of cash or merchandise.
The controversy lies in nature and scope of the defendant's
obligation toward the plaintiff in relation to the business. It
will be noticed that Exhibit "F" is silent on this point. The
defendant endeavored to prove that there was a third, verbal,
agreement, the import of which was that he was to operate the
business with no liability other than to turn it over to the
plaintiff as the plaintiff would find it after the war.
Little or no weight can be attached to this assertion if by it
the defendant means, as he apparently does, that he was relieved
of any duty to make an accounting. Such understanding as the
defendant says existed would be at war with the care and
precaution which the plaintiff took to insure his rights in the
business and its assets, which had an inventory value of P60,000,
according to the plaintiff. As the property consisted mostly of
perishable and expendable goods to be constantly disposed of and
replenished as long as the business lasted, the plaintiff could
not, by any stretch of the imagination, have agreed to be content
with what the defendant would deign to give him when normalcy was
restored. For that was what the defendant's version of the
alleged verbal agreement would amount to and what the court below
found. As sole manager with full power to do as his fancies
dictated, the defendant could strip the business naked of all its
stocks, leaving the plaintiff holding the bag, as it were, when
the defendant's management was terminated. Unless Thomas was
willing to give away his property and its profits, no man in his
right senses would have given his manager an outright license
such as the defendant claims to have gotten from his employer.
Not only did the plaintiff see to the execution of a counter
agreement but he stated that his elder daughter "had it (Exhibit
"F") kept in her possession;" that "there were many efforts by
Mr. Pineda to get hold of this document during the first two
weeks of the Japanese occupation," and he was "surprised;" that
he "did not know what was in the future" and he "wanted my
children to have something more than an empty possession."
Referring to the defendant's attempts to take Exhibit "F" away

48 | P a g e

from him, Thomas said that the defendant sent to the hospital
where he (plaintiff) was confined, defendant's friend, an
attorney by the name of Swartzcoff of whom he had heard "things",
"to recover that document", and he, plaintiff, became more
determined not to part with it; that as Swartzcoff kept on
coming, he gave the document to his children to keep up to the
end of the war. This testimony has all the stamps of veracity and
vehemence and refutes the defendant's allegation. The conclusion
thus seems clear that the defendant owes the plaintiff an
accounting of his management of the plaintiff's business during
the occupation. The exact legal character of the defendant's
relation to the plaintiff matters not a bit. It was enough to
show, and it had been shown, that he had been entrusted with the
possession and management of the plaintiff's business and
property for the owner's benefit and had not made an accounting.
Neither did the defendant's sweeping statement at the trial
that all the proceeds from the business had been used to support
the plaintiff and his daughters an to entertain or bribe Japanese
officers and civilians dispense with defendant's duty to
account. It was a clear error for the court below to declare at
this stage of the proceeding, on the basis of defendant's
incomplete and indefinite evidence, that there were no surplus
profits, and to call matters even. Under the pleadings and the
evidence the court's inquiry ought to have been confined to the
determination of the plaintiff's right to secure an accounting;
and that right having been established, the appropriate judgment
should have been a preliminary or interlocutory one that the
defendant do account. The court was not called upon to decide,
and should not have decided, anything beyond that.
Monies and foodstuffs which the defendant said he had supplied
the plaintiff and his daughters during the war are appropriate
items to be considered on taking account. Receipts and expenses
involving thousands of pesos, covering a great length of time,
and consisting of complicated items are, on their face, so
complex and in as to necessitate being threshed out in an
appropriations
by
the
defendants
substantiated.
By
the
defendant's admission, the business made good profits during the
war, and there are charges that he amassed a fortune out of the
trusteeship. True or false, those allegations and many others
which it was the plaintiff's right to prove, if he could, should
not have been dismissed summarily. Not technicalities but
substantial rights, equity, and justice clearly demanded
adherence to the normal course of practice and procedure. The
employment of auditors might be necessary.

49 | P a g e

The defendant denied that the plaintiff had any proprietary

interest in the saloon in Bambang and at Plaza Sta. Cruz after
liberation. Thomas' evidence on this phase of the litigation is
to the effect that, upon his release from the internment camp, he
immediately took steps to rehabilitate his business. He declared
that he borrowed P2.000 from a friend by the name of Bill
Drummond, and with that amount he constructed a temporary
building in Bambang and with the stocks saved by the defendant
opened the business there. He said that, as before, the defendant
now worked as manager, with the difference that under the new
arrangement he was to get one-half the net profits.
The defendant, on the other hand, undertook to show that he
himself put up the Bambang business, furnishing the construction
materials, paying for the labor, and purchasing the needed
merchandise. And when the business was to be moved to Plaza Sta.
Cruz, he said, he called on Mrs. Angela Butte, was able to rent
the Plaza Sta. Cruz premises from her for Pl,200, and told the
lessor when he handed her the rent, "This is my money." He went
on to say that Thomas told him to do whatever he pleased with the
premises, only requesting him to negotiate the sale of or a loan
on plaintiff's mining shares so that the plaintiff could join him
as partner or "buy him out" by December. But, according to the
defendant, the plaintiff was not able to raise funds, so his
desire to acquire interest in or buy the business did not
materialize. The plaintiff did not invest a centavo in the new
business because he had no money to invest, the defendant
concluded. Leaving aside the evidence which depends entirely on
the credibility of the Witnesses, the following undisputed or
well-established circumstances are, in our judgment, decisive:
1. The defendant corroborated the plaintiff when he practically
declared that upon the plaintiff's release from the internment
camp, Thomas lost no time in looking a site to open a saloon.
That the plaintiff then had the means to do that, was a fact
brought out by the defendant's own evidence as well as by the
plaintiff's testimony. There were several cases of whiskey, rum,
gin and other kinds of liquor which the defendant admitted he had
carted away and delivered to the plaintiff after liberation. What
the latter did or could have done with those goods, if not to
start a business with, there was no plausible explanation.
Granting that ten cases of the liquor were confiscated by the MP
the plaintiff said they were soon returned the confiscation
could not have stopped the plaintiff from continuing with the
business, which was riding in the crest of a boom. Significantly,
the defendant said that the day following the alleged
confiscation he handed the plaintiff P2,000 in cash. If he had

50 | P a g e

nothing else, this was an amount which ought to have been enough
to enable the plaintiff to keep the business going, which needed
no large capital. That this payment was "in full and complete
liquidation of the Silver Dollar Cafe," as the defendant
asserted, was, under the circumstances, highly improbable, to put
it mildly.
2. It is also an admitted fact that the bar in Bambang was called
Silver Dollar Cafe, Branch No. 1. The use of the old name
suggested that the business was in fact an extension and
continuation of the Silver Dollar Cafe which the defendant had
operated for the plaintiff during the enemy occupation, and
precluded any thought of the business having been established by
the defendants as his own. It should be remembered that the
defendant had not yet appropriated the trade-name Silver Dollar
Cafe for himself. This the subject of the second cause of
action he did on September 27, 1945.
3. Despite statements to the contrary, it was the plaintiff who,
in September, 1945, before the reopening of the bar at Plaza Sta.
Cruz, entered into a written contract of lease (Exhibit A) with
Mrs. Angela Butte for the Sta. Cruz location; Thomas was named in
the contract as the lessee. The contract also reveals that it was
the plaintiff who personally paid Mrs. Butte the advanced rent
(P1,200) for the period August 31-September 30, 1945, the first
month of the lease. And thereafter, all the rental receipts were
made out in Thomas' name, except those for the months of October,
November and December, which were put in the name of the
defendant. A propose of this temporary substitution, Jose V.
Ramirez, owner of the land and administrator of the building,
testified that the Bureau of Internal Revenue had licensed and
taxed the business in the name of Hermogenes Pineda and so
thought it necessary that for those three months the defendant's
name should be put in the receipts. Ramirez added that Mrs. Butte
agreed to the Internal Revenue Bureau's requirement on the
assurance that beginning January, 1946, the receipts would be
issued again in favor of Thomas. Mrs. Butte testified to the same
effect.
At any rate, the issuance of three of the receipts in defendant's
name was far from implying that he was the proprietor or part
owner of the Silver Dollar Cafe. Appropriately, as manager he
could make disbursement and get receipts therefor in his name.
What would have been strange was the issuance of receipts, let
alone the execution of the lease contract, in the name of David
Thomas if Thomas had nothing to do with the business, as the
defendant would have the court believe.

51 | P a g e

The defendant testified, and the lower court believed, that he

consented to the issuance of the three receipts and the execution
of the contract of lease in the plaintiff's name because it was
expected that the plaintiff would buy the business or "chip in"
as partner. How the mere possibility, by no means certain, of the
plaintiff becoming the owner of the saloon or defendant's partner
on some future date could have induced the defendant to let the
plaintiff figure unqualifiedly as owner of the business in
receipts and leases that had nothing to do with the contemplated
deal, and why the plaintiff would want to pose as owner while he
was yet a complete stranger to the enterprise, is utterly beyond
comprehension.
For the rest, the plaintiff's testimony is as convincing and as
well supported by the natural course of things as the defendant's
explanation is unreasonable. It can not be disputed that Thomas
had accumulated money from the business in Bambang which, it has
also been proved to the point of certainty, he operated with the
goods retrieved by the defendant from the pre-war Silver Dollar
Cafe. Conducting saloons having been the plaintiffs only means of
support before the war, and the calling in which he had acquired
plenty of experience, it is inconceivable that he would have
remained idle at a time when the trade was most lucrative and he
had been impoverished by the war. That the plaintiff, established
a bar behind the Great Eastern Hotel on Echague Street, a hidden
place, immediately or very soon after he and the defendant had a
falling out, is mute testimony to his eagerness to take advantage
of the current boom.
4. That the defendant was only a manager is also made evident by
two sets of business cards of the Silver Dollar Cafe which he
himself caused to be printed. On the first set, of which 500
prints were made, David Thomas was held out as the proprietor and
Hermogenes Pineda, the defendant, as manager. On the second set,
which were ordered later, the defendant was not even mentioned as
manager, but one Bill Magner, while David Thomas' name was
retained as the proprietor.
Customers of the place testified that copies of these cards were
handed to them for distribution to their friends by the defendant
himself. The defendant swore that he put away the cards in a
small drawer under some books and denied they had been
distributed. He gave to understand that he was at a loss to know
how the plaintiff and his witnesses got hold of some of said
cards, though, he said, he suspected that Thomas went upstairs
and grabbed some copies while the witnesses found other copies

