2nd Batch of Agency Cases

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SUPREME COURT REPORTS ANNOTATED Philippine National Bank vs. Manila Surety & Fidelity Co., Inc. No. L-20567. July 30, 1965.

Philippine National Bank vs. Manila Surety & Fidelity Co., Inc. REYES, J.B.L., J.: The Philippine National Bank petitions for the review and reversal of the decision rendered by the Court of Appeals (Second Division), in its case CA-G.R. No. 24232-R, dismissing the Bank‟s complaint against respondent Manila Surety & Fidelity Co., Inc., and modifying the judgment of the Court of First Instance of Manila in its Civil Case No. 11263. The material facts of the case, as found by the appellate Court, are as follows: The Philippine National Bank had opened a letter of credit and advanced thereon $120,000.00 to Edgington Oil Refinery for 8,000 tons of hot asphalt. Of this amount, 2,000 tons worth P279,000.00 were released and delivered to Adams & Taguba Corporation (known as ATACO) under a trust receipt guaranteed by Manila Surety & Fidelity Co. up to the amount of P75,000.00. To pay for the asphalt, ATACO constituted the Bank its assignee and attorney-infact to receive and collect from the Bureau of Public Works the amount aforesaid out of funds payable to the assignor under Purchase Order No. 71947. This assignment (Exhibit “A”) stipulated that: “The conditions of this assignment are as follows: 1. 1.
 The same shall remain irrevocable until the said credit accommodation is fully liquidated. 2. 2.
 The PHILIPPINE NATIONAL BANK is hereby appointed as our

PHILIPPINE NATIONAL BANK, petitioner, vs. MANILA SURETY & FIDELITY CO., INC. and THE COURT OF APPEALS (Second Division), respondents. Agency; Duty of agent to act with the care of a good father of a family.—An agent is required to act with the care of a good father of a family and becomes liable for the damages which the principal may suffer through his non-performance. Same; Same; Bank liable for neglect in collecting sums due its debtor.—A bank is answerable for negligence in failing to collect the sums due its debtor from the latter‟s own debtor, contrary to said bank‟s duty as holder of an exclusive and irrevocable power of attorney to make such collections. Suretyship; Surety released when assigned funds permitted by creditor to be exhausted without notifying former. —By allowing the assigned funds to be exhausted without notifying the surety, the creditor deprives the surety of any possibility of recoursing against that security, and therefore the surety is released. PETITION for review of a decision of the Court of Appeals. The facts are stated in the opinion of the Court. Besa, Galang & Medina for petitioner. De Santos & Delfino for respondents. 777 VOL. 14, JULY 30, 1965

Attorney-in-Fact for us and in our name, place and stead, to collect 777 and to receive the payments to be made by virtue of the

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aforesaid Purchase Order, with full power and authority to execute and deliver on our behalf, receipt for all payments made to it; to endorse for deposit or encashment checks, money order and treasury warrants which said Bank may receive, and to apply said payments to the settlement of said credit accommodation. This power of attorney shall also remain irrevocable until our total indebtedness to the said Bank have been fully liquidated. (Exhibit E)” ATACO delivered to the Bureau of Public Works, and the latter accepted, asphalt to the total value of P431,466.-52. Of this amount the Bank regularly collected, from 778 778 SUPREME COURT REPORTS ANNOTATED Philippine National Bank vs. Manila Surety & Fidelity Co., Inc. April 21, 1948 to November 18, 1948, P106,382.01. Thereafter, for unexplained reasons, the Bank ceased to collect, until in 1952 its investigators found that more moneys were payable to ATACO from the Public Works office, because the latter had allowed another creditor to collect funds due to ATACO under the same purchase order, to a total of P311,230.41. Its demands on the principal debtor and the Surety having been refused, the Bank sued both in the Court of First Instance of Manila to recover the balance of P158,563.18 as of February 15, 1950, plus interests and costs. On October 4, 1958, the trial court rendered a decision, the dispositive portion of which reads: “WHEREFORE, judgment is hereby rendered as follows:

1. “1.
 Ordering defendants, Adams & Taguba Corporation and Manila Surety & Fidelity Co., Inc., to pay plaintiff, Philippine National Bank, the sum of P174,462.34 as of February 24, 1956, minus the amount of P8,000 which defendant, Manila Surety Co., Inc. paid from March, 1956 to October, 1956 with interest at the rate of 5% per annum from February 25, 1956, until fully paid provided that the total amount that should be paid by defendant Manila Surety Co., Inc., on account of this case shall not exceed P75,000.00, and to pay the costs; 2. “2.
 Ordering cross-defendant, Adams & Taguba Corporation, and third-party defendant, Pedro A. Taguba, jointly and severally, to pay cross and third-party plaintiff, Manila Surety & Fidelity Co , Inc., whatever amount the latter has paid or shall pay under this judgment; 3. “3.
 Dismissing the complaint insofar as the claim for 17% special tax is concerned; and 4. “4.
 Dismissing the counterclaim of defendants Adams & Taguba Corporation and Manila Surety & Fidelity Co., Inc.” From said decision, only the defendant Surety Company has duly perfected its appeal. The Central Bank of the Philippines did not appeal, while defendant ATACO failed to perfect its appeal. The Bank recoursed to the Court of Appeals, which rendered an adverse decision and modified the judgment of the court of origin as to the surety‟s liability. Its motions for reconsideration having proved unavailing, the Bank appealed to this Court. 779 VOL. 14, JULY 30, 1965

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Philippine National Bank vs. Manila Surety & Fidelity Co., Inc. The Court of Appeals found the Bank to have been negligent in having stopped collecting from the Bureau of Public Works the moneys falling due in favor of the principal debtor, ATACO, from and after November 18, 1948, before the debt was fully collected, thereby allowing such funds to be taken and exhausted by other creditors to the prejudice of the surety, and held that the Bank‟s negligence resulted in exoneration of respondent Manila Surety & Fidelity Company. This holding is now assailed by the Bank. It contends the power of attorney obtained from ATACO was merely an additional security in its favor, and that it was the duty of the surety, and not that of the creditor, to see to it that the obligor fulfills his obligation, and that the creditor owed the surety no duty of active diligence to collect any sum from the principal debtor, citing Judge Advocate General vs. Court of Appeals, G.R. No. L-10671, October 23, 1958. This argument of appellant Bank misses the point. The Court of Appeals did not hold the Bank answerable for negligence in failing to collect from the principal debtor but for its neglect in collecting the sums due to the debtor from the Bureau of Public Works, contrary to its duty as holder of an exclusive and irrevocable power of attorney to make such collections, since an agent is required to act with the care of a good father of a family (Civ. Code, Art. 1887) and becomes liable for the damages which the principal may suffer through his non-performance (Civ. Code, Art. 1884). Certainly, the Bank could not expect that the Bank would diligently perform its duty under its power of attorney, but because they could not have collected from the Bureau even if they had attempted to do so. It must not be forgotten that the Bank‟s power to collect was

expressly made irrevocable, so that the Bureau of Public Works could very well refuse to make payments to the principal debtor itself, and a fortiori reject any demands by the surety. Even if the assignment with power of attorney from the principal debtor were considered as mere additional secu780 780 SUPREME COURT REPORTS ANNOTATED Philippine National Bank vs. Manila Surety & Fidelity Co., Inc. rity, still, by allowing the assigned funds to be exhausted without notifying the surety, the Bank deprived the former of any possibility of recoursing against that security. The Bank thereby exonerated the surety, pursuant to Article 2080 of the Civil Code: “ART. 2080.—The guarantors, even though they be solidary, are released from their obligation whenever by some act of the creditor they cannot be subrogated to the rights, mortgages and preferences of the latter.” (Italics supplied.) The appellant points out to its letter of demand, Exhibit “K”, addressed to the Bureau of Public Works, on May 5, 1949, and its letter to ATACO, Exhibit “G”, informing the debtor that as of its date, October 31, 1949, its outstanding balance was P156,374.83. Said Exhibit “G” has no bearing on the issue whether the Bank has exercised due diligence in collecting from the Bureau of Public Works, since the letter was addressed to ATACO, and the funds were to come from elsewhere. As to the letter of demand on the Public Works office, it does not appear that any reply thereto was made; nor that the demand was pressed, nor that the debtor or the surety were ever apprised that payment was not being made. The fact remains that because of the Bank‟s inactivity the other creditors were

