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G.R. No. L-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. AVANCEÑA, J.: On January 24, 1911, in this city of manila, a contract in the following tenor was entered into by and between the plaintiff, as party of the first part, and J. Parsons (to whose rights and obligations the present defendant later subrogated itself), as party of the second part: CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J. PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA, FOR THE EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS. ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the Visayan Islands to J. Parsons 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

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Page 1: Assignments - 1

G.R. No. L-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.

AVANCEÑA, J.:

On January 24, 1911, in this city of manila, a contract in the following tenor was entered into by

and between the plaintiff, as party of the first part, and J. Parsons (to whose rights and

obligations the present defendant later subrogated itself), as party of the second part:

CONTRACT EXECUTED BY AND BETWEEN ANDRES QUIROGA AND J.

PARSONS, BOTH MERCHANTS ESTABLISHED IN MANILA, FOR THE

EXCLUSIVE SALE OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS.

ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the

Visayan Islands to J. Parsons 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

Page 2: Assignments - 1

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

Page 3: Assignments - 1

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

Page 4: Assignments - 1

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.

Page 5: Assignments - 1

G.R. No. L-15568 November 8, 1919

W. G. PHILPOTTS, petitioner,

vs.

PHILIPPINE MANUFACTURING COMPANY and F. N. BERRY, respondents.

Lawrence and Ross for petitioner.

Crossfield and O'Brien for defendants.

STREET, J.:

The petitioner, W. G. Philpotts, a stockholder in the Philippine Manufacturing Company, one of

the respondents herein, seeks by this proceeding to obtain a writ of mandamus to compel the

respondents to permit the plaintiff, in person or by some authorized agent or attorney, to inspect

and examine the records of the business transacted by said company since January 1, 1918. The

petition is filed originally in this court under the authority of section 515 of the Code of Civil

Procedure, which gives to this tribunal concurrent jurisdiction with the Court of First Instance in

cases, among others, where any corporation or person unlawfully excludes the plaintiff from the

use and enjoyment of some right to which he is entitled. The respondents interposed a demurrer,

and the controversy is now before us for the determination of the questions thus presented.

The first point made has reference to a supposed defect of parties, and it is said that the action

can not be maintained jointly against the corporation and its secretary without the addition of the

allegation that the latter is the custodian of the business records of the respondent company.

By the plain language of sections 515 and 222 of our Code of Civil Procedure, the right of action

in such a proceeding as this is given against the corporation; and the respondent corporation in

this case was the only absolutely necessary party. In the Ohio case of Cincinnati Volksblatt Co.

vs. Hoffmister (61 Ohio St., 432; 48 L. R. A., 735), only the corporation was named as

defendant, while the complaint, in language almost identical with that in the case at bar, alleged a

demand upon and refusal by the corporation.

Nevertheless the propriety of naming the secretary of the corporation as a codefendant cannot be

questioned, since such official is customarily charged with the custody of all documents,

correspondence, and records of a corporation, and he is presumably the person against whom the

personal orders of the court would be made effective in case the relief sought should be granted.

Certainly there is nothing in the complaint to indicate that the secretary is an improper person to

be joined. The petitioner might have named the president of the corporation as a respondent also;

and this official might be brought in later, even after judgment rendered, if necessary to the

effectuation of the order of the court.

Section 222 of our Code of Civil Procedure is taken from the California Code, and a decision of

the California Supreme Court — Barber vs. Mulford (117 Cal., 356) — is quite clear upon the

point that both the corporation and its officers may be joined as defendants.

Page 6: Assignments - 1

The real controversy which has brought these litigants into court is upon the question argued in

connection with the second ground of demurrer, namely, whether the right which the law

concedes to a stockholder to inspect the records can be exercised by a proper agent or attorney of

the stockholder as well as by the stockholder in person. There is no pretense that the respondent

corporation or any of its officials has refused to allow the petitioner himself to examine anything

relating to the affairs of the company, and the petition prays for a peremptory order commanding

the respondents to place the records of all business transactions of the company, during a

specified period, at the disposal of the plaintiff or his duly authorized agent or attorney, it being

evident that the petitioner desires to exercise said right through an agent or attorney. In the

argument in support of the demurrer it is conceded by counsel for the respondents that there is a

right of examination in the stockholder granted under section 51 of the Corporation Law, but it is

insisted that this right must be exercised in person.

The pertinent provision of our law is found in the second paragraph of section 51 of Act No.

1459, which reads as follows: "The record of all business transactions of the corporation and the

minutes of any meeting shall be open to the inspection of any director, member or stockholder of

the corporation at reasonable hours."

This provision is to be read of course in connecting with the related provisions of sections 51 and

52, defining the duty of the corporation in respect to the keeping of its records.

Now it is our opinion, and we accordingly hold, that the right of inspection given to a

stockholder in the provision above quoted can be exercised either by himself or by any proper

representative or attorney in fact, and either with or without the attendance of the stockholder.

This is in conformity with the general rule that what a man may do in person he may do through

another; and we find nothing in the statute that would justify us in qualifying the right in the

manner suggested by the respondents.

This conclusion is supported by the undoubted weight of authority in the United States, where it

is generally held that the provisions of law conceding the right of inspection to stockholders of

corporations are to be liberally construed and that said right may be exercised through any other

properly authorized person. As was said in Foster vs. White (86 Ala., 467), "The right may be

regarded as personal, in the sense that only a stockholder may enjoy it; but the inspection and

examination may be made by another. Otherwise it would be unavailing in many instances." An

observation to the same effect is contained in Martin vs. Bienville Oil Works Co. (28 La., 204),

where it is said: "The possession of the right in question would be futile if the possessor of it,

through lack of knowledge necessary to exercise it, were debarred the right of procuring in his

behalf the services of one who could exercise it." In Deadreck vs. Wilson (8 Baxt. [Tenn.], 108),

the court said: "That stockholders have the right to inspect the books of the corporation, taking

minutes from the same, at all reasonable times, and may be aided in this by experts and counsel,

so as to make the inspection valuable to them, is a principle too well settled to need discussion."