52 | P a g e

scattered after the fire which burned the establishment for the
second time in 1946.
However the case may be, whether the defendant distributed the
cards or not, the important point is why he, in the first place,
ordered the cards in the form in which they were printed. He did
not give cogent reasons. His explanation was that Hugo Santiago,
the printer's agent, "gave me a hint that Mr. Thomas was going to
open the Silver Dollar Cafe in Plaza Sta. Cruz." This explanation
fails to forge any sensible link between the printing of Thomas'
name in the cards and Thomas' plan to join him in the business.
Incidentally, the defendant did not tell the truth when he
declared that the cards were ordered when the shop was still in
Bambang; the cards gave the location of the Silver Dollar Cafe as
No. 15 Plaza Sta. Cruz, and, besides, Santiago, who testified for
both sides, was positive that the cards were delivered to the
defendant in September, 1945.
5. At different times from May 8 to December 15, 1945, the
defendant handed the plaintiff averse amounts totalling P24,100
without so much as asking Thomas to sign a receipts for any of
them.
The defendant testified that these amounts were simple loans
secured by plaintiff's mining shares of stock. The plaintiff
countered that they were advances chargeable to his share of the
net profits. While he admitted that he owned some Baguio
Consolidated and Baguio Gold shares, he denied that he had given
them to the defendant as collateral or in any other concept. He
swore that he kept those securities in his own safe and removed
them in plain sight of Pineda when he became suspicious of the
latter.
It is difficult to understand how the payment of the amounts in
question to the plaintiff could have been for any purpose other
than that affirmed by him. The lack of any receipt is
incompatible with the hypothesis of loans. The defendant's
possession of the plaintiff's mining shares, granting that the
defendant held them, was no reason for dispensing with the
necessity
of
getting
from
the
plaintiff
some
form
of
acknowledgment that the said amounts were personal debts, if that
was the case. Without such acknowledgment, which could have been
made in a matter of minutes and required no expert to make, the
shares of stock did not afford the creditor much if any
protection, as an experienced and intelligent man that the
defendant is must have realized.

53 | P a g e

These amounts were the subject of a counterclaim and the court

sustained the defendant's theory and gave him judgment for them.
In the light of the what has just been said and of the evidence
previously discussed, there is no escaping the conclusion that
the plaintiff was the sole owner of the post-war Silver Dollar
bar and restaurant, that the defendant was only an industrial
partner, and that the said amounts were withdrawals on account of
the profits, which appear from portions of the defendant's
entries in the books to have been considerable.
On the second cause of action, which relates to the ownership of
the Silver Dollar Cafe trade-name, it appears that the defendant
on September 27, 1945, registered the business and its name as
his own.
The defendant contends that in 1940, the plaintiff's right to use
this trade-name expired and by abandonment or non-use the
plaintiff ceased to have any title thereto. The alleged
abandonment or non-use is predicated on the testimony that the
plaintiff expressly allowed the defendant to appropriate the
trade-name in dispute.
The parties' actions negative all motions of abandonment by the
plaintiff. In the fictitious bill of sale executed on December
29, 1941, the plaintiff asserted and the defendant acknowledged
Thomas' ownership of the business. It is manifest from Exhibit
"C" and "D, samples of the business cards which were printed at
the instance of the defendant himself, that the plaintiff
continued to display the name Silver Dollar Cafe after
liberation. And when the plaintiff set up a new saloon on Echague
Street after he broke with the defendant, he gave the
establishment the same appellation Silver Dollar Cafe.
The most that can be said in favor of the defendant, which is the
view taken by the trial Judge, is that the plaintiff instructed
Pineda to renew the registration of the trade-name and the
defendant understood the instruction as permission to make the
registration in his favor. It is to be doubted to whether even
honest mistakes were possible under the circumstance of the case.
It is an understatement to say that indications pointed to bad
faith in the registration. The application for registration
contained brazen untruths.
The plaintiff non-use of his trade name in 1945, granting that to
have been the case, did not work as a forfeiture of his exclusive
right to the name, name which he and the man from whom he bought
the business had used for over forty years without interruption.

54 | P a g e

Under the provision of Commerce Administrative Order No. 1,

issued on January 11, 1946, by the Secretary of Commerce and
Agriculture, the rights registrant of business names, the records
of which had been destroyed or lost during the war, were
expressly protected. This administrative Order No. 1-1, dated
October 29, 1946, but the amendment referred only to the
procedure for authentication of the documents to be submitted. On
the other hand, the amendatory order extended the filing of
application for reconstitution up to as late as December 31,
1946, that is ninety days after plaintiff commenced the present
action.
As legal proposition and in good conscience, the defendants
registration of the trade name Silver Dollar Cafe must be deemed
to have been affected for the benefit of its owner of whom he was
a mere trustee or employee. "The relations of an agent to his
principal are fiduciary and it is an elementary and very old rule
that in regard to property forming the subject matter of the
agency, he is estopped from acquiring or asserting a title
adverse to that of principal. His position is analogous to that
of a trustee and he cannot consistently, with the principles of
good faith, be allowed to create in himself an interest in
opposition to that of his principal or cestui que trust. A
receiver, trustee, attorney, agent or any other person occupying
fiduciary relations respecting property or persons utterly
disabled from acquiring for his own benefit the property
committed to his custody for management. This rule is entirely
independent of the fact whether any fraud has intervened. No
fraud in fact need be shown, and no excuse will be heard from any
such inquiry that the rule takes so general form. The rule stands
on the moral obligation to refrain from placing one's self in
position which ordinarily excite conflicts between self-interest
at the expense of one's integrity and duty to another, by making
it possible to profit by yielding to temptation". (Barreto vs.
Tuason, 50 Phil. 888; Severino vs. Severino, 44 Phil., 343.)
To recapitulate, we find from what we believed is conclusive
evidence, both direct and circumstance, that the plaintiff was
the owner of the Silver Dollar Cafe at Plaza Sta. Cruz during the
enemy occupation and is of right entitled to have an accounting
of its administration by the defendant. Exhibit "F" does not
state the remuneration the defendant was to be paid for managing
the plaintiff's business. The natural presumption under normal
circumstances would be that his prewar compensation was to
continue. But conditions during the occupation being different
from what they were before the war, the defendants remuneration
may and should be increased if so warranted by the changed

55 | P a g e

circumstances. This matter should be left for consideration in

the accounting, having in mind the nature and extent of the
services rendered, the volumes of business transacted, the
profits obtained and the losses incurred, the personal risk run
by the defendant, and other factors related to the success or
failure of the defendant's management.
We have it from the plaintiff that he promised to give the
defendant one-half of the net profits of the business established
in Bambang and later at Plaza Sta. Cruz after liberation. This
offer
was
reasonable,
even
liberal,
and
no
unforeseen
circumstances having supervened to warrants its alteration, the
same will not be disturbed and will serve as basis of
liquidation. The other basis of liquidation of the post-war
business are that the plaintiff was the exclusive owner of its
stocks and other assets from May 8, 1945, when it was
reestablished in Bambang, to December 15 1946, when the business
was levelled to the ground at Plaza Sta. Cruz.
For the reasons hereinbefore stated, the various sums of money
aggregating P24,100 and received or taken by the plaintiff were,
and they hereby are declared to be, accounting from the
defendants share of said profits if there be any.
We also find that the trade-name Silver Dollar Cafe belongs to
the plaintiff and that the defendant should be and he is
perpetually enjoined from using it or any essential part thereof.
In all other respects, especially in connection with the demand
for accounting, this case is remanded to the court of origin for
further proceedings in accordance with law and the tenor of this
decision and for a final judgment on the balance that may be
found due from either party.
The defendant will pay the costs of this appeal.
Feria, Pablo, Bengzon, Padilla,
Bautista Angelo, JJ., concur.

Montemayor,

Reyes,

Jugo

and

Separate Opinions
PARAS, C. J. concurring and dissenting:
I concur in the majority opinion except in so far as it requires
the defendant to render an accounting of the business Silver
Dollar Cafe during the Japanese occupation. The proof shows that

56 | P a g e

the defendant was told the enterprise and pretend to be its owner
during the war in order to save it for being surely seized by the
Japanese as American property, and that the defendant not only
succeeded in doing so but, with all honesty, used the proceeds of
the business for the support of the defendant and his daughters.
The arrangement cannot be said to have been a regular business
proposition undertaken by the parties under normal conditions in
virtue of which the defendant was made a mere manager; and even
if the defendant had in fact derived personal advantages, its
justification necessarily follows from the accomplishment of the
mission entrusted by the plaintiff. Moreover, the business during
the occupation was carried on in Japanese currency which is now
worthless.