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enabled to collect P173,870.31, when the balance due to appellant Bank was only P158,563.18. The finding of negligence made by the Court of Appeals is thus not only conclusive on us but fully supported by the evidence. Even if the Court of Appeals erred on the second reason it advanced in support of the decision now under appeal, because the rules on application of payments, giving preference to secured obligations are only operative in cases where there are several distinct debts, and not where there is only one that is partially secured, the error is of no importance, since the principal reason based on the “Bank‟s negligence furnishes adequate support to the decision of the Court of Appeals that the surety was thereby released. WHEREFORE, the appealed decision is affirmed, with costs against appellant Philippine National Bank. 781 VOL. 14, JULY 30, 1965 Free Employees and Workers Asso. (FEWA) vs. Court of Industrial Relations Bengzon, C.J., Concepcion, Paredes, Dizon, Regala, 781

Makalintal, Bengzon, J.P., and Zaldivar, JJ., concur. Bautista Angelo, J., took no part. Barrera, J., on leave, did not take part Decision affirmed. ———o0o——— © Copyright 2013 Central Book Supply, Inc. All rights reserved.

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[No. 49219. December 11, 1946] PABLO D. PALMA, petitioner, vs. EDUARDO REYES CRISTOBAL, respondent. 3. 1.
 PRINCIPAL AND AGENT; FIDUCIARY RELATIONS; AGENT CANNOT ACQUIRE TlTLE TO SUBJECT MATTER OF AGENCY ADVERSE TO THAT OF PRINCIPAL.—The relations of an agent to his principal 713 VOL. 77, DECEMBER 11, 1946 Palma vs. Cristobal 5. are fiduciary and 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. 1. 2.
 TRUSTS AND TRUSTEES; LAND REGISTRATION ; REGISTRATION IN NAME OF TRUSTEES FOR BENEFIT OF "CESTUI QUE TRUST."—The registration of the property in the name of the trustees in possession thereof, must be deemed to have been effected for the benefit of the cestui que trust. 1. 3.
 LAND REGISTRATION ; RIGHT OF REAL OWNERS TO RECOVER LAND DECREED IN FAVOR OF ANOTHER; EXCEPTION.—Whether or not there is bad faith or fraud in obtaining a decree with respect to a registered property, the same does not belong to the person in whose favor it was issued, and the real owners would be entitled to recover the 714

ownership of the property so long as the same has not been transferred to a third person who had acquired it in good faith and for a valuable consideration. This right to recover is sanctioned by section 58 of Act No. 496, as amended by Act No. 3322. 1. 4.
 ID.; ID.; ESTOPPEL; APPEARANCE OF CO-OWNER AS ATTORNEY FOR PERSON SECURING REGISTRATION.— Respondent is not barred from claiming that he is a co-owner 713 because his appearance as attorney for petitioner was not a misrepresentation which would induce petitioner to believe that respondent recognized the former as the sole owner of the property in controversy. The misrepresentation could deceive the court and outsiders, because they were not aware of the understanding between the co-owners that the property be registered in the name of petitioner. 1. 5.
 TRUSTS AND TRUSTEES; TRUSTEE CANNOT ACQUIRE BY PRESCRIPTION PROPERTY HELD IN TRUST.—A trustee cannot acquire by prescription the ownership of a property entrusted to him. The position of a trustee is of representative nature. It is logical that all benefits derived by the possession and acts of the agent, as such agent, should accrue to the benefit of his principal. ORIGINAL ACTION in the Supreme Court. Certiorari. The facts are stated in the opinion of the court.. Vicente J. Francisco and Guillermo B. Guevara for petitioner. 714 PHILIPPINE REPORTS ANNOTATED

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Palma vs. Cristobal Antonio Gonzales for respondent. PERFECTO, J.: A parcel of land located in Quesada Street, Tondo Manila, covered by transfer certificate of title No. 31073 of the Register of Deeds of Manila, issued in favor of petitioner Pablo D. Palma, is the subject of contention between the parties. Petitioner sought, at first, to eject respondent Eduardo Cristobal Reyes from the land in question in a complaint filed with the Municipal Court of Manila. As respondent raised the question of ownership, the complaint was dismissed, and petitioner filed with the Court of First Instance of Manila the complaint which initiated this case, petitioner praying that he be declared the owner of the land and that respondent be ordered to restore its possession and to remove his house therefrom. The complaint was dismissed and petitioner brought the case to the Court of Appeals, where he again failed, the appealed judgment having been affirmed by a decision penned by Mr. Justice Padilla, concurred in by Mr. Justice Jose G. Generoso and Mr. Justice Pedro Tuason. The case is now before us on appeal by certiorari. In 1909, after registration proceedings under the provisions of Act No. 496, original certificate of title No. 1627 was issued in the names of petitioner and his wife Luisa Cristobal. In 1923, said certificate was cancelled and substituted by certificate of title No. 20968 by virtue of a decree issued by the Court of First Instance of Manila in connection with the Manila cadastre. It was later substituted by certificate of title No. 26704, also in the name of petitioner and his wife. After the latter's death

in 1922, a new certificate of title was issued in 1923 only in the name of petitioner, substituted in 1928 by certificate of title No. 31073. The Court of Appeals, upon the evidence, concluded with the Court of First Instance of Manila that the parcel of land in question is a community property held by petitioner 715 VOL. 77, DECEMBER 11, 1946 Palma vs. Cristobal in trust for the real owners (the respondent being an heir of one of them), the registration having been made in accordance with an understanding between the co-owners, by reason of the confidence they had in petitioner and his wife. This confidence, close relationship, and the fact that the co-owners were receiving their shares in the rentals, were the reasons why no step had been taken to partition the property. The Court of Appeals explains' that it was only after the death of Luisa Cristobal and petitioner had taken a second wife that trouble on religious matters arose between petitioner and respondent, and it gives credence to the testimony of Apolonia Reyes and respondent to the effect that Luisa, before her death, called her husband, the petitioner, and enjoined him to give her co-owners their shares in the parcel of land; but respondent told her then not to worry about it, for it was more important to them to have her cured of the malady that affected her. Petitioner answered his wif e that she should not worry because he would take care of the matter by giving the co-owners their respective shares. Petitioner assigns as first error of the Court of Appeals the fact that it considered the oral testimony adduced in behalf of respondent sufficient

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to rebut the legal presumption that petitioner is the owner of the land in controversy. In Severino vs. Severino (43 Phil., 343), this court declared that "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" Affirming the said doctrine in Barretto vs. Tuason (50 Phil., 888), the Supreme Court declared that the registration of the property in the name of the trustees 716 716 PHILIPPINE REPORTS ANNOTATED Palma vs. Cristobal in possession thereof, must be deemed to have been effected for the benefit of the cestui que trust. In Palet vs. Tejedor (55 Phil., 790), it was declared that whether or not there is bad faith or fraud in obtaining a decree with respect to a registered property, the same does not belong to the person in whose favor it was issued, and the real owners would be entitled to recover the ownership of the property so long as the same has not been transferred to a third person who has acquired it in good faith and for a valuable consideration. This right to recover is sanctioned by section 55 of Act No. 496, as amended by Act No. 3322. There is no showing why the conclusions of facts of the Court of Appeals should be disturbed, and upon said facts petitioner's first assignment of error appears to be untenable in the light of law and of the

decisions of this court. Petitioner alleged that the Court of Appeals erred in not holding the respondent estopped from claiming that petitioner is not the absolute owner of the property in question because, after Luisa Cristobal, petitioner's wife, died in 1922, instead of moving for the partition of the property, considering specially that petitioner had promised such a partition at the deathbed of the deceased, respondent appeared as attorney for petitioner and prayed that a new certificate of title be issued in the name of said petitioner as the sole owner of the property. Petitioner insisted with energy that respondent himself was a party to the fraud upon the court, as guilty as petitioner himself, and that estops him from asserting that he is the co-owner of the land involved herein. There is no merit in petitioner's contention. The fact that respondent has been a party to the deception which resulted in petitioner's securing in his name the title to a property not belonging to him, is not a valid reason for changing the legal relationship between the latter and its true owners to such an extent as to let them lose their ownership to a person trying to usurp it. 717 VOL. 77, DECEMBER 11, 1946 Palma vs. Cristobal Whether petitioner and respondent are or are not jointly responsible for any fraud upon a court of justice, cannot affect the substantial rights of the real owners of the title of a real property. Respondent is not barred because his appearance as attorney for petitioner was not a misrepresentation which would induce petitioner to

