G.R. No.

L-7089

August 31, 1954

DOMINGO DE LA CRUZ, plaintiff-appellant, vs. NORTHERN THEATRICAL ENTERPRISES INC., ET AL., defendants-appellees. Conrado Rubio for appellant. Ruiz, Ruiz, Ruiz, Ruiz, and Benjamin Guerrero for appellees. MONTEMAYOR, J.: The facts in this case based on an agreed statement of facts are simple. In the year 1941 the Northern Theatrical Enterprises Inc., a domestic corporation operated a movie house in Laoag, Ilocos Norte, and among the persons employed by it was the plaintiff DOMINGO DE LA CRUZ, hired as a special guard whose duties were to guard the main entrance of the cine, to maintain peace and order and to report the commission of disorders within the premises. As such guard he carried a revolver. In the afternoon of July 4, 1941, one Benjamin Martin wanted to crash the gate or entrance of the movie house. Infuriated by the refusal of plaintiff De la Cruz to let him in without first providing himself with a ticket, Martin attacked him with a bolo. De la Cruz defendant himself as best he could until he was cornered, at which moment to save himself he shot the gate crasher, resulting in the latter's death. For the killing, De la Cruz was charged with homicide in Criminal Case No. 8449 of the Court of First Instance of Ilocos Norte. After a re-investigation conducted by the Provincial Fiscal the latter filed a motion to dismiss the complaint, which was granted by the court in January 1943. On July 8, 1947, De la Cruz was again accused of the same crime of homicide, in Criminal Case No. 431 of the same Court. After trial, he was finally acquitted of the charge on January 31, 1948. In both criminal cases De la Cruz employed a lawyer to defend him. He demanded from his former employer reimbursement of his expenses but was refused, after which he filed the present action against the movie corporation and the three members of its board of directors, to recover not only the amounts he had paid his lawyers but also moral damages said to have been suffered, due to his worry, his neglect of his interests and his family as well in the supervision of the cultivation of his land, a total of P15,000. On the basis of the complaint and the answer filed by defendants wherein they asked for the dismissal of the complaint, as well as the agreed statement of facts, the Court of First Instance of Ilocos Norte after rejecting the theory of the plaintiff that he was an agent of the defendants and that as such agent he was entitled to reimbursement of the expenses incurred by him in connection with the agency (Arts. 1709-1729 of the old Civil Code), found that plaintiff had no cause of action and dismissed the complaint without costs. De la Cruz appealed directly to this Tribunal for the reason that only questions of law are involved in the appeal. We agree with the trial court that the relationship between the movie corporation and the plaintiff was not that of principal and agent because the principle of representation was in no way involved. Plaintiff was not employed to represent the defendant corporation in its dealings with third parties. He was a mere employee hired to perform a certain specific duty or task, that of acting as special guard and staying at the main entrance of the movie house to stop gate crashers and to maintain peace and order within the premises. The question posed by this appeal is whether an employee or servant who in line of duty and while in the performance of the task assigned to him, performs an act which eventually results in his incurring in expenses, caused not directly by his master or employer or his fellow servants or by reason of his performance of his duty, but rather by a third party or stranger not in the employ of his employer, may recover said damages against his employer. The learned trial court in the last paragraph of its decision dismissing the complaint said that "after studying many laws or provisions of law to find out what law is applicable to the facts submitted and admitted by the parties, has found none and it has no other alternative than to dismiss the complaint." The trial court is right. We confess that we are not aware of any law or judicial authority that is directly applicable to the present case, and realizing the importance and far-reaching effect of a ruling on the subject-matter we have searched, though vainly, for judicial authorities and enlightenment. All the laws and principles of law we have found, as regards master and servants, or employer and employee, refer to cases of physical injuries, light or serious, resulting in loss of a member of the body or of any one of the senses, or permanent physical disability or even death, suffered in line of duty and in the course of the performance of the duties assigned to the servant or employee, and these cases are mainly governed by the Employer's Liability Act and the Workmen's Compensation Act.

But a case involving damages caused to an employee by a stranger or outsider while said employee was in the performance of his duties, presents a novel question which under present legislation we are neither able nor prepared to decide in favor of the employee. In a case like the present or a similar case of say a driver employed by a transportation company, who while in the course of employment runs over and inflicts physical injuries on or causes the death of a pedestrian; and such driver is later charged criminally in court, one can imagine that it would be to the interest of the employer to give legal help to and defend its employee in order to show that the latter was not guilty of any crime either deliberately or through negligence, because should the employee be finally held criminally liable and he is found to be insolvent, the employer would be subsidiarily liable. That is why, we repeat, it is to the interest of the employer to render legal assistance to its employee. But we are not prepared to say and to hold that the giving of said legal assistance to its employees is a legal obligation. While it might yet and possibly be regarded as a normal obligation, it does not at present count with the sanction of man-made laws. If the employer is not legally obliged to give, legal assistance to its employee and provide him with a lawyer, naturally said employee may not recover the amount he may have paid a lawyer hired by him. Viewed from another angle it may be said that the damage suffered by the plaintiff by reason of the expenses incurred by him in remunerating his lawyer, is not caused by his act of shooting to death the gate crasher but rather by the filing of the charge of homicide which made it necessary for him to defend himself with the aid of counsel. Had no criminal charge been filed against him, there would have been no expenses incurred or damage suffered. So the damage suffered by plaintiff was caused rather by the improper filing of the criminal charge, possibly at the instance of the heirs of the deceased gate crasher and by the State through the Fiscal. We say improper filing, judging by the results of the court proceedings, namely, acquittal. In other words, the plaintiff was innocent and blameless. If despite his innocence and despite the absence of any criminal responsibility on his part he was accused of homicide, then the responsibility for the improper accusation may be laid at the door of the heirs of the deceased and the State, and so theoretically, they are the parties that may be held responsible civilly for damages and if this is so, we fail to see now this responsibility can be transferred to the employer who in no way intervened, much less initiated the criminal proceedings and whose only connection or relation to the whole affairs was that he employed plaintiff to perform a special duty or task, which task or duty was performed lawfully and without negligence. Still another point of view is that the damages incurred here consisting of the payment of the lawyer's fee did not flow directly from the performance of his duties but only indirectly because there was an efficient, intervening cause, namely, the filing of the criminal charges. In other words, the shooting to death of the deceased by the plaintiff was not the proximate cause of the damages suffered but may be regarded as only a remote cause, because from the shooting to the damages suffered there was not that natural and continuous sequence required to fix civil responsibility. In view of the foregoing, the judgment of the lower court is affirmed. No costs. G.R. No. L-21601 December 28, 1968

NIELSON & COMPANY, INC., plaintiff-appellant, vs. LEPANTO CONSOLIDATED MINING COMPANY, defendant-appellee. RESOLUTION ZALDIVAR, J.: Lepanto seeks the reconsideration of the decision rendered on December 17, 1966. The motion for reconsideration is based on two sets of grounds the first set consisting of four principal grounds, and the second set consisting of five alternative grounds, as follows: Principal Grounds:

1. The court erred in overlooking and failing to apply the proper law applicable to the agency or management contract in question, namely, Article 1733 of the Old Civil Code (Article 1920 of the new), by virtue of which said agency was effectively revoked and terminated in 1945 when, as stated in paragraph 20 of the complaint, "defendant voluntarily ... prevented plaintiff from resuming management and operation of said mining properties." 2. The court erred in holding that paragraph II of the management contract (Exhibit C) suspended the period of said contract. 3. The court erred in reversing the ruling of the trial judge, based on well-settled jurisprudence of this Supreme Court, that the management agreement was only suspended but not extended on account of the war. 4. The court erred in reversing the finding of the trial judge that Nielson's action had prescribed, but considering only the first claim and ignoring the prescriptibility of the other claims. Alternative Grounds: 5. The court erred in holding that the period of suspension of the contract on account of the war lasted from February 1942 to June 26, 1948. 6. Assuming arguendo that Nielson is entitled to any relief, the court erred in awarding as damages (a) 10% of the cash dividends declared and paid in December, 1941; (b) the management fee of P2,500.00 for the month of January, 1942; and (c) the full contract price for the extended period of sixty months, since these damages were neither demanded nor proved and, in any case, not allowable under the general law of damages. 7. Assuming arguendo that appellant is entitled to any relief, the court erred in ordering appellee to issue and deliver to appellant shares of stock together with fruits thereof. 8. The court erred in awarding to appellant an undetermined amount of shares of stock and/or cash, which award cannot be ascertained and executed without further litigation. 9. The court erred in rendering judgment for attorney's fees. We are going to dwell on these grounds in the order they are presented. 1. In its first principal ground Lepanto claims that its own counsel and this Court had overlooked the real nature of the management contract entered into by and between Lepanto and Nielson, and the law that is applicable on said contract. Lepanto now asserts for the first time and this is done in a motion for reconsideration - that the management contract in question is a contract of agency such that it has the right to revoke and terminate the said contract, as it did terminate the same, under the law of agency, and particularly pursuant to Article 1733 of the Old Civil Code (Article 1920 of the New Civil Code). We have taken note that Lepanto is advancing a new theory. We have carefully examined the pleadings filed by Lepanto in the lower court, its memorandum and its brief on appeal, and never did it assert the theory that it has the right to terminate the management contract because that contract is one of agency which it could terminate at will. While it is true that in its ninth and tenth special affirmative defenses, in its answer in the court below, Lepanto pleaded that it had the right to terminate the management contract in question, that plea of its right to terminate was not based upon the ground that the relation between Lepanto and Nielson was that of principal and agent but upon the ground that Nielson had allegedly not complied with certain terms of the management contract. If Lepanto had thought of considering the management contract as one of agency it could have amended its answer by stating exactly its position. It could have asserted its theory of agency in its memorandum for the lower court and in its brief on appeal. This, Lepanto did not do. It is the rule, and the settled doctrine of this Court, that a party cannot change his theory on appeal that is, that a party cannot

raise in the appellate court any question of law or of fact that was not raised in the court below or which was not within the issue made by the parties in their pleadings (Section 19, Rule 49 of the old Rules of Court, and also Section 18 of the new Rules of Court; Hautea vs. Magallon, L-20345, November 28, 1964; Northern Motors, Inc. vs. Prince Line, L-13884, February 29, 1960; American Express Co. vs. Natividad, 46 Phil. 207; Agoncillo vs. Javier, 38 Phil. 424 and Molina vs. Somes, 24 Phil 49). At any rate, even if we allow Lepanto to assert its new theory at this very late stage of the proceedings, this Court cannot sustain the same. Lepanto contends that the management contract in question (Exhibit C) is one of agency because: (1) Nielson was to manage and operate the mining properties and mill on behalf, and for the account, of Lepanto; and (2) Nielson was authorized to represent Lepanto in entering, on Lepanto's behalf, into contracts for the hiring of laborers, purchase of supplies, and the sale and marketing of the ores mined. All these, Lepanto claims, show that Nielson was, by the terms of the contract, destined to execute juridical acts not on its own behalf but on behalf of Lepanto under the control of the Board of Directors of Lepanto "at all times". Hence Lepanto claims that the contract is one of agency. Lepanto then maintains that an agency is revocable at the will of the principal (Article 1733 of the Old Civil Code), regardless of any term or period stipulated in the contract, and it was in pursuance of that right that Lepanto terminated the contract in 1945 when it took over and assumed exclusive management of the work previously entrusted to Nielson under the contract. Lepanto finally maintains that Nielson as an agent is not entitled to damages since the law gives to the principal the right to terminate the agency at will. Because of Lepanto's new theory We consider it necessary to determine the nature of the management contract whether it is a contract of agency or a contract of lease of services. Incidentally, we have noted that the lower court, in the decision appealed from, considered the management contract as a contract of lease of services. Article 1709 of the Old Civil Code, defining contract of agency, provides: By the contract of agency, one person binds himself to render some service or do something for the account or at the request of another. Article 1544, defining contract of lease of service, provides: In a lease of work or services, one of the parties binds himself to make or construct something or to render a service to the other for a price certain. In both agency and lease of services one of the parties binds himself to render some service to the other party. Agency, however, is distinguished from lease of work or services in that the basis of agency is representation, while in the lease of work or services the basis is employment. The lessor of services does not represent his employer, while the agent represents his principal. Manresa, in his "Commentarios al Codigo Civil Espaol" (1931, Tomo IX, pp. 372-373), points out that the element of representation distinguishes agency from lease of services, as follows: Nuestro art. 1.709 como el art. 1.984 del Codigo de Napoleon y cuantos textos legales citamos en lasconcordancias, expresan claramente esta idea de la representacion, "hacer alguna cosa por cuenta o encargo de otra" dice nuestro Codigo; "poder de hacer alguna cosa para el mandante o en su nombre" dice el Codigo de Napoleon, y en tales palabras aparece vivo y luminoso el concepto y la teoria de la representacion, tan fecunda en ensenanzas, que a su sola luz es como se explican las diferencias que separan el mandato del arrendamiento de servicios, de los contratos inominados, del consejo y de la gestion de negocios. En efecto, en el arrendamiento de servicios al obligarse para su ejecucion, se trabaja, en verdad, para el dueno que remunera la labor, pero ni se le representa ni se obra en su nombre....

On the basis of the interpretation of Article 1709 of the old Civil Code, Article 1868 of the new Civil Code has defined the contract of agency in more explicit terms, as follows: By the contract of agency 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. There is another obvious distinction between agency and lease of services. Agency is a preparatory contract, as agency "does not stop with the agency because the purpose is to enter into other contracts." The most characteristic feature of an agency relationship is the agent's power to bring about business relations between his principal and third persons. "The agent is destined to execute juridical acts (creation, modification or extinction of relations with third parties). Lease of services contemplate only material (non-juridical) acts." (Reyes and Puno, "An Outline of Philippine Civil Law," Vol. V, p. 277). In the light of the interpretations we have mentioned in the foregoing paragraphs let us now determine the nature of the management contract in question. Under the contract, Nielson had agreed, for a period of five years, with the right to renew for a like period, to explore, develop and operate the mining claims of Lepanto, and to mine, or mine and mill, such pay ore as may be found therein and to market the metallic products recovered therefrom which may prove to be marketable, as well as to render for Lepanto other services specified in the contract. We gather from the contract that the work undertaken by Nielson was to take complete charge subject at all times to the general control of the Board of Directors of Lepanto, of the exploration and development of the mining claims, of the hiring of a sufficient and competent staff and of sufficient and capable laborers, of the prospecting and development of the mine, of the erection and operation of the mill, and of the benefication and marketing of the minerals found on the mining properties; and in carrying out said obligation Nielson should proceed diligently and in accordance with the best mining practice. In connection with its work Nielson was to submit reports, maps, plans and recommendations with respect to the operation and development of the mining properties, make recommendations and plans on the erection or enlargement of any existing mill, dispatch mining engineers and technicians to the mining properties as from time to time may reasonably be required to investigate and make recommendations without cost or expense to Lepanto. Nielson was also to "act as purchasing agent of supplies, equipment and other necessary purchases by Lepanto, provided, however, that no purchase shall be made without the prior approval of Lepanto; and provided further, that no commission shall be claimed or retained by Nielson on such purchase"; and "to submit all requisition for supplies, all constricts and arrangement with engineers, and staff and all matters requiring the expenditures of money, present or future, for prior approval by Lepanto; and also to make contracts subject to the prior approve of Lepanto for the sale and marketing of the minerals mined from said properties, when said products are in a suitable condition for marketing."1 It thus appears that the principal and paramount undertaking of Nielson under the management contract was the operation and development of the mine and the operation of the mill. All the other undertakings mentioned in the contract are necessary or incidental to the principal undertaking these other undertakings being dependent upon the work on the development of the mine and the operation of the mill. In the performance of this principal undertaking Nielson was not in any way executing juridical acts for Lepanto, destined to create, modify or extinguish business relations between Lepanto and third persons. In other words, in performing its principal undertaking Nielson was not acting as an agent of Lepanto, in the sense that the term agent is interpreted under the law of agency, but as one who was performing material acts for an employer, for a compensation. It is true that the management contract provides that Nielson would also act as purchasing agent of supplies and enter into contracts regarding the sale of mineral, but the contract also provides that Nielson could not make any purchase, or sell the minerals, without the prior approval of Lepanto. It is clear, therefore, that even in these cases Nielson could not execute juridical acts which would bind Lepanto without first securing the approval of Lepanto. Nielson, then, was to act only as an intermediary, not as an agent. Lepanto contends that the management contract in question being one of agency it had the right to terminate the contract at will pursuant to the provision of Article 1733 of the old Civil Code. We find, however, a proviso in the management contract which militates against this stand of Lepanto. Paragraph XI of the contract provides:

Both parties to this agreement fully recognize that the terms of this Agreement are made possible only because of the faith or confidence that the Officials of each company have in the other; therefore, in order to assure that such confidence and faith shall abide and continue, NIELSON agrees that LEPANTO may cancel this Agreement at any time upon ninety (90) days written notice, in the event that NIELSON for any reason whatsoever, except acts of God, strike and other causes beyond its control, shall cease to prosecute the operation and development of the properties herein described, in good faith and in accordance with approved mining practice. It is thus seen, from the above-quoted provision of paragraph XI of the management contract, that Lepanto could not terminate the agreement at will. Lepanto could terminate or cancel the agreement by giving notice of termination ninety days in advance only in the event that Nielson should prosecute in bad faith and not in accordance with approved mining practice the operation and development of the mining properties of Lepanto. Lepanto could not terminate the agreement if Nielson should cease to prosecute the operation and development of the mining properties by reason of acts of God, strike and other causes beyond the control of Nielson. The phrase "Both parties to this agreement fully recognize that the terms of this agreement are made possible only because of the faith and confidence of the officials of each company have in the other" in paragraph XI of the management contract does not qualify the relation between Lepanto and Nielson as that of principal and agent based on trust and confidence, such that the contractual relation may be terminated by the principal at any time that the principal loses trust and confidence in the agent. Rather, that phrase simply implies the circumstance that brought about the execution of the management contract. Thus, in the annual report for 19362, submitted by Mr. C. A. Dewit, President of Lepanto, to its stockholders, under date of March 15, 1937, we read the following: To the stockholders xxx xxx xxx

The incorporation of our Company was effected as a result of negotiations with Messrs. Nielson & Co., Inc., and an offer by these gentlemen to Messrs. C. I. Cookes and V. L. Lednicky, dated August 11, 1936, reading as follows: Messrs. Cookes and Lednicky, Present Re: Mankayan Copper Mines GENTLEMEN: After an examination of your property by our engineers, we have decided to offer as we hereby offer to underwrite the entire issue of stock of a corporation to be formed for the purpose of taking over said properties, said corporation to have an authorized capital of P1,750,000.00, of which P700,000.00 will be issued in escrow to the claim-owners in exchange for their claims, and the balance of P1,050,000.00 we will sell to the public at par or take ourselves. The arrangement will be under the following conditions: 1. The subscriptions for cash shall be payable 50% at time of subscription and the balance subject to the call of the Board of Directors of the proposed corporation. 2. We shall have an underwriting and brokerage commission of 10% of the P1,050,000.00 to be sold for cash to the public, said commission to be payable from the first payment of 50% on each subscription.

3. We will bear the cost of preparing and mailing any prospectus that may be required, but no such prospectus will be sent out until the text thereof has been first approved by the Board of Directors of the proposed corporation. 4. That after the organization of the corporation, all operating contract be entered into between ourselves and said corporation, under the terms which the property will be developed and mined and a mill erected, under our supervision, our compensation to be P2,000.00 per month until the property is put on a profitable basis and P2,500.00 per month plus 10% of the net profits for a period of five years thereafter. 5. That we shall have the option to renew said operating contract for an additional period of five years, on the same basis as the original contract, upon the expiration thereof. It is understood that the development and mining operations on said property, and the erection of the mill thereon, and the expenditures therefor shall be subject to the general control of the Board of Directors of the proposed corporation, and, in case you accept this proposition, that a detailed operating contract will be entered into, covering the relationships between the parties. Yours very truly, (Sgd.) L. R. Nielson Pursuant to the provisions of paragraph 2 of this offer, Messrs. Nielson & Co., took subscriptions for One Million Fifty Thousand Pesos (P1,050,000.00) in shares of our Company and their underwriting and brokerage commission has been paid. More than fifty per cent of these subscriptions have been paid to the Company in cash. The claim owners have transferred their claims to the Corporation, but the P700,000.00 in stock which they are to receive therefor, is as yet held in escrow. Immediately upon the formation of the Corporation Messrs. Nielson & Co., assumed the Management of the property under the control of the Board of Directors. A modification in the Management Contract was made with the consent of all the then stockholders, in virtue of which the compensation of Messrs. Nielson & Co., was increased to P2,500.00 per month when mill construction began. The formal Management Contract was not entered into until January 30, 1937. xxx Manila, March 15, 1937 (Sgd.) C. A. DeWitt President We can gather from the foregoing statements in the annual report for 1936, and from the provision of paragraph XI of the Management contract, that the employment by Lepanto of Nielson to operate and manage its mines was principally in consideration of the know-how and technical services that Nielson offered Lepanto. The contract thus entered into pursuant to the offer made by Nielson and accepted by Lepanto was a "detailed operating contract". It was not a contract of agency. Nowhere in the record is it shown that Lepanto considered Nielson as its agent and that Lepanto terminated the management contract because it had lost its trust and confidence in Nielson. The contention of Lepanto that it had terminated the management contract in 1945, following the liberation of the mines from Japanese control, because the relation between it and Nielson was one of agency and as such it could terminate the agency at will, is, therefore, untenable. On the other hand, it can be said that, in asserting that it had terminated or cancelled the management contract in 1945, Lepanto had thereby violated the express terms of the management contract. The management contract was renewed to last until January 31, 1947, so that the contract had yet almost two years to go upon the liberation of the mines in 1945. There is no showing that Nielson had ceased to prosecute the operation and development of the mines in good faith and in accordance with approved mining practice which would warrant the termination of the contract upon ninety xxx xxx

days written notice. In fact there was no such written notice of termination. It is an admitted fact that Nielson ceased to operate and develop the mines because of the war a cause beyond the control of Nielson. Indeed, if the management contract in question was intended to create a relationship of principal and agent between Lepanto and Nielson, paragraph XI of the contract should not have been inserted because, as provided in Article 1733 of the old Civil Code, agency is essentially revocable at the will of the principal that means, with or without cause. But precisely said paragraph XI was inserted in the management contract to provide for the cause for its revocation. The provision of paragraph XI must be given effect. In the construction of an instrument where there are several provisions or particulars, such a construction is, if possible, to be adopted as will give effect to all,3 and if some stipulation of any contract should admit of several meanings, it shall be understood as bearing that import which is most adequate to render it effectual. 4 It is Our considered view that by express stipulation of the parties, the management contract in question is not revocable at the will of Lepanto. We rule that this management contract is not a contract of agency as defined in Article 1709 of the old Civil Code, but a contract of lease of services as defined in Article 1544 of the same Code. This contract can not be unilaterally revoked by Lepanto. The first ground of the motion for reconsideration should, therefore, be brushed aside. 2. In the second, third and fifth grounds of its motion for reconsideration, Lepanto maintains that this Court erred, in holding that paragraph 11 of the management contract suspended the period of said contract, in holding that the agreement was not only suspended but was extended on account of the war, and in holding that the period of suspension on account of the war lasted from February, 1942 to June 26, 1948. We are going to discuss these three grounds together because they are interrelated. In our decision we have dwelt lengthily on the points that the management contract was suspended because of the war, and that the period of the contract was extended for a period equivalent to the time when Nielson was unable to perform the work of mining and milling because of the adverse effects of the war on the work of mining and milling. It is the contention of Lepanto that the happening of those events, and the effects of those events, simply suspended the performance of the obligations by either party in the contract, but did not suspend the period of the contract, much less extended the period of the contract. We have conscientiously considered the arguments of Lepanto in support of these three grounds, but We are not persuaded to reconsider the rulings that We made in Our decision. We want to say a little more on these points, however. Paragraph II of the management contract provides as follows: In the event of inundation, flooding of the mine, typhoon, earthquake or any other force majeure, war, insurrection, civil commotion, organized strike, riot, fire, injury to the machinery or other event or cause reasonably beyond the control of NIELSON and which adversely affects the work of mining and milling; NIELSON shall report such fact to LEPANTO and without liability or breach of the terms of this Agreement,the same shall remain in suspense, wholly or partially during the terms of such inability. (Emphasis supplied) A reading of the above-quoted paragraph II cannot but convey the idea that upon the happening of any of the events enumerated therein, which adversely affects the work of mining and milling, the agreement is deemed suspended for as long as Nielson is unable to perform its work of mining and milling because of the adverse effects of the happening of the event on the work of mining and milling. During the period when the adverse effects on the work of mining and milling exist, neither party in the contract would be held liable for noncompliance of its obligation under the contract. In other words, the operation of the contract is suspended for as long as the adverse effects of the happening of any of those events had impeded or obstructed the work of mining and milling. An analysis of the phraseology of the above-quoted paragraph II of the management contract readily supports the conclusion that it is the agreement, or the contract, that is suspended. The phrase

"the same" can refer to no other than the term "Agreement" which immediately precedes it. The "Agreement" may be wholly or partially suspended, and this situation will depend on whether the event wholly or partially affected adversely the work of mining and milling. In the instant case, the war had adversely affected and wholly at that the work of mining and milling. We have clearly stated in Our decision the circumstances brought about by the war which caused the whole or total suspension of the agreement or of the management contract. LEPANTO itself admits that the management contract was suspended. We quote from the brief of LEPANTO: Probably, what Nielson meant was, it was prevented by Lepanto to assume again the management of the mine in 1945, at the precise time when defendant was at the feverish phase of rehabilitation and although the contract had already been suspended. (Lepanto's Brief, p. 9). ... it was impossible, as a result of the destruction of the mine, for the plaintiff to manage and operate the same and because, as provided in the agreement, the contract was suspended by reason of the war (Lepanto's Brief, pp. 9-10). Clause II, by its terms, is clear that the contract is suspended in case fortuitous event or force majeure, such as war, adversely affects the work of mining and milling. (Lepanto's Brief, p. 49). Lepanto is correct when it said that the obligations under the contract were suspended upon the happening of any of the events enumerated in paragraph II of the management contract. Indeed, those obligations were suspended because the contract itself was suspended. When we talk of a contract that has been suspended we certainly mean that the contract temporarily ceased to be operative, and the contract becomes operative again upon the happening of a condition or when a situation obtains which warrants the termination of the suspension of the contract. In Our decision We pointed out that the agreement in the management contract would be suspended when two conditions concur, namely: (1) the happening of the event constituting a force majeure that was reasonably beyond the control of Nielson, and (2) that the event constituting the force majeure adversely affected the work of mining and milling. The suspension, therefore, would last not only while the event constituting the force majeure continued to occur but also for as long as the adverse effects of the force majeure on the work of mining and milling had not been eliminated. Under the management contract the happening alone of the event constituting the force majeure which did not affect adversely the work of mining and milling would not suspend the period of the contract. It is only when the two conditions concur that the period of the agreement is suspended. It is not denied that because of the war, in February 1942, the mine, the original mill, the original power plant, the supplies and equipment, and all installations at the Mankayan mines of Lepanto, were destroyed upon order of the United States Army, to prevent their utilization by the enemy. It is not denied that for the duration of the war Nielson could not undertake the work of mining and milling. When the mines were liberated from the enemy in August, 1945, the condition of the mines, the mill, the power plant and other installations, was not the same as in February 1942 when they were ordered destroyed by the US army. Certainly, upon the liberation of the mines from the enemy, the work of mining and milling could not be undertaken by Nielson under the same favorable circumstances that obtained before February 1942. The work of mining and milling, as undertaken by Nielson in January, 1942, could not be resumed by Nielson soon after liberation because of the adverse effects of the war, and this situation continued until June of 1948. Hence, the suspension of the management contract did not end upon the liberation of the mines in August, 1945. The mines and the mill and the installations, laid waste by the ravages of war, had to be reconstructed and rehabilitated, and it can be said that it was only on June 26, 1948 that the adverse effects of the war on the work of mining and milling had ended, because it was on that date that the operation of the mines and the mill was resumed. The period of suspension should, therefore, be reckoned from February 1942 until June 26, 1948, because it was during this period that the war and the adverse effects of the war on the work of mining and milling had lasted. The mines and the installations had to be rehabilitated because of the adverse effects of the war. The work of rehabilitation started soon after the liberation of the mines in August, 1945 and lasted until June 26, 1948 when, as stated in Lepanto's annual report to its stockholders for the year 1948, "June 28, 1948 marked the official return to operation of this company at its properties at Mankayan, Mountain Province, Philippines" (Exh. F-1).

Lepanto would argue that if the management contract was suspended at all the suspension should cease in August of 1945, contending that the effects of the war should cease upon the liberation of the mines from the enemy. This contention cannot be sustained, because the period of rehabilitation was still a period when the physical effects of the war the destruction of the mines and of all the mining installations adversely affected, and made impossible, the work of mining and milling. Hence, the period of the reconstruction and rehabilitation of the mines and the installations must be counted as part of the period of suspension of the contract. Lepanto claims that it would not be unfair to end the period of suspension upon the liberation of the mines because soon after the liberation of the mines Nielson insisted to resume the management work, and that Nielson was under obligation to reconstruct the mill in the same way that it was under obligation to construct the mill in 1937. This contention is untenable. It is true that Nielson insisted to resume its management work after liberation, but this was only for the purpose of restoring the mines, the mill, and other installations to their operating and producing condition as of February 1942 when they were ordered destroyed. It is not shown by any evidence in the record, that Nielson had agreed, or would have agreed, that the period of suspension of the contract would end upon the liberation of the mines. This is so because, as found by this Court, the intention of the parties in the management contract, and as understood by them, the management contract was suspended for as long as the adverse effects of the force majeure on the work of mining and milling had not been removed, and the contract would be extended for as long as it was suspended. Under the management contract Nielson had the obligation to erect and operate the mill, but not to erect or reconstruct the mill in case of its destruction by force majeure. It is the considered view of this court that it would not be fair to Nielson to consider the suspension of the contract as terminated upon the liberation of the mines because then Nielson would be placed in a situation whereby it would have to suffer the adverse effects of the war on the work of mining and milling. The evidence shows that as of January 1942 the operation of the mines under the management of Nielson was already under beneficial conditions, so much so that dividends were already declared by Lepanto for the years 1939, 1940 and 1941. To make the management contract immediately operative after the liberation of the mines from the Japanese, at the time when the mines and all its installations were laid waste as a result of the war, would be to place Nielson in a situation whereby it would lose all the benefits of what it had accomplished in placing the Lepanto mines in profitable operation before the outbreak of the war in December, 1941. The record shows that Nielson started its management operation way back in 1936, even before the management contract was entered into. As early as August 1936 Nielson negotiated with Messrs. C. I. Cookes and V. L. Lednicky for the operation of the Mankayan mines and it was the result of those negotiations that Lepanto was incorporated; that it was Nielson that helped to capitalize Lepanto, and that after the formation of the corporation (Lepanto) Nielson immediately assumed the management of the mining properties of Lepanto. It was not until January 30, 1937 when the management contract in question was entered into between Lepanto and Nielson (Exhibit A). A contract for the management and operation of mines calls for a speculative and risky venture on the part of the manager-operator. The manager-operator invests its technical know-how, undertakes back-breaking efforts and tremendous spade-work, so to say, in the first years of its management and operation of the mines, in the expectation that the investment and the efforts employed might be rewarded later with success. This expected success may never come. This had happened in the very case of the Mankayan mines where, as recounted by Mr. Lednicky of Lepanto, various persons and entities of different nationalities, including Lednicky himself, invested all their money and failed. The manager-operator may not strike sufficient ore in the first, second, third, or fourth year of the management contract, or he may not strike ore even until the end of the fifth year. Unless the manager-operator strikes sufficient quantity of ore he cannot expect profits or reward for his investment and efforts. In the case of Nielson, its corps of competent engineers, geologists, and technicians begun working on the Mankayan mines of Lepanto since the latter part of 1936, and continued their work without success and profit through 1937, 1938, and the earlier part of 1939. It was only in December of 1939 when the efforts of Nielson started to be rewarded when Lepanto realized profits and the first dividends were declared. From that time on Nielson could expect profit to come to it as in fact Lepanto declared dividends for 1940 and 1941 if the development and operation of the mines and the mill would continue unhampered. The operation, and the expected profits, however, would still be subject to hazards due to the occurrence of fortuitous events, fires, earthquakes, strikes, war, etc., constituting force majeure, which would result in the destruction of the mines and the mill. One of these diverse causes, or one after the other, may consume the whole period of the contract, and if it should happen that way the manager-operator would reap no profit to compensate for the first years of spade-work and investment of efforts and know-how. Hence, in fairness to the