57 | P a g e

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-2411

June 28, 1951

DAVID (DAVE) THOMAS, plaintiff-appellant,

vs.
HERMOGENES S. PINEDA, defendant-appellant.
Matias E. Vergara and Perkins, Ponce Enrile, Contreras and Gomez
for plaintiff-appellant.
Laurel, Sabido, Almario and Laurel for defendant-appellant.
TUASON, J.:
For a first cause of action the plaintiff sought to compel an
accounting of the defendant's operation of a saloon and
restaurant of which the plaintiff claims to have been the sole
owner. For a second cause of action the court was asked to enjoin
the defendant from using the name of that business, Silver Dollar
Cafe. The court below found for the defendant on the suit for
accounting and for the plaintiff on the suit for injunction.
On the first cause of action it is alleged that the defendant
managed the business as plaintiff's employee or trustee during
the Japanese occupation of the City of Manila and on a share of
the profits basis after liberation. Grounded on different
relationships
between
the
parties
before
and
after
the
occupation, this cause of action evolves two different acts of
evidence, which it may be well to take up separately for the sake
of clarity. We will set out the material facts in so far as they
are uncontroverted, leaving for later discussion those about
which the parties are in disagreement.
It appears that in 1931, the plaintiff bought the bar and
restaurant known as Silver Dollar Cafe located at Plaza Santa
Cruz, Manila, from one Dell Clark, paying P20,000 for its
physical assets and good will. Thereafter he employed the
defendant, Clark's former employee, as a bartender with a salary
of P60. In the course of time, the defendant became successively
cashier and manager of the business. The outbreak of war found

58 | P a g e

him holding the latter position with a monthly compensation of

P250.
To prevent the business and its property from falling into enemy
hands, the plaintiff being a citizen of the United States, David
Thomas on or about December 28, 1941, made a fictitious sale
thereof to the defendant; and to clothe the sale with a semblance
of reality, the bill of sale was antedated November 29, 1941.
Though this document was said to have been destroyed and no copy
thereof
was
available,
the
fictitiousness
and
lack
of
consideration of the conveyance was expressly admitted in the
answer. Besides this admission, it is agreed that simultaneously
with or soon after the execution of the simulated sale, the
plaintiff and the defendant signed a private or secret document,
identified as Exhibit "F", which was kept by the plaintiff.
Because of its important bearing on the case, it is convenient to
copy this instrument in full.
PRIVATE AGREEMENT
KNOW ALL MEN BY THESE PRESENTS THAT:
On November 29, 1941, a document which purported to be a deed of
sale of the bar and restaurant business known as the SILVER
DOLLAR CAFE entered into by and between David (Dave) Thomas and
Hermogenes Pineda and acknowledged before Julian Lim, a notary
public for and in the City of Manila and entered in his notarial
register as Document No. 127, Page No. 27, Book I and Series of
1941, witnessed by the Misses Florence Thomas and Esther Thomas.
The said document was prepared and executed only for the purpose
of avoiding the seizure of the said establishment if and when the
enemy forces entered the City of Manila.
Upon the restoration of peace and order and the absence of the
danger abovementioned, the said document automatically becomes
null and void and of no effect, the consideration of Ten Thousand
Pesos (P10,000), Philippine Currency, mentioned therein, being
fictitious and not paid to the Vendor.
In witness whereof, we have hereunto set our hands in the City of
Manila, Philippines, this 29th day of November, 1941.
(Sgd.) DAVID THOMAS
Vendor

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(Sgd.) H. PINEDA
Vendee
In the presence of:
(Sgd.) ESTHER THOMAS
(Sgd.) FLORENCE THOMAS
Thomas was interred at Santo Tomas during the greater part of the
war, and his business was operated by the defendant exclusively
throughout that period in accordance with the aforequoted
stipulation. On February 3, 1945, the building was destroyed by
fire but the defendant had been able to remove some of its
furniture, the cash register, the piano, the safe, and a
considerable quantity of stocks to a place of safety. According
to the defendant, all of these goods were accounted for and
turned over to the plaintiff after the City of Manila had been
retaken by the American Forces.
On May 8, 1945, a bar was opened on Calle Bambang, district of
Sta. Cruz, under the old name of Silver Dollar Cafe. Housed in a
makeshift structure, which was erected on a lot belonging to the
defendant, the Bambang shop was conducted for about four months,
i.e., until September of the same year, when it was transferred
to the original location of the Silver Dollar Cafe at No. 15
Plaza Sta. Cruz.
It is asserted and denied that the plaintiff as well as the
defendant took a more or less active part in the management of
the post-liberation business until about the middle of September
of the following year, when, it is also alleged, the plaintiff
brought a certified public accountant to the establishment in
Sta. Cruz for the purpose of examining the books of the business
and the defendant threatened the plaintiff and his companion with
a gun if they persisted in their purpose. As a result of that
incident, the plaintiff forthwith filed the present action, and
set up a separate business under the same trade-name, Silver
Dollar Cafe, on Echague Street. The defendant remained with the
Silver Dollar Cafe at Plaza Sta. Cruz, which was burn down on
December 15, 1946. In the face of Exhibit "F" before transcribed,
there is no denying that throughout the Japanese military regime
the Silver Dollar Cafe belonged exclusively to the plaintiff and
that the defendant had charge of it merely as plaintiff's
employee, trustee, or manager. There is no pretense that the
defendant invested in the business within that period any capital
of his own in the form of cash or merchandise.

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The controversy lies in nature and scope of the defendant's

obligation toward the plaintiff in relation to the business. It
will be noticed that Exhibit "F" is silent on this point. The
defendant endeavored to prove that there was a third, verbal,
agreement, the import of which was that he was to operate the
business with no liability other than to turn it over to the
plaintiff as the plaintiff would find it after the war.
Little or no weight can be attached to this assertion if by it
the defendant means, as he apparently does, that he was relieved
of any duty to make an accounting. Such understanding as the
defendant says existed would be at war with the care and
precaution which the plaintiff took to insure his rights in the
business and its assets, which had an inventory value of P60,000,
according to the plaintiff. As the property consisted mostly of
perishable and expendable goods to be constantly disposed of and
replenished as long as the business lasted, the plaintiff could
not, by any stretch of the imagination, have agreed to be content
with what the defendant would deign to give him when normalcy was
restored. For that was what the defendant's version of the
alleged verbal agreement would amount to and what the court below
found. As sole manager with full power to do as his fancies
dictated, the defendant could strip the business naked of all its
stocks, leaving the plaintiff holding the bag, as it were, when
the defendant's management was terminated. Unless Thomas was
willing to give away his property and its profits, no man in his
right senses would have given his manager an outright license
such as the defendant claims to have gotten from his employer.
Not only did the plaintiff see to the execution of a counter
agreement but he stated that his elder daughter "had it (Exhibit
"F") kept in her possession;" that "there were many efforts by
Mr. Pineda to get hold of this document during the first two
weeks of the Japanese occupation," and he was "surprised;" that
he "did not know what was in the future" and he "wanted my
children to have something more than an empty possession."
Referring to the defendant's attempts to take Exhibit "F" away
from him, Thomas said that the defendant sent to the hospital
where he (plaintiff) was confined, defendant's friend, an
attorney by the name of Swartzcoff of whom he had heard "things",
"to recover that document", and he, plaintiff, became more
determined not to part with it; that as Swartzcoff kept on
coming, he gave the document to his children to keep up to the
end of the war. This testimony has all the stamps of veracity and
vehemence and refutes the defendant's allegation. The conclusion
thus seems clear that the defendant owes the plaintiff an
accounting of his management of the plaintiff's business during

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the occupation.
relation to the
show, and it had
possession and
property for the

The exact legal character of the defendant's

plaintiff matters not a bit. It was enough to
been shown, that he had been entrusted with the
management of the plaintiff's business and
owner's benefit and had not made an accounting.

Neither did the defendant's sweeping statement at the trial

that all the proceeds from the business had been used to support
the plaintiff and his daughters an to entertain or bribe Japanese
officers and civilians dispense with defendant's duty to
account. It was a clear error for the court below to declare at
this stage of the proceeding, on the basis of defendant's
incomplete and indefinite evidence, that there were no surplus
profits, and to call matters even. Under the pleadings and the
evidence the court's inquiry ought to have been confined to the
determination of the plaintiff's right to secure an accounting;
and that right having been established, the appropriate judgment
should have been a preliminary or interlocutory one that the
defendant do account. The court was not called upon to decide,
and should not have decided, anything beyond that.
Monies and foodstuffs which the defendant said he had supplied
the plaintiff and his daughters during the war are appropriate
items to be considered on taking account. Receipts and expenses
involving thousands of pesos, covering a great length of time,
and consisting of complicated items are, on their face, so
complex and in as to necessitate being threshed out in an
appropriations
by
the
defendants
substantiated.
By
the
defendant's admission, the business made good profits during the
war, and there are charges that he amassed a fortune out of the
trusteeship. True or false, those allegations and many others
which it was the plaintiff's right to prove, if he could, should
not have been dismissed summarily. Not technicalities but
substantial rights, equity, and justice clearly demanded
adherence to the normal course of practice and procedure. The
employment of auditors might be necessary.
The defendant denied that the plaintiff had any proprietary
interest in the saloon in Bambang and at Plaza Sta. Cruz after
liberation. Thomas' evidence on this phase of the litigation is
to the effect that, upon his release from the internment camp, he
immediately took steps to rehabilitate his business. He declared
that he borrowed P2.000 from a friend by the name of Bill
Drummond, and with that amount he constructed a temporary
building in Bambang and with the stocks saved by the defendant
opened the business there. He said that, as before, the defendant