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believe that respondent recognized the former as the sole owner of the property in controversy. The misrepresentation could deceive the court and outsiders, because they were not aware of the understanding between the co-owners that the property be registered in the name of petitioner. The Court of Appeals found, and the finding is not now in issue, that petitioner was a party to the understanding and assumed the rôle of an instrument to make it effective. Respondent's appearance, as attorney for petitioner in 1923, was a consequence of the understanding, and petitioner could not legitimately assume that it had the effect of breaking or reversing said understanding. Lastly, it is contended by petitioner that, even conceding that the controverted property was owned in common by several co-owners, yet the Court of Appeals erred in not holding that, as against respondent, petitioner had acquired absolute ownership of the same through prescription. Upon the premise that the registration in 1909 in the name of petitioner and his wife, Luisa Cristobal, was in accordance with an agreement among the co-owners, petitioner advances the theory that when he, upon the death of his wife in 1922, caused the trust property to be registered in his sole name in 1923, and subsequently partitioned between himself and his daughter, Ildefonsa Cristobal Ditangco, as heirs of the decedent, "he openly breached the agreement of 1909 as well as the promise made to his dying wife of giving the co-owners their respective shares," concluding that "that breach was an assumption of ownership, and could be the basis of title by prescription." 718 718 PHILIPPINE REPORTS ANNOTATED

Arcilla vs. David This theory holds no water because, according to the pronouncement of the Court of Appeals, upon the evidence, petitioner held the property and secured its registration in his name in a fiduciary capacity, and it is elementary that a trustee cannot acquire by prescription the ownership of a property entrusted to him. The position of a trustee is of representative nature. His position is the position of a cestui que trust. It is logical that all benefits derived by the possession and acts of the agent, as such agent, should accrue to the benefit of his principal. Petitioner's pretension of building his right to claim ownership by prescription upon his own breach of a trust cannot be countenanced by any court, being subversive of generally accepted ethical principles. The decision of the Court of Appeals is affirmed. No costs. Moran, C. J., Parás, Feria, Pablo, Hilado, Bengzon, and Briones, JJ., concur. Decision of Court of Appeals affirmed _______________ © Copyright 2013 Central Book Supply, Inc. All rights reserved.

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[No. 38479. November 20, 1933] QUINTIN DE BORJA, judicial administrator of the intestate estate of the deceased Marcelo de Borja, plaintiff and appellant, vs. FRANCISCO DE BORJA, defendant and appellant. 4. 1.
 PLEADING AND PRACTICE; PERIOD FOR FILING OF COUNTERCLAIMS.—The plaintiff-appellant's contention that the counterclaims presented by the defendant have already prescribed is untenable. The counterclaims in question are based on instruments in writing marked Exhibits 1 to 6. The period of prescription thereof is not six (6) years, as claimed, but ten (10) years, in accordance with the provisions of section 43 (1) of the Code of Civil Procedure. 6. 2.
 DEBTS AND DEBTORS; PAYMENT OF INTEREST.—Neither is the plaintiff entitled to the interest claimed by him upon the alleged sums of money loaned to and collected by the defendant from various persons for his deceased father. In all the aforesaid transactions, the defendant acted in his capacity as attorney-infact of his deceased father and, there being no evidence showing that he converted the money entrusted to him to his own use, he is not liable for interest thereon in accordance with the provisions of article 1724 of the Civil Code. APPEAL from a judgment of the Court of First Instance of Rizal. Carballo. J. 812 812 PHILIPPINE REPORTS ANNOTATED De Borja vs. De Borja The facts are stated in the opinion of the court.

M. H. de Joya and Quintin Paredes for plaintiff-appellant. Jose de Borja for defendant-appellant. IMPERIAL, J.: The plaintiff herein, in his capacity as judicial administrator of the estate of the deceased Marcelo de Borja, instituted this action in the Court of First Instance of Rizal, to recover from the defendant the sum of P61,376.56 which, according to the amended complaint, the said defendant owed the aforesaid deceased, for certain sums of money loaned to and collected by him from other persons with the obligation to render an accounting thereof to the said deceased. In his amended answer, the defendant interposed various counterclaims for alleged sums of money owed him by the aforesaid deceased. After the trial thereof and the presentation of voluminous evidence therein, the trial court reached the conclusion and held that, from his various causes of action, the plaintiff was entitled to recover the sum of P33,218.86 from the defendant, and that, by way of counterclaim, the said defendant, in turn, was entitled to collect the sum of P39,683 from the plaintiff, and rendered judgment in favor of the def endant in the sum of P6,464.14 with legal interest thereon from the date of the counterclaim, with the costs. Both parties appealed therefrom. The trial court made a very careful analysis of the oral and documentary evidence presented therein, and from the preponderance thereof, inferred the findings of fact stated in its decision. We are convinced that, from the evidence presented, the liquidation made by the trial court is the nearest approach to its findings of fact, and for this

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reason we do not feel inclined to alter or modify it. The plaintiff-appellant's contention that the counterclaims presented by the defendant have already prescribed, is untenable. The

with the law and sufficiently supported by a preponderance of the evidence presented therein, it is hereby affirmed, without special pronouncement as to the costs of this instance. So ordered. Avanceña, C. J., Malcolm, Villa-Real, and Hull, JJ., concur. Judgment affirmed. 813 __________ 813 © Copyright 2013 Central Book Supply, Inc. All rights reserved.

counterclaims in question are based on instruments in writing marked Exhibits 1 to 6. The period

VOL. 58, NOVEMBER 21, 1933 In the Matter of the Estate of Goulette of prescription thereof is not six (6) years, as claimed, but ten (10) years, in accordance with the provisions of section 43 (1) of the Code of Civil Procedure. Neither is the plaintiff entitled to the interest claimed by him upon the alleged sums loaned to and collected by the defendant from various persons for his deceased father. In all the aforementioned transactions, the defendant acted in his capacity as attorney-in-fact of his deceased father, and there being no evidence showing that he converted the money entrusted to him to his own use, he is not liable for interest thereon, in accordance with the provisions of article 1724 of the Civil Code. The defendant-appellant's claim to the effect that he is entitled to collect the rents for the use of the earthen jar factory and the buildings thereof, is, likewise, unfounded. The trial court held that all there existed between the parties was a mere gratuitous commodatum and that the most that the deceased bound himself to do was to pay the taxes on the properties in question. There is nothing in the records of the case to justify reversing the judgment rendered therein. The judgment appealed from being, in our opinion, in accordance

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710

SUPREME COURT REPORTS ANNOTATED Mindanao Motor Line, Inc. vs. Court of Industrial Relations No. L-18418. November 29, 1962.

manager, respectively, of the aforesaid company. Since they were impleaded merely as officers of the company and have acted only as such within the scope of their authority, if any one should be held responsible for the consequence of their acts as such officers it is their employer, unless of course it is shown that they have acted negligently or in bad faith. The evidence discloses nothing in this respect. It is a wellknown principle of law that an agent who acts in behalf of a disclosed principal within the scope of his authority cannot be held liable to third persons (Article 1897, new Civil Code; Banque Generale Belge, et al. vs. Walter Bull & Co., Inc., et al., 47 O.G. 138; Zialcita-Yuseco vs. Simmons,