Authorities on this point could be accumulated in great abundance, but as they may be found

cited in any legal encyclopedia or treaties devoted to the subject of corporations, it is

unnecessary here to refer to other cases announcing the same rule.

Page 7: Assignments - 1

In order that the rule above stated may not be taken in too sweeping a sense, we deem it

advisable to say that there are some things which a corporation may undoubtedly keep secret,

notwithstanding the right of inspection given by law to the stockholder; as for instance, where a

corporation, engaged in the business of manufacture, has acquired a formula or process, not

generally known, which has proved of utility to it in the manufacture of its products. It is not our

intention to declare that the authorities of the corporation, and more particularly the Board of

Directors, might not adopt measures for the protection of such process form publicity. There is,

however, nothing in the petition which would indicate that the petitioner in this case is seeking to

discover anything which the corporation is entitled to keep secret; and if anything of the sort is

involved in the case it may be brought out at a more advanced stage of the

proceedings.lawphil.net

The demurrer is overruled; and it is ordered that the writ of mandamus shall issue as prayed,

unless within 5 days from notification hereof the respondents answer to the merits. So ordered.

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

Page 8: Assignments - 1

G.R. No. 76931 May 29, 1991

ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,

vs.

COURT OF APPEALS and AMERICAN AIR-LINES INCORPORATED, respondents.

G.R. No. 76933 May 29, 1991

AMERICAN AIRLINES, INCORPORATED, petitioner,

vs.

COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES,

INCORPORATED, respondents.

Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and Hotel

Representatives, Inc.

Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.

PADILLA, J.:

This case is a consolidation of two (2) petitions for review on certiorari of a decision 1 of the

Court of Appeals in CA-G.R. No. CV-04294, entitled "American Airlines, Inc. vs. Orient Air

Services and Hotel Representatives, Inc." which affirmed, with modification, the decision 2 of

the Regional Trial Court of Manila, Branch IV, which dismissed the complaint and granted

therein defendant's counterclaim for agent's overriding commission and damages.

The antecedent facts are as follows:

On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American Air), an air

carrier offering passenger and air cargo transportation in the Philippines, and Orient Air Services

and Hotel Representatives (hereinafter referred to as Orient Air), entered into a General Sales

Agency Agreement (hereinafter referred to as the Agreement), whereby the former authorized

the latter to act as its exclusive general sales agent within the Philippines for the sale of air

passenger transportation. Pertinent provisions of the agreement are reproduced, to wit:

WITNESSETH

In consideration of the mutual convenants herein contained, the parties hereto agree as

follows:

1. Representation of American by Orient Air Services

Orient Air Services will act on American's behalf as its exclusive General Sales Agent

within the Philippines, including any United States military installation therein which are

not serviced by an Air Carrier Representation Office (ACRO), for the sale of air

Page 9: Assignments - 1

passenger transportation. The services to be performed by Orient Air Services shall

include:

(a) soliciting and promoting passenger traffic for the services of American and, if

necessary, employing staff competent and sufficient to do so;

(b) providing and maintaining a suitable area in its place of business to be used

exclusively for the transaction of the business of American;

(c) arranging for distribution of American's timetables, tariffs and promotional

material to sales agents and the general public in the assigned territory;

(d) servicing and supervising of sales agents (including such sub-agents as may be

appointed by Orient Air Services with the prior written consent of American) in

the assigned territory including if required by American the control of remittances

and commissions retained; and

(e) holding out a passenger reservation facility to sales agents and the general

public in the assigned territory.

In connection with scheduled or non-scheduled air passenger transportation within the

United States, neither Orient Air Services nor its sub-agents will perform services for any

other air carrier similar to those to be performed hereunder for American without the

prior written consent of American. Subject to periodic instructions and continued consent

from American, Orient Air Services may sell air passenger transportation to be performed

within the United States by other scheduled air carriers provided American does not

provide substantially equivalent schedules between the points involved.

x x x x x x x x x

4. Remittances

Orient Air Services shall remit in United States dollars to American the ticket stock or

exchange orders, less commissions to which Orient Air Services is entitled hereunder, not

less frequently than semi-monthly, on the 15th and last days of each month for sales

made during the preceding half month.

All monies collected by Orient Air Services for transportation sold hereunder on

American's ticket stock or on exchange orders, less applicable commissions to which

Orient Air Services is entitled hereunder, are the property of American and shall be held

in trust by Orient Air Services until satisfactorily accounted for to American.

5. Commissions

American will pay Orient Air Services commission on transportation sold hereunder by

Orient Air Services or its sub-agents as follows:

Page 10: Assignments - 1

(a) Sales agency commission

American will pay Orient Air Services a sales agency commission for all sales of

transportation by Orient Air Services or its sub-agents over American's services and any

connecting through air transportation, when made on American's ticket stock, equal to the

following percentages of the tariff fares and charges:

(i) For transportation solely between points within the United States and between

such points and Canada: 7% or such other rate(s) as may be prescribed by the Air

Traffic Conference of America.

(ii) For transportation included in a through ticket covering transportation

between points other than those described above: 8% or such other rate(s) as may

be prescribed by the International Air Transport Association.

(b) Overriding commission

In addition to the above commission American will pay Orient Air Services an overriding

commission of 3% of the tariff fares and charges for all sales of transportation over

American's service by Orient Air Service or its sub-agents.

x x x x x x x x x

10. Default

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

provisions of this Agreement or shall become bankrupt or make any assignment for the

benefit of or enter into any agreement or promise with its creditors or go into liquidation,

or suffer any of its goods to be taken in execution, or if it ceases to be in business, this

Agreement may, at the option of American, be terminated forthwith and American may,

without prejudice to any of its rights under this Agreement, take possession of any ticket

forms, exchange orders, traffic material or other property or funds belonging to

American.