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now worked as manager, with the difference that under the new
arrangement he was to get one-half the net profits.
The defendant, on the other hand, undertook to show that he
himself put up the Bambang business, furnishing the construction
materials, paying for the labor, and purchasing the needed
merchandise. And when the business was to be moved to Plaza Sta.
Cruz, he said, he called on Mrs. Angela Butte, was able to rent
the Plaza Sta. Cruz premises from her for Pl,200, and told the
lessor when he handed her the rent, "This is my money." He went
on to say that Thomas told him to do whatever he pleased with the
premises, only requesting him to negotiate the sale of or a loan
on plaintiff's mining shares so that the plaintiff could join him
as partner or "buy him out" by December. But, according to the
defendant, the plaintiff was not able to raise funds, so his
desire to acquire interest in or buy the business did not
materialize. The plaintiff did not invest a centavo in the new
business because he had no money to invest, the defendant
concluded. Leaving aside the evidence which depends entirely on
the credibility of the Witnesses, the following undisputed or
well-established circumstances are, in our judgment, decisive:
1. The defendant corroborated the plaintiff when he practically
declared that upon the plaintiff's release from the internment
camp, Thomas lost no time in looking a site to open a saloon.
That the plaintiff then had the means to do that, was a fact
brought out by the defendant's own evidence as well as by the
plaintiff's testimony. There were several cases of whiskey, rum,
gin and other kinds of liquor which the defendant admitted he had
carted away and delivered to the plaintiff after liberation. What
the latter did or could have done with those goods, if not to
start a business with, there was no plausible explanation.
Granting that ten cases of the liquor were confiscated by the MP
the plaintiff said they were soon returned the confiscation
could not have stopped the plaintiff from continuing with the
business, which was riding in the crest of a boom. Significantly,
the defendant said that the day following the alleged
confiscation he handed the plaintiff P2,000 in cash. If he had
nothing else, this was an amount which ought to have been enough
to enable the plaintiff to keep the business going, which needed
no large capital. That this payment was "in full and complete
liquidation of the Silver Dollar Cafe," as the defendant
asserted, was, under the circumstances, highly improbable, to put
it mildly.
2. It is also an admitted fact that the bar in Bambang was called
Silver Dollar Cafe, Branch No. 1. The use of the old name

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suggested that the business was in fact an extension and

continuation of the Silver Dollar Cafe which the defendant had
operated for the plaintiff during the enemy occupation, and
precluded any thought of the business having been established by
the defendants as his own. It should be remembered that the
defendant had not yet appropriated the trade-name Silver Dollar
Cafe for himself. This the subject of the second cause of
action he did on September 27, 1945.
3. Despite statements to the contrary, it was the plaintiff who,
in September, 1945, before the reopening of the bar at Plaza Sta.
Cruz, entered into a written contract of lease (Exhibit A) with
Mrs. Angela Butte for the Sta. Cruz location; Thomas was named in
the contract as the lessee. The contract also reveals that it was
the plaintiff who personally paid Mrs. Butte the advanced rent
(P1,200) for the period August 31-September 30, 1945, the first
month of the lease. And thereafter, all the rental receipts were
made out in Thomas' name, except those for the months of October,
November and December, which were put in the name of the
defendant. A propose of this temporary substitution, Jose V.
Ramirez, owner of the land and administrator of the building,
testified that the Bureau of Internal Revenue had licensed and
taxed the business in the name of Hermogenes Pineda and so
thought it necessary that for those three months the defendant's
name should be put in the receipts. Ramirez added that Mrs. Butte
agreed to the Internal Revenue Bureau's requirement on the
assurance that beginning January, 1946, the receipts would be
issued again in favor of Thomas. Mrs. Butte testified to the same
effect.
At any rate, the issuance of three of the receipts in defendant's
name was far from implying that he was the proprietor or part
owner of the Silver Dollar Cafe. Appropriately, as manager he
could make disbursement and get receipts therefor in his name.
What would have been strange was the issuance of receipts, let
alone the execution of the lease contract, in the name of David
Thomas if Thomas had nothing to do with the business, as the
defendant would have the court believe.
The defendant testified, and the lower court believed, that he
consented to the issuance of the three receipts and the execution
of the contract of lease in the plaintiff's name because it was
expected that the plaintiff would buy the business or "chip in"
as partner. How the mere possibility, by no means certain, of the
plaintiff becoming the owner of the saloon or defendant's partner
on some future date could have induced the defendant to let the
plaintiff figure unqualifiedly as owner of the business in

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receipts and leases that had nothing to do with the contemplated

deal, and why the plaintiff would want to pose as owner while he
was yet a complete stranger to the enterprise, is utterly beyond
comprehension.
For the rest, the plaintiff's testimony is as convincing and as
well supported by the natural course of things as the defendant's
explanation is unreasonable. It can not be disputed that Thomas
had accumulated money from the business in Bambang which, it has
also been proved to the point of certainty, he operated with the
goods retrieved by the defendant from the pre-war Silver Dollar
Cafe. Conducting saloons having been the plaintiffs only means of
support before the war, and the calling in which he had acquired
plenty of experience, it is inconceivable that he would have
remained idle at a time when the trade was most lucrative and he
had been impoverished by the war. That the plaintiff, established
a bar behind the Great Eastern Hotel on Echague Street, a hidden
place, immediately or very soon after he and the defendant had a
falling out, is mute testimony to his eagerness to take advantage
of the current boom.
4. That the defendant was only a manager is also made evident by
two sets of business cards of the Silver Dollar Cafe which he
himself caused to be printed. On the first set, of which 500
prints were made, David Thomas was held out as the proprietor and
Hermogenes Pineda, the defendant, as manager. On the second set,
which were ordered later, the defendant was not even mentioned as
manager, but one Bill Magner, while David Thomas' name was
retained as the proprietor.
Customers of the place testified that copies of these cards were
handed to them for distribution to their friends by the defendant
himself. The defendant swore that he put away the cards in a
small drawer under some books and denied they had been
distributed. He gave to understand that he was at a loss to know
how the plaintiff and his witnesses got hold of some of said
cards, though, he said, he suspected that Thomas went upstairs
and grabbed some copies while the witnesses found other copies
scattered after the fire which burned the establishment for the
second time in 1946.
However the case may be, whether the defendant distributed the
cards or not, the important point is why he, in the first place,
ordered the cards in the form in which they were printed. He did
not give cogent reasons. His explanation was that Hugo Santiago,
the printer's agent, "gave me a hint that Mr. Thomas was going to
open the Silver Dollar Cafe in Plaza Sta. Cruz." This explanation

65 | P a g e

fails to forge any sensible link between the printing of Thomas'

name in the cards and Thomas' plan to join him in the business.
Incidentally, the defendant did not tell the truth when he
declared that the cards were ordered when the shop was still in
Bambang; the cards gave the location of the Silver Dollar Cafe as
No. 15 Plaza Sta. Cruz, and, besides, Santiago, who testified for
both sides, was positive that the cards were delivered to the
defendant in September, 1945.
5. At different times from May 8 to December 15, 1945, the
defendant handed the plaintiff averse amounts totalling P24,100
without so much as asking Thomas to sign a receipts for any of
them.
The defendant testified that these amounts were simple loans
secured by plaintiff's mining shares of stock. The plaintiff
countered that they were advances chargeable to his share of the
net profits. While he admitted that he owned some Baguio
Consolidated and Baguio Gold shares, he denied that he had given
them to the defendant as collateral or in any other concept. He
swore that he kept those securities in his own safe and removed
them in plain sight of Pineda when he became suspicious of the
latter.
It is difficult to understand how the payment of the amounts in
question to the plaintiff could have been for any purpose other
than that affirmed by him. The lack of any receipt is
incompatible with the hypothesis of loans. The defendant's
possession of the plaintiff's mining shares, granting that the
defendant held them, was no reason for dispensing with the
necessity
of
getting
from
the
plaintiff
some
form
of
acknowledgment that the said amounts were personal debts, if that
was the case. Without such acknowledgment, which could have been
made in a matter of minutes and required no expert to make, the
shares of stock did not afford the creditor much if any
protection, as an experienced and intelligent man that the
defendant is must have realized.
These amounts were the subject of a counterclaim and the court
sustained the defendant's theory and gave him judgment for them.
In the light of the what has just been said and of the evidence
previously discussed, there is no escaping the conclusion that
the plaintiff was the sole owner of the post-war Silver Dollar
bar and restaurant, that the defendant was only an industrial
partner, and that the said amounts were withdrawals on account of
the profits, which appear from portions of the defendant's
entries in the books to have been considerable.

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On the second cause of action, which relates to the ownership of

the Silver Dollar Cafe trade-name, it appears that the defendant
on September 27, 1945, registered the business and its name as
his own.
The defendant contends that in 1940, the plaintiff's right to use
this trade-name expired and by abandonment or non-use the
plaintiff ceased to have any title thereto. The alleged
abandonment or non-use is predicated on the testimony that the
plaintiff expressly allowed the defendant to appropriate the
trade-name in dispute.
The parties' actions negative all motions of abandonment by the
plaintiff. In the fictitious bill of sale executed on December
29, 1941, the plaintiff asserted and the defendant acknowledged
Thomas' ownership of the business. It is manifest from Exhibit
"C" and "D, samples of the business cards which were printed at
the instance of the defendant himself, that the plaintiff
continued to display the name Silver Dollar Cafe after
liberation. And when the plaintiff set up a new saloon on Echague
Street after he broke with the defendant, he gave the
establishment the same appellation Silver Dollar Cafe.
The most that can be said in favor of the defendant, which is the
view taken by the trial Judge, is that the plaintiff instructed
Pineda to renew the registration of the trade-name and the
defendant understood the instruction as permission to make the
registration in his favor. It is to be doubted to whether even
honest mistakes were possible under the circumstance of the case.
It is an understatement to say that indications pointed to bad
faith in the registration. The application for registration
contained brazen untruths.
The plaintiff non-use of his trade name in 1945, granting that to
have been the case, did not work as a forfeiture of his exclusive
right to the name, name which he and the man from whom he bought
the business had used for over forty years without interruption.
Under the provision of Commerce Administrative Order No. 1,
issued on January 11, 1946, by the Secretary of Commerce and
Agriculture, the rights registrant of business names, the records
of which had been destroyed or lost during the war, were
expressly protected. This administrative Order No. 1-1, dated
October 29, 1946, but the amendment referred only to the
procedure for authentication of the documents to be submitted. On
the other hand, the amendatory order extended the filing of
application for reconstitution up to as late as December 31,