MINDANAO MOTOR LINE,INC., ET AL., petitioners, vs. HON. COURT OF INDUSTRIAL RELATIONS, ET AL., respondents. No. L-18419. November 29, 1962. ABOITIZ & Co., INC., petitioner, vs. HON.COURT OF INDUSTRIAL RELATIONS, ET AL., respondents. _______________ 3 Salmon & Pacific Commercial Co. v. Tan Cueco, 36 Phil 556. 711 VOL. 6, NOVEMBER 29, 1962 Mindanao Motor Line, Inc. vs. Court of Industrial Relations Employer and Employees; Back Wages; Employees entitled to back wages although reinstatement cannot be ordered.—While as a rule the payment of back wages follows as a necessary consequence of an order for reinstatement, it does not follow that if reinstatement can not be ordered, as when the service is discontinued, the employees illegally laid off should be deprived of the wages they are entitled to, as should be the case when the company or employer is found guilty of unfair labor practice. The industrial court found respondents guilty of the unfair labor practice imputed to them and so it is but fair that they be paid their wages for the period they had been deprived of their employment. Same; Same; Agents who acted within scope of authority, not liable.—Two of the respondents were merely agents who acted within the scope of their corporate positions as resident manager and general

L-7912, Aug. 30, 1955). Same; Same; Employees who were re-employed in other lines not entitled to 711 back wages during period of re-employment.—Of the 71 employees who were laid off on February 1, 1955 because of the alleged unfair labor practice, 31 were re-employed on other lines operated by the company. It is unfair to order the company to pay them back wages even during the period of their re-employment, for the result would be that they will receive double compensation during that period. The order should, therefore, be modified in the sense of ordering the payment of back wages only from the date of their separation to the date of their reemployment. Same; Same; Set-off of whatever wages the employees may have obtained during their period of separation.—The industrial court did not make any provision relative to the set-off or compensation of whatever wages or earnings the complaining employees may have obtained during the period of their separation, which omission should be rectified, for, as this Court has aptly said “In estimating the damages in an action of this character for the period of time already past the

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employer may show in mitigation of damages that the discharged employee obtained 712

the Mindanao Motor Line, Inc. which had incurred heavy losses in its operation, which suspension resulted in the laying off of the employees working on that line. They further averred that they never interfered with the union activities of the complaining employees who were laid off only

712

SUPREME COURT REPORTS ANNOTATED Mindanao Motor Line, Inc. vs. Court of Industrial Relations

for the above reason and were given due notice of their separation and payment of their separation pay equivalent to one month salary. After due trial, the Court of Industrial Relations, in an order issued on January 4, 1961, ordered respondent Mindanao Motor Line, Inc. to pay back wages to the laid-off employees without reinstatement from February 1, 1955, the date of separation, up to and until June 10, 1958,

remunerative employment elsewhere or that in the exercise of due diligence he might have obtained such employment.” PETITIONS for review of an order of the Court of Industrial Relations. The facts are stated in the opinion of the Court. Carlos Dominguez, Jr., Ambrosio Padilla and Ciriaco Lopez, Jr., for petitioners. Victor Clapano for respondents. BAUTISTA ANGELO, J.: On May 5, 1955, the Mindanao Federation of Labor, together with some laid off employees, filed a complaint for unfair labor practice against the Mindanao Motor Line, Inc., its General Manager Jesus Moraza and Resident Manager Enrique Ponce, as well as against Aboitiz & Co., Inc., charging them with having interfered with the complaining employees in their exercise of their right to organize as guaranteed by the Magna Charta of Labor. Respondents, in their answer, stated that the Mindanao Motor Line, Inc. is a corporate entity distinct and separate from the Aboitiz & Co., Inc., and that if the operation of the Cotabato-Parang-Iligan line was suspended on February 1, 1955, it was merely to protect the interest of

the date prior to the cancellation of the certificate of public convenience covering the line that was suspended. The full tenor of the dispositive part of the order reads as follows: 713 VOL. 6, NOVEMBER 29, 1962 Mindanao Motor Line, Inc. vs. Court of Industrial Relations “IN VIEW OF THE FOREGOING, the Court believes that the respondents are guilty of the unfair labor practice as charged, thus violating sec. 4(a), subsections 1 and 4 of R.A. No. 875. Due to the fact that the certificate of public convenience of respondent Mindanao Motor Line, Inc., which has been issued for the operation of its TPU service has already been cancelled on June 11, 1958, as per Exh. „17‟, the respondent company is hereby ordered to pay complainants to the exclusion of Antonio Actub, Orlando Siasico, Feliciano Legaspi and Nieves Mendoza, back wages from February 1, 1955, the day of dismissal up to and until June 10, 1958, the day before the cancellation of the certificate of public convenience without the necessity of

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reinstatement.” Both complainants and respondents filed a motion for reconsideration of the above order, complainants inviting attention to the fact that, if they were to be accorded back wages the ones responsible would be not only the Mindanao Motor Line, Inc., but all the respondents jointly and severally. Both motions were denied. However, alleging that a clerical error has been committed in issuing the dispositive part of the order because not all the respondents were included in the payment of the pecuniary liability, the industrial court modified said dispositive part so as to read as follows: “x x x the corrected portion should read in the following manner: „the respondents, Mindanao Motor Line, Inc., and/or Enrique Ponce, Aboitiz and Co. and/or Jesus Moraza, are hereby ordered to pay complainants to the exclusion of Antonio Actub, Orlando Siasico, Feliciano Legaspi and Nieves Mendoza, back wages from February 1, 1955 the day of dismissal up to and until June 10, 1958, the day before the cancellation of the certificate of public convenience without the necessity of reinstatement.” Respondents again filed a motion for reconsideration, and the same having been denied, they interposed separately a petition for review. The petition filed by Mindanao Motor Line, Inc., with respondents Enrique Ponce and Jesus Moraza was docketed as G.R. No. L-18418, whereas the petition filed by Aboitiz & Co., Inc. was docketed as G.R. No. L18419. Because of their close interrelation, these two petitions were consolidated in one single decision. It is contended that respondents cannot be ordered to 714

714

SUPREME COURT REPORTS ANNOTATED Mindanao Motor Line, Inc. vs. Court of Industrial Relations

pay back wages to the complaining employees for the reason that the operation of the transportation line where they were employed has been suspended and the certificate of public convenience that was issued for such operation has been cancelled by the Public Service Commission. As a matter of fact, they contend, the reinstatement of said complaining employees was not ordered by the court for the same was not possible because the operation of the line where they were employed was never resumed. In short, they argue, if no reinstatement can be ordered no back wages can be granted because “from the phraseology of the law, the payment of back wages presupposes an accompanying order for reinstatement.” And continuing with his argument, counsel says: “An award for the payment of back wages necessarily implies reinstatement, or, at least, the possibility of reinstatement of the discharged employees. It is implicit then that when the court does not or can not order the reinstatement of employees, there is absolutely no factual or legal basis for the payment of back wages.” We disagree. While as a rule the payment of back wages follows as a necessary consequence of an order for reinstatement, it does not follow that if reinstatement cannot be ordered, as when the service is discontinued, the employees illegally laid off should be deprived of the wages they are entitled to, as should be the case when the company or employer is found guilty of unfair labor practice. This is the situation that obtains herein. The industrial court found respondents guilty of the unfair labor practice imputed to them and so it is but fair that they be paid their wages for the period they had been deprived of their employment.