11. IATA and ATC Rules

The provisions of this Agreement are subject to any applicable rules or resolutions of the

International Air Transport Association and the Air Traffic Conference of America, and

such rules or resolutions shall control in the event of any conflict with the provisions

hereof.

x x x x x x x x x

13. Termination

Page 11: Assignments - 1

American may terminate the Agreement on two days' notice in the event Orient Air

Services is unable to transfer to the United States the funds payable by Orient Air

Services to American under this Agreement. Either party may terminate the Agreement

without cause by giving the other 30 days' notice by letter, telegram or cable.

x x x x x x x x x3

On 11 May 1981, alleging that Orient Air had reneged on its obligations under the Agreement by

failing to promptly remit the net proceeds of sales for the months of January to March 1981 in

the amount of US $254,400.40, American Air by itself undertook the collection of the proceeds

of tickets sold originally by Orient Air and terminated forthwith the Agreement in accordance

with Paragraph 13 thereof (Termination). Four (4) days later, or on 15 May 1981, American Air

instituted suit against Orient Air with the Court of First Instance of Manila, Branch 24, for

Accounting with Preliminary Attachment or Garnishment, Mandatory Injunction and Restraining

Order 4 averring the aforesaid basis for the termination of the Agreement as well as therein

defendant's previous record of failures "to promptly settle past outstanding refunds of which

there were available funds in the possession of the defendant, . . . to the damage and prejudice of

plaintiff." 5

In its Answer 6 with counterclaim dated 9 July 1981, defendant Orient Air denied the material

allegations of the complaint with respect to plaintiff's entitlement to alleged unremitted amounts,

contending that after application thereof to the commissions due it under the Agreement, plaintiff

in fact still owed Orient Air a balance in unpaid overriding commissions. Further, the defendant

contended that the actions taken by American Air in the course of terminating the Agreement as

well as the termination itself were untenable, Orient Air claiming that American Air's precipitous

conduct had occasioned prejudice to its business interests.

Finding that the record and the evidence substantiated the allegations of the defendant, the trial

court ruled in its favor, rendering a decision dated 16 July 1984, the dispositive portion of which

reads:

WHEREFORE, all the foregoing premises considered, judgment is hereby rendered in

favor of defendant and against plaintiff dismissing the complaint and holding the

termination made by the latter as affecting the GSA agreement illegal and improper and

order the plaintiff to reinstate defendant as its general sales agent for passenger

tranportation in the Philippines in accordance with said GSA agreement; plaintiff is

ordered to pay defendant the balance of the overriding commission on total flown

revenue covering the period from March 16, 1977 to December 31, 1980 in the amount of

US$84,821.31 plus the additional amount of US$8,000.00 by way of proper 3%

overriding commission per month commencing from January 1, 1981 until such

reinstatement or said amounts in its Philippine peso equivalent legally prevailing at the

time of payment plus legal interest to commence from the filing of the counterclaim up to

the time of payment. Further, plaintiff is directed to pay defendant the amount of One

Million Five Hundred Thousand (Pl,500,000.00) pesos as and for exemplary damages;

and the amount of Three Hundred Thousand (P300,000.00) pesos as and by way of

attorney's fees.

Page 12: Assignments - 1

Costs against plaintiff. 7

On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision promulgated

on 27 January 1986, affirmed the findings of the court a quo on their material points but with

some modifications with respect to the monetary awards granted. The dispositive portion of the

appellate court's decision is as follows:

WHEREFORE, with the following modifications —

1) American is ordered to pay Orient the sum of US$53,491.11 representing the balance

of the latter's overriding commission covering the period March 16, 1977 to December

31, 1980, or its Philippine peso equivalent in accordance with the official rate of

exchange legally prevailing on July 10, 1981, the date the counterclaim was filed;

2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's overriding

commission per month starting January 1, 1981 until date of termination, May 9, 1981 or

its Philippine peso equivalent in accordance with the official rate of exchange legally

prevailing on July 10, 1981, the date the counterclaim was filed

3) American is ordered to pay interest of 12% on said amounts from July 10, 1981 the

date the answer with counterclaim was filed, until full payment;

4) American is ordered to pay Orient exemplary damages of P200,000.00;

5) American is ordered to pay Orient the sum of P25,000.00 as attorney's fees.

the rest of the appealed decision is affirmed.

Costs against American.8

American Air moved for reconsideration of the aforementioned decision, assailing the substance

thereof and arguing for its reversal. The appellate court's decision was also the subject of a

Motion for Partial Reconsideration by Orient Air which prayed for the restoration of the trial

court's ruling with respect to the monetary awards. The Court of Appeals, by resolution

promulgated on 17 December 1986, denied American Air's motion and with respect to that of

Orient Air, ruled thus:

Orient's motion for partial reconsideration is denied insofar as it prays for affirmance of

the trial court's award of exemplary damages and attorney's fees, but granted insofar as

the rate of exchange is concerned. The decision of January 27, 1986 is modified in

paragraphs (1) and (2) of the dispositive part so that the payment of the sums mentioned

therein shall be at their Philippine peso equivalent in accordance with the official rate of

exchange legally prevailing on the date of actual payment. 9

Page 13: Assignments - 1

Both parties appealed the aforesaid resolution and decision of the respondent court, Orient Air as

petitioner in G.R. No. 76931 and American Air as petitioner in G.R. No. 76933. By resolution 10

of this Court dated 25 March 1987 both petitions were consolidated, hence, the case at bar.

The principal issue for resolution by the Court is the extent of Orient Air's right to the 3%

overriding commission. It is the stand of American Air that such commission is based only on

sales of its services actually negotiated or transacted by Orient Air, otherwise referred to as

"ticketed sales." As basis thereof, primary reliance is placed upon paragraph 5(b) of the

Agreement which, in reiteration, is quoted as follows:

5. Commissions

a) . . .

b) Overriding Commission

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

overriding commission of 3% of the tariff fees and charges for all sales of transportation

over American's services by Orient Air Services or its sub-agents. (Emphasis supplied)

Since Orient Air was allowed to carry only the ticket stocks of American Air, and the former not

having opted to appoint any sub-agents, it is American Air's contention that Orient Air can claim

entitlement to the disputed overriding commission based only on ticketed sales. This is supposed

to be the clear meaning of the underscored portion of the above provision. Thus, to be entitled to

the 3% overriding commission, the sale must be made by Orient Air and the sale must be done

with the use of American Air's ticket stocks.