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1946, that is ninety days after plaintiff commenced the present

action.
As legal proposition and in good conscience, the defendants
registration of the trade name Silver Dollar Cafe must be deemed
to have been affected for the benefit of its owner of whom he was
a mere trustee or employee. "The relations of an agent to his
principal are fiduciary and it is an elementary and very old rule
that in regard to property forming the subject matter of the
agency, he is estopped from acquiring or asserting a title
adverse to that of principal. His position is analogous to that
of a trustee and he cannot consistently, with the principles of
good faith, be allowed to create in himself an interest in
opposition to that of his principal or cestui que trust. A
receiver, trustee, attorney, agent or any other person occupying
fiduciary relations respecting property or persons utterly
disabled from acquiring for his own benefit the property
committed to his custody for management. This rule is entirely
independent of the fact whether any fraud has intervened. No
fraud in fact need be shown, and no excuse will be heard from any
such inquiry that the rule takes so general form. The rule stands
on the moral obligation to refrain from placing one's self in
position which ordinarily excite conflicts between self-interest
at the expense of one's integrity and duty to another, by making
it possible to profit by yielding to temptation". (Barreto vs.
Tuason, 50 Phil. 888; Severino vs. Severino, 44 Phil., 343.)
To recapitulate, we find from what we believed is conclusive
evidence, both direct and circumstance, that the plaintiff was
the owner of the Silver Dollar Cafe at Plaza Sta. Cruz during the
enemy occupation and is of right entitled to have an accounting
of its administration by the defendant. Exhibit "F" does not
state the remuneration the defendant was to be paid for managing
the plaintiff's business. The natural presumption under normal
circumstances would be that his prewar compensation was to
continue. But conditions during the occupation being different
from what they were before the war, the defendants remuneration
may and should be increased if so warranted by the changed
circumstances. This matter should be left for consideration in
the accounting, having in mind the nature and extent of the
services rendered, the volumes of business transacted, the
profits obtained and the losses incurred, the personal risk run
by the defendant, and other factors related to the success or
failure of the defendant's management.
We have it from the plaintiff that he promised to give the
defendant one-half of the net profits of the business established

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in Bambang and later at Plaza Sta. Cruz after liberation. This

offer
was
reasonable,
even
liberal,
and
no
unforeseen
circumstances having supervened to warrants its alteration, the
same will not be disturbed and will serve as basis of
liquidation. The other basis of liquidation of the post-war
business are that the plaintiff was the exclusive owner of its
stocks and other assets from May 8, 1945, when it was
reestablished in Bambang, to December 15 1946, when the business
was levelled to the ground at Plaza Sta. Cruz.
For the reasons hereinbefore stated, the various sums of money
aggregating P24,100 and received or taken by the plaintiff were,
and they hereby are declared to be, accounting from the
defendants share of said profits if there be any.
We also find that the trade-name Silver Dollar Cafe belongs to
the plaintiff and that the defendant should be and he is
perpetually enjoined from using it or any essential part thereof.
In all other respects, especially in connection with the demand
for accounting, this case is remanded to the court of origin for
further proceedings in accordance with law and the tenor of this
decision and for a final judgment on the balance that may be
found due from either party.
The defendant will pay the costs of this appeal.
Feria, Pablo, Bengzon, Padilla,
Bautista Angelo, JJ., concur.

Montemayor,

Reyes,

Jugo

and

Separate Opinions
PARAS, C. J. concurring and dissenting:
I concur in the majority opinion except in so far as it requires
the defendant to render an accounting of the business Silver
Dollar Cafe during the Japanese occupation. The proof shows that
the defendant was told the enterprise and pretend to be its owner
during the war in order to save it for being surely seized by the
Japanese as American property, and that the defendant not only
succeeded in doing so but, with all honesty, used the proceeds of
the business for the support of the defendant and his daughters.
The arrangement cannot be said to have been a regular business
proposition undertaken by the parties under normal conditions in
virtue of which the defendant was made a mere manager; and even
if the defendant had in fact derived personal advantages, its

69 | P a g e

justification necessarily follows from the accomplishment of the

mission entrusted by the plaintiff. Moreover, the business during
the occupation was carried on in Japanese currency which is now
worthless.

Republic of the Philippines

SUPREME COURT
Manila

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EN BANC
G.R. No. L-19001

November 11, 1922

HARRY E. KEELER ELECTRIC CO., INC., plaintiff-appellant,

vs.
DOMINGO RODRIGUEZ, defendant-appellee.
Hartford Beaumont for appellant.
Ross and Lawrence and Antonio T. Carrascoso, Jr., for appellee.
STATEMENT
The plaintiff is a domestic corporation with its principal office
in the city of Manila and engaged in the electrical business, and
among other things in the sale of what is known as the "Matthews"
electric plant, and the defendant is a resident of Talisay,
Occidental Negros, and A. C. Montelibano was a resident of
Iloilo.
Having this information, Montelibano approached plaintiff at its
Manila office, claiming that he was from Iloilo and lived with
Governor Yulo; that he could find purchaser for the "Matthews"
plant, and was told by the plaintiff that for any plant that he
could sell or any customer that he could find he would be paid a
commission of 10 per cent for his services, if the sale was
consummated. Among other persons. Montelibano interviews the
defendant, and, through his efforts, one of the "Matthews" plants
was sold by the plaintiff to the defendant, and was shipped from
Manila to Iloilo, and later installed on defendant's premises
after which, without the knowledge of the plaintiff, the
defendant paid the purchase price to Montelibano. As a result,
plaintiff commenced this action against the defendant, alleging
that about August 18, 1920, it sold and delivered to the
defendant the electric plant at the agreed price of P2,513.55 no
part of which has been paid, the demands judgment for the amount
with interest from October 20, 1920.
For answer, the defendant admits the corporation of the
plaintiff, and denies all other material allegations of the
complaint, and, as an affirmative defense, alleges "that on or
about the 18th of August, 1920, the plaintiff sold and delivered
to the defendant a certain electric plant and that the defendant
paid the plaintiff the value of said electric plant, to wit:
P2,513.55."

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Upon such issues the testimony was taken, and the lower court
rendered judgment for the defendant, from which the plaintiff
appeals, claiming that the court erred in holding that the
payment to A. C. Montelibano would discharge the debt of
defendant, and in holding that the bill was given to Montelibano
for collection purposes, and that the plaintiff had held out
Montelibano to the defendant as an agent authorized to collect,
and in rendering judgment for the defendant, and in not rendering
judgment for the plaintiff.

JOHNS, J.:
The testimony is conclusive that the defendant paid the amount of
plaintiff's claim to Montelibano, and that no part of the money
was ever paid to the plaintiff. The defendant, having alleged
that the plaintiff sold and delivered the plant to him, and that
he paid the plaintiff the purchase price, it devolved upon the
defendant to prove the payment to the plaintiff by a
preponderance of the evidence.
It appears from the testimony of H. E. Keeler that he was
president of the plaintiff and that the plant in question was
shipped from Manila to Iloilo and consigned to the plaintiff
itself, and that at the time of the shipment the plaintiff sent
Juan Cenar, one of its employees, with the shipment, for the
purpose of installing the plant on defendant's premises. That
plaintiff gave Cenar a statement of the account, including some
extras and the expenses of the mechanic, making a total of
P2,563,95. That Montelibano had no authority from the plaintiff
to receive or receipt for money. That in truth and in fact his
services were limited and confined to the finding of purchasers
for the "Matthews" plant to whom the plaintiff would later make
and consummate the sale. That Montelibano was not an electrician,
could not install the plant and did not know anything about its
mechanism.
Cenar, as a witness for the plaintiff, testified that he went
with shipment of the plant from Manila to Iloilo, for the purpose
of installing, testing it, and to see that everything was
satisfactory. That he was there about nine days, and that he
installed the plant, and that it was tested and approved by the
defendant. He also says that he personally took with him the
statement of account of the plaintiff against the defendant, and
that after he was there a few days, the defendant asked to see
the statement, and that he gave it to him, and the defendant

72 | P a g e

said, "he was going to keep it." I said that was all right "if
you want." "I made no effort at all to collect the amount from
him because Mr. Rodriguez told me he was going to pay for the
plant here in Manila." That after the plant was installed and
approved, he delivered it to the defendant and returned to
Manila.
The only testimony on the part of the defendant is that of
himself in the form of a deposition in which he says that
Montelibano sold and delivered the plant to him, and "was the one
who ordered the installation of that electrical plant," and he
introduced in evidence as part of his deposition a statement and
receipt which Montelibano signed to whom he paid the money. When
asked why he paid the money to Montelibano, the witness says:
Because he was the one who sold, delivered, and installed the
electrical plant, and he presented to me the account, Exhibits A
and A-I, and he assured me that he was duly authorized to collect
the value of the electrical plant.
The receipt offered in evidence is headed:
STATEMENT

Folio No. 2494

Mr. DOMINGO RODRIGUEZ,

Iloilo, Iloilo, P.I.
In account with
HARRY E. KEELER ELECTRIC COMPANY, INC.
221 Calle Echaque, Quiapo, Manila, P.I.
MANILA, P.I., August 18, 1920.
The answer alleges and the receipt shows upon its face that the
plaintiff sold the plant to the defendant, and that he bought it
from the plaintiff. The receipt is signed as follows:
Received payment
HARRY E. KEELER ELECTRIC CO. Inc.,
Recibi
(Sgd.) A. C. MONTELIBANO.
There is nothing on the face of this receipt to show that
Montelibano was the agent of, or that he was acting for, the
plaintiff. It is his own personal receipt and his own personal
signature. Outside of the fact that Montelibano received the
money and signed this receipt, there is no evidence that he had

73 | P a g e

any authority, real or apparent, to receive or receipt for the

money. Neither is there any evidence that the plaintiff ever
delivered the statement to Montelibano, or authorized anyone to
deliver it to him, and it is very apparent that the statement in
question is the one which was delivered by the plaintiff to
Cenar, and is the one which Cenar delivered to the defendant at
the request of the defendant.
The evidence of the defendant that Montelibano was the one who
sold him the plant is in direct conflict with his own pleadings
and the receipt statement which he offered in evidence. This
statement also shows upon its face that P81.60 of the bill is
for:
To Passage round trip, 1st Class @
P40.80 a trip ........................................... P81.60.
Plus Labor @ P5.00 per day
Machine's transportation ................. 9.85.
This claim must be for the expenses of Cenar in going to Iloilo
from Manila and return, to install the plant, and is strong
evidence that it was Cenar and not Montelibano who installed the
plant. If Montelibano installed the plant, as defendant claims,
there would not have been any necessity for Cenar to make this
trip at the expense of the defendant. After Cenar's return to
Manila, the plaintiff wrote a letter to the defendant requesting
the payment of its account, in answer to which the defendant on
September 24 sent the following telegram:
Electric plant accessories and installation are paid to
Montelibano about three weeks Keeler Company did not present
bill.
This is in direct conflict with the receipted statement, which
the defendant offered in evidence, signed by Montelibano. That
shows upon its face that it was an itemized statement of the
account of plaintiff with the defendant. Again, it will be noted
that the receipt which Montelibano signed is not dated, and it
does not show when the money was paid: Speaking of Montelibano,
the defendant also testified: "and he assured me that he was duly
authorized to collect the value of the electrical plant." This
shows upon its face that the question of Montelibano's authority
to receive the money must have been discussed between them, and
that, in making the payment, defendant relied upon Montelibano's
own statements and representation, as to his authority, to
receipt for the money.