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We find, however, merit in the contention that respondent Enrique Ponce and Jesus Moraza who were included as such should not be made solidarily responsible for the payment of back wages, together with their employer the Mindanao Motor Line, Inc., for it clearly appears from the record that they were merely agents who acted within the scope of their corporate positions as resident manager and general manager, respectively, of the aforesaid com715 VOL. 6, NOVEMBER 29, 1962 Mindanao Motor Line, Inc. vs. Court of Industrial Relations pany. Since they were impleaded merely as officers of the company and have acted only as such within the scope of their authority, if any one should be held responsible for the consequence of their acts as such officers it is their employer, unless of course it is shown that they have acted negligently or in bad faith. The evidence discloses nothing in this respect. It is a well-known principle of law that an agent who acts in behalf of a disclosed principal within the scope of his authority cannot be held liable to third persons (Article 1897, new Civil Code; Banque Generate Belge, et al. vs. Walter Bull & Co., Inc., et al., 47 O.G. 138; Zialcita-Yuseco v. Simmons, G.R. No. L-7912, August 30, 1955). We also find that of the 71 employees who were laid off on February 1, 1955, because of the alleged unfair labor practice, 31 were reemployed on other lines operated by the company. If this is true, which apparently is, because it is not denied, it is unfair to order the company to pay them back wages even during the period of their re-employment, for the result would be that they will receive double compensation during that period. The order should therefore, be modified in the sense of

ordering the payment of back wages only from the date of their separation to the date of their re-employment. We likewise notice that the industrial court did not make any provision relative to the set-off or compensation of whatever wages or earnings the complaining employees may have obtained during the period of their separation, which omission should be rectified, for, as this Court has aptly said, “In estimating the damages in an action of this character for the period of time already past the employer may show in mitigation 715 of damages that the discharged employee obtained

remunerative employment elsewhere or that in the exercise of due diligence he might have obtained such employment.”1 _______________ 1 Garcia Palomar v. Hotel de France Co., 42 Phil., 660; See also MaCleod & Company of the Philippines v. Progressive Federation of Labor, G.R. No. L-7887, May 31, 1955; Potenciano v. Estefani, L-7690, July 27, 1955; Western Mindanao Lumber Co. v. Mindanao Federation of Labor, L-10170, April 25, 1957; 716 716 SUPREME COURT REPORTS ANNOTATED Mindanao Motor Line, Inc. vs. Court of Industrial Relations Finally, we find no merit in the contention that respondent Aboitiz & Co., Inc. should not have been included as such not being the operator nor financier of the Mindanao Motor Line, Inc., for there is enough evidence on record to show the connection between the two companies. In the first place, having been included as respondent, Aboitiz & Co., Inc. did not file any answer denying the acts constituting the unfair labor practice

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charged one of which is the fact that the Land Transportation Division of Aboitiz & Co., Inc., of which Jesus Moraza is the general manager controls and supervises the management and operation of the Mindanao Motor Line, Inc. In the second place, the record of the case discloses that the central office of the Mindanao Motor Line, Inc. and the office of the Aboitiz & Co., Inc.. are located in the same place and have the same postal address, namely, P. O. Box 65. It also appears that the thing that sparked the separation of the complainants is the letter of one Ramon Aboitiz, apparently the manager of Aboitiz & Co., Inc., where it is shown that said company has suffered a heavy loss because of the funds it had advanced to the Mindanao Motor Line, Inc. for which reason he recommended that the operation of the line in question be suspended. Indeed, the following argument advanced by the counsel of respondent court is very impressive. “The fact that Ramon Aboitiz admits that the Aboitiz & Company „had advanced the funds, x x x‟ for the operation of respondent Mindanao Motor Line, Inc.; the fact that he had even decided for Aboitiz & Company to discontinue this financial assistance; and the further fact that the common principal address of the principal actors responsible in the dismissal of respondent-workers herein is P.O. Box 65, Cebu City, all show that Aboitiz & Company as alleged in the complaint a quo, controls and supervises the management and operation of respondent Mindanao Motor Line, Inc. These facts were dug out from the records of the case a quo to show how truly unfounded is petitioner-appellant‟s claim that there is a „x x x total and complete absence of any evidence supporting this charge; x x x.‟ ” _______________

Philippine Air Lines, Inc. v. Philippine Air Lines Employees Association, L-15544, July 26, 1960. 717 VOL. 6, NOVEMBER 29, 1962 Rebodos vs. Workmen’s Compensation Commission WHEREFORE, the order of respondent court dated March 8, 1961, is hereby amended with regard to the following respects: (1) the 31 employees who were re-employed should be given back wages only from February 1, 1955, the day of dismissal, up to the date they were reemployed; (2) respondents Enrique Ponce and Jesus Moraza should not be made responsible for the back wages that were ordered paid to the complaining employees; (3) respondent companies are hereby authorized to set off from the back wages they were ordered to pay whatever earnings the complaining employees may have obtained during the period of their separation. In all other respects, the said order is hereby affirmed. No pronouncement as to costs. Bengzon, C.J., Padilla, Labrador, Concepcion, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala and Makalintal, JJ., concur. Order affirmed with modifications. Note.—See annotation on “Jurisdiction of the Court of Industrial Relations” in 19 SCRA 136-146. ______________ © Copyright 2013 Central Book Supply, Inc. All rights reserved.

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36

PHILIPPINE REPORTS ANNOTATED Kerr & Co vs. Administrador de Rentas Internas

locales. 3.Id. ; Id.—El corredor no garantiza el pago de las mercancías quevende a un tercero, porque solamente es un mediador que se ocupa en hacer que las partes interesadas se entiendan en un negocio o negocios en asuntos mercantiles o de navegación. (Behn, Meyer & Co. contra Nolting y Garcia, 35 Jur. Fil., 284; Pacific Commercial

con las costas a la recurrente. Así se ordena. Avanceña, Pres., Imperial, Laurel, y Moran, MM., están conformes.

Se confirma la decisión.

Company contra Yatco, R. G. No. 45976, julio 20, 1939.) En el presente caso, Kerr & Company garantizo a Shaw, Wallace & __________ Company el pago de la letra girada por esta compañía contra los compradores locales. APELACION contra una sentencia del Juzgado de Primera Instancia de Manila. De la Costa, J. Los hechos aparecen relacionados en la decisión del Tri-bunal. Sres. Ross, Lawrence, Delphi y Carrascoso y D. Robert Janda en representación de la apelante. 37 VOL. 70, JUNE 20, 1940 Kerr & Co vs. Administrador de Rentas Internas El Procurador General Sr. Ozaeta y los Auxiliares del Procurador General Sres. Concepción y Amparo en repre-sentacion del apelado. CONCEPCION, M.: Esta es una apelación que tiene por objeto determinar si un impuesto de comerciante pagado por la apelante, bajo protesta, era o no legalmente exigible según los hechos que en la decision apelada se relacionan como sigue: "It appears from the stipulation of facts that in effect-ing the sales under consideration the plaintiff sent a cable to Shaw, Wallace & Co. of

[No. 46667.

Junio 20, 1940]

KERR & COMPANY, LTD., demandante y apelante, contra El ADMINISTRADOR apelado. 1. Impuesto de Comerciante; Distincion entre UN Corredor Y UN Comerciante.—El corredor nunca contrata en nombre propio, sino en el de su mandante. En el presente caso, Kerr & Compaña al contratar con Shaw, Wallace & Compaña ofreciendo comprar ciertas mercancías a un precio que ha ofrecido y quo Shaw, Wallace & Compaña ha aceptado, o a un precio que Shaw, Wallace & Compaña ha cotizado y que Kerr & Compaña ha aceptado, ha celebrado perfecto. un contrato de compraventa DE RENTAS INTERNAS, demandado y

(Art. 1460 del Código Civil.)

2. d. ; Id.—El corredor efectúa la transacción con un tercero a nobre de su mandante, a base de una comisión fija y determinada. En el presente caso, Kerr & Compaña y Shaw, Wallace & Compaña en ningún tiempo habían fijado una comisión a base de la cual Kerr & Compaña efectuaría la venta de mercancías a los comerciantes