manager-operator, so that he may not be deprived of the benefits of the work he had accomplished, the force majeure clause is incorporated as a standard clause in contracts for the management and operation of mines. The nature of the contract for the management and operation of mines justifies the interpretation of the force majeure clause, that a period equal to the period of suspension due to force majeure should be added to the original term of the contract by way of an extension. We, therefore, reiterate the ruling in Our decision that the management contract in the instant case was suspended from February, 1942 to June 26, 1948, and that from the latter date the contract had yet five years to go. 3. In the fourth ground of its motion for reconsideration, Lepanto maintains that this Court erred in reversing the finding of the trial court that Nielson's action has prescribed, by considering only the first claim and ignoring the prescriptibility of the other claims. This ground of the motion for reconsideration has no merit. In Our decision We stated that the claims of Nielson are based on a written document, and, as such, the cause of action prescribes in ten years.5 Inasmuch as there are different claims which accrued on different dates the prescriptive periods for all the claims are not the same. The claims of Nielson that have been awarded by this Court are itemized in the dispositive part of the decision. The first item of the awards in Our decision refers to Nielson's compensation in the sum of P17,500.00, which is equivalent to 10% of the cash dividends declared by Lepanto in December, 1941. As we have stated in Our decision, this claim accrued on December 31, 1941, and the right to commence an action thereon started on January 1, 1942. We declared that the action on this claim did not prescribe although the complaint was filed on February 6, 1958 or after a lapse of 16 years, 1 month and 5 days because of the operation of the moratorium law. We declared that under the applicable decisions of this Court6 the moratorium period of 8 years, 2 months and 8 days should be deducted from the period that had elapsed since the accrual of the cause of action to the date of the filing of the complaint, so that there is a period of less than 8 years to be reckoned for the purpose of prescription. This claim of Nielson is covered by Executive Order No. 32, issued on March 10, 1945, which provides as follows: Enforcement of payments of all debts and other monetary obligations payable in the Philippines, except debts and other monetary obligations entered into in any area after declaration by Presidential Proclamation that such area has been freed from enemy occupation and control, is temporarily suspended pending action by the Commonwealth Government. (41 O.G. 56-57; Emphasis supplied) Executive Order No. 32 covered all debts and monetary obligation contracted before the war (or before December 8, 1941) and those contracted subsequent to December 8, 1941 and during the Japanese occupation. Republic Act No. 342, approved on July 26, 1948, lifted the moratorium provided for in Executive Order No. 32 on pre-war (or pre-December 8, 1941) debts of debtors who had not filed war damage claims with the United States War Damage Commission. In other words, after the effectivity of Republic Act No. 342, the debt moratorium was limited: (1) to debts and other monetary obligations which were contracted after December 8, 1941 and during the Japanese occupation, and (2) to those pre-war (or pre-December 8, 1941) debts and other monetary obligations where the debtors filed war damage claims. That was the situation up to May 18, 1953 when this Court declared Republic Act No. 342 unconstitutional.7 It has been held by this Court, however, that from March 10, 1945 when Executive Order No. 32 was issued, to May 18, 1953 when Republic Act No. 342 was declared unconstitutional or a period of 8 years, 2 months and 8 days the debt moratorium was in force, and had the effect of suspending the period of prescription.8 Lepanto is wrong when in its motion for reconsideration it claims that the moratorium provided for in Executive Order No. 32 was continued by Republic Act No. 342 "only with respect to debtors of pre-war obligations or

those incurred prior to December 8, 1941," and that "the moratorium was lifted and terminated with respect to obligations incurred after December 8, 1941."9 This Court has held that Republic Act No. 342 does not apply to debts contracted during the war and did not lift the moratorium in relations thereto.10 In the case of Abraham, et al. vs. Intestate Estate of Juan C. Ysmael, et al., L-16741, Jan. 31, 1962, this Court said: Respondents, however, contend that Republic Act No. 342, which took effect on July 26, 1948, lifted the moratorium on debts contracted during the Japanese occupation. The court has already held that Republic Act No. 342 did not lift the moratorium on debts contracted during the war (Uy vs. Kalaw Katigbak, G.R. No. L-1830, Dec. 31, 1949) but modified Executive Order No. 32 as to pre-war debts, making the protection available only to debtors who had war damage claims (Sison v. Mirasol, G.R. No. L-4711, Oct. 3, 1952). We therefore reiterate the ruling in Our decision that the claim involved in the first item awarded to Nielson had not prescribed. What we have stated herein regarding the non-prescription of the cause of action of the claim involved in the first item in the award also holds true with respect to the second item in the award, which refers to Nielson's claim for management fee of P2,500.00 for January, 1942. Lepanto admits that this second item, like the first, is a monetary obligation. The right of action of Nielson regarding this claim accrued on January 31, 1942. As regards items 3, 4, 5, 6 and 7 in the awards in the decision, the moratorium law is not applicable. That is the reason why in Our decision We did not discuss the question of prescription regarding these items. The claims of Nielson involved in these items are based on the management contract, and Nielson's cause of action regarding these claims prescribes in ten years. Corollary to Our ruling that the management contract was suspended from February, 1942 until June 26, 1948, and that the contract was extended for five years from June 26, 1948, the right of action of Nielson to claim for what is due to it during that period of extension accrued during the period from June 26, 1948 till the end of the five-year extension period or until June 26, 1953. And so, even if We reckon June 26, 1948 as the starting date of the ten-year period in connection with the prescriptibility of the claims involved in items 3, 4, 5, 6 and 7 of the awards in the decision, it is obvious that when the complaint was filed on February 6, 1958 the ten-year prescriptive period had not yet lapsed. In Our decision We have also ruled that the right of action of Nielson against Lepanto had not prescribed because of the arbitration clause in the Management contract. We are satisfied that there is evidence that Nielson had asked for arbitration, and an arbitration committee had been constituted. The arbitration committee, however, failed to bring about any settlement of the differences between Nielson and Lepanto. On June 25, 1957 counsel for Lepanto definitely advised Nielson that they were not entertaining any claim of Nielson. The complaint in this case was filed on February 6, 1958. 4. In the sixth ground of its motion for reconsideration, Lepanto maintains that this Court "erred in awarding as damages (a) 10% of the cash dividends declared and paid in December, 1941; (b) the management fee of P2,500.00 for the month of January 1942; and (c) the full contract price for the extended period of 60 months, since the damages were never demanded nor proved and, in any case, not allowable under the general law on damages." We have stated in Our decision that the original agreement in the management contract regarding the compensation of Nielson was modified, such that instead of receiving a monthly compensation of P2,500.00 plus 10% of the net profits from the operation of the properties for the preceding month,11 Nielson would receive a compensation of P2,500.00 a month, plus (1) 10% of the dividends declared and paid, when and as paid, during the period of the contract, and at the end of each year, (2) 10% of any depletion reserve that may be set up, and (3) 10% of any amount expended during the year out of surplus earnings for capital account. It is shown that in December, 1941, cash dividends amounting to P175,000.00 was declared by Lepanto.12Nielson, therefore, should receive the equivalent of 10% of this amount, or the sum of P17,500.00. We have found that this amount was not paid to Nielson.

In its motion for reconsideration, Lepanto inserted a photographic copy of page 127 of its cash disbursement book, allegedly for 1941, in an effort to show that this amount of P17,500.00 had been paid to Nielson. It appears, however, in this photographic copy of page 127 of the cash disbursement book that the sum of P17,500.00 was entered on October 29 as "surplus a/c Nielson & Co. Inc." The entry does not make any reference to dividends or participation of Nielson in the profits. On the other hand, in the photographic copy of page 89 of the 1941 cash disbursement book, also attached to the motion for reconsideration, there is an entry for P17,500.00 on April 23, 1941 which states "Accts. Pay. Particip. Nielson & Co. Inc." This entry for April 23, 1941 may really be the participation of Nielson in the profits based on dividends declared in April 1941 as shown in Exhibit L. But in the same Exhibit L it is not stated that any dividend was declared in October 1941. On the contrary it is stated in Exhibit L that dividends were declared in December 1941. We cannot entertain this piece of evidence for several reasons: (1) because this evidence was not presented during the trial in the court below; (2) there is no showing that this piece of evidence is newly discovered and that Lepanto was not in possession of said evidence when this case was being tried in the court below; and (3) according to Exhibit L cash dividends of P175,000.00 were declared in December, 1941, and so the sum of P17,500.00 which appears to have been paid to Nielson in October 1941 could not be payment of the equivalent of 10% of the cash dividends that were later declared in December, 1941. As regards the management fee of Nielson corresponding to January, 1942, in the sum of P2,500.00, We have also found that Nielson is entitled to be paid this amount, and that this amount was not paid by Lepanto to Nielson. Whereas, Lepanto was able to prove that it had paid the management fees of Nielson for November and December, 1941,13 it was not able to present any evidence to show that the management fee of P2,500.00 for January, 1942 had been paid. It having been declared in Our decision, as well as in this resolution, that the management contract had been extended for 5 years, or sixty months, from June 27, 1948 to June 26, 1953, and that the cause of action of Nielson to claim for its compensation during that period of extension had not prescribed, it follows that Nielson should be awarded the management fees during the whole period of extension, plus the 10% of the value of the dividends declared during the said period of extension, the 10% of the depletion reserve that was set up, and the 10% of any amount expended out of surplus earnings for capital account. 5. In the seventh ground of its motion for reconsideration, Lepanto maintains that this Court erred in ordering Lepanto to issue and deliver to Nielson shares of stock together with fruits thereof. In Our decision, We declared that pursuant to the modified agreement regarding the compensation of Nielson which provides, among others, that Nielson would receive 10% of any dividends declared and paid, when and as paid, Nielson should be paid 10% of the stock dividends declared by Lepanto during the period of extension of the contract. It is not denied that on November 28, 1949, Lepanto declared stock dividends worth P1,000,000.00; and on August 22, 1950, it declared stock dividends worth P2,000,000.00). In other words, during the period of extension Lepanto had declared stock dividends worth P3,000,000.00. We held in Our decision that Nielson is entitled to receive l0% of the stock dividends declared, or shares of stock worth P300,000.00 at the par value of P0.10 per share. We ordered Lepanto to issue and deliver to Nielson those shares of stocks as well as all the fruits or dividends that accrued to said shares. In its motion for reconsideration, Lepanto contends that the payment to Nielson of stock dividends as compensation for its services under the management contract is a violation of the Corporation Law, and that it was not, and it could not be, the intention of Lepanto and Nielson as contracting parties that the services of Nielson should be paid in shares of stock taken out of stock dividends declared by Lepanto. We have assiduously considered the arguments adduced by Lepanto in support of its contention, as well as the answer of Nielson in this connection, and We have arrived at the conclusion that there is merit in the contention of Lepanto. Section 16 of the Corporation Law, in part, provides as follows: No corporation organized under this Act shall create or issue bills, notes or other evidence of debt, for circulation as money, and no corporation shall issue stock or bonds except in exchange for actual cash

paid to the corporation or for: (1) property actually received by it at a fair valuation equal to the par or issued value of the stock or bonds so issued; and in case of disagreement as to their value, the same shall be presumed to be the assessed value or the value appearing in invoices or other commercial documents, as the case may be; and the burden or proof that the real present value of the property is greater than the assessed value or value appearing in invoices or other commercial documents, as the case may be, shall be upon the corporation, or for (2) profits earned by it but not distributed among its stockholders or members; Provided, however, That no stock or bond dividend shall be issued without the approval of stockholders representing not less than two-thirds of all stock then outstanding and entitled to vote at a general meeting of the corporation or at a special meeting duly called for the purpose. xxx xxx xxx

No corporation shall make or declare any dividend except from the surplus profits arising from its business, or divide or distribute its capital stock or property other than actual profits among its members or stockholders until after the payment of its debts and the termination of its existence by limitation or lawful dissolution: Provided, That banking, savings and loan, and trust corporations may receive deposits and issue certificates of deposit, checks, drafts, and bills of exchange, and the like in the transaction of the ordinary business of banking, savings and loan, and trust corporations. (As amended by Act No. 2792, and Act No. 3518; Emphasis supplied.) From the above-quoted provision of Section 16 of the Corporation Law, the consideration for which shares of stock may be issued are: (1) cash; (2) property; and (3) undistributed profits. Shares of stock are given the special name "stock dividends" only if they are issued in lieu of undistributed profits. If shares of stocks are issued in exchange of cash or property then those shares do not fall under the category of "stock dividends". A corporation may legally issue shares of stock in consideration of services rendered to it by a person not a stockholder, or in payment of its indebtedness. A share of stock issued to pay for services rendered is equivalent to a stock issued in exchange of property, because services is equivalent to property. 14 Likewise a share of stock issued in payment of indebtedness is equivalent to issuing a stock in exchange for cash. But a share of stock thus issued should be part of the original capital stock of the corporation upon its organization, or part of the stocks issued when the increase of the capitalization of a corporation is properly authorized. In other words, it is the shares of stock that are originally issued by the corporation and forming part of the capital that can be exchanged for cash or services rendered, or property; that is, if the corporation has original shares of stock unsold or unsubscribed, either coming from the original capitalization or from the increased capitalization. Those shares of stock may be issued to a person who is not a stockholder, or to a person already a stockholder in exchange for services rendered or for cash or property. But a share of stock coming from stock dividends declared cannot be issued to one who is not a stockholder of a corporation. A "stock dividend" is any dividend payable in shares of stock of the corporation declaring or authorizing such dividend. It is, what the term itself implies, a distribution of the shares of stock of the corporation among the stockholders as dividends. A stock dividend of a corporation is a dividend paid in shares of stock instead of cash, and is properly payable only out of surplus profits.15 So, a stock dividend is actually two things: (1) a dividend, and (2) the enforced use of the dividend money to purchase additional shares of stock at par. 16 When a corporation issues stock dividends, it shows that the corporation's accumulated profits have been capitalized instead of distributed to the stockholders or retained as surplus available for distribution, in money or kind, should opportunity offer. Far from being a realization of profits for the stockholder, it tends rather to postpone said realization, in that the fund represented by the new stock has been transferred from surplus to assets and no longer available for actual distribution.17 Thus, it is apparent that stock dividends are issued only to stockholders. This is so because only stockholders are entitled to dividends. They are the only ones who have a right to a proportional share in that part of the surplus which is declared as dividends. A stock dividend really adds nothing to the interest of the stockholder; the proportional interest of each stockholder remains the same.18If a stockholder is deprived of his stock dividends - and this happens if the shares of stock forming part of the stock dividends are issued to a non-stockholder then the proportion of the stockholder's interest changes radically. Stock dividends are civil fruits of the original investment, and to the owners of the shares belong the civil fruits.19