74 | P a g e

In the final analysis, the plant was sold by the plaintiff to the
defendant, and was consigned by the plaintiff to the plaintiff at
Iloilo where it was installed by Cenar, acting for, and
representing, the plaintiff, whose expense for the trip is
included in, and made a part of, the bill which was receipted by
Montelibano.
There is no evidence that the plaintiff ever delivered any
statements to Montelibano, or that he was authorized to receive
or receipt for the money, and defendant's own telegram shows that
the plaintiff "did not present bill" to defendant. He now claims
that at the very time this telegram was sent, he had the receipt
of Montelibano for the money upon the identical statement of
account which it is admitted the plaintiff did render to the
defendant.
Article 1162 of the Civil Code provides:
Payment must be made to the persons in whose favor the obligation
is constituted, or to another authorized to receive it in his
name.
And article 1727 provides:
The principal shall be liable as to matters with respect to which
the agent has exceeded his authority only when he ratifies the
same expressly or by implication.
In the case of Ormachea Tin-Conco vs. Trillana (13 Phil., 194),
this court held:
The repayment of a debt must be made to the person in whose favor
the obligation is constituted, or to another expressly authorized
to receive the payment in his name.
Mechem on Agency, volume I, section 743, says:
In approaching the consideration of the inquiry whether an
assumed authority exist in a given case, there are certain
fundamental principles which must not be overlooked. Among these
are, as has been seen, (1) that the law indulges in no bare
presumptions that an agency exists: it must be proved or presumed
from facts; (2) that the agent cannot establish his own
authority, either by his representations or by assuming to
exercise it; (3) that an authority cannot be established by mere
rumor or general reputation; (4)that even a general authority is

75 | P a g e

not an unlimited one; and (5) that every authority must find its
ultimate source in some act or omission of the principal. An
assumption of authority to act as agent for another of itself
challenges inquiry. Like a railroad crossing, it should be in
itself a sign of danger and suggest the duty to "stop, look, and
listen." It is therefore declared to be a fundamental rule, never
to be lost sight of and not easily to be overestimated, that
persons dealing with an assumed agent, whether the assumed agency
be a general or special one, are bound at their peril, if they
would hold the principal, to ascertain not only the fact of the
agency but the nature and extent of the authority, and in case
either is controverted, the burden of proof is upon them to
establish it.
. . . It is, moreover, in any case entirely within the power of
the person dealing with the agent to satisfy himself that the
agent has the authority he assumes to exercise, or to decline to
enter into relations with him. (Melchem on Agency, vol. I, sec.
746.)
The person dealing with the agent must also act with ordinary
prudence and reasonable diligence. Obviously, if he knows or has
good reason to believe that the agent is exceeding his authority,
he cannot claim protection. So if the suggestions of probable
limitations be of such a clear and reasonable quality, or if the
character assumed by the agent is of such a suspicious or
unreasonable nature, or if the authority which he seeks to
exercise is of such an unusual or improbable character, as would
suffice to put an ordinarily prudent man upon his guard, the
party dealing with him may not shut his eyes to the real state of
the case, but should either refuse to deal with the agent at all,
or should ascertain from the principal the true condition of
affairs. (Mechem on Agency, vol. I, sec 752.)
And not only must the person dealing with the agent ascertain the
existence of the conditions, but he must also, as in other cases,
be able to trace the source of his reliance to some word or act
of the principal himself if the latter is to be held responsible.
As has often been pointed out, the agent alone cannot enlarge or
extend his authority by his own acts or statements, nor can he
alone remove limitations or waive conditions imposed by his
principal. To charge the principal in such a case, the
principal's consent or concurrence must be shown. (Mechem on
Agency, vol. I, section 757.)
This was a single transaction between the plaintiff and the
defendant.lawph!l.net

76 | P a g e

Applying the above rules, the testimony is conclusive that

plaintiff never authorized Montelibano to receive or receipt
money in its behalf, and that the defendant had no right
assume by any act or deed of the plaintiff that Montelibano
authorized to receive the money, and that the defendant made
payment at his own risk and on the sole representations
Montelibano that he was authorized to receipt for the money.
The judgment
entered here
for the sum
January 10,
ordered.

the
for
to
was
the
of

of the lower court is reversed, and one will be

in favor of the plaintiff and against the defendant
of P2,513.55 with interest at the legal rate from
1921, with costs in favor of the appellant. So

Republic of the Philippines

SUPREME COURT

77 | P a g e

Manila
FIRST DIVISION

G.R. No. L-39059

September 30, 1974

ANTONIO CABALLERO and CONCORDIA CABALLERO, plaintiffs-appellants,

vs.
ALMA DEIPARINE, TOMAS RAGA, OLIMPIO RAGA, ADRIANO RAGA, and
MAGDALENA RAGA, defendant-appellees.
Porfiro D. Ellescas for plaintiff-appellants.
Hilario G. Davide, Jr. for defendant-appellees.

ESGUERRA, J.:p
This case was originally appealed to the Court of Appeals which
certified it to this Court by resolution of its Fifth Division,
dated June 14, 1974, for the reason that it involves purely legal
questions which are within the exclusive jurisdiction of this
Court to adjudicate. The two legal questions raised are (1)
whether the written stipulation of facts entered into by the
counsel for both parties without the signature of the latter is
valid and binding and (2) whether a motion for new trial and to
amend the complaint may be granted after a decision is rendered
by the trial court on the basis of said stipulation of facts.
I.

Statement of the Case

On March 21, 1967, plaintiffs Antonio Caballero and Concordia

Caballero filed a complaint against defendants Alma Deiparine,
Tomas Raga, Olimpio Raga, Adriano Raga and Magdalena Raga
alleging, among other things:
1.
That plaintiffs Antonio Caballero and Concordia Caballero
are the children by the first marriage, and the defendants, Tomas
Raga, Olimpio Raga, Adriano Raga and Magdalena Raga, are the
children by second marriage of Vicenta Bucao, now deceased, who
died sometime in February, 1943 in Tabunoc, Talisay, Cebu;
2.
That Vicenta Bucao in her lifetime and Tomas Raga acquired
by joint purchase a parcel of land from the Talisay-Minglanilla

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Friar Lands Estate identified as Lot 2072 situated in Tabunoc,

Talisay, Cebu and now more particularly described in Transfer
Certificate of Title No. Rt-2485 (T-17232) of the Registry of
Deeds of Cebu and further declared for taxation purposes under
Tax Declaration No. 15954 and at P100.00;
3.
That sometime in 1932, defendant Tomas Raga and Vicenta
Bucao jointly sold 1/4 of said Lot 2072 to plaintiff Antonio
Caballero, which sale was evidenced by a deed of sale; and since
the title to said lot at the time of the conveyance to him had
not as yet been issued to them they held the subject portion in
trust for said Antonio Caballero until its title could be
delivered to the latter;
4.
That plaintiff Antonio Caballero had been paying the yearly
land tax for the subject portion thru his mother Vicenta Bucao,
from the time of his acquisition thereof until Vicenta's death in
1943;
5.
That long before the death of Vicenta Bucao in 1943,
plaintiff Antonio Caballero had been, asking the former to
deliver the title to the portion sold to him, but he was told by
his mother to wait, as after all, according to her, he
(plaintiff) was already in possession thereof and, besides, his
mother was then still living;
6.
That after the death of Vicenta Bucao in 1943, plaintiff
Antonio Caballero asked defendant Tomas Raga to deliver the title
to the portion sold to him from Lot 2072, but he (Tomas Raga)
told him to wait until it could be segregated and that there was
no hurry since he (Antonio) was already in possession thereof,
and, being his brother, he would protect him (Antonio) from any
claim of third persons thereto, should the occasion arise;
7.
That plaintiff Antonio Caballero had been in the continuous,
open, peaceful and adverse possession of the subject portion and
had built a house thereon way back in 1941 which is still
existing up to the present and used as his dwelling;
8.
That the share of Vicenta Bucao to Lot 2072 consisting of
207 square meters, more or less, in which the plaintiffs Antonio
Caballero and Concordia Caballero own an undivided 1/6 share
each, had not been partitioned among her heirs by the first and
second marriages, respectively;
9.
That sometime on May 11, 1965, plaintiff Antonio Caballero
received from defendant Alma Deiparine a letter demanding that he

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vacate the portion of Lot 2072 which he was holding for she had
bought it from defendant Tomas Raga, and as the new owner she
would like to construct a house thereon and would further improve
said lot;
10. That upon refusal of the plaintiff to vacate the portion in
question defendant Alma Deiparine brought an action for ejectment
against him in the Municipal Court of Talisay, and after trial
said Court rendered judgment in favor of Antonio Caballero, the
plaintiff herein;
11. That defendant Alma
Municipal Court in the
Instance of Cebu where
decision of the Court of
where it is pending;