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Calcutta, India, offering a price for certain merchandise or asking for quotation. The Cal-cutta firm either accepted the offer or gave its quotation of the price. After the price was thus agreed upon, plaintiff entered into a contract of sale with local buyers quoting a price higher than that agreed upon or fixed by the Calcutta firm; and the price of the merchandise for local buyers was fixed by the plaintiff. After the contract of sale was thus entered into, plaintiff instructed the Calcutta firm to send the goods to, and draw a draft on, the local buyers. This draft bore the price agreed upon between the plaintiff and local buyers, and was drawn against a local bank in ac-cordance with the letter of guarantee executed in the form of the local bank by the buyer and by the plaintiff. After receiving the draft and shipping documents, the local bank released the merchandise to the buyer against a trust re-ceipt. In due course, the draft was paid by the buyers to the local bank and after the proceeds of the draft were re-ceived by the Calcutta firm, the latter paid the plaintiff the difference between the price agreed upon between plaintiff and the Calcutta firm, and the price for which the mer-chandise was actually sold to the local buyers". El Juzgado decidió el caso declarando que la apelante en las transacciones arriba mencionadas debe ser considerada como

centum on the gross value in money of the com-modities, goods, wares, and merchandise sold, bartered, exchanged, or consigned abroad by them, such tax to be based on the actual selling price or value of the things in question at the time they are disposed of or consigned, whether consisting of raw material or of manufactured or partially manufactured products, and whether of domestic or foreign origin. The tax upon things consigned abroad shall be refunded upon satisfactory proof of the return thereof to the Philippine Islands unsold. "The following shall be exempt from this tax: (a) Persons engaged in public market in the sale of food products at retail, and other small merchants whose gross quarterly sales do not exceed two hundred pesos. (b) Peddlers and sellers at fixed stands of fruit, pro-duce, and food, raw or otherwise, the total selling value whereof does not exceed three pesos per day and who do not renew their stock oftener than once every twenty-four hours. (c) Producers of commodities of all classes working in their own homes, consisting of parents and children living as one family, when the value of each day's production by each person capable of working is not in excess of one peso. "Merchants, as here used, means a person engaged in the sale, barter, or exchange of personal property of whatever character. Except as specially provided, the term includes manufacturers who sell articles of their owh production, and commission merchants having

comerciante, de acuerdo con las provisiones del artículo 1459 del Código Administrativo Revisado que dispone: "Sec. 1459. Percentage tax on merchants sale's.—All 38 38 PHILIPPINE REPORTS ANNOTATED Kerr & Co vs. Administrador de Rentas Internas merchants not herein specifically exempted shall pay a tax of one per

establishments of their own for the keeping and disposal of goods of which sales or exchanges are effected, but does not include merchan-dise brokers."

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La apelante contiende que el Juzgado incurrió en error al declarar que ella había comprado las mercancías de Shaw, Wallace & Co. de Calcuta, India, y las había vendido a los compradores locales por su propia cuenta, y que actuó como comerciante en las transacciones arriba mencionadas y que, 39 VOL. 70, JUNE 20, 1940 Kerr & Co vs. Administrador de Rentas Internas como tal debía pagar el impuesto correspondiente. La contención de la apelante es que ella actuó en dichas transacciones como un corredor de comercio. La cuestión a determinar en el presente caso es, pues, en que capacidad la ape-lante efectuó las ventas de las mercancías en cuestión a los compradores locales. Para resolver esta cuestión, debemos considerar no las relaciones jurídicas entre la apelante y los compradores locales sino las relaciones que mediaron entre la apelante y Shaw, Wallace & Co.; porque las transacciones empezaron con dicha firma y terminaron con la misma. Más claro, hubo dos transacciones:- la, entre Kerr & Company y Shaw, Wallace & Co.; y la 2.a entre Kerr & Company y los compradores locales; pero la actuación de Kerr & Company no se terminó con los compradores locales, sino con Shaw, Wallace & Co. En último análisis, de los hechos, se hallan en la transacción con la firma de Calcutta ciertas circunstancias que son pruebas concluyentes de que la apelante obro en el pre-sente caso como un comerciante. Ante todo conviene tener presente, que "al corredor se le define en términos generales como el que negocia para otros en contratos de comisión relativos a fincas, cuya custodia en nada le atañe; el que

negocia como intermediario de otros, sin negociar jamás en nombre propio sino en el de aquellos que le utilizan; estrictamente hablando es un mediador, y en cierto modo el mandatorio de ambas partes. (19 Cyc. 186; Henderson vs. The State, 50 Ind., 234 Black's Law Dictionary.) El corredor es el que se ocupa en hacer que los interesados se entiendan en un negocio o en negocios para ellos en asuntos mercantiles o de navegación.39 (Mechem on Agency, section 13, Wharton on Agency, sec-tion 695.) El Juez Storey en su obra titulada Agency, define al corredor, diciendo que es un mandatorio que se utiliza para realizar negocios y contratos con otras personas, en asuntos mercantiles o de navegación, mediante una compensación que generalmente se llama corretaje. (Storey on Agency, section 28.)" Behn, Meyer & Co., Ltd., contra Nolting y Garcia, 35 Jur. Fil., 284. 40 40 PHILIPPINE REPORTS ANNOTATED Kerr & Co vs. Administrador de Rentas Internas Desprenderse de lo transcrito. l.° Que el corredor nunca contrata en nombre propio, sino en el de su mandante. En el presente caso, Kerr & Company al contratar con Shaw, Wallace & Company ofreciendo comprar ciertas mercancías a un precio que ha ofrecido y que Shaw, Wallace & Company ha aceptado, o a un precio que Shaw, Wallace & Company ha cotizado y que Kerr & Company ha aceptado, ha celebrado un contrato de compra-venta perfecto. (Art. 1450 del Código Civil.) No importa que las mercancías no hayan pasado a la posesión de Kerr & Company porque la tradición de la cosa comprada es necesaria para la consumación del contrato de compra-venta, pero no para su perfección. Después de efectuado el

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contrato de compraventa, Kerr & Company, en su propio nombre, convino en vender a los comerciantes locales las mercancías que había comprado. Tan cierto es que Kerr & Company, contrato con los comerciantes loca-les en nombre propio, independientemente y con posterioridad a la transacción habida con Shaw, Wallace & Company, que Kerr & Company fijo el precio de las ventas a los compradores locales, precio que no era el precio convenido con Shaw, Wallace & Company sino mayor al que había ofrecido a Shaw, Wallace & Company, o que había sido aceptado por dicha compañía. 2.° El corredor efectúa la transacción con un tercero a nombre de su mandante, a base de una comisión fija y determinada. En el presente caso, Kerr & Company y Shaw, Wallace & Company en ningún tiempo habían fijado una comisión a base de la cual Kerr & Company efectuaría la venta de mercancías a los comerciantes locales. Kerr & Company después de efectuada la venta de las mercancías a los compradores locales por un precio mayor del que había convenido con Shaw, Wallace & Company, cobro la diferencia en su beneficio, diferencia que no puede conceptuarse como una comisión, porque, 1.°, las partes no convinieron en ninguna comisión; y 2.°, porque la cantidad así cobrada dependía única y exclusivamente de Kerr & Company, según el precio que ella hubiese fijado a las mer41 VOL. 70, JUNE 20, 1940 Kerr & Co vs. Administrador de Rentas Internas cancías por ella vendidas. La comisión es un tanto de dinero que se estipula entre el corredor y el mandante y se paga por este a aquel, de su propio peculio, cosa que no ocurre en el presente caso, porque la

diferencia de precio que Kerr & Company cobra, no es dinero de Shaw, Wallace & Company. 3.° El corredor no garantiza el pago de las mercancías que vende a un tercero, porque solamente es un mediador que se ocupa en hacer que las partes interesadas se entiendan en un negocio o negocios en asuntos mercantiles o de navegación. (Behn, Meyer & Co., Ltd. contra Nolting y García, supra; Pacific Commercial Company contra Alfredo L. Yatco, R. G. No. 45976, Julio 20, 1939.) En el presente caso Kerr & Company garantizó a Shaw, Wallace & Com-pany el pago de la letra girada por esta compañía contra los compradores locales. Se arguye por la apelante, que ella no era la compradora de las mercancías, porque, si lo fuese, la letra se habría girado contra ella y no contra los compradores locales, y ella no garantizaría el pago del importe de la letra. Este argumento, sin embargo, no tiene peso, porque una vez compradas las mercancías por Kerr & Company, ella podría ordenar que las mercancías fuesen enviadas a cualquier otra persona, puesto que lo más importante para Shaw, Wallace & Company es que se pague el importe de las mercancías, y esta obligación la ha asumido Kerr & Company para el caso de que los compradores locales no pagasen la letra a su vencimiento. El hecho de que en el contrato celebrado por Kerr y Com-pany con el comprador local Lim Ki Choa & Company,Kerr & Company, segun el Exhibit D, haya 41 hecho constar que en esta transacción con Lim Ki Choa & Company ella actuaba en la capacidad de corredor solamente y que ella no asume ninguna responsabilidad, no demuestra que realmente Kerr & Company era un mero corredor cuando con-trato con Lim Ki Choa & Company, porque para determinar la naturaleza de la