The term "dividend" both in the technical sense and its ordinary acceptation, is that part or portion of the profits of the enterprise which the corporation, by its governing agents, sets apart for ratable division among the holders of the capital stock. It means the fund actually set aside, and declared by the directors of the corporation as dividends and duly ordered by the director, or by the stockholders at a corporate meeting, to be divided or distributed among the stockholders according to their respective interests. 20 It is Our considered view, therefore, that under Section 16 of the Corporation Law stock dividends can not be issued to a person who is not a stockholder in payment of services rendered. And so, in the case at bar Nielson can not be paid in shares of stock which form part of the stock dividends of Lepanto for services it rendered under the management contract. We sustain the contention of Lepanto that the understanding between Lepanto and Nielson was simply to make the cash value of the stock dividends declared as the basis for determining the amount of compensation that should be paid to Nielson, in the proportion of 10% of the cash value of the stock dividends declared. And this conclusion of Ours finds support in the record. We had adverted to in Our decision that in 1940 there was some dispute between Lepanto and Nielson regarding the application and interpretation of certain provisions of the original contract particularly with regard to the 10% participation of Nielson in the net profits, so that some adjustments had to be made. In the minutes of the meeting of the Board of Directors of Lepanto on August 21, 1940, We read the following: The Chairman stated that he believed that it would be better to tie the computation of the 10% participation of Nielson & Company, Inc. to the dividend, because Nielson will then be able to definitely compute its net participation by the amount of the dividends declared. In addition to the dividend, we have been setting up a depletion reserve and it does not seem fair to burden the 10% participation of Nielson with the depletion reserve, as the depletion reserve should not be considered as an operating expense. After a prolonged discussion, upon motion duly made and seconded, it was RESOLVED, That the President, be, and he hereby is, authorized to enter into an agreement with Nielson & Company, Inc., modifying Paragraph V of management contract of January 30, 1937, effective January 1, 1940, in such a way that Nielson & Company, Inc. shall receive 10% of any dividends declared and paid, when and as paid during the period of the contract and at the end of each year, 10% of any depletion reserve that may be set up and 10% of any amount expended during the year out of surplus earnings for capital account. (Emphasis supplied.) From the sentence, "The Chairman stated that he believed that it would be better to tie the computation of the 10% participation of Nielson & Company, Inc., to the dividend, because Nielson will then be able to definitely compute its net participation by the amount of the dividends declared" the idea is conveyed that the intention of Lepanto, as expressed by its Chairman C. A. DeWitt, was to make the value of the dividends declared whether the dividends were in cash or in stock as the basis for determining the amount of compensation that should be paid to Nielson, in the proportion of 10% of the cash value of the dividends so declared. It does not mean, however, that the compensation of Nielson would be taken from the amount actually declared as cash dividend to be distributed to the stockholder, nor from the shares of stocks to be issued to the stockholders as stock dividends, but from the other assets or funds of the corporation which are not burdened by the dividends thus declared. In other words, if, for example, cash dividends of P300,000.00 are declared, Nielson would be entitled to a compensation of P30,000.00, but this P30,000.00 should not be taken from the P300,000.00 to be distributed as cash dividends to the stockholders but from some other funds or assets of the corporation which are not included in the amount to answer for the cash dividends thus declared. This is so because if the P30,000.00 would be taken out from the P300,000.00 declared as cash dividends, then the stockholders would not be getting P300,000.00 as dividends but only P270,000.00. There would be a dilution of the dividend that corresponds to each share of stock held by the stockholders. Similarly, if there were stock dividends worth one million pesos that were declared, which means an issuance of ten million shares at the par value of ten centavos per share, it does not mean that Nielson would be given 100,000 shares. It only means that Nielson should be given the equivalent of 10% of the aggregate cash value of those shares issued as stock dividends. That this was the understanding of Nielson itself is borne out by the fact that in its appeal brief Nielson urged that it should be paid "P300,000.00 being 10% of the P3,000,000.00 stock dividends declared on November 28, 1949 and August 20, 1950...."21

We, therefore, reconsider that part of Our decision which declares that Nielson is entitled to shares of stock worth P300,000.00 based on the stock dividends declared on November 28, 1949 and on August 20, 1950, together with all the fruits accruing thereto. Instead, We declare that Nielson is entitled to payment by Lepanto of P300,000.00 in cash, which is equivalent to 10% of the money value of the stock dividends worth P3,000,000.00 which were declared on November 28, 1949 and on August 20, 1950, with interest thereon at the rate of 6% from February 6, 1958. 6. In the eighth ground of its motion for reconsideration Lepanto maintains that this Court erred in awarding to Nielson an undetermined amount of shares of stock and/or cash, which award can not be ascertained and executed without further litigation. In view of Our ruling in this resolution that Nielson is not entitled to receive shares of stock as stock dividends in payment of its compensation under the management contract, We do not consider it necessary to discuss this ground of the motion for reconsideration. The awards in the present case are all reduced to specific sums of money. 7. In the ninth ground of its motion for reconsideration Lepanto maintains that this Court erred in rendering judgment or attorney's fees. The matter of the award of attorney's fees is within the sound discretion of this Court. In Our decision We have stated the reason why the award of P50,000.00 for attorney's fees is considered by this Court as reasonable. Accordingly, We resolve to modify the decision that We rendered on December 17, 1966, in the sense that instead of awarding Nielson shares of stock worth P300,000.00 at the par value of ten centavos (P0.10) per share based on the stock dividends declared by Lepanto on November 28, 1949 and August 20, 1950, together with their fruits, Nielson should be awarded the sum of P300,000.00 which is an amount equivalent to 10% of the cash value of the stock dividends thus declared, as part of the compensation due Nielson under the management contract. The dispositive portion of the decision should, therefore, be amended, to read as follows: IN VIEW OF THE FOREGOING CONSIDERATIONS, We hereby reverse the decision of the court a quo and enter in lieu thereof another, ordering the appellee Lepanto to pay the appellant Nielson the different amounts as specified hereinbelow: (1) Seventeen thousand five hundred pesos (P17,500.00), equivalent to 10% of the cash dividends of December, 1941, with legal interest thereon from the date of the filing of the complaint; (2) Two thousand five hundred pesos (P2,500.00) as management fee for January 1942, with legal interest thereon from the date of the filing of the complaint; (3) One hundred fifty thousand pesos (P150,000.00), representing management fees for the sixty-month period of extension of the management contract, with legal interest thereon from the date of the filing of the complaint; (4) One million four hundred thousand pesos (P1,400,000.00), equivalent to 10% of the cash dividends declared during the period of extension of the management contract, with legal interest thereon from the date of the filing of the complaint; (5) Three hundred thousand pesos (P300,000.00), equivalent to 10% of the cash value of the stock dividends declared on November 28, 1949 and August 20, 1950, with legal interest thereon from the date of the filing of the complaint; (6) Fifty three thousand nine hundred twenty eight pesos and eighty eight centavos (P53,928.88), equivalent to 10% of the depletion reserve set up during the period of extension, with legal interest thereon from the date of the filing of the complaint;

(7) Six hundred ninety four thousand three hundred sixty four pesos and seventy six centavos (P694,364.76), equivalent to 10% of the expenses for capital account during the period of extension, with legal interest thereon from the date of the filing of the complaint; (8) Fifty thousand pesos (P50,000.00) as attorney's fees; and (9) The costs. It is so ordered. Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Sanchez and Castro, JJ., concur. Fernando, Capistrano, Teehankee and Barredo, JJ., took no part.
QUIROGA vs. PARSONS HARDWARE Co., 38 Phil. 501, No. 11491, August 23, 1918 ANDRES QUIROGA, plaintiff-appellant, vs. PARSONS HARDWARE CO., defendant-appellee. Alfredo Chicote, Jose Arnaiz and Pascual B. Azanza for appellant. Crossfield & O'Brien for appellee. AVANCEA, J.: On January 24, 1911, in this city of manila, a contract in the following tenor was entered into by and between the plaintiff, as party of the first part, and J. Parsons (to whose rights and obligations the present defendant later subrogated itself), as party of the second part: CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J. PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA, FOR THE EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS. ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the Visayan Islands to J. Parsons under the following conditions: (A) Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter's establishment in Iloilo, and shall invoice them at the same price he has fixed for sales, in Manila, and, in the invoices, shall make and allowance of a discount of 25 per cent of the invoiced prices, as commission on the sale; and Mr. Parsons shall order the beds by the dozen, whether of the same or of different styles. (B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, within a period of sixty days from the date of their shipment. (C) The expenses for transportation and shipment shall be borne by M. Quiroga, and the freight, insurance, and cost of unloading from the vessel at the point where the beds are received, shall be paid by Mr. Parsons. (D) If, before an invoice falls due, Mr. Quiroga should request its payment, said payment when made shall be considered as a prompt payment, and as such a deduction of 2 per cent shall be made from the amount of the invoice. The same discount shall be made on the amount of any invoice which Mr. Parsons may deem convenient to pay in cash. (E) Mr. Quiroga binds himself to give notice at least fifteen days before hand of any alteration in price which he may plan to make in respect to his beds, and agrees that if on the date when such alteration takes effect he should have any order pending to be served to Mr. Parsons, such order shall enjoy the advantage of the alteration if the price thereby be lowered, but shall not be affected by said alteration if the price thereby be increased, for, in this latter case, Mr. Quiroga assumed the obligation to invoice the beds at the price at which the order was given. (F) Mr. Parsons binds himself not to sell any other kind except the "Quiroga" beds. ART. 2. In compensation for the expenses of advertisement which, for the benefit of both contracting parties, Mr. Parsons may find himself obliged to make, Mr. Quiroga assumes the obligation to offer and give the preference to Mr. Parsons in case anyone should apply for the exclusive agency for any island not comprised with the Visayan group. ART. 3. Mr. Parsons may sell, or establish branches of his agency for the sale of "Quiroga" beds in all the towns of the Archipelago where there are no exclusive agents, and shall immediately report such action to Mr. Quiroga for his approval.

ART. 4. This contract is made for an unlimited period, and may be terminated by either of the contracting parties on a previous notice of ninety days to the other party. Of the three causes of action alleged by the plaintiff in his complaint, only two of them constitute the subject matter of this appeal and both substantially amount to the averment that the defendant violated the following obligations: not to sell the beds at higher prices than those of the invoices; to have an open establishment in Iloilo; itself to conduct the agency; to keep the beds on public exhibition, and to pay for the advertisement expenses for the same; and to order the beds by the dozen and in no other manner. As may be seen, with the exception of the obligation on the part of the defendant to order the beds by the dozen and in no other manner, none of the obligations imputed to the defendant in the two causes of action are expressly set forth in the contract. But the plaintiff alleged that the defendant was his agent for the sale of his beds in Iloilo, and that said obligations are implied in a contract of commercial agency. The whole question, therefore, reduced itself to a determination as to whether the defendant, by reason of the contract hereinbefore transcribed, was a purchaser or an agent of the plaintiff for the sale of his beds. In order to classify a contract, due regard must be given to its essential clauses. In the contract in question, what was essential, as constituting its cause and subject matter, is that the plaintiff was to furnish the defendant with the beds which the latter might order, at the price stipulated, and that the defendant was to pay the price in the manner stipulated. The price agreed upon was the one determined by the plaintiff for the sale of these beds in Manila, with a discount of from 20 to 25 per cent, according to their class. Payment was to be made at the end of sixty days, or before, at the plaintiff's request, or in cash, if the defendant so preferred, and in these last two cases an additional discount was to be allowed for prompt payment. These are precisely the essential features of a contract of purchase and sale. There was the obligation on the part of the plaintiff to supply the beds, and, on the part of the defendant, to pay their price. These features exclude the legal conception of an agency or order to sell whereby the mandatory or agent received the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns it. By virtue of the contract between the plaintiff and the defendant, the latter, on receiving the beds, was necessarily obliged to pay their price within the term fixed, without any other consideration and regardless as to whether he had or had not sold the beds. It would be enough to hold, as we do, that the contract by and between the defendant and the plaintiff is one of purchase and sale, in order to show that it was not one made on the basis of a commission on sales, as the plaintiff claims it was, for these contracts are incompatible with each other. But, besides, examining the clauses of this contract, none of them is found that substantially supports the plaintiff's contention. Not a single one of these clauses necessarily conveys the idea of an agency. The words commission on sales used in clause (A) of article 1 mean nothing else, as stated in the contract itself, than a mere discount on the invoice price. The word agency, also used in articles 2 and 3, only expresses that the defendant was the only one that could sell the plaintiff's beds in the Visayan Islands. With regard to the remaining clauses, the least that can be said is that they are not incompatible with the contract of purchase and sale. The plaintiff calls attention to the testimony of Ernesto Vidal, a former vice-president of the defendant corporation and who established and managed the latter's business in Iloilo. It appears that this witness, prior to the time of his testimony, had serious trouble with the defendant, had maintained a civil suit against it, and had even accused one of its partners, Guillermo Parsons, of falsification. He testified that it was he who drafted the contract Exhibit A, and, when questioned as to what was his purpose in contracting with the plaintiff, replied that it was to be an agent for his beds and to collect a commission on sales. However, according to the defendant's evidence, it was Mariano Lopez Santos, a director of the corporation, who prepared Exhibit A. But, even supposing that Ernesto Vidal has stated the truth, his statement as to what was his idea in contracting with the plaintiff is of no importance, inasmuch as the agreements contained in Exhibit A which he claims to have drafted, constitute, as we have said, a contract of purchase and sale, and not one of commercial agency. This only means that Ernesto Vidal was mistaken in his classification of the contract. But it must be understood that a contract is what the law defines it to be, and not what it is called by the contracting parties. The plaintiff also endeavored to prove that the defendant had returned beds that it could not sell; that, without previous notice, it forwarded to the defendant the beds that it wanted; and that the defendant received its commission for the beds sold by the plaintiff directly to persons in Iloilo. But all this, at the most only shows that, on the part of both of them, there was mutual tolerance in the performance of the contract in disregard of its terms; and it gives no right to have the contract considered, not as the parties stipulated it, but as they performed it. Only the acts of the contracting parties, subsequent to, and in connection with, the execution of the contract, must be considered for the purpose of interpreting the contract, when such interpretation is necessary, but not when, as in the instant case, its essential agreements are clearly set forth and plainly show that the contract belongs to a certain kind and not to another. Furthermore, the return made was of certain brass beds, and was not effected in exchange for the price paid for them, but was for other beds of another kind; and for the letter Exhibit L-1, requested the plaintiff's prior consent with respect to said beds, which shows that it was not considered that the defendant had a right, by virtue of the contract, to make this return. As regards the shipment of beds without previous notice, it is insinuated in the record that these brass beds were precisely the ones so shipped, and that, for this very reason, the plaintiff agreed to their return. And with respect to the so-called commissions, we have said that they merely constituted a discount on the invoice price, and the reason for applying this benefit to the beds sold directly by the plaintiff to persons in Iloilo was because, as the defendant obligated itself in the contract to incur the expenses of advertisement of the plaintiff's beds, such sales were to be considered as a result of that advertisement. In respect to the defendant's obligation to order by the dozen, the only one expressly imposed by the contract, the effect of its breach would only entitle the plaintiff to disregard the orders which the defendant might place under other conditions; but if the plaintiff consents to fill them, he waives his right and cannot complain for having acted thus at his own free will. For the foregoing reasons, we are of opinion that the contract by and between the plaintiff and the defendant was one of purchase and sale, and that the obligations the breach of which is alleged as a cause of action are not imposed upon the defendant, either by agreement or by law.