Deiparine appealed the decision of the

ejectment case to the Court of First
she again lost but she elevated the
First Instance to the Court of Appeals

12. That in the light of the foregoing facts Transfer

Certificate of Title No. 9934 is fraudulent and questionable for
having deliberately included in the sale made by defendant Tomas
Raga to defendant Alma Deiparine the portion previously sold to
herein plaintiff Antonio Caballero as well as the plaintiffs'
share inherited from their deceased mother, Vicente Bucao;
13. That the defendants Tomas Raga, Olimpio Raga, Adriano Raga
and Magdalena Raga have willfully and falsely misrepresented
themselves by declaring in the instrument of declaration of heirs
and confirmation of sale they executed on March 18, 1963, that
they are the sole heirs of Vicenta Bucao, thereby deliberately
and willfully excluding the plaintiffs herein from succeeding to
the share of their mother, Vicenta Bucao, in Lot 2072;
14. That defendant Tomas Raga, Olimpio Raga, Adriano Raga and
Magdalena Raga have willfully and with deliberate falsehood
misrepresented themselves when they stated in the instrument of
declaration of heirs and confirmation of sale that Vicenta
Bucao's share in Lot 2072 was sold to Tomas Raga, for there was
in fact no such sale between them, the truth of the matter being
that long before Vicenta Bucao's death in the early part of 1943
the said defendants had earlier evacuated from Tabunoc in the
later part of 1942 and were in hiding when the Japanese forces
occupied Talisay, leaving behind the herein plaintiff to minister
alone to their sickly mother, Vicenta Bucao, during the last days
of her life until her death in 1943 and she died without the
presence of even one of her children by the second marriage;

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15. That the deed of sale executed by defendant Tomas Raga over
Lot 2072 in favor of defendant Alma Deiparine has been delivered
to the latter but the possession of the property in question has
not been delivered and still remains in the possession of the
herein plaintiffs;
16. That the plaintiffs herein discovered the fraudulent
conveyance of Lot 2072 to defendant Alma Deiparine only upon the
receipt of the latter's letter dated May 11, 1965.
Defendant Alma Deiparine answered the complaint alleging, among
other things:
1.
That the alleged sale between Antonio Caballero on one hand
and Vicenta Bucao and defendant Tomas Raga on the other hand was
only made known to her after she had already filed an action for
ejectment against Antonio Caballero; at the time she purchased
the lot in question on March 28, 1963, the certificate of title
to the land was free of any encumbrance and she purchased it in
good faith for a valuable consideration without any knowledge or
information about the alleged sale to plaintiff Caballero of a
portion thereof; the office of the register of deeds does not
show that said deed of sale was registered and from the time she
purchased the land on the date aforesaid until Antonio Caballero
filed his answer to the ejectment case she filed, Antonio
Caballero never made mention of said deed of sale although he had
already received a letter of ejectment as well as oral demands to
vacate; hence, the deed of sale in his favor is fictitious as
confirmed by Antonio's conduct in keeping the same in secrecy for
more than 30 years;
2.
That the Transfer Certificate of Title No. 9934 issued to
her is valid, legal, enforceable and regular, no fraud having
committed in its issuance.
Defendants Tomas Raga, Olimpio Raga, Adriano Raga and Magdalena
Raga also answered plaintiffs, complaint alleging, among other
things:
1.
hat it is not true that Tomas Raga and Vicente Bucao sold
1/4 of the land in question to Antonio Caballero;
2.
hat before the 1/2 of the land in question was sold by
Vicenta Bucao to Tomas Raga it was Vicenta and Tomas who were
paying the taxes and after the sale it was Tomas alone who paid
the same;

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3.
That Antonio Caballero never made demands because he know
and still knows that he is not the owner of any portion of the
land in question; while it is true that he is occupying a portion
of the subject land where his house now stands, the same is by
mere tolerance by Vicenta and Tomas for they took pity upon him
when he needed a place where to build his house;
4.
That the land in question was sold by Tomas Raga in good
faith to defendant Alma Deiparine;
5.
That the sale in favor of defendant Alma Deiparine is valid
and did not prejudice Antonio Caballero since he has no right
whatsoever in and over the land in question or in any portion
thereof;
6.
That the declaration of heirs and confirmation of sale
speaks the truth and was not intended to prejudice any person;
7.
That a sale was made by Vicenta Bucao in favor of Tomas Raga
of her 1/2 participation in the land in question;
8.
That it cannot be true that the sale to Alma Deiparine was
only discovered by Antonio Caballero on May 11, 1965, because
even before the actual sale was made, plaintiff Antonio know that
there were negotiations for the sale of the land and after the
sale the plaintiffs were also informed that the land has a new
owner.
II.

Facts of the Case

Before the case was called for hearing, the parties through
counsel entered into a stipulation of facts on March 13, 1968,
which provides as follows:
STIPULATION OF FACTS
The PLAINTIFFS and the DEFENDANTS in the above-entitled case duly
assisted by their respective counsels, unto this Honorable Court
hereby respectfully submit the following stipulation of facts:
1.
That the parties are all of legal ages and residents of
Talisay, Cebu;
2.
That Plaintiffs Antonio and Concordia, all surnamed
Caballero, and Defendant Tomas, Olimpio, Adriano and Magdalena,
all surnamed Raga, are the children of Vicenta Bucao now
deceased, the first two named being the children by the first

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marriage and the last four named being the children by the second
marriage;
3.
That during the lifetime of Vicenta Bucao she with her
second husband Casimero Raga and her son Tomas Raga acquired by
joint purchase a parcel of land from the Talisay-Minglanilla
Estate identified as Lot No. 2072 and described in TRANSFER
CERTIFICATE OF TITLE NO. RT-2485 (T-17232) issued by the Register
of Deeds of Cebu on October 12, 1936, a certified true copy of
which is identified as Annex "A" in the Complaint and Tomas Raga
is the owner of undivided one-half thereof;
4.
That in 1932 Vicenta Bucao and Tomas Raga before Annex "A"
mentioned in the next preceding paragraph had been issued,
executed jointly a notarial instrument identified as Annex "B"
wherein they acknowledged that Antonio Caballero had contributed
the amount therein stated for the purchase of the property and
they sold 1/4 of the lot to him; when the title to said lot was
issued, Vicenta Bucao and Tomas Raga held it in trust for their
co-owner;
5.
That the portion mentioned as sold to plaintiff Antonio
Caballero remained unsegregated from Lot 2072 and the deed of
sale, Annex "B" of the Complaint; nor had it been registered in
the Register of Deeds; but he, had been in occupation of a
portion of this lot peacefully until the present;
6.
That the Tax Declaration of the property remained in the
name of Vicenta Bucao;
7.
That during the lifetime of Vicenta Bucao, she, with the
conformity of her husband, sold her undivided 1/2 of the above
parcel to her co-owner, Tomas Raga;
8.
That on March 18, 1963 defendants Olimpio Raga, Adriano
Raga, Magdalena Raga and Tomas Raga executed an instrument known
as
"Declaration
and
confirmation
of
sale"
without
the
participation of plaintiffs Antonio Caballero and Concordia
Caballero, wherein they stated that they are the heirs of Vicenta
Bucao of the 1/2 of the property to Tomas Raga, a certified true
copy of which document is identified as Annex "E" in the
Complaint;
9.
That on March 28, 1963 Alma Deiparine acquired in good
faith, with a just title and for a valuable consideration, the
whole of Lot 2072 from Tomas Raga as per deed of absolute sale
identified as Annex "C" in the complaint which cancelled Transfer

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Certificate of Title No. RT-2482 (T-17232) and the issuance in

her name of Transfer Certificate of Title No. 9934 on April 1,
1963, a certified true copy of which is identified as Annex "D"
in the complaint;
10. That defendant Alma Deiparine came to know only of Annex "B"
when it was presented by plaintiff Antonio Caballero at the trial
of an ejectment case filed by the former in the Municipal Court
of Talisay, Cebu which was docketed as Civil Case No. 108. This
case was decided in favor of Antonio Caballero but the decision
was appealed by Alma Deiparine to the Court of First Instance of
Cebu which affirmed the decision for Caballero. The case is now
in the Court of Appeals on appeal by Alma Deiparine;
11. That based on the foregoing stipulation of facts the parties
hereby jointly submit the following legal issues for the
determination of this Honorable Court:
a)
Whether the plaintiffs could ask for the rescission of the
declaration of heirs and confirmation of sale identified as Annex
"E" in the complaint;
b)
Whether the deed of sale in favor of Alma Deiparine
identified as Annex "C" in the Complaint can be annulled and
Transfer Certificate of Title No. 9934 (Annex "D") be cancelled.
WHEREFORE, it
Stipulation of
down on the
Stipulation of

is most respectfully prayed that the foregoing

Facts be approved and that a decision he handed
legal issues submitted on the basis of said
Facts.

Cebu City, March 13, 1968.