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transacción que Kerr & Company tuvo con Shaw, Wallace & Company, y para juzgar si Kerr 42 42 PHILIPPINE REPORTS ANNOTATED Kerr & Co vs. Administrador de Rentas Internas & Company contrato en nombre propio con la firma de Calcutta, o si contrato en nombre de Shaw, Wallace & Com-pany y con los compradores locales, no vamos a tener en cuenta lo que Kerr & Company haya dicho o dejado de decir a Lim Ki Choa & Co., sino los términos y condiciones del contrato mismo que realmente se ha celebrado entre Shaw, Wallace & Company y Kerr & Company. Además, en el caso de incumplimiento de Kerr & Com-pany del contrato otorgado con los compradores locales, estos no tendrían acción alguna para dirigirse contra Shaw, Wallace & Company para exigir de esta compañía el cumplimiento del contrato, puesto que ninguno han celebrado con Shaw, Wallace & Co., pues los hechos revelan que Kerr & Company primero contrato en nombre propio con Shaw, Wallace & Company, y después contrato también en nom-bre propio con los compradores locales. Todas las anteriores consideraciones demuestran una misma y una sola proposición: que Kerr & Company contrato en nombre propio y por cuenta propia con Shaw, Wallace & Company como comerciante, y vendió en nombre propio como comerciante; y por tanto está sujeta al pago del impuesto de comerciante. Se confirma la decisión apelada, con las costas a la apelante. Así se ordena. Avanceña, Pres., Imperial, Diaz, Laurel y Morán, MM., están

conformes.

Se confirma la sentencia.

________ © Copyright 2013 Central Book Supply, Inc. All rights reserved.

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[No. 21237. March 22, 1924] JAMES D. BARTON, plaintiff and appellee, vs. LEYTE ASPHALT & MINERAL OIL Co., LTD., defendant and appellant. 5. 1.
 PRINCIPAL AND AGENT; AUTHORITY OF SELLING AGENT; SALES TO SUBAGENT.—An agent who is clothed with authority to sell a given commodity cannot bind the principal by selling to himself, either directly or indirectly. It results that the principal is not obligated to fill orders taken by the agent from his own subagent, unless the principal ratifies such sale with full knowledge of the facts. 7. 2.
 EVIDENCE; PRIVILEGE OF ATTORNEY AND CLIENT; LOSS OF PRIVILEGE.—The privilege which protects communications between attorney and client does not extend to a copy of a letter written by the client to his attorney which comes to the hands of the adverse party. Where the authenticity of such a document is admitted, the court will take no notice of the manner in which it was obtained. APPEAL from a judgment of the Court of First Instance of Manila. Harvey, J. The facts are stated in the opinion of the court. Block, Johnston & Greenbaum and Ross, Lawrence & Selph for appellant. Frank B. lngersoll for appellee. STREET, J.: This action was instituted in the Court of First Instance of the City of Manila by James D. Barton, to recover of the Leyte Asphalt & Mineral Oil

Co., Ltd., as damages for 939 VOL. 46, MARCH 22, 1924 Barton vs. Leyte Asphalt & Mineral Oil Co. breach of contract, the sum of $318,563.30, United States currency, and further to secure a judicial pronouncement to the effect that the plaintiff is entitled to an extension of the terms of the sales agencies specified in the contract Exhibit A. The def endant answered with a general denial, and the cause was heard upon the proof, both documentary and oral, after which the trial judge entered a judgment absolving the defendant corporation from four of the six causes of action set forth in the complaint and giving judgment for the plaintiff to recover of said defendant, upon the first and fourth causes of action, the sum of $202,500, United States currency, equivalent to P405,000, Philippine currency, with legal interest from June 2, 1921, 'and with costs. From this judgment the defendant company appealed. The plaintiff is a citizen of the United States, resident in the City of Manila, while the defendant is a corporation organized under the laws of the Philippine Islands with its principal office in the City of Cebu, Province of Cebu, Philippine Islands. Said company appears to be the owner of a valuable deposit of bituminous limestone and other asphalt products, located on the Island of Leyte and known as the Lucio mine. On April 21, 1920, one William Anderson, as president and general manager of the defendant company, addressed a letter Exhibit B, to the plaintiff Barton, authorizing the latter to sell the products of the Lucio mine in the Commonwealth of Australia and New Zealand upon a scale of prices indicated in said letter.

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In the third cause of action stated in the complaint the plaintiff alleges that during the life of the agency indicated in Exhibit B, he rendered services to the defendant company in the way of advertising and demonstrating the products of the defendant and expended large sums of money in visiting various parts of the world for the purpose of carrying on said advertising and demonstrations, in shipping to various parts of the world samples of the products of the defendant, and in otherwise carrying on advertising work. For these services and expenditures 940 940 PHILIPPINE REPORTS ANNOTATED Barton vs. Leyte Asphalt & Mineral Oil Co. the plaintiff sought, in said third cause of action, to recover the sum of $16,563.80, United States currency. The court, however, absolved the defendant from all liability on this cause of action and the plaintiff did not appeal, with the result that we are not now concerned with this phase of the case. Besides, the authority contained in said Exhibit B was admittedly superseded by the authority expressed in a later letter, Exhibit A, dated October 1, 1920. This document bears the approval of the board of directors of the defendant company and was formally accepted by the plaintiff. As it supplies the principal basis of the action, it will be quoted in its entirety. "(Exhibit A) P. L, "JAMES D. BARTON, Esq., "Cebu Hotel City. 
 "CEBU, CEBU, 
 "October 1, 1920.

"DEAR SIR:—You are hereby given the sole and exclusive sales agency for our bituminous limestone and other asphalt products of the Leyte Asphalt and Mineral Oil Company, Ltd., until May first, 1922, in the following territory: Australia New Zealand Tasmania Saigon India Sumatra Java China Hongkong

"Siam and the Straits Settlements, also in the United States of America until May 1, 1921. "As regards bituminous limestone mined from the Lucio property. No orders for less than one thousand (1,000) tons will be accepted except under special agreement with us. All orders for said products are to be billed to you as follows:

In 1,000 ton lots ....................................................................... In 2,000 ton lots ....................................................................... In 5,000 ton lots ....................................................................... In 10,000 ton lots ..................................................................... 941 VOL. 46, MARCH 22, 1924 Barton vs. Leyte Asphalt & Mineral Oil Co. with the understanding, however, that, should the sales in the above territory equal or exceed ten thousand (10,000) tons in the year ending October 1, 1921, then in that event the price of all shipments made during the above period shall be ten pesos (P10) per ton, and any sum charged to any of your customers or buyers in the aforesaid territory in excess of ten pesos (P10) per ton, shall be rebated to you. Said rebate to

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be due and payable when the gross sales have equalled or exceeded ten thousand (10,000) tons in the twelve months period as hereinbefore described. Rebates on lesser sales to apply as per above price list. "You are to have full authority to sell said product of the Lucio mine f or any sum you see fit in excess of the prices quoted above and such excess in price shall be your extra and additional profit and commission. Should we make any collections in excess of the prices quoted, we agree to remit same to you within ten (10) days of the date of such collections or payments. "All contracts taken with municipal governments will be subject to inspection before shipping, by any authorized representative of such governments at whatever price may be contracted f or by you and we agree to accept such contracts subject to draft attached to bill of lading in full payment of such shipment. "It is understood that the purchasers of the products of the Lucio mine are to pay freight from the mine carriers to destination and are to be responsible for all freight, insurance and other charges, providing said shipment has been accepted by their inspectors. "All contracts taken with responsible firms are to be under the same conditions as with municipal governments. "All contracts will be subject to delays caused by the acts of God, over which the parties hereto have no control. "It is understood and agreed that we agree to load all ships, steamers, boats or other carriers promptly and without delay and load not less than 1,000 tons each twentyfour hours after March 1, 1921, unless we so notify you specifically prior to that date that we are prepared to load PALMER 
 "Secretary ANDERSON 
 "President 
 (Sgd.) "W. C. A. 942

942 PHILIPPINE REPORTS ANNOTATED Barton vs. Leyte Asphalt & Mineral Oil Co. at that rate, and it is also stipulated that we shall not be required to ship orders of 5,000 tons except on 30 days notice and 10,000 tons except on 60 days notice. "If your sales in the United States reach five thousand tons on or before May 1, 1921, you are to have sole rights for this territory also for one year additional and should your sales in the second year reach or exceed ten thousand tons you are to have the option to renew the agreement for this territory on the same terms for an additional two years. "Should your sales equal or exceed ten thousand (10,000) tons in the year ending October 1, 1921, or twenty thousand (20,000) tons by May 1, 1922, then this contract is to be continued automatically for an additional three years ending April 30, 1925, under the same terms and conditions as above stipulated. "The products of the other mines can be sold by you in the aforesaid territories under the same terms and conditions as the products of the Lucio mine; scale of prices to be mutually agreed upon between us. "LEYTE ASPHALT & MINERAL OIL Co., LTD. 
 "By (Sgd.) WM.