The judgment appealed from is affirmed, with costs against the appellant. So ordered. Arellano, C.J., Torres, Johnson, Street and Malcolm, JJ., concur

VICTORIAS MILLING CO., INC., petitioner, vs. COURT OF APPEALS and CONSOLIDATED SUGAR CORPORATION, respondents. DECISION QUISUMBING, J.: Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the decision of the Court of Appeals dated February 24, 1994, in CA-G.R. CV No. 31717, as well as the respondent court's resolution of September 30, 1994 modifying said decision. Both decision and resolution amended the judgment dated February 13, 1991, of the Regional Trial Court of Makati City, Branch 147, in Civil Case No. 90118. The facts of this case as found by both the trial and appellate courts are as follows: St. Therese Merchandising (hereafter STM) regularly bought sugar from petitioner Victorias Milling Co., Inc., (VMC). In the course of their dealings, petitioner issued several Shipping List/Delivery Receipts (SLDRs) to STM as proof of purchases. Among these was SLDR No. 1214M, which gave rise to the instant case. Dated October 16, 1989, SLDR No. 1214M covers 25,000 bags of sugar. Each bag contained 50 kilograms and priced at P638.00 per bag as "per sales order VMC Marketing No. 042 dated October 16, 1989." The transaction it covered was a "direct sale." The SLDR also contains an additional note which reads: "subject for (sic) availability of a (sic) stock at NAWACO (warehouse)."
[1] [2] [3]

On October 25, 1989, STM sold to private respondent Consolidated Sugar Corporation (CSC) its rights in SLDR No. 1214M for P 14,750,000.00. CSC issued one check dated October 25, 1989 and three checks postdated November 13, 1989 in payment. That same day, CSC wrote petitioner that it had been authorized by STM to withdraw the sugar covered by SLDR No. 1214M. Enclosed in the letter were a copy of SLDR No. 1214M and a letter of authority from STM

authorizing CSC "to withdraw for and in our behalf the refined sugar covered by Shipping List/Delivery Receipt-Refined Sugar (SDR) No. 1214 dated October 16, 1989 in the total quantity of 25,000 bags."
[4]

On October 27, 1989, STM issued 16 checks in the total amount of P31,900,000.00 with petitioner as payee. The latter, in turn, issued Official Receipt No. 33743 dated October 27, 1989 acknowledging receipt of the said checks in payment of 50,000 bags. Aside from SLDR No. 1214M, said checks also covered SLDR No. 1213. Private respondent CSC surrendered SLDR No. 1214M to the petitioner's NAWACO warehouse and was allowed to withdraw sugar. However, after 2,000 bags had been released, petitioner refused to allow further withdrawals of sugar against SLDR No. 1214M. CSC then sent petitioner a letter dated January 23, 1990 informing it that SLDR No. 1214M had been "sold and endorsed" to it but that it had been refused further withdrawals of sugar from petitioner's warehouse despite the fact that only 2,000 bags had been withdrawn. CSC thus inquired when it would be allowed to withdraw the remaining 23,000 bags.
[5]

On January 31, 1990, petitioner replied that it could not allow any further withdrawals of sugar against SLDR No. 1214M because STM had already dwithdrawn all the sugar covered by the cleared checks.
[6]

On March 2, 1990, CSC sent petitioner a letter demanding the release of the balance of 23,000 bags. Seven days later, petitioner reiterated that all the sugar corresponding to the amount of STM's cleared checks had been fully withdrawn and hence, there would be no more deliveries of the commodity to STM's account. Petitioner also noted that CSC had represented itself to be STM's agent as it had withdrawn the 2,000 bags against SLDR No. 1214M "for and in behalf" of STM. On April 27, 1990, CSC filed a complaint for specific performance, docketed as Civil Case No. 90-1118. Defendants were Teresita Ng Sy (doing business under the name of St. Therese Merchandising) and herein petitioner. Since the former could not be served with summons, the case proceeded only against the latter. During the trial, it was discovered that Teresita Ng Go who testified for CSC was the same Teresita Ng Sy who could not be reached through summons. CSC,
[7]

however, did not bother to pursue its case against her, but instead used her as its witness. CSC's complaint alleged that STM had fully paid petitioner for the sugar covered by SLDR No. 1214M. Therefore, the latter had no justification for refusing delivery of the sugar. CSC prayed that petitioner be ordered to deliver the 23,000 bags covered by SLDR No. 1214M and sought the award of P1,104,000.00 in unrealized profits, P3,000,000.00 as exemplary damages, P2,200,000.00 as attorney's fees and litigation expenses. Petitioner's primary defense a quo was that it was an unpaid seller for the 23,000 bags. Since STM had already drawn in full all the sugar corresponding to the amount of its cleared checks, it could no longer authorize further delivery of sugar to CSC. Petitioner also contended that it had no privity of contract with CSC.
[8]

Petitioner explained that the SLDRs, which it had issued, were not documents of title, but mere delivery receipts issued pursuant to a series of transactions entered into between it and STM. The SLDRs prescribed delivery of the sugar to the party specified therein and did not authorize the transfer of said party's rights and interests. Petitioner also alleged that CSC did not pay for the SLDR and was actually STM's co-conspirator to defraud it through a misrepresentation that CSC was an innocent purchaser for value and in good faith. Petitioner then prayed that CSC be ordered to pay it the following sums: P10,000,000.00 as moral damages; P10,000,000.00 as exemplary damages; and P1,500,000.00 as attorney's fees. Petitioner also prayed that cross-defendant STM be ordered to pay it P10,000,000.00 in exemplary damages, and P1,500,000.00 as attorney's fees. Since no settlement was reached at pre-trial, the trial court heard the case on the merits. As earlier stated, the trial court rendered its judgment favoring private respondent CSC, as follows: "WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the plaintiff and against defendant Victorias Milling Company:

"1) Ordering defendant Victorias Milling Company to deliver to the plaintiff 23,000 bags of refined sugar due under SLDR No. 1214; "2) Ordering defendant Victorias Milling Company to pay the amount of P920,000.00 as unrealized profits, the amount of P800,000.00 as exemplary damages and the amount of P1,357,000.00, which is 10% of the acquisition value of the undelivered bags of refined sugar in the amount of P13,570,000.00, as attorney's fees, plus the costs. "SO ORDERED."
[9]

It made the following observations: "[T]he testimony of plaintiff's witness Teresita Ng Go, that she had fully paid the purchase price of P15,950,000.00 of the 25,000 bags of sugar bought by her covered by SLDR No. 1214 as well as the purchase price of P15,950,000.00 for the 25,000 bags of sugar bought by her covered by SLDR No. 1213 on the same date, October 16, 1989 (date of the two SLDRs) is duly supported by Exhibits C to C-15 inclusive which are post-dated checks dated October 27, 1989 issued by St. Therese Merchandising in favor of Victorias Milling Company at the time it purchased the 50,000 bags of sugar covered by SLDR No. 1213 and 1214. Said checks appear to have been honored and duly credited to the account of Victorias Milling Company because on October 27, 1989 Victorias Milling Company issued official receipt no. 34734 in favor of St. Therese Merchandising for the amount of P31,900,000.00 (Exhibits B and B-1). The testimony of Teresita Ng Go is further supported by Exhibit F, which is a computer printout of defendant Victorias Milling Company showing the quantity and value of the purchases made by St. Therese Merchandising, the SLDR no. issued to cover the purchase, the official reciept no. and the status of payment. It is clear in Exhibit 'F' that with respect to the sugar covered by SLDR No. 1214 the same has been fully paid as indicated by the word 'cleared' appearing under the column of 'status of payment.' "On the other hand, the claim of defendant Victorias Milling Company that the purchase price of the 25,000 bags of sugar purchased by St. Therese Merchandising covered by SLDR No. 1214 has not been fully paid is supported only by the testimony of

Arnulfo Caintic, witness for defendant Victorias Milling Company. The Court notes that the testimony of Arnulfo Caintic is merely a sweeping barren assertion that the purchase price has not been fully paid and is not corroborated by any positive evidence. There is an insinuation by Arnulfo Caintic in his testimony that the postdated checks issued by the buyer in payment of the purchased price were dishonored. However, said witness failed to present in Court any dishonored check or any replacement check. Said witness likewise failed to present any bank record showing that the checks issued by the buyer, Teresita Ng Go, in payment of the purchase price of the sugar covered by SLDR No. 1214 were dishonored."
[10]

Petitioner appealed the trial courts decision to the Court of Appeals. On appeal, petitioner averred that the dealings between it and STM were part of a series of transactions involving only one account or one general contract of sale. Pursuant to this contract, STM or any of its authorized agents could withdraw bags of sugar only against cleared checks of STM. SLDR No. 21214M was only one of 22 SLDRs issued to STM and since the latter had already withdrawn its full quota of sugar under the said SLDR, CSC was already precluded from seeking delivery of the 23,000 bags of sugar. Private respondent CSC countered that the sugar purchases involving SLDR No. 1214M were separate and independent transactions and that the details of the series of purchases were contained in a single statement with a consolidated summary of cleared check payments and sugar stock withdrawals because this a more convenient system than issuing separate statements for each purchase. The appellate court considered the following issues: (a) Whether or not the transaction between petitioner and STM involving SLDR No. 1214M was a separate, independent, and single transaction; (b) Whether or not CSC had the capacity to sue on its own on SLDR No. 1214M; and (c) Whether or not CSC as buyer from STM of the rights to 25,000 bags of sugar covered by SLDR No. 1214M could compel petitioner to deliver 23,000 bags allegedly unwithdrawn. On February 24, 1994, the Court of Appeals rendered its decision modifying the trial court's judgment, to wit:

"WHEREFORE, the Court hereby MODIFIES the assailed judgment and orders defendant-appellant to: "1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by SLDR No. 1214M; " 2) Pay to plaintiff-appellee P792,918.00 which is 10% of the value of the undelivered bags of refined sugar, as attorneys fees; "3) Pay the costs of suit. "SO ORDERED."
[11]

Both parties then seasonably filed separate motions for reconsideration. In its resolution dated September 30, 1994, the appellate court modified its decision to read: "WHEREFORE, the Court hereby modifies the assailed judgment and orders defendant-appellant to: "(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar under SLDR No. 1214M; "(2) Pay costs of suit. "SO ORDERED."
[12]

The appellate court explained the rationale for the modification as follows: "There is merit in plaintiff-appellee's position. "Exhibit F' We relied upon in fixing the number of bags of sugar which remained undelivered as 12,586 cannot be made the basis for such a finding. The rule is explicit that courts should consider the evidence only for the purpose for which it was offered. (People v. Abalos, et al, 1 CA Rep 783). The rationale for this is to afford the party against whom the evidence is presented to object thereto if he deems it necessary. Plaintiff-appellee is, therefore, correct in its argument that Exhibit F' which was offered to prove that checks in the total amount of P15,950,000.00 had been cleared. (Formal Offer of Evidence for Plaintiff, Records p.

58)cannot be used to prove the proposition that 12,586 bags of sugar remained undelivered. "Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October 1990, p. 33] and Marianito L. Santos [TSN, 17 October 1990, pp. 16, 18, and 36]) presented by plaintiff-appellee was to the effect that it had withdrawn only 2,000 bags of sugar from SLDR after which it was not allowed to withdraw anymore. Documentary evidence (Exhibit I, Id., p. 78, Exhibit K, Id., p. 80) show that plaintiff-appellee had sent demand letters to defendant-appellant asking the latter to allow it to withdraw the remaining 23,000 bags of sugar from SLDR 1214M. Defendantappellant, on the other hand, alleged that sugar delivery to the STM corresponded only to the value of cleared checks; and that all sugar corresponded to cleared checks had been withdrawn. Defendant-appellant did not rebut plaintiff-appellee's assertions. It did not present evidence to show how many bags of sugar had been withdrawn against SLDR No. 1214M, precisely because of its theory that all sales in question were a series of one single transaction and withdrawal of sugar depended on the clearing of checks paid therefor. "After a second look at the evidence, We see no reason to overturn the findings of the trial court on this point."
[13]

Hence, the instant petition, positing the following errors as grounds for review: "1. The Court of Appeals erred in not holding that STM's and private respondent's specially informing petitioner that respondent was authorized by buyer STM to withdraw sugar against SLDR No. 1214M "for and in our (STM) behalf," (emphasis in the original) private respondent's withdrawing 2,000 bags of sugar for STM, and STM's empowering other persons as its agents to withdraw sugar against the same SLDR No. 1214M, rendered respondent like the other persons, an agent of STM as held in Rallos v. Felix Go Chan & Realty Corp., 81 SCRA 252, and precluded it from subsequently claiming and proving being an assignee of SLDR No. 1214M and from suing by itself for its enforcement because it was conclusively presumed to be an agent (Sec. 2, Rule 131, Rules of Court) and estopped from doing so. (Art. 1431, Civil Code).

" 2. The Court of Appeals erred in manifestly and arbitrarily ignoring and disregarding certain relevant and undisputed facts which, had they been considered, would have shown that petitioner was not liable, except for 69 bags of sugar, and which would justify review of its conclusion of facts by this Honorable Court. " 3. The Court of Appeals misapplied the law on compensation under Arts. 1279, 1285 and 1626 of the Civil Code when it ruled that compensation applied only to credits from one SLDR or contract and not to those from two or more distinct contracts between the same parties; and erred in denying petitioner's right to setoff all its credits arising prior to notice of assignment from other sales or SLDRs against private respondent's claim as assignee under SLDR No. 1214M, so as to extinguish or reduce its liability to 69 bags, because the law on compensation applies precisely to two or more distinct contracts between the same parties (emphasis in the original). "4. The Court of Appeals erred in concluding that the settlement or liquidation of accounts in Exh. F between petitioner and STM, respondent's admission of its balance, and STM's acquiescence thereto by silence for almost one year did not render Exh. `F' an account stated and its balance binding. "5. The Court of Appeals erred in not holding that the conditions of the assigned SLDR No. 1214, namely, (a) its subject matter being generic, and (b) the sale of sugar being subject to its availability at the Nawaco warehouse, made the sale conditional and prevented STM or private respondent from acquiring title to the sugar; and the non-availability of sugar freed petitioner from further obligation. "6. The Court of Appeals erred in not holding that the "clean hands" doctrine precluded respondent from seeking judicial reliefs (sic) from petitioner, its only remedy being against its assignor."
[14]

Simply stated, the issues now to be resolved are: (1)....Whether or not the Court of Appeals erred in not ruling that CSC was an agent of STM and hence, estopped to sue upon SLDR No. 1214M as an assignee.

(2)....Whether or not the Court of Appeals erred in applying the law on compensation to the transaction under SLDR No. 1214M so as to preclude petitioner from offsetting its credits on the other SLDRs. (3)....Whether or not the Court of Appeals erred in not ruling that the sale of sugar under SLDR No. 1214M was a conditional sale or a contract to sell and hence freed petitioner from further obligations. (4)....Whether or not the Court of Appeals committed an error of law in not applying the "clean hands doctrine" to preclude CSC from seeking judicial relief. The issues will be discussed in seriatim. Anent the first issue, we find from the records that petitioner raised this issue for the first time on appeal. It is settled that an issue which was not raised during the trial in the court below could not be raised for the first time on appeal as to do so would be offensive to the basic rules of fair play, justice, and due process. Nonetheless, the Court of Appeals opted to address this issue, hence, now a matter for our consideration.
[15]

Petitioner heavily relies upon STM's letter of authority allowing CSC to withdraw sugar against SLDR No. 1214M to show that the latter was STM's agent. The pertinent portion of said letter reads: "This is to authorize Consolidated Sugar Corporation or its representative to withdraw for and in our behalf (stress supplied) the refined sugar covered by Shipping List/Delivery Receipt = Refined Sugar (SDR) No. 1214 dated October 16, 1989 in the total quantity of 25, 000 bags."
[16]

The Civil Code defines a contract of agency as follows: "Art. 1868. By the contract of agency 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." It is clear from Article 1868 that the basis of agency is representation. On the part of the principal, there must be an actual intention to appoint or an intention naturally inferable from his words or
[17] [18]

actions; and on the part of the agent, there must be an intention to accept the appointment and act on it, and in the absence of such intent, there is generally no agency. One factor which most clearly distinguishes agency from other legal concepts is control; one person the agent - agrees to act under the control or direction of another - the principal. Indeed, the very word "agency" has come to connote control by the principal. The control factor, more than any other, has caused the courts to put contracts between principal and agent in a separate category. The Court of Appeals, in finding that CSC, was not an agent of STM, opined:
[19] [20] [21] [22] [23]

"This Court has ruled that where the relation of agency is dependent upon the acts of the parties, the law makes no presumption of agency, and it is always a fact to be proved, with the burden of proof resting upon the persons alleging the agency, to show not only the fact of its existence, but also its nature and extent (Antonio vs. Enriquez [CA], 51 O.G. 3536]. Here, defendant-appellant failed to sufficiently establish the existence of an agency relation between plaintiff-appellee and STM. The fact alone that it (STM) had authorized withdrawal of sugar by plaintiffappellee "for and in our (STM's) behalf" should not be eyed as pointing to the existence of an agency relation ...It should be viewed in the context of all the circumstances obtaining. Although it would seem STM represented plaintiff-appellee as being its agent by the use of the phrase "for and in our (STM's) behalf" the matter was cleared when on 23 January 1990, plaintiff-appellee informed defendant-appellant that SLDFR No. 1214M had been "sold and endorsed" to it by STM (Exhibit I, Records, p. 78). Further, plaintiff-appellee has shown that the 25, 000 bags of sugar covered by the SLDR No. 1214M were sold and transferred by STM to it ...A conclusion that there was a valid sale and transfer to plaintiff-appellee may, therefore, be made thus capacitating plaintiff-appellee to sue in its own name, without need of joining its imputed principal STM as co-plaintiff."
[24]

In the instant case, it appears plain to us that private respondent CSC was a buyer of the SLDFR form, and not an agent of STM. Private respondent CSC was not subject to STM's control. The question of whether a contract is one of sale or agency depends on the intention of the parties as gathered from the whole scope and effect of the language employed. That the authorization given to CSC contained the phrase
[25]

"for and in our (STM's) behalf" did not establish an agency. Ultimately, what is decisive is the intention of the parties. That no agency was meant to be established by the CSC and STM is clearly shown by CSC's communication to petitioner that SLDR No. 1214M had been "sold and endorsed" to it. The use of the words "sold and endorsed" means that STM and CSC intended a contract of sale, and not an agency. Hence, on this score, no error was committed by the respondent appellate court when it held that CSC was not STM's agent and could independently sue petitioner.
[26] [27]