On the other hand, Orient Air contends that the contractual stipulation of a 3% overriding

commission covers the total revenue of American Air and not merely that derived from ticketed

sales undertaken by Orient Air. The latter, in justification of its submission, invokes its

designation as the exclusive General Sales Agent of American Air, with the corresponding

obligations arising from such agency, such as, the promotion and solicitation for the services of

its principal. In effect, by virtue of such exclusivity, "all sales of transportation over American

Air's services are necessarily by Orient Air." 11

It is a well settled legal principle that in the interpretation of a contract, the entirety thereof must

be taken into consideration to ascertain the meaning of its provisions. 12 The various stipulations

in the contract must be read together to give effect to all. 13 After a careful examination of the

records, the Court finds merit in the contention of Orient Air that the Agreement, when

interpreted in accordance with the foregoing principles, entitles it to the 3% overriding

commission based on total revenue, or as referred to by the parties, "total flown revenue."

As the designated exclusive General Sales Agent of American Air, Orient Air was responsible

for the promotion and marketing of American Air's services for air passenger transportation, and

the solicitation of sales therefor. In return for such efforts and services, Orient Air was to be paid

commissions of two (2) kinds: first, a sales agency commission, ranging from 7-8% of tariff

Page 14: Assignments - 1

fares and charges from sales by Orient Air when made on American Air ticket stock; and second,

an overriding commission of 3% of tariff fares and charges for all sales of passenger

transportation over American Air services. It is immediately observed that the precondition

attached to the first type of commission does not obtain for the second type of commissions. The

latter type of commissions would accrue for sales of American Air services made not on its ticket

stock but on the ticket stock of other air carriers sold by such carriers or other authorized

ticketing facilities or travel agents. To rule otherwise, i.e., to limit the basis of such overriding

commissions to sales from American Air ticket stock would erase any distinction between the

two (2) types of commissions and would lead to the absurd conclusion that the parties had

entered into a contract with meaningless provisions. Such an interpretation must at all times be

avoided with every effort exerted to harmonize the entire Agreement.

An additional point before finally disposing of this issue. It is clear from the records that

American Air was the party responsible for the preparation of the Agreement. Consequently, any

ambiguity in this "contract of adhesion" is to be taken "contra proferentem", i.e., construed

against the party who caused the ambiguity and could have avoided it by the exercise of a little

more care. Thus, Article 1377 of the Civil Code provides that the interpretation of obscure words

or stipulations in a contract shall not favor the party who caused the obscurity. 14 To put it

differently, when several interpretations of a provision are otherwise equally proper, that

interpretation or construction is to be adopted which is most favorable to the party in whose

favor the provision was made and who did not cause the ambiguity. 15 We therefore agree with

the respondent appellate court's declaration that:

Any ambiguity in a contract, whose terms are susceptible of different interpretations,

must be read against the party who drafted it. 16

We now turn to the propriety of American Air's termination of the Agreement. The respondent

appellate court, on this issue, ruled thus:

It is not denied that Orient withheld remittances but such action finds justification from

paragraph 4 of the Agreement, Exh. F, which provides for remittances to American less

commissions to which Orient is entitled, and from paragraph 5(d) which specifically

allows Orient to retain the full amount of its commissions. Since, as stated ante, Orient is

entitled to the 3% override. American's premise, therefore, for the cancellation of the

Agreement did not exist. . . ."

We agree with the findings of the respondent appellate court. As earlier established, Orient Air

was entitled to an overriding commission based on total flown revenue. American Air's

perception that Orient Air was remiss or in default of its obligations under the Agreement was, in

fact, a situation where the latter acted in accordance with the Agreement—that of retaining from

the sales proceeds its accrued commissions before remitting the balance to American Air. Since

the latter was still obligated to Orient Air by way of such commissions. Orient Air was clearly

justified in retaining and refusing to remit the sums claimed by American Air. The latter's

termination of the Agreement was, therefore, without cause and basis, for which it should be held

liable to Orient Air.

Page 15: Assignments - 1

On the matter of damages, the respondent appellate court modified by reduction the trial court's

award of exemplary damages and attorney's fees. This Court sees no error in such modification

and, thus, affirms the same.

It is believed, however, that respondent appellate court erred in affirming the rest of the decision

of the trial court.1âwphi1 We refer particularly to the lower court's decision ordering American

Air to "reinstate defendant as its general sales agent for passenger transportation in the

Philippines in accordance with said GSA Agreement."

By affirming this ruling of the trial court, respondent appellate court, in effect, compels

American Air to extend its personality to Orient Air. Such would be violative of the principles

and essence of agency, defined by law as a contract whereby "a person binds himself to render

some service or to do something in representation or on behalf of another, WITH THE

CONSENT OR AUTHORITY OF THE LATTER . 17 (emphasis supplied) In an agent-principal

relationship, the personality of the principal is extended through the facility of the agent. In so

doing, the agent, by legal fiction, becomes the principal, authorized to perform all acts which the

latter would have him do. Such a relationship can only be effected with the consent of the

principal, which must not, in any way, be compelled by law or by any court. The Agreement

itself between the parties states that "either party may terminate the Agreement without cause by

giving the other 30 days' notice by letter, telegram or cable." (emphasis supplied) We, therefore,

set aside the portion of the ruling of the respondent appellate court reinstating Orient Air as

general sales agent of American Air.

WHEREFORE, with the foregoing modification, the Court AFFIRMS the decision and

resolution of the respondent Court of Appeals, dated 27 January 1986 and 17 December 1986,

respectively. Costs against petitioner American Air.

SO ORDERED.

Melencio-Herrera, and Regalado, JJ., concur.

Paras, J., took no part. Son is a partner in one of the counsel.

Sarmiento, J., is on leave.

Page 16: Assignments - 1

[G.R. No. 130148. December 15, 1997]

JOSE BORDADOR and LYDIA BORDADOR, petitioners, vs. BRIGIDA D. LUZ,

ERNESTO M. LUZ and NARCISO DEGANOS, respondents.