(Sgd.) MELECIO C. GUBA
Counsel for Plaintiffs
430 Sanciangko St.,
Cebu City
(Sgd.) HILARIO G. DAVIDE, JR.
Counsel for Defendants
Suite 307, COMTRUST Bldg.,
Jones Ave., Cebu City
The Clerk of Court
Court of First Instance of Cebu
S I R:

84 | P a g e

Please immediately submit the foregoing Stipulation of Facts for

the approval of the Court upon your receipt hereof.
(Sgd.) MELECIO C. GUBA
(Sgd.) H. G. DAVIDE, JR.
The trial court on April 30, 1968, rendered a decision based on
the stipulation of facts, the dispositive portion of which reads
as follows:
IN VIEW OF THE FOREGOING CONSIDERATIONS, judgment is hereby
rendered against the plaintiffs, dismissing the complaint insofar
as the defendant Alma Deiparine is concerned, but awarding to
said plaintiffs and against the other defendants Raga, jointly
and severally, the amount of ONE THOUSAND PESOS (P1,000.00), as
moral damages, and FIVE HUNDRED PESOS (P500.00) as attorney's
fees. The defendants Raga are likewise ordered to pay the costs.
Plaintiffs filed a motion for reconsideration and/or new trial
and for leave of court to admit an amended complaint which the
lower court in its order of August 26, 1968, denied. Hence, this
appeal to the Court of Appeals by Antonio Caballero and Concordia
Caballero, which was certified to this Court.
III. Discussion of Assigned Errors
Appellants assigned the following errors to have been committed
by the trial court:
1.
The court a quo erred in finding that the appellants
submitted the stipulation of facts for its approval, the truth
being that they were never made to participate in the preparation
and information of said stipulation of facts;
2.
The court a quo erred in finding that the stipulation of
facts bear the conformity of the appellants, the truth being that
they never gave their conformity to said stipulation of facts
which was made the basis of the appealed decision;
3.
The court a quo erred in approving the stipulation of facts
which did not bear the conformity of the parties, particularly by
plaintiffs-appellants;
4.
The court a quo erred in rendering a decision based only on
the stipulation of facts which did not state all the facts as

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borne by the issues brought about in the complaint as well as in

the answer, nor did the stipulation of facts bear the conformity
of plaintiffs-appellants;
5.
The court a quo erred in denying the plaintiffs-appellants'
motion for reconsideration;
6.
The court a quo erred likewise in denying the admission of
plaintiffs-appellants' amended complaint.
Since the assigned errors are inter-related and revolve around
the basic issue of the legality of the Stipulation of Facts, they
will be discussed jointly for the sake of brevity.
A perusal of the stipulation of facts does not disclose any
assent and/or conformity to the same given by the plaintiffsappellants. It should be noted that the complaint is verified by
plaintiff Antonio Caballero who swore to the truth thereof before
his counsel-notary-public, Atty. Melecio C. Guba, although under
the Rules, considering the nature and subject matter of the
complaint, it did not require any verification. It should also be
noted that the introductory paragraph of said stipulation of
facts clearly states that both parties were "duly assisted" by
their counsel, which seems to connote the idea that the partieslitigants, particularly the plaintiffs-appellants, had actual
participation in the formulation of said stipulation of facts.
But the same stipulation of facts shows that plaintiffsappellants, particularly principal plaintiff Antonio Caballero,
never signed the same. As to why their counsel, particularly
Atty. Melecio C. Guba for the plaintiffs, did not require his
clients to affix their signatures so as to show their conformity
and assent thereto, when he even required the same principal
plaintiff, Antonio Caballero, to verify the complaint has not
been explained and remains quite puzzling. The conduct of then
counsel for plaintiffs-appellants in entering into a compromise
agreement or stipulation of facts which practically confesses
judgment, without the consent and conformity of his clients, is
not in keeping with the sworn duty of a lawyer to protect the
interest of his clients. It is a groosly reprehensible act which
amounts to fraud. The stipulation of facts should not have been
tolerated by the trial court by giving its seal of approval
thereto.
And to top it all, plaintiffs-appellants' counsel made the
unauthorized admission therein that principal defendant Alma
Deiparine acquired in good faith with a just title and for a
valuable consideration the whole of Lot 2072. Their counsel even

86 | P a g e

admitted also in said document that during the lifetime of

Vicenta Bucao, she, with the conformity of her husband, sold her
undivided of Lot 2072 to her co-owner Tomas Raga. No document
was ever shown to him by the Ragas in support of this claim and
the record do not disclose that there was such document. On the
contrary it is replete with implications that no such sale was
ever made.
Plaintiffs-appellants maintain that if given a chance they can
prove that principal defendant Alma Deiparine is a purchaser in
bad faith and her registration of the deed of sale executed by
the Ragas did not confer upon her any right under the law. The
stipulation of facts which was made the basis of the decision
appealed from was null and void as it contained serious
unauthorized admissions against the interest and claims of
plaintiffs-appellants who had no hand in its preparation and
formulation. Hence the lower court should have set aside the
decision and admit the amended complaint so as to have the issues
properly ventilated.
Appellees on the other hand contend that the stipulation of facts
was entered into with full knowledge, consent and authority of
all the parties; that the same was executed after the parties
through their respective counsel had manifested at the pre-trial
hearing on February 3, 1968, that they were submitting a
stipulation of facts; that at the pre-trial all the parties were
present and the stipulation of facts was signed by counsel for
and in behalf of their clients and strictly within their
authority to do so; and that it was entered into in good faith on
the basis of the true facts which could be established at the
trial.
The stipulation of facts in question appellees further continue,
is a matter of ordinary judicial Procedure as it relates to
admission; that no one is in a better position than the counsel
to determine what facts are to be established in a given case to
support the theory of the case; that he alone knows what facts he
cannot established by the evidence and what facts can be admitted
without trial either because it to be true as borne out by oral
or documentary evidence he himself has on hand or because he has
no evidence to refute it; that it was within his authority to
make the stipulation for and in behalf of his client; that in the
instant cases, the complaint itself is barren of any allegation
that appellee Alma Deiparine is buyer in bad faith; that the
allegations in the complaint are directed only against the
alleged false misrepresentations of the defendants Tomas Raga,
Olimpio Raga, Adriano Raga and Magdalena Raga in the declaration

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of heirs; that the complaint was prepared by Atty. Melecio C.

Guba and as a lawyer of good standing he is presumed to know the
case and the nature of his evidence, and his failure to allege
such a material fact simply shows lack of evidence to prove bad
faith on the part of appellee Alma Deiparine that no error nor
mistake, much less, bad faith, attended the admission made in the
stipulation of facts that said appellee Alma Deiparine purchase
the property in good faith and for a valuable consideration; that
it was not necessary that the parties litigant should sign the
stipulation of facts which is nothing more than a pleading
containing judicial admission which the lawyer himself can make.
Finally, appellees argue that the stipulation of facts clearly
show that Atty. Guba acted for and in behalf of his clients; that
there is no showing at all of absence of such authority, and that
a client is bound by the action of his counsel in the conduct of
a case and he cannot be heard to complain that the result might
have been different had he proceeded differently; that a client
is bound by the mistakes of his lawyer; that if such grounds were
to be admitted as reasons for reopening of cases, there would
never be an end to a suit for as long as new counsel could be
employed who could allege and show that prior counsel had not
been sufficiently diligentor experienced or learned; that even
granting that Atty. Guba committed a mistake, such a mistake is
no ground for the reversal of the decision or re-opening of the
case; that plaintiffs' remedy is to proceed against his counsel
Atty. Guba, and that the lower court, therefore, did not err in
rendering the decision on the basis thereof and in denying the
motions for reconsideration and for amendment of the complaint.
After weighing the conflicting claims of the parties, We find
merit in the contention of plaintiffs-appellants. Antonio
Caballero and Concordia Caballero. A reading of the stipulation
of facts convinces Us that it is a compromise agreement of the
parties. The stipulation concludes with this prayer: "WHEREFORE,
it is most respectfully prayed that the foregoing Stipulation of
Facts be approved and that a decision be handed down on the legal
issues submitted on the basis of said Stipulation of Facts."
Apparently it is intended to terminate the case. Rule 138,
Section 23 of the Rules of Court specifically provides that:
Authority of attorneys to bind clients. Attorneys have
authority to bind their clients in any case by any agreement in
relation thereto made in writing, and in taking appeals, and in
all matters of ordinary judicial procedure. But they cannot,
without special authority, compromise their client's litigation,

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or receive anything in discharge of a client's claim but the full

amount in cash. (Emphasis supplied)
It may be true that during the pre-trial hearing held on February
3, 1968, the parties concerned agreed to execute a stipulation of
facts but it does not mean that the respective counsels of the
contending parties can prepare a stipulation of facts the
contents of which is prejudicial to the interest of their clients
and sign it themselves without the intervention of their clients.
In the case at bar, the then counsel for plaintiffs-appellants,
Atty. Melecio C. Guba, agreed that defendant-appellee Alma
Deiparine bought the land in question in good faith and for a
valuable consideration; that during the lifetime of their mother
Vicenta Bucao, she, with the conformity of her husband, sold her
undivided of the land in question to her co-owner and son,
Tomas Raga. All these adverse facts were made the basis of the
appealed decision against the plaintiffs. No further evidence was
presented as there was no hearing. The attorney for the
plaintiffs in making such admission went beyond the scope of his
authority as counsel and practically gave away the plaintiffs'
case. The admission does not refer to a matter of judicial
procedure related to the enforcement of the remedy. It related to
the very subject matter of the cause of action, or to a matter on
which the client alone can make the admission binding on him. In
Belandres vs. Lopez Sugar Central Mill Co., Inc., L-6869, May 27,
1955; 97 Phil. 100, 104, 105, it was held that:
The broad implied or apparent powers of an attorney with respect
to the conduct or control of litigation are, however, limited to
matters which relate only to the procedure or remedy. The
employment of itself confers upon the attorney no implied or
power or authority over the subject matter of the cause of action
or defense; and, unless the attorney has expressly been granted
authority with respect thereto, the power to deal with or
surrender these matters is regarded as remaining exlusively in
the client.
The line of demarcation between the respective rights and powers
of an attorney and his client is clearly defined. The cause of
action, the claim or demand sued upon, and the subject matter of
the litigation are all within the exclusive control of a client,
and an attorney may not impair, compromise, settle, surrender, or
destroy them without his client's consent. But all the
proceedings in court to enforce the remedy, to bring the claim,
demand, cause of action, or subject matter of the suit to
hearing, trial, determination, judgment, and execution, are
within the exclusive control of the attorney. (Emphasis supplied)

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FOR ALL THE FOREGOING, the decision appealed from is hereby

aside and this case shall be remanded to the court a quo
further proceedings in consonance with the opinion above
forth, and to admit the amended complaint submitted by
plaintiffs.
Costs against appellees.

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