On the second issue, proceeding from the theory that the transactions entered into between petitioner and STM are but serial parts of one account, petitioner insists that its debt has been offset by its claim for STM's unpaid purchases, pursuant to Article 1279 of the Civil Code. However, the trial court found, and the Court of Appeals concurred, that the purchase of sugar covered by SLDR No. 1214M was a separate and independent transaction; it was not a serial part of a single transaction or of one account contrary to petitioner's insistence. Evidence on record shows, without being rebutted, that petitioner had been paid for the sugar purchased under SLDR No. 1214M. Petitioner clearly had the obligation to deliver said commodity to STM or its assignee. Since said sugar had been fully paid for, petitioner and CSC, as assignee of STM, were not mutually creditors and debtors of each other. No reversible error could thereby be imputed to respondent appellate court when, it refused to apply Article 1279 of the Civil Code to the present case.
[28]

Regarding the third issue, petitioner contends that the sale of sugar under SLDR No. 1214M is a conditional sale or a contract to sell, with title to the sugar still remaining with the vendor. Noteworthy, SLDR No. 1214M contains the following terms and conditions: "It is understood and agreed that by payment by buyer/trader of refined sugar and/or receipt of this document by the buyer/trader personally or through a representative, title to refined sugar is transferred to buyer/trader and delivery to him/it is deemed effected and completed (stress supplied) and buyer/trader assumes full responsibility therefore"
[29]

The aforequoted terms and conditions clearly show that petitioner transferred title to the sugar to the buyer or his assignee upon payment of the purchase price. Said terms clearly establish a contract of sale, not

a contract to sell. Petitioner is now estopped from alleging the contrary. The contract is the law between the contracting parties. And where the terms and conditions so stipulated are not contrary to law, morals, good customs, public policy or public order, the contract is valid and must be upheld. Having transferred title to the sugar in question, petitioner is now obliged to deliver it to the purchaser or its assignee.
[30] [31]

As to the fourth issue, petitioner submits that STM and private respondent CSC have entered into a conspiracy to defraud it of its sugar. This conspiracy is allegedly evidenced by: (a) the fact that STM's selling price to CSC was below its purchasing price; (b) CSC's refusal to pursue its case against Teresita Ng Go; and (c) the authority given by the latter to other persons to withdraw sugar against SLDR No. 1214M after she had sold her rights under said SLDR to CSC. Petitioner prays that the doctrine of "clean hands" should be applied to preclude CSC from seeking judicial relief. However, despite careful scrutiny, we find here the records bare of convincing evidence whatsoever to support the petitioner's allegations of fraud. We are now constrained to deem this matter purely speculative, bereft of concrete proof. WHEREFORE, the instant petition is DENIED for lack of merit. Costs against petitioner. SO ORDERED. Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.
G.R. No. 149353 June 26, 2006

JOCELYN B. DOLES, Petitioner, vs. MA. AURA TINA ANGELES, Respondent. DECISION AUSTRIA-MARTINEZ, J.: This refers to the Petition for Review on Certiorari under Rule 45 of the Rules of Court questioning the Decision1dated April 30, 2001 of the Court of Appeals (CA) in C.A.-G.R. CV No. 66985, which reversed the Decision dated July 29, 1998 of the Regional Trial Court (RTC), Branch 21, City of Manila; and the CA Resolution2 dated August 6, 2001 which denied petitioners Motion for Reconsideration. The antecedents of the case follow: On April 1, 1997, Ma. Aura Tina Angeles (respondent) filed with the RTC a complaint for Specific Performance with Damages against Jocelyn B. Doles (petitioner), docketed as Civil Case No. 97-82716. Respondent alleged

that petitioner was indebted to the former in the concept of a personal loan amounting to P405,430.00 representing the principal amount and interest; that on October 5, 1996, by virtue of a "Deed of Absolute Sale",3 petitioner, as seller, ceded to respondent, as buyer, a parcel of land, as well as the improvements thereon, with an area of 42 square meters, covered by Transfer Certificate of Title No. 382532,4 and located at a subdivision project known as Camella Townhomes Sorrente in Bacoor, Cavite, in order to satisfy her personal loan with respondent; that this property was mortgaged to National Home Mortgage Finance Corporation (NHMFC) to secure petitioners loan in the sum of P337,050.00 with that entity; that as a condition for the foregoing sale, respondent shall assume the undue balance of the mortgage and pay the monthly amortization of P4,748.11 for the remainder of the 25 years which began on September 3, 1994; that the property was at that time being occupied by a tenant paying a monthly rent of P3,000.00; that upon verification with the NHMFC, respondent learned that petitioner had incurred arrearages amounting to P26,744.09, inclusive of penalties and interest; that upon informing the petitioner of her arrears, petitioner denied that she incurred them and refused to pay the same; that despite repeated demand, petitioner refused to cooperate with respondent to execute the necessary documents and other formalities required by the NHMFC to effect the transfer of the title over the property; that petitioner collected rent over the property for the month of January 1997 and refused to remit the proceeds to respondent; and that respondent suffered damages as a result and was forced to litigate. Petitioner, then defendant, while admitting some allegations in the Complaint, denied that she borrowed money from respondent, and averred that from June to September 1995, she referred her friends to respondent whom she knew to be engaged in the business of lending money in exchange for personal checks through her capitalist Arsenio Pua. She alleged that her friends, namely, Zenaida Romulo, Theresa Moratin, Julia Inocencio, Virginia Jacob, and Elizabeth Tomelden, borrowed money from respondent and issued personal checks in payment of the loan; that the checks bounced for insufficiency of funds; that despite her efforts to assist respondent to collect from the borrowers, she could no longer locate them; that, because of this, respondent became furious and threatened petitioner that if the accounts were not settled, a criminal case will be filed against her; that she was forced to issue eight checks amounting to P350,000 to answer for the bounced checks of the borrowers she referred; that prior to the issuance of the checks she informed respondent that they were not sufficiently funded but the latter nonetheless deposited the checks and for which reason they were subsequently dishonored; that respondent then threatened to initiate a criminal case against her for violation of Batas Pambansa Blg. 22; that she was forced by respondent to execute an "Absolute Deed of Sale" over her property in Bacoor, Cavite, to avoid criminal prosecution; that the said deed had no valid consideration; that she did not appear before a notary public; that the Community Tax Certificate number on the deed was not hers and for which respondent may be prosecuted for falsification and perjury; and that she suffered damages and lost rental as a result. The RTC identified the issues as follows: first, whether the Deed of Absolute Sale is valid; second; if valid, whether petitioner is obliged to sign and execute the necessary documents to effect the transfer of her rights over the property to the respondent; and third, whether petitioner is liable for damages. On July 29, 1998, the RTC rendered a decision the dispositive portion of which states: WHEREFORE, premises considered, the Court hereby orders the dismissal of the complaint for insufficiency of evidence. With costs against plaintiff. SO ORDERED. The RTC held that the sale was void for lack of cause or consideration:5 Plaintiff Angeles admission that the borrowers are the friends of defendant Doles and further admission that the checks issued by these borrowers in payment of the loan obligation negates [sic] the cause or consideration of the contract of sale executed by and between plaintiff and defendant. Moreover, the property is not solely owned by defendant as appearing in Entry No. 9055 of Transfer Certificate of Title No. 382532 (Annex A, Complaint), thus: "Entry No. 9055. Special Power of Attorney in favor of Jocelyn Doles covering the share of Teodorico Doles on the parcel of land described in this certificate of title by virtue of the special power of attorney to mortgage, executed before the notary public, etc."

The rule under the Civil Code is that contracts without a cause or consideration produce no effect whatsoever. (Art. 1352, Civil Code). Respondent appealed to the CA. In her appeal brief, respondent interposed her sole assignment of error: THE TRIAL COURT ERRED IN DISMISSING THE CASE AT BAR ON THE GROUND OF [sic] THE DEED OF SALE BETWEEN THE PARTIES HAS NO CONSIDERATION OR INSUFFICIENCY OF EVIDENCE. 6 On April 30, 2001, the CA promulgated its Decision, the dispositive portion of which reads: WHEREFORE, IN VIEW OF THE FOREGOING, this appeal is hereby GRANTED. The Decision of the lower court dated July 29, 1998 is REVERSED and SET ASIDE. A new one is entered ordering defendant-appellee to execute all necessary documents to effect transfer of subject property to plaintiff-appellant with the arrearages of the formers loan with the NHMFC, at the latters expense. No costs. SO ORDERED. The CA concluded that petitioner was the borrower and, in turn, would "re-lend" the amount borrowed from the respondent to her friends. Hence, the Deed of Absolute Sale was supported by a valid consideration, which is the sum of money petitioner owed respondent amounting to P405,430.00, representing both principal and interest. The CA took into account the following circumstances in their entirety: the supposed friends of petitioner never presented themselves to respondent and that all transactions were made by and between petitioner and respondent;7 that the money borrowed was deposited with the bank account of the petitioner, while payments made for the loan were deposited by the latter to respondents bank account;8 that petitioner herself admitted in open court that she was "re-lending" the money loaned from respondent to other individuals for profit;9 and that the documentary evidence shows that the actual borrowers, the friends of petitioner, consider her as their creditor and not the respondent.10 Furthermore, the CA held that the alleged threat or intimidation by respondent did not vitiate consent, since the same is considered just or legal if made to enforce ones claim through compete nt authority under Article 133511of the Civil Code;12 that with respect to the arrearages of petitioner on her monthly amortization with the NHMFC in the sum of P26,744.09, the same shall be deemed part of the balance of petitioners loan with the NHMFC which respondent agreed to assume; and that the amount of P3,000.00 representing the rental for January 1997 supposedly collected by petitioner, as well as the claim for damages and attorneys fees, is denied for insufficiency of evidence.13 On May 29, 2001, petitioner filed her Motion for Reconsideration with the CA, arguing that respondent categorically admitted in open court that she acted only as agent or representative of Arsenio Pua, the principal financier and, hence, she had no legal capacity to sue petitioner; and that the CA failed to consider the fact that petitioners father, who co-owned the subject property, was not impleaded as a defendant nor was he indebted to the respondent and, hence, she cannot be made to sign the documents to effect the transfer of ownership over the entire property. On August 6, 2001, the CA issued its Resolution denying the motion on the ground that the foregoing matters had already been passed upon. On August 13, 2001, petitioner received a copy of the CA Resolution. On August 28, 2001, petitioner filed the present Petition and raised the following issues: I. WHETHER OR NOT THE PETITIONER CAN BE CONSIDERED AS A DEBTOR OF THE RESPONDENT.

II. WHETHER OR NOT AN AGENT WHO WAS NOT AUTHORIZED BY THE PRINCIPAL TO COLLECT DEBT IN HIS BEHALF COULD DIRECTLY COLLECT PAYMENT FROM THE DEBTOR. III. WHETHER OR NOT THE CONTRACT OF SALE WAS EXECUTED FOR A CAUSE.14 Although, as a rule, it is not the business of this Court to review the findings of fact made by the lower courts, jurisprudence has recognized several exceptions, at least three of which are present in the instant case, namely: when the judgment is based on a misapprehension of facts; when the findings of facts of the courts a quo are conflicting; and when the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, could justify a different conclusion.15 To arrive at a proper judgment, therefore, the Court finds it necessary to re-examine the evidence presented by the contending parties during the trial of the case. The Petition is meritorious. The principal issue is whether the Deed of Absolute Sale is supported by a valid consideration. 1. Petitioner argues that since she is merely the agent or representative of the alleged debtors, then she is not a party to the loan; and that the Deed of Sale executed between her and the respondent in their own names, which was predicated on that pre-existing debt, is void for lack of consideration. Indeed, the Deed of Absolute Sale purports to be supported by a consideration in the form of a price certain in money16 and that this sum indisputably pertains to the debt in issue. This Court has consistently held that a contract of sale is null and void and produces no effect whatsoever where the same is without cause or consideration.17 The question that has to be resolved for the moment is whether this debt can be considered as a valid cause or consideration for the sale. To restate, the CA cited four instances in the record to support its holding that petitioner "re-lends" the amount borrowed from respondent to her friends: first, the friends of petitioner never presented themselves to respondent and that all transactions were made by and between petitioner and respondent;18 second; the money passed through the bank accounts of petitioner and respondent;19 third, petitioner herself admitted that she was "re-lending" the money loaned to other individuals for profit;20 and fourth, the documentary evidence shows that the actual borrowers, the friends of petitioner, consider her as their creditor and not the respondent.21 On the first, third, and fourth points, the CA cites the testimony of the petitioner, then defendant, during her cross-examination:22 Atty. Diza: q. You also mentioned that you were not the one indebted to the plaintiff? witness: a. Yes, sir. Atty. Diza: q. And you mentioned the persons[,] namely, Elizabeth Tomelden, Teresa Moraquin, Maria Luisa Inocencio, Zenaida Romulo, they are your friends?

witness: a. Inocencio and Moraquin are my friends while [as to] Jacob and Tomelden[,] they were just referred. Atty. Diza: q. And you have transact[ed] with the plaintiff? witness: a. Yes, sir. Atty. Diza: q. What is that transaction? witness: a. To refer those persons to Aura and to refer again to Arsenio Pua, sir. Atty. Diza: q. Did the plaintiff personally see the transactions with your friends? witness: a. No, sir. Atty. Diza: q. Your friends and the plaintiff did not meet personally? witness: a. Yes, sir. Atty. Diza: q. You are intermediaries? witness: a. We are both intermediaries. As evidenced by the checks of the debtors they were deposited to the name of Arsenio Pua because the money came from Arsenio Pua. xxxx Atty. Diza: q. Did the plaintiff knew [sic] that you will lend the money to your friends specifically the one you mentioned [a] while ago?

witness: a. Yes, she knows the money will go to those persons. Atty. Diza: q. You are re-lending the money? witness: a. Yes, sir. Atty. Diza: q. What profit do you have, do you have commission? witness: a. Yes, sir. Atty. Diza: q. How much? witness: a. Two percent to Tomelden, one percent to Jacob and then Inocencio and my friends none, sir. Based on the foregoing, the CA concluded that petitioner is the real borrower, while the respondent, the real lender. But as correctly noted by the RTC, respondent, then plaintiff, made the following admission during her cross examination:23 Atty. Villacorta: q. Who is this Arsenio Pua? witness: a. Principal financier, sir. Atty. Villacorta: q. So the money came from Arsenio Pua? witness: a. Yes, because I am only representing him, sir. Other portions of the testimony of respondent must likewise be considered:24