D E C I S I O N

REGALADO, J.:

In this appeal by certiorari, petitioners assail the judgment of the Court of Appeals in CA-G.R.

CV No. 49175 affirming the adjudication of the Regional Trial Court of Malolos, Bulacan which

found private respondent Narciso Deganos liable to petitioners for actual damages, but absolved

respondent spouses Brigida D. Luz and Ernesto M. Luz of liability. Petitioners likewise belabor

the subsequent resolution of the Court of Appeals which denied their motion for reconsideration

of its challenged decision.

Petitioners were engaged in the business of purchase and sale of jewelry and respondent Brigida

D. Luz, also known as Aida D. Luz, was their regular customer. On several occasions during the

period from April 27, 1987 to September 4, 1987, respondent Narciso Deganos, the brother of

Brigida D. Luz, received several pieces of gold and jewelry from petitioners amounting to

P382,816.00. These items and their prices were indicated in seventeen receipts covering the

same. Eleven of the receipts stated that they were received for a certain Evelyn Aquino, a niece

of Deganos, and the remaining six indicated that they were received for Brigida D. Luz.

Deganos was supposed to sell the items at a profit and thereafter remit the proceeds and return

the unsold items to petitioners. Deganos remitted only the sum of P53,207.00. He neither paid

the balance of the sales proceeds, nor did he return any unsold item to petitioners. By January

1990, the total of his unpaid account to petitioners, including interest, reached the sum of

P725,463.98. Petitioners eventually filed a complaint in the barangay court against Deganos to

recover said amount.

In the barangay proceedings, Brigida D. Luz, who was not impleaded in the case, appeared as a

witness for Deganos and ultimately, she and her husband, together with Deganos, signed a

compromise agreement with petitioners. In that compromise agreement, Deganos obligated

himself to pay petitioners, on installment basis, the balance of his account plus interest thereon.

However, he failed to comply with his aforestated undertakings.

On June 25, 1990, petitioners instituted Civil Case No. 412-M-90 in the Regional Trial Court of

Malolos, Bulacan against Deganos and Brigida D. Luz for recovery of a sum of money and

damages, with an application for preliminary attachment. Ernesto Luz was impleaded therein as

the spouse of Brigida.

Four years later, or on March 29, 1994, Deganos and Brigida D. Luz were charged with estafa in

the Regional Trial Court of Malolos, Bulacan, which was docketed as Criminal Case No. 785-M-

94. That criminal case appears to be still pending in said trial court.

Page 17: Assignments - 1

During the trial of the civil case, petitioners claimed that Deganos acted as the agent of Brigida

D. Luz when he received the subject items of jewelry and, because he failed to pay for the same,

Brigida, as principal, and her spouse are solidarily liable with him therefor.

On the other hand, while Deganos admitted that he had an unpaid obligation to petitioners, he

claimed that the same was only in the sum of P382,816.00 and not P725,463.98. He further

asserted that it was he alone who was involved in the transaction with the petitioners; that he

neither acted as agent for nor was he authorized to act as an agent by Brigida D. Luz,

notwithstanding the fact that six of the receipts indicated that the items were received by him for

the latter. He further claimed that he never delivered any of the items he received from

petitioners to Brigida.

Brigida, on her part, denied that she had anything to do with the transactions between petitioners

and Deganos. She claimed that she never authorized Deganos to receive any item of jewelry in

her behalf and, for that matter, neither did she actually receive any of the articles in question.

After trial, the court below found that only Deganos was liable to petitioners for the amount and

damages claimed. It held that while Brigida D. Luz did have transactions with petitioners in the

past, the items involved were already paid for and all that Brigida owed petitioners was the sum

of P21,483.00 representing interest on the principal account which she had previously paid for.

The trial court also found that it was petitioner Lydia Bordador who indicated in the receipts that

the items were received by Deganos for Evelyn Aquino and Brigida D. Luz. Said court was

persuaded that Brigida D. Luz was behind Deganos, but because there was no memorandum to

this effect, the agreement between the parties was unenforceable under the Statute of Frauds.

Absent the required memorandum or any written document connecting the respondent Luz

spouses with the subject receipts, or authorizing Deganos to act on their behalf, the alleged

agreement between petitioners and Brigida D. Luz was unenforceable.

Deganos was ordered to pay petitioners the amount of P725,463.98, plus legal interest thereon

from June 25, 1990, and attorneys fees. Brigida D. Luz was ordered to pay P21,483.00

representing the interest on her own personal loan. She and her co-defendant spouse were

absolved from any other or further liability.

As stated at the outset, petitioners appealed the judgment of the court a quo to the Court of

Appeals which affirmed said judgment. The motion for reconsideration filed by petitioners was

subsequently dismissed, hence the present recourse to this Court.

The primary issue in the instant petition is whether or not herein respondent spouses are liable to

petitioners for the latters claim for money and damages in the sum of P725,463.98, plus interests

and attorneys fees, despite the fact that the evidence does not show that they signed any of the

subject receipts or authorized Deganos to receive the items of jewelry on their behalf.

Petitioners argue that the Court of Appeals erred in adopting the findings of the court a quo that

respondent spouses are not liable to them, as said conclusion of the trial court is contradicted by

the finding of fact of the appellate court that (Deganos) acted as agent of his sister (Brigida Luz).

Page 18: Assignments - 1

In support of this contention, petitioners quoted several letters sent to them by Brigida D. Luz

wherein the latter acknowledged her obligation to petitioners and requested for more time to

fulfill the same. They likewise aver that Brigida testified in the trial court that Deganos took

some gold articles from petitioners and delivered the same to her.

Both the Court of Appeals and the trial court, however, found as a fact that the aforementioned

letters concerned the previous obligations of Brigida to petitioners, and had nothing to do with

the money sought to be recovered in the instant case. Such concurrent factual findings are

entitled to great weight, hence, petitioners cannot plausibly claim in this appellate review that the

letters were in the nature of acknowledgments by Brigida that she was the principal of Deganos

in the subject transactions.