Atty. Villacorta: q. So it is not actually your money but the money of Arsenio Pua? witness: a. Yes, sir. Court: q. It is not your money? witness: a. Yes, Your Honor. Atty. Villacorta: q. Is it not a fact Ms. Witness that the defendant borrowed from you to accommodate somebody, are you aware of that? witness: a. I am aware of that. Atty. Villacorta: q. More or less she [accommodated] several friends of the defendant? witness: a. Yes, sir, I am aware of that. xxxx Atty. Villacorta: q. And these friends of the defendant borrowed money from you with the assurance of the defendant? witness: a. They go direct to Jocelyn because I dont know them. xxxx Atty. Villacorta: q. And is it not also a fact Madam witness that everytime that the defendant borrowed money from you her friends who [are] in need of money issued check[s] to you? There were checks issued to you? witness:

a. Yes, there were checks issued. Atty. Villacorta: q. By the friends of the defendant, am I correct? witness: a. Yes, sir. Atty. Villacorta: q. And because of your assistance, the friends of the defendant who are in need of money were able to obtain loan to [sic] Arsenio Pua through your assistance? witness: a. Yes, sir. Atty. Villacorta: q. So that occasion lasted for more than a year? witness: a. Yes, sir. Atty. Villacorta: q. And some of the checks that were issued by the friends of the defendant bounced, am I correct? witness: a. Yes, sir. Atty. Villacorta: q. And because of that Arsenio Pua got mad with you? witness: a. Yes, sir. Respondent is estopped to deny that she herself acted as agent of a certain Arsenio Pua, her disclosed principal. She is also estopped to deny that petitioner acted as agent for the alleged debtors, the friends whom she (petitioner) referred. This Court has affirmed that, under Article 1868 of the Civil Code, the basis of agency is representation.25 The question of whether an agency has been created is ordinarily a question which may be established in the same way as any other fact, either by direct or circumstantial evidence. The question is ultimately one of intention.26Agency may even be implied from the words and conduct of the parties and the circumstances of the particular case.27 Though the fact or extent of authority of the agents may not, as a general rule, be established from the declarations of the agents alone, if one professes to act as agent for another, she may be estopped to

deny her agency both as against the asserted principal and the third persons interested in the transaction in which he or she is engaged.28 In this case, petitioner knew that the financier of respondent is Pua; and respondent knew that the borrowers are friends of petitioner. The CA is incorrect when it considered the fact that the "supposed friends of [petitioner], the actual borrowers, did not present themselves to [respondent]" as evidence that negates the agency relationshipit is sufficient that petitioner disclosed to respondent that the former was acting in behalf of her principals, her friends whom she referred to respondent. For an agency to arise, it is not necessary that the principal personally encounter the third person with whom the agent interacts. The law in fact contemplates, and to a great degree, impersonal dealings where the principal need not personally know or meet the third person with whom her agent transacts: precisely, the purpose of agency is to extend the personality of the principal through the facility of the agent.29 In the case at bar, both petitioner and respondent have undeniably disclosed to each other that they are representing someone else, and so both of them are estopped to deny the same. It is evident from the record that petitioner merely refers actual borrowers and then collects and disburses the amounts of the loan upon which she received a commission; and that respondent transacts on behalf of her "principal financier", a certain Arsenio Pua. If their respective principals do not actually and personally know each other, such ignorance does not affect their juridical standing as agents, especially since the very purpose of agency is to extend the personality of the principal through the facility of the agent. With respect to the admission of petitioner that she is "re-lending" the money loaned from respondent to other individuals for profit, it must be stressed that the manner in which the parties designate the relationship is not controlling. If an act done by one person in behalf of another is in its essential nature one of agency, the former is the agent of the latter notwithstanding he or she is not so called.30 The question is to be determined by the fact that one represents and is acting for another, and if relations exist which will constitute an agency, it will be an agency whether the parties understood the exact nature of the relation or not.31 That both parties acted as mere agents is shown by the undisputed fact that the friends of petitioner issued checks in payment of the loan in the name of Pua. If it is true that petitioner was "re-lending", then the checks should have been drawn in her name and not directly paid to Pua. With respect to the second point, particularly, the finding of the CA that the disbursements and payments for the loan were made through the bank accounts of petitioner and respondent, suffice it to say that in the normal course of commercial dealings and for reasons of convenience and practical utility it can be reasonably expected that the facilities of the agent, such as a bank account, may be employed, and that a sub-agent be appointed, such as the bank itself, to carry out the task, especially where there is no stipulation to the contrary.32 In view of the two agency relationships, petitioner and respondent are not privy to the contract of loan between their principals. Since the sale is predicated on that loan, then the sale is void for lack of consideration. 2. A further scrutiny of the record shows, however, that the sale might have been backed up by another consideration that is separate and distinct from the debt: respondent averred in her complaint and testified that the parties had agreed that as a condition for the conveyance of the property the respondent shall assume the balance of the mortgage loan which petitioner allegedly owed to the NHMFC.33 This Court in the recent past has declared that an assumption of a mortgage debt may constitute a valid consideration for a sale. 34 Although the record shows that petitioner admitted at the time of trial that she owned the property described in the TCT,35 the Court must stress that the Transfer Certificate of Title No. 38253236 on its face shows that the owner of the property which admittedly forms the subject matter of the Deed of Absolute Sale refers neither to the petitioner nor to her father, Teodorico Doles, the alleged co-owner. Rather, it states that the property is registered in the name of "Household Development Corporation." Although there is an entry to the effect that the petitioner had been granted a special power of attorney "covering the shares of Teodorico Doles on the

parcel of land described in this certificate,"37 it cannot be inferred from this bare notation, nor from any other evidence on the record, that the petitioner or her father held any direct interest on the property in question so as to validly constitute a mortgage thereon38 and, with more reason, to effect the delivery of the object of the sale at the consummation stage.39 What is worse, there is a notation that the TCT itself has been "cancelled."40 In view of these anomalies, the Court cannot entertain the possibility that respondent agreed to assume the balance of the mortgage loan which petitioner allegedly owed to the NHMFC, especially since the record is bereft of any factual finding that petitioner was, in the first place, endowed with any ownership rights to validly mortgage and convey the property. As the complainant who initiated the case, respondent bears the burden of proving the basis of her complaint. Having failed to discharge such burden, the Court has no choice but to declare the sale void for lack of cause. And since the sale is void, the Court finds it unnecessary to dwell on the issue of whether duress or intimidation had been foisted upon petitioner upon the execution of the sale. Moreover, even assuming the mortgage validly exists, the Court notes respondents allegation that the mortgage with the NHMFC was for 25 years which began September 3, 1994. Respondent filed her Complaint for Specific Performance in 1997. Since the 25 years had not lapsed, the prayer of respondent to compel petitioner to execute necessary documents to effect the transfer of title is premature. WHEREFORE, the petition is granted. The Decision and Resolution of the Court of Appeals are REVERSED andSET ASIDE. The complaint of respondent in Civil Case No. 97-82716 is DISMISSED. G.R. No. L-18058 January 16, 1923

FABIOLA SEVERINO, plaintiff-appellee, vs. GUILLERMO SEVERINO, defendant-appellant. FELICITAS VILLANUEVA, intervenor-appellee. Serafin P. Hilado and A. P. Seva for appellant. Jose Ma. Arroyo, Jose Lopez Vito, and Fisher and DeWitt for appellees. OSTRAND, J.: This is an action brought by the plaintiff as the alleged natural daughter and sole heir of one Melecio Severino, deceased, to compel the defendant Guillermo Severino to convey to her four parcels of land described in the complaint, or in default thereof to pay her the sum of P800,000 in damages for wrongfully causing said land to be registered in his own name. Felicitas Villanueva, in her capacity as administratrix of the estate of Melecio Severino, has filed a complaint in intervention claiming in the same relief as the original plaintiff, except in so far as she prays that the conveyance be made, or damages paid, to the estate instead of to the plaintiff Fabiola Severino. The defendant answered both complaints with a general denial. The lower court rendered a judgment recognizing the plaintiff Fabiola Severino as the acknowledged natural child of the said Melecio Severino and ordering the defendant to convey 428 hectares of the land in question to the intervenor as administratrix of the estate of the said Melecio Severino, to deliver to her the proceeds in his possession of a certain mortgage placed thereon by him and to pay the costs. From this judgment only the defendant appeals. The land described in the complaint forms one continuous tract and consists of lots Nos. 827, 828, 834, and 874 of the cadaster of Silay, Province of Occidental Negros, which measure, respectively, 61 hectares, 74 ares, and 79 centiares; 76 hectares, 34 ares, and 79 centiares; 52 hectares, 86 ares, and 60 centiares and 608 hectares, 77 ares and 28 centiares, or a total of 799 hectares, 75 ares, and 46 centiares.

The evidence shows that Melecio Severino died on the 25th day of May, 1915; that some 428 hectares of the land were recorded in the Mortgage Law Register in his name in the year 1901 by virtue of possessory information proceedings instituted on the 9th day of May of that year by his brother Agapito Severino in his behalf; that during the lifetime of Melecio Severino the land was worked by the defendant, Guillermo Severino, his brother, as administrator for and on behalf of the said Melecio Severino; that after Melecio's death, the defendant Guillermo Severino continued to occupy the land; that in 1916 a parcel survey was made of the lands in the municipality of Silay, including the land here in question, and cadastral proceedings were instituted for the registration of the lands titles within the surveyed area; that in the cadastral proceedings the land here in question was described as four separate lots numbered as above stated; that Roque Hofilea, as lawyer for Guillermo Severino, filed answers in behalf of the latter in said proceedings claiming the lots mentioned as the property of his client; that no opposition was presented in the proceedings to the claims of Guillermo Severino and the court therefore decreed the title in his favor, in pursuance of which decree certificates of title were issued to him in the month of March, 1917. It may be further observed that at the time of the cadastral proceedings the plaintiff Fabiola Severino was a minor; that Guillermo Severino did not appear personally in the proceedings and did not there testify; that the only testimony in support of his claims was that of his attorney Hofilea, who swore that he knew the land and that he also knew that Guillermo Severino inherited the land from his father and that he, by himself, and through his predecessors in interest, had possessed the land for thirty years. The appellant presents the following nine assignments of error: 1. The trial court erred in admitting the evidence that was offered by plaintiff in order to establish the fact that said plaintiff was the legally acknowledged natural child of the deceased Melecio Severino. 2. The trial court erred in finding that, under the evidence presented, plaintiff was the legally acknowledged natural child of Melecio Severino. 3. The trial court erred in rejecting the evidence offered by defendant to establish the absence of fraud on his part in securing title to the lands in Nacayao. 4. The trial court erred in concluding that the evidence adduced by plaintiff and intervenor established that defendant was guilty of fraud in procuring title to the lands in question in his name. 5. The trial court erred in declaring that the land that was formerly placed in the name of Melecio Severino had an extent of either 434 or 428 hectares at the time of his death. 6. The trial court erred in declaring that the value of the land in litigation is P500 per hectare. 7. The trial court erred in granting the petition of the plaintiff for an attachment without first giving the defendant an opportunity to be heard. 8. The trial court erred in ordering the conveyance of 428 hectares of land by defendant to the administratrix. 9. The trial court erred in failing or refusing to make any finding as to the defendant's contention that the petition for attachment was utterly devoid of any reasonable ground. In regard to the first two assignments of error, we agree with the appellant that the trial court erred in making a declaration in the present case as to the recognition of Fabiola Severino as the natural child of Melecio Severino. We have held in the case of Briz vs. Briz and Remigio (43 Phil., 763), that "The legitimate heirs or kin of a deceased person who would be prejudiced by a declaration that another person is entitled to recognition as the natural child of such decedent, are necessary and indispensable parties to any action in which a judgment declaring the right to recognition is sought." In the present action only the widow, the alleged natural child, and one of the brothers of the deceased are parties; the other potential heirs have not been included.

But, inasmuch as the judgment appealed from is in favor of the intervenor and not of the plaintiff, except to the extent of holding that the latter is a recognized natural child of the deceased, this question is, from the view we take of the case, of no importance in its final disposition. We may say, however, in this connection, that the point urged in appellant's brief that it does not appear affirmatively from the evidence that, at the time of the conception of Fabiola, her mother was a single woman, may be sufficiently disposed of by a reference to article 130 of the Civil Code and subsection 1 of section 334 of the Code of Civil Procedure which create the presumption that a child born out of wedlock is natural rather than illegitimate. The question of the status of the plaintiff Fabiola Severino and her right to share in the inheritance may, upon notice to all the interested parties, be determined in the probate proceedings for the settlement of the estate of the deceased. The fifth assignment of error relates to the finding of the trial court that the land belonging to Melecio Severino had an area of 428 hectares. The appellant contends that the court should have found that there were only 324 hectares inasmuch as one hundred hectares of the original area were given to Melecio's brother Donato during the lifetime of the father Ramon Severino. As it appears that Ramon Severino died in 1896 and that the possessory information proceedings, upon which the finding of the trial court as to the area of the land is principally based, were not instituted until the year 1901, we are not disposed to disturb the conclusions of the trial court on this point. Moreover, in the year 1913, the defendant Guillermo Severino testified under oath, in the case of Montelibano vs. Severino, that the area of the land owned by Melecio Severino and of which he (Guillermo) was the administrator, embraced an area of 424 hectares. The fact that Melecio Severino, in declaring the land for taxation in 1906, stated that the area was only 324 hectares and 60 ares while entitled to some weight is not conclusive and is not sufficient to overcome the positive statement of the defendant and the recitals in the record of the possessory information proceedings. The sixth assignment of error is also of minor importance in view of the fact that in the dispositive part of the decision of the trial court, the only relief given is an order requiring the appellant to convey to the administratrix the land in question, together with such parts of the proceeds of the mortgage thereon as remain in his hands. We may say further that the court's estimate of the value of the land does not appear unreasonable and that, upon the evidence before us, it will not be disturbed. The seventh and within assignments of error relate to the ex parte granting by the trial court of a preliminary attachment in the case and the refusal of the court to dissolve the same. We find no merit whatever in these assignments and a detailed discussion of them is unnecessary. The third, fourth, and eight assignments of error involve the vital points in the case, are inter-related and may be conveniently considered together. The defendant argues that the gist of the instant action is the alleged fraud on his part in causing the land in question to be registered in his name; that the trial court therefore erred in rejecting his offer of evidence to the effect that the land was owned in common by all the heirs of Ramon Severino and did not belong to Melecio Severino exclusively; that such evidence, if admitted, would have shown that he did not act with fraudulent intent in taking title to the land; that the trial court erred in holding him estopped from denying Melecio's title; that more than a year having elapsed since the entry of the final decree adjudicating the land to the defendant, said decree cannot now be reopened; that the ordering of the defendant to convey the decreed land to the administratrix is, for all practical purposes, equivalent to the reopening of the decree of registration; that under section 38 of the Land Registration Act the defendant has an indefeasible title to the land; and that the question of ownership of the land being thus judicially settled, the question as to the previous relations between the parties cannot now be inquired into. Upon no point can the defendant's contentions be sustained. It may first be observed that this is not an action under section 38 of the Land Registration Act to reopen or set aside a decree; it is an action in personam against an agent to compel him to return, or retransfer, to the heirs or the estate of its principal, the property committed to his custody as such agent, to execute the necessary documents of conveyance to effect such retransfer or, in default thereof, to pay damages. That the defendant came into the possession of the property here in question as the agent of the deceased Melecio Severino in the administration of the property, cannot be successfully disputed. His testimony in the case of Montelibano vs. Severino (civil case No. 902 of the Court of First Instance of Occidental Negros and

which forms a part of the evidence in the present case) is, in fact, conclusive in this respect. He there stated under oath that from the year 1902 up to the time the testimony was given, in the year 1913, he had been continuously in charge and occupation of the land as the encargado or administrator of Melecio Severino; that he had always known the land as the property of Melecio Severino; and that the possession of the latter had been peaceful, continuous, and exclusive. In his answer filed in the same case, the same defendant, through his attorney, disclaimed all personal interest in the land and averred that it was wholly the property of his brother Melecio. Neither is it disputed that the possession enjoyed by the defendant at the time of obtaining his decree was of the same character as that held during the lifetime of his brother, except in so far as shortly before the trial of the cadastral case the defendant had secured from his brothers and sisters a relinguishment in his favor of such rights as they might have in the land. 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 the 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. Upon this ground, and substantially in harmony with the principles of the Civil Law (see sentence of the supreme court of Spain of May 1, 1900), the English Chancellors held that in general whatever a trustee does for the advantage of the trust estate inures to the benefit of the cestui que trust. (Greenlaw vs. King, 5 Jur., 18; Ex parte Burnell, 7 Jur., 116; Ex parte Hughes, 6 Ves., 617; Ex parte James, 8 Ves., 337; Oliver vs. Court, 8 Price, 127.) The same principle has been consistently adhered to in so many American cases and is so well established that exhaustive citations of authorities are superfluous and we shall therefore limit ourselves to quoting a few of the numerous judicial expressions upon the subject. The principle is well stated in the case of Gilbert vs. Hewetson (79 Minn., 326): A receiver, trustee, attorney, agent, or any other person occupying fiduciary relations respecting property or persons, is 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 the trustee. It is to avoid the necessity of any such inquiry that the rule takes so general a form. The rule stands on the moral obligation to refrain from placing one's self in positions which ordinarily excite conflicts between selfinterest and integrity. It seeks to remove the temptation that might arise out of such a relation to serve one's self-interest at the expense of one's integrity and duty to another, by making it impossible to profit by yielding to temptation. It applies universally to all who come within its principle. In the case of Massie vs. Watts (6 Cranch, 148), the United States Supreme Court, speaking through Chief Justice Marshall, said: But Massie, the agent of Oneale, has entered and surveyed a portion of that land for himself and obtained a patent for it in his own name. According to the clearest and best established principles of equity, the agent who so acts becomes a trustee for his principal. He cannot hold the land under an entry for himself otherwise than as trustee for his principal. In the case of Felix vs. Patrick (145 U. S., 317), the United States Supreme Court, after examining the authorities, said: The substance of these authorities is that, wherever a person obtains the legal title to land by any artifice or concealment, or by making use of facilities intended for the benefit of another, a court of equity will impress upon the land so held by him a trust in favor of the party who is justly entitled to them, and will order the trust executed by decreeing their conveyance to the party in whose favor the trust was created. (Citing Bank of Metropolis vs. Guttschlick, 14 Pet., 19, 31; Moses vs. Murgatroyd, 1 Johns. Ch., 119; Cumberland vs.Codrington, 3 Johns. Ch., 229, 261; Neilson vs. Blight, 1 Johns. Cas., 205; Weston vs. Barker, 12 Johns., 276.) The same doctrine has also been adopted in the Philippines. In the case of Uy Aloc vs. Cho Jan Ling (19 Phil., 202), the facts are stated by the court as follows:

From the facts proven at the trial it appears that a number of Chinese merchants raised a fund by voluntary subscription with which they purchased a valuable tract of land and erected a large building to be used as a sort of club house for the mutual benefit of the subscribers to the fund. The subscribers organized themselves into an irregular association, which had no regular articles of association, and was not incorporated or registered in the commercial registry or elsewhere. The association not having any existence as a legal entity, it was agreed to have the title to the property placed in the name of one of the members, the defendant, Cho Jan Ling, who on his part accepted the trust, and agreed to hold the property as the agent of the members of the association. After the club building was completed with the funds of the members of the association, Cho Jan Ling collected some P25,000 in rents for which he failed and refused to account, and upon proceedings being instituted to compel him to do so, he set up title in himself to the club property as well as to the rents accruing therefrom, falsely alleging that he had bought the real estate and constructed the building with his own funds, and denying the claims of the members of the association that it was their funds which had been used for that purpose. The decree of the court provided, among other things, for the conveyance of the club house and the land on which it stood from the defendant, Cho Jan Ling, in whose name it was registered, to the members of the association. In affirming the decree, this court said: In the case at bar the legal title of the holder of the registered title is not questioned; it is admitted that the members of the association voluntarily obtained the inscription in the name of Cho Jan Ling, and that they had no right to have that inscription cancelled; they do not seek such cancellation, and on the contrary they allege and prove that the duly registered legal title to the property is in Cho Jan Ling, but they maintain, and we think that they rightly maintain, that he holds it under an obligation, both express and implied, to deal with it exclusively for the benefit of the members of the association, and subject to their will. In the case of Camacho vs. Municipality of Baliuag (28 Phil., 466), the plaintiff, Camacho, took title to the land in his own name, while acting as agent for the municipality. The court said: There have been a number of cases before this court in which a title to real property was acquired by a person in his own name, while acting under a fiduciary capacity, and who afterwards sought to take advantage of the confidence reposed in him by claiming the ownership of the property for himself. This court has invariably held such evidence competent as between the fiduciary and the cestui que trust. xxx xxx xxx

What judgment ought to be entered in this case? The court below simply absolved the defendant from the complaint. The defendant municipality does not ask for a cancellation of the deed. On the contrary, the deed is relied upon the supplement the oral evidence showing that the title to the land is in the defendant. As we have indicated in Consunji vs. Tison, 15 Phil., 81, and Uy Aloc vs. Cho Jan Ling, 19 Phil., 202, the proper procedure in such a case, so long as the rights of innocent third persons have not intervened, is to compel a conveyance to the rightful owner. This ought and can be done under the issues raised and the proof presented in the case at bar. The case of Sy-Juco and Viardo vs. Sy-Juco (40 Phil., 634) is also in point. As will be seen from the authorities quoted, and agent is not only estopped from denying his principal's title to the property, but he is also disable from acquiring interests therein adverse to those of his principal during the term of the agency. But the defendant argues that his title has become res adjudicata through the decree of registration and cannot now be disturbed. This contention may, at first sight, appear to possess some force, but on closer examination it proves untenable. The decree of registration determined the legal title to the land as the date of the decree; as to that there is no question. That, under section 38 of the Land Registration Act, this decree became conclusive after one year from the date of the entry is not disputed and no one attempts to disturb the decree or the

proceedings upon which it is based; the plaintiff in intervention merely contends that in equity the legal title so acquired inured to the benefit of the estate of Melecio Severino, the defendant's principal and cestui que trust and asks that this superior equitable right be made effective by compelling the defendant, as the holder of the legal title, to transfer it to the estate. We have already shown that before the issuance of the decree of registration it was the undoubted duty of the defendant to restore the property committed to his custody to his principal, or to the latter's estate, and that the principal had a right of action in personam to enforce the performance of this duty and to compel the defendant to execute the necessary conveyance to that effect. The only question remaining for consideration is, therefore, whether the decree of registration extinguishing this personal right of action. In Australia and New Zealand, under statutes in this respect similar to ours, courts of equity exercise general jurisdiction in matters of fraud and error with reference to Torrens registered lands, and giving attention to the special provisions of the Torrens acts, will issue such orders and direction to all the parties to the proceedings as may seem just and proper under the circumstances. They may order parties to make deeds of conveyance and if the order is disobeyed, they may cause proper conveyances to be made by a Master in Chancery or Commissioner in accordance with the practice in equity (Hogg, Australian Torrens System, p. 847). In the Untied States courts have even gone so far in the exercise of their equity jurisdiction as to set aside final decrees after the expiration of the statutory period of limitation for the reopening of such decrees (Baart vs. Martin, 99 Minn., 197). But, considering that equity follows the law and that our statutes expressly prohibit the reopening of a decree after one year from the date of its entry, this practice would probably be out of question here, especially so as the ends of justice may be attained by other equally effective, and less objectionable means. Turning to our own Land Registration Act, we find no indication there of an intention to cut off, through the issuance of a decree of registration, equitable rights or remedies such as those here in question. On the contrary, section 70 of the Act provides: Registered lands and ownership therein, shall in all respects be subject to the same burdens and incidents attached by law to unregistered land. Nothing contained in this Act shall in any way be construed to relieve registered land or the owners thereof from any rights incident to the relation of husband and wife, or from liability to attachment on mesne process or levy on execution, or from liability to any lien of any description established by law on land and the buildings thereon, or the interest of the owner in such land or buildings, or to change the laws of descent, or the rights of partition between coparceners, joint tenants and other cotenants, or the right to take the same by eminent domain, or to relieve such land from liability to be appropriated in any lawful manner for the payment of debts, or to change or affect in any other way any other rights or liabilities created by law and applicable to unregistered land, except as otherwise expressly provided in this Act or in the amendments hereof. Section 102 of the Act, after providing for actions for damages in which the Insular Treasurer, as the Custodian of the Assurance Fund is a party, contains the following proviso: Provided, however, That nothing in this Act shall be construed to deprive the plaintiff of any action which he may have against any person for such loss or damage or deprivation of land or of any estate or interest therein without joining the Treasurer of the Philippine Archipelago as a defendant therein. That an action such as the present one is covered by this proviso can hardly admit of doubt. Such was also the view taken by this court in the case of Medina Ong-Quingco vs. Imaz and Warner, Barnes & Co. (27 Phil., 314), in which the plaintiff was seeking to take advantage of his possession of a certificate of title to deprive the defendant of land included in that certificate and sold to him by the former owner before the land was registered. The court decided adversely to plaintiff and in so doing said: As between them no question as to the indefeasibility of a Torrens title could arise. Such an action could have been maintained at any time while the property remained in the hands of the purchaser.

The peculiar force of a Torrens title would have been brought into play only when the purchaser had sold to an innocent third person for value the lands described in his conveyance. . . . Generally speaking, as between the vendor and the purchaser the same rights and remedies exist with reference to land registered under Act No. 496, as exist in relation to land not so registered. In Cabanos vs. Register of Deeds of Laguna and Obiana (40 Phil., 620), it was held that, while a purchaser of land under a pacto de retro cannot institute a real action for the recovery thereof where the vendor under said sale has caused such lands to be registered in his name without said vendee's consent, yet he may have his personal action based on the contract of sale to compel the execution of an unconditional deed for the said lands when the period for repurchase has passed. Torrens titles being on judicial decrees there is, of course, a strong presumption in favor of their regularity or validity, and in order to maintain an action such as the present the proof as to the fiduciary relation of the parties and of the breach of trust must be clear and convincing. Such proof is, as we have seen, not lacking in this case. But once the relation and the breach of trust on the part of the fiduciary in thus established, there is no reason, neither practical nor legal, why he should not be compelled to make such reparation as may lie within his power for the injury caused by his wrong, and as long as the land stands registered in the name of the party who is guilty of the breach of trust and no rights of innocent third parties are adversely affected, there can be no reason why such reparation should not, in the proper case, take the form of a conveyance or transfer of the title to the cestui que trust. No reasons of public policy demand that a person guilty of fraud or breach of trust be permitted to use his certificate of title as a shield against the consequences of his own wrong. The judgment of the trial court is in accordance with the facts and the law. In order to prevent unnecessary delay and further litigation it may, however, be well to attach some additional directions to its dipositive clauses. It will be observed that lots Nos. 827, 828, and 834 of a total area of approximately 191 hectares, lie wholly within the area to be conveyed to the plaintiff in intervention and these lots may, therefore, be so conveyed without subdivision. The remaining 237 hectares to be conveyed lie within the western part of lot No. 874 and before a conveyance of this portion can be effected a subdivision of that lot must be made and a technical description of the portion to be conveyed, as well as of the remaining portion of the lot, must be prepared. The subdivision shall be made by an authorized surveyor and in accordance with the provisions of Circular No. 31 of the General Land Registration Office, and the subdivision and technical descriptions shall be submitted to the Chief of that office for his approval. Within thirty days after being notified of the approval of said subdivision and technical descriptions, the defendant Guillermo Severino shall execute good and sufficient deed or deeds of conveyance in favor of the administratrix of the estate of the deceased Melecio Severino for said lots Nos. 827, 828, 834, and the 237 hectares segregated from the western part of lot No. 874 and shall deliver to the register of deeds his duplicate certificates of title for all of the four lots in order that said certificates may be cancelled and new certificates issued. The cost of the subdivision and the fees of the register of deeds will be paid by the plaintiff in intervention. It is so ordered With these additional directions the judgment appealed from is affirmed, with the costs against the appellant. The right of the plaintiff Fabiola Severino to establish in the probate proceedings of the estate of Melecio Severino her status as his recognized natural child is reserved. Araullo, C. J., Johnson, Street, Malcolm, Avancea, Villamor, Johns, and Romualdez, JJ., concur.
FLORENTINO RALLOS, ET AL., Plaintiffs-Appellees, v. TEODORO R. YANGCO, Defendant-Appellant. Mariano Escueta, for Appellant. Martin M. Levering, for Appellees. SYLLABUS 1. PRINCIPAL AND AGENT; TERMINATION OF THE AGENCY; DUTY OF PRINCIPAL TO GIVE DUE NOTICE. The defendant having advertised the fact that C was his agent, having given special notice to the plaintiffs of the agency, and having also given them a special invitation to deal with such agent, it became the defendants duty, upon the termination of the relationship of principal and agent, to give due and timely notice thereof to the plaintiffs.

2. D.; ID.; ID.; LIABILITY OF PRINCIPAL. The general rule is that, when the relationship of principal and agent is established, and the principal gives notice of the agency and holds out the agent as his authorized representative, upon the termination of the agency it is the duty of the principal to give due and timely notice thereof, otherwise, he will be held liable to third parties acting in good faith and properly relying upon such agency.

DECISION

MORELAND, J.:

This is an appeal from a judgment of the Court of First Instance of the Province of Cebu, the Hon. Adolph Wislizenus presiding, in favor of the plaintiffs, in the sum of P1,537.08, with interest at 6 per cent per annum from the month of July, 1909, with costs. The defendant in this case on the 27th day of November, 1907, sent to the plaintiff Florentino Rallos, among others, the following letter:
jgc:chanrobles. com.ph

"CIRCULAR No. 1. "MANILA, November 27, 1907. "Mr. FLORENTINO RALLOS, Cebu. "DEAR SIR: I have the honor to inform you that I have on this date opened in my steamship office at No. 163 Muelle de la Reina, Binondo, Manila, P. I., a shipping and commission department for buying and selling leaf tobacco and other native products, under the following conditions:
jgc:chanrobles. com.ph

"1. When the consignment has been received, the consignor thereof will be credited with a sum not to exceed two-thirds of the value of the goods shipped, which may be made available by acceptance of a draft or written order of the consignor on five to ten days sight, or by his ordering at his option a bill of goods. In the latter case he must pay a commission of 2 per cent. "2. No draft or written order will be accepted without previous notice forwarding the consignment of goods to guarantee the same. "3. Expenses of freight, hauling and everything necessary for duly executing the commission will be charged in the commission. "4. All advances made under sections (1) and (3) shall bear interest at 10 per cent a year, counting from a month after the making thereof, until liquidated by the sale of the goods shipped or by remittance of the amount thereof. "5. A commission of 2 per cent will be collected on the amount realized from the sale of the goods shipped. "6. Payment will be made immediately after collection of the price of the goods shipped. "7. Orders will be taken for the purchase of general merchandise, ship-stores, cloths, etc., upon remittance of the amount with the commission of 2 per cent on the total value of the goods bought. Expenses of freight, hauling, and everything necessary for properly executing the commission will be charged to the consignor. "8. The consignor of the goods may not fix upon the consignee a longer period than four months, counting from the date of receipt, for selling the same; with the understanding that after such period the consignee is authorized to make the sale, so as to prevent the advance and cost of storage from amounting to more than the actual value of said goods, as has often happened. "9. The shipment to the consignors of the goods ordered on account of the amount realized from the sale of the goods consigned and of the goods bought on remittance of the value thereof, under sections (1) and (3), will not be insured against risk by sea and land except on written order of the interested parties. "10. On all consignments of goods not insured according to the next preceding section, the consignors will bear the risk. "11. All the foregoing conditions will take effect only after this office has acknowledged the consignors previous notice. "12. All other conditions and details will be furnished at the office of the undersigned. "If you care to favor me with your patronage, my office is at No. 163 Muelle de la Reina, Binondo, Manila, P. I., under the name of Teodoro R. Yangco. In this connection it gives me great pleasure to introduce to you Mr. Florentino Collantes,

upon whom I have conferred public power of attorney before the notary, Mr. Perfecto Salas Rodriguez, dated November 16, 1907, to perform in my name and on my behalf all acts necessary for carrying out my plans, in the belief that through his knowledge and long experience in the business, along with my commercial connections with the merchants of this city and of the provinces, I may hope to secure the most advantageous prices for my patrons. Mr. Collantes will sign by power of attorney, so I beg that you make due note of his signature hereto affixed. "Very respectfully, (Sgd.) "T. R. YANGCO. (Sgd.) "F. COLLANTES. Accepting this invitation, the plaintiffs proceeded to do a considerable business with the defendant through the said Collantes, as his factor, sending to him as agent for the defendant a good deal of produce to be sold on commission. Later, and in the month of February, 1909, the plaintiffs sent to the said Collantes, as agent for the defendant, 218 bundles of tobacco in the leaf to be sold on commission, as had been other produce previously. The said Collantes received said tobacco and sold it for the sum of P1,744. The charges for such sale were P206.96, leaving in the hands of said Collantes the sum of P1,537.08 belonging to the plaintiffs. This sum was, apparently, converted to his own use by said agent. It appears, however, that prior to the sending of said tobacco the defendant had severed his relations with Collantes and that the latter was no longer acting as his factor. This fact was not known to the plaintiffs; and it is conceded in the case that no notice of any kind was given by the defendant to the plaintiffs of the termination of the relations between the defendant and his agent. The defendant refused to pay the said sum upon demand of the plaintiffs, placing such refusal upon the ground that at the time the said tobacco was received and sold by Collantes he was acting personally and not as agent of the defendant. This action was brought to recover said sum. As is seen, the only question for our decision is whether or not the plaintiffs, acting in good faith and without knowledge, having sent produce to sell on commission to the former agent of the defendant, can recover of the defendant under the circumstances above set forth. We are of the opinion that the defendant is liable. Having advertised the fact that Collantes was his agent and having given special notice to the plaintiffs of that fact, and having given them a special invitation to deal with such agent, it was the duty of the defendant on the termination of the relationship of principal and agent to give due and timely notice thereof to the plaintiffs. Failing to do so, he is responsible to them for whatever goods may have been in good faith and without negligence sent to the agent without knowledge, actual or constructive, of the termination of such relationship. For these reasons the judgment appealed from is affirmed, without special finding as to costs. Torres, Mapa, Johnson and Carson, JJ., concur.