On the other hand, with regard to the testimony of Brigida admitting delivery of the gold to her,

there is no showing whatsoever that her statement referred to the items which are the subject

matter of this case. It cannot, therefore, be validly said that she admitted her liability regarding

the same.

Petitioners insist that Deganos was the agent of Brigida D. Luz as the latter clothed him with

apparent authority as her agent and held him out to the public as such, hence Brigida can not be

permitted to deny said authority to innocent third parties who dealt with Deganos under such

belief. Petitioners further represent that the Court of Appeals recognized in its decision that

Deganos was an agent of Brigida.

The evidence does not support the theory of petitioners that Deganos was an agent of Brigida D.

Luz and that the latter should consequently be held solidarily liable with Deganos in his

obligation to petitioners. While the quoted statement in the findings of fact of the assailed

appellate decision mentioned that Deganos ostensibly acted as an agent of Brigida, the actual

conclusion and ruling of the Court of Appeals categorically stated that, (Brigida Luz) never

authorized her brother (Deganos) to act for and in her behalf in any transaction with Petitioners x

x x. It is clear, therefore, that even assuming arguendo that Deganos acted as an agent of Brigida,

the latter never authorized him to act on her behalf with regard to the transactions subject of this

case.

The Civil Code provides:

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.

The basis for agency is representation. Here, there is no showing that Brigida consented to the

acts of Deganos or authorized him to act on her behalf, much less with respect to the particular

transactions involved. Petitioners attempt to foist liability on respondent spouses through the

supposed agency relation with Deganos is groundless and ill-advised.

Besides, it was grossly and inexcusably negligent of petitioners to entrust to Deganos, not once

or twice but on at least six occasions as evidenced by six receipts, several pieces of jewelry of

substantial value without requiring a written authorization from his alleged principal. A person

Page 19: Assignments - 1

dealing with an agent is put upon inquiry and must discover upon his peril the authority of the

agent.

The records show that neither an express nor an implied agency was proven to have existed

between Deganos and Brigida D. Luz. Evidently, petitioners, who were negligent in their

transactions with Deganos, cannot seek relief from the effects of their negligence by conjuring a

supposed agency relation between the two respondents where no evidence supports such claim.

Petitioners next allege that the Court of Appeals erred in ignoring the fact that the decision of the

court below, which it affirmed, is null and void as it contradicted its ruling in CA-G.R. SP No.

39445 holding that there is sufficient evidence/proof against Brigida D. Luz and Deganos for

estafa in the pending criminal case. They further aver that said appellate court erred in ruling

against them in this civil action since the same would result in an inevitable conflict of decisions

should the trial court convict the accused in the criminal case.

By way of backdrop for this argument of petitioners, herein respondents Brigida D. Luz and

Deganos had filed a demurrer to evidence and a motion for reconsideration in the aforestated

criminal case, both of which were denied by the trial court. They then filed a petition for

certiorari in the Court of Appeals to set aside the denial of their demurrer and motion for

reconsideration but, as just stated, their petition therefor was dismissed.

Petitioners now claim that the aforesaid dismissal by the Court of Appeals of the petition in CA-

G.R. SP No. 39445 with respect to the criminal case is equivalent to a finding that there is

sufficient evidence in the estafa case against Brigida D. Luz and Deganos. Hence, as already

stated, petitioners theorize that the decision and resolution of the Court of Appeals now being

impugned in the case at bar would result in a possible conflict with the prospective decision in

the criminal case. Instead of promulgating the present decision and resolution under review, so

they suggest, the Court of Appeals should have awaited the decision in the criminal case, so as

not to render academic or preempt the same or, worse, create two conflicting rulings.

Petitioners have apparently lost sight of Article 33 of the Civil Code which provides that in cases

involving alleged fraudulent acts, a civil action for damages, entirely separate and distinct from

the criminal action, may be brought by the injured party. Such civil action shall proceed

independently of the criminal prosecution and shall require only a preponderance of evidence.

It is worth noting that this civil case was instituted four years before the criminal case for estafa

was filed, and that although there was a move to consolidate both cases, the same was denied by

the trial court. Consequently, it was the duty of the two branches of the Regional Trial Court

concerned to independently proceed with the civil and criminal cases. It will also be observed

that a final judgment rendered in a civil action absolving the defendant from civil liability is no

bar to a criminal action.

It is clear, therefore, that this civil case may proceed independently of the criminal case because

while both cases are based on the same facts, the quantum of proof required for holding the

parties liable therein differ. Thus, it is improvident of petitioners to claim that the decision and

resolution of the Court of Appeals in the present case would be preemptive of the outcome of the

Page 20: Assignments - 1

criminal case. Their fancied fear of possible conflict between the disposition of this civil case

and the outcome of the pending criminal case is illusory.

Petitioners surprisingly postulate that the Court of Appeals had lost its jurisdiction to issue the

denial resolution dated August 18, 1997, as the same was tainted with irregularities and badges

of fraud perpetrated by its court officers. They charge that said appellate court, through

conspiracy and fraud on the part of its officers, gravely abused its discretion in issuing that

resolution denying their motion for reconsideration. They claim that said resolution was drafted

by the ponente, then signed and issued by the members of the Eleventh Division of said court

within one and a half days from the elevation thereof by the division clerk of court to the office

of the ponente.

It is the thesis of petitioners that there was undue haste in issuing the resolution as the same was

made without waiting for the lapse of the ten-day period for respondents to file their comment

and for petitioners to file their reply. It was allegedly impossible for the Court of Appeals to

resolve the issue in just one and a half days, especially because its ponente, the late Justice

Maximiano C. Asuncion, was then recuperating from surgery and, that, additionally, hundreds of

more important cases were pending.

These lamentable allegation of irregularities in the Court of Appeals and in the conduct of its

officers strikes us as a desperate attempt of petitioners to induce this Court to give credence to

their arguments which, as already found by both the trial and intermediate appellate courts, are

devoid of factual and legal substance. The regrettably irresponsible attempt to tarnish the image

of the intermediate appellate tribunal and its judicial officers through ad hominem imputations

could well be contumacious, but we are inclined to let that pass with a strict admonition that

petitioners refrain from indulging in such conduct in litigations.

On July 9, 1997, the Court of Appeals rendered judgment in this case affirming the trial courts

decision. Petitioners moved for reconsideration and the Court of Appeals ordered respondents to

file a comment. Respondents filed the same on August 5, 1997 and petitioners filed their reply to

said comment on August 15, 1997. The Eleventh Division of said court issued the questioned

resolution denying petitioners motion for reconsideration on August 18, 1997.

It is ironic that while some litigants malign the judiciary for being supposedly slothful in

disposing of cases, petitioners are making a show of calling out for justice because the Court of

Appeals issued a resolution disposing of a case sooner than expected of it. They would even

deny the exercise of discretion by the appellate court to prioritize its action on cases in line with

the procedure it has adopted in disposing thereof and in declogging its dockets. It is definitely

not for the parties to determine and dictate when and how a tribunal should act upon those cases

since they are not even aware of the status of the dockets and the internal rules and policies for

acting thereon.

The fact that a resolution was issued by said court within a relatively short period of time after

the records of the case were elevated to the office of the ponente cannot, by itself, be deemed

irregular. There is no showing whatsoever that the resolution was issued without considering the

reply filed by petitioners. In fact, that brief pleading filed by petitioners does not exhibit any

Page 21: Assignments - 1

esoteric or ponderous argument which could not be analyzed within an hour. It is a legal

presumption, born of wisdom and experience, that official duty has been regularly performed;

that the proceedings of a judicial tribunal are regular and valid, and that judicial acts and duties

have been and will be duly and properly performed. The burden of proving irregularity in official

conduct is on the part of petitioners and they have utterly failed to do so. It is thus reprehensible

for them to cast aspersions on a court of law on the bases of conjectures or surmises, especially

since one of the petitioners appears to be a member of the Philippine Bar.

Lastly, petitioners fault the trial courts holding that whatever contract of agency was established

between Brigida D. Luz and Narciso Deganos is unenforceable under the Statute of Frauds as

that aspect of this case allegedly is not covered thereby. They proceed on the premise that the

Statute of Frauds applies only to executory contracts and not to executed or to partially executed

ones. From there, they move on to claim that the contract involved in this case was an executed

contract as the items had already been delivered by petitioners to Brigida D. Luz, hence, such

delivery resulted in the execution of the contract and removed the same from the coverage of the

Statute of Frauds.

Petitioners claim is speciously unmeritorious. It should be emphasized that neither the trial court

nor the appellate court categorically stated that there was such a contractual relation between

these two respondents. The trial court merely said that if there was such an agency existing

between them, the same is unenforceable as the contract would fall under the Statute of Frauds

which requires the presentation of a note or memorandum thereof in order to be enforceable in

court. That was merely a preparatory statement of a principle of law. What was finally proven as

a matter of fact is that there was no such contract between Brigida D. Luz and Narciso Deganos,

executed or partially executed, and no delivery of any of the items subject of this case was ever

made to the former.

WHEREFORE, no error having been committed by the Court of Appeals in affirming the

judgment of the court a quo, its challenged decision and resolution are hereby AFFIRMED and

the instant petition is DENIED, with double costs against petitioners

SO ORDERED.

Puno, Mendoza, and Martinez, JJ., concur.

Page 22: Assignments - 1

[G.R. Nos. 152613 & 152628 : February 03, 2009]

APEX MINING CO. INC. V. SOUTHEAST MINDANAO GOLD MINING CORP., ET

AL.)

[G.R. NO. 152619-20]

(BALITE COMMUNAL PORTAL MINING COOPERATIVE V. SOUTHEAST

MINDANAO GOLD MINING CORP., ET AL.)

[G.R. NO. 152870-71]

(THE MINES ADJUDICATION BOARD AND ITS MEMBERS, THE HON. VICTOR O.

RAMOS (CHAIRMAN), UNDERSECRETARY VIRGILIO MARCELO (MEMBER)

AND DIRECTOR HORATIO RAMOS (MEMBER) V. SOUTHEAST MINDANAO

GOLD MINING CORP.)

Sirs/Mesdames:

Quoted hereunder, for your information, is a resolution of the Court En Banc dated February 3,

2009

"G.R. Nos. 152613 & 152628 (Apex Mining Co. Inc. v. Southeast Mindanao Gold Mining

Corp., et al.)

G.R. No. 152619-20 (Balite Communal Portal Mining Cooperative v. Southeast Mindanao

Gold Mining Corp., et al.)

G.R. No. 152870-71 (The Mines Adjudication Board and Its Members, The Hon. Victor O.

Ramos (Chairman), Undersecretary Virgilio Marcelo (Member) and Director Horatio

Ramos (Member) v. Southeast Mindanao Gold Mining Corp.)

Before Us is a Motion For Issuance Of A Show Cause Order Why Respondents Mines

Adjudication Board (MAB) and Philippine Mining Development Corporation (PMDC) Should

Not Be Cited For Contempt filed by respondent Southeast Mindanao Gold Mining Corporation

(SEM) on 24 September 2008.

In its motion, SEM avers that the validity of Proclamation No. 297, which segregated 8,100

hectares from a forest reserve and declared the same as mineral reservation, is still pending

before the Court. SEM cites a newspaper article, which allegedly quoted an official of the PMDC

(the corporate arm of the Department of Environment and Natural Resources) as saying that a

portion of 8,100-hectare mineral reservation is open for bidding to interested mining investors. It

also introduces another newspaper article which published the Invitation To Apply For Eligibility

And To Bid for the area which is the subject matter of these consolidated cases. SEM contends

Page 23: Assignments - 1

that PMDC's purported act of bidding out mining operations within the disputed mineral

reservation is an affront to the Court's judicial authority over the instant cases; thus, it asks the

Court that the DENR and PMDC be cited for contempt.

While MAB is mentioned by SEM in its motion, the latter, however, fails to impute any

contumacious act to the former. Furthermore, in SEM's prayer, MAB is not among those entities

that SEM seeks to be cited for contempt.

We deny SEM's motion.

Contempt of court is a defiance of the authority, justice or dignity of the court, such conduct as

tends to bring the authority and administration of the law into disrespect or to interfere with or

prejudice parties, litigant or their witnesses during litigation.[1]

There are two kinds of contempt punishable by law: direct contempt and indirect

contempt. Direct contempt is committed when a person is guilty of misbehavior in the presence

of or so near a court as to obstruct or interrupt the proceedings before the same, including

disrespect toward the court, offensive personalities toward others, or refusal to be sworn or to

answer as a witness or to subscribe an affidavit or deposition when lawfully required to do so.[2]

Indirect contempt or constructive contempt is that which is committed out of the presence of the

court. Any improper conduct tending, directly or indirectly, to impede, obstruct, or degrade the

administration of justice would constitute indirect contempt.[3]

Although SEM does not

categorically spell it out, it appears that the allegations of SEM against PMDC and the

Department of Environment and Natural Resources (DENR), if true, would fall under indirect

contempt.

The proceedings for Indirect Contempt are provided for under Section 4, Rule 71 of the Rules of

Court, to wit:

"Section 4. - Proceedings for indirect contempt may be initiated motu proprio by the court

against which the contempt was committed by an order or any other formal charge requiring the

respondent to show cause why he should not be punished for contempt.

In all other cases, charges for indirect contempt shall be commenced by a verified petition with supporting particulars and certified true copies of documents or papers involved therein, and

upon full compliance with requirements for filing initiatory pleadings for civil actions in the

court concerned. If the contempt charges arose out of or are related to a principal action pending

in the court, the petition for contempt shall allege that fact but said petition shall be docketed,

heard and decided separately, unless the court in its discretion orders the consolidation of the

contempt charge and the principal action for joint hearing and decision."

As may be gleaned above, the charge of indirect contempt can be initiated in two (2) ways only,

namely: 1) motu proprio by the court itself; or 2) by filing a verified petition, with full

compliance with the requirements therefor.

In the instant recourse, since the contempt proceedings have been initiated by SEM, the second

mode of filing an indirect contempt charge is pertinent.

Page 24: Assignments - 1

Prior to the amendment of the 1997 Rules of Civil Procedure, a mere motion without complying

with the requirements for initiatory pleadings was tolerated by the courts.[4]

At present, Rule 71,

Section 4, mandates that except for indirect contempt proceedings initiated motu proprio by

order of or a formal charge by the offended court, all charges, such as this one, shall be

commenced by a verified petition with full compliance with the requirements for initiatory

pleadings.[5]

Rigid application of such procedural guidelines is mandatory considering that

proceedings against a person alleged to be guilty of contempt are commonly treated as criminal

in nature.[6]

Thus, in Regalado v. Go,[7]

the Court elaborated:

It bears to stress that the power to punish for contempt is not limitless. It must be used sparingly

with caution, restraint, judiciousness, deliberation, and due regard to the provisions of the law

and the constitutional rights of the individual.

The limitations in the exercise of the power to punish for indirect contempt are delineated by the

procedural guidelines specified under Section 4, Rule 71 of the Rules of Court. Strict

compliance with such procedural guidelines is mandatory considering that proceedings

against person alleged to be guilty of contempt are commonly treated as criminal in nature.

As explained by Justice Floreaz Regalado. 36 the filing of a verified petition that has complied

with the requirements for the filing of initiatory pleading, is mandatory, and thus states:

1. This new provision clarifies with a regularity norm the proper procedure for commencing

contempt proceedings. While such proceeding has been classified as special civil action under

the former Rules, the heterogenous practice tolerated by the courts, has been for any party to file

a motion without paying any docket or lawful fees therefore and without complying with the

requirements for initiatory pleadings, which is now required in the second paragraph of this

amended section.

x x x x

Henceforth, except for indirect contempt proceedings initiated motu propio by order of or a

formal charge by the offended court, all charges shall be commenced by a verified petition with

full compliance with the requirements therefore and shall be disposed in accordance with the

second paragraph of this section.

In Oliveros v. Sision,[8]

the Court once again stressed that filing of indirect contempt must be

initiated through a verified petition and not by mere motion:

Charges for indirect contempt are commenced by a verified petition with supporting particulars

and certified true copies of documents or papers involved therein, and upon full compliance with

the requirements for filing initiatory pleadings x x x. A mere motion to cite a party in

contempt does not conform with the Rules and should not be entertained.

In the instant motion, SEM commenced indirect contempt charge against PMDC and DENR

through a motion instead of filing a verified petition. Unfortunately, this procedural lapse is fatal

and warrants the denial of SEM's motion to cite PMDC and DENR for contempt.

Page 25: Assignments - 1

As to SEM's prayer, incorporated in its Motion For Issuance Of A Show Cause Order Why

Respondents Mines Adjudication Board(MAB) and Philippine Mining Development Corporation

(PMDC) Should Not Be Cited For Contempt, to enjoin PMDC and the DENR from conducting

any bidding for the exploration, development and mining operations within the mineral

reservation subject matter of these cases, it appears in the records [9]

that there was a separate

Urgent Motion For The Issuance Of A Temporary Restraining Order (TRO) And/Or Writ of

Preliminary Injunction filed by SEM on 27 November 2008, which was also aimed at restraining

PMDC and the DENR from conducting any bidding for the same area, and considering that the

Urgent Motion For The Issuance Of A Temporary Restraining Order (TRO) And/Or Writ of

Preliminary Injunction has not been submitted for resolution, as the other parties are still to

comment on the same pursuant to the Court's Resolution dated 2 December 2008, said prayer of

SEM to restrain PMDC and the DENR from conducting any bidding for the same area is held, in

abeyance.

IN VIEW THEREOF, Southeast Mindanao Gold Mining Corporation's motion to cite PMDC

and DENR for contempt is DENIED. "

Page 26: Assignments - 1

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

Page 27: Assignments - 1

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

Page 28: Assignments - 1

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.

Bengzon, Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, and Reyes, J.B.L., JJ.,

concur.