"Approved by Board of Directors, "October 1, 1920.

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(Sgd.) "WM. ANDERSON "President "Accepted. (Sgd.) "JAMES D. BARTON "Witness D. G. MCVEAN" Upon careful perusal of the fourth paragraph from the end of this letter it is apparent that some negative word has been inadvertently omitted before "prepared," so that the full expression should be "unless we should notify you 943 VOL. 46, MARCH 22, 1924 Barton vs. Leyte Asphalt & Mineral Oil Co. specifically prior to that date that we are unprepared to load at that rate," or "not prepared to load at that rate." Very soon after the aforesaid contract became effective, the plaintiff requested the defendant company to give him a similar selling agency for Japan. To this request the defendant company, through its president, Wm. Anderson, replied, under date of November 27, 1920, as follows: "In re your request for Japanese agency, will say, that we are willing to give you, the same commission on all sales made by you in Japan, on the same basis as your Australian sales, but we do not feel like giving you a regular agency for Japan until you can make some large sized sales there, because some other people have given us assurances that they can handle our Japanese sales, therefore we have decided to leave this agency open for a time." Meanwhile the plaintiff had embarked for San Francisco and upon arriving at that port he entered into an agreement with Ludvigsen &

McCurdy, of that city, whereby said firm was constituted a subagent and given the sole selling rights for the bituminous limestone products of the defendant company for the period of one year from November 11, 1920, on terms stated in the letter Exhibit K. The territory assigned to Ludvigsen & McCurdy included San Francisco and all territory in California north of said city. Upon an earlier voyage during the same year to Australia, the plaintiff had already made an agreement with Frank B. Smith, of Sydney, whereby the latter was to act as the plaintiff's sales agent for bituminous limestone mined at the defendant's quarry in Leyte, until February 12, 1921. Later the same agreement was extended for the period of one 943 year from January 1, 1921. (Exhibit Q.) On February 5, 1921, Ludvigsen & McCurdy, of San Francisco, addressed a letter to the plaintiff, then in San Francisco, advising him that he might enter an order for six thousand tons of bituminous limestone to be loaded at Leyte not later than May 5, 1921, upon terms stated in the 944 944 PHILIPPINE REPORTS ANNOTATED Barton vs. Leyte Asphalt & Mineral Oil Co. letter Exhibit G. Upon this letter the plaintiff immediately indorsed his acceptance. The plaintiff then returned to Manila; and on March 2, 1921, Anderson wrote to him from Cebu, to the effect that the company was behind with construction and was not then able to handle big contracts. (Exhibit FF.) On March 12, Anderson was in Manila and the two had an interview in the Manila Hotel, in the course of which the plaintiff informed Anderson of the San Francisco order. Anderson thereupon said that,

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owing to lack of capital, adequate facilities had not been provided by the company for filling large orders and suggested that the plaintiff had better hold up in the matter of taking orders. The plaintiff expressed surprise at this and told Anderson that he had not only the San Francisco order (which he says he exhibited to Anderson) but other orders for large quantities of bituminous limestone to be shipped to Australia and Shanghai. In another interview on the same day Anderson definitely informed the plaintiff that the contracts which he claimed to have procured would not be filled. Three days later the plaintiff addressed a letter (Exhibit Y) to the defendant company in Cebu, in which he notified the company to be prepared to ship five thousand tons of bituminous limestone to John Chapman Co., San Francisco, loading to commence on May 1, and to proceed at the rate of one thousand tons per day of each twenty-four hours, weather permitting. On March 5, 1921, Frank B. Smith, of Sydney, had cabled the plaintiff an order for five thousand tons of bituminous limestone; and in his letter of March 15 to the defendant, the plaintiff advised the defendant company to be prepared to ship another five thousand tons of bituminous limestone, on or about May 6, 1921, in addition to the intended consignment for San Francisco. The name Henry E. White was indicated as the name of the person through whom this contract had been made, and it was stated that the consignee would be named later, no destination for the 945 VOL. 46, MARCH 22, 1924 Barton vs. Leyte Asphalt & Mineral Oil Co.

shipment being given. The plaintiff explains that the name White, as used in this letter, was based on an inference which he had erroneously drawn from the cable sent by Frank B. Smith, and his intention was to have the second shipment consigned to Australia in response to Smith's order. It will be noted in connection with this letter of the plaintiff, of March 15, 1921, that no mention was made of the names of the person, or firm, for whom the shipments were really intended. The obvious explanation that occurs in connection with this is that the plaintiff did not then care to reveal the fact that the two orders had originated from his own subagents in San Francisco and Sydney. To the plaintiff's letter of March 15, the assistant manager of the defendant company replied on March 25, 1921, acknowledging the receipt of an order for five thousand tons of bituminous limestone to be consigned to John Chapman Co., of San Francisco, and the further amount of five thousand tons of the same material to be consigned to Henry E. White; and it was stated that "no orders can be entertained unless cash has been actually deposited with either the International Banking Corporation or the Chartered Bank of India, Australia and China, Cebu." (Exhibit Z.) To this letter the plaintiff in turn replied from Manila, under date of March 29, 1921, questioning the right of the defendant to insist upon a cash deposit in Cebu prior to the filling of the-orders. In conclusion the plaintiff gave orders for shipment to Australia of five thousand tons, or more, about May 22, 1921, and ten thousand tons, or more, about June 1, 1921. In conclusion the plaintiff said "I have arranged for deposits to be made 945 on these additional shipments if you will signify your ability to fulfill these orders on the dates mentioned." No name was mentioned as

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the

purchaser,

or

purchasers,

of

these

intended

Australian

In a later letter, Exhibit X, of May 16, 1921, Hiwatari informs the plaintiff that he had shown the contract, signed by himself, to the

consignments. 946 946 PHILIPPINE REPORTS ANNOTATED Barton vs. Leyte Asphalt & Mineral Oil Co. Soon after writing the letter last above-mentioned, the plaintiff embarked for China and Japan. With his activities in China we are not here concerned, but we note that in Tokio, Japan, he came in contact with one H. Hiwatari, who appears to have been a suitable person for handling bituminous limestone for construction work in Japan. In the letter Exhibit X, Hiwatari speaks of himself as if he had been appointed exclusive sales agent for the plaintiff in Japan, but no document expressly appointing him such is in evidence. While the plaintiff was in Tokio he procured the letter Exhibit W, addressed to himself, to be signed by Hiwatari. This letter, endited by the plaintiff himself, contains an order for one thousand tons of bituminous limestone from the quarries of the defendant company, to be delivered as soon after July 1, 1921, as possible. In this letter Hiwatari states, "on receipt of the cable from you, notifying me of date you will be ready to ship, and also tonnage rate, I will agree to transfer through. the Bank of Taiwan, of Tokio, to the Asia Banking Corporation, of Manila, P. I., the entire payment of $16,000 gold, to be subject to your order on delivery of documents covering bill of lading of shipment, the customs report of weight, and prepaid export tax receipt. I will arrange in advance a confirmed or irrevocable letter of credit for the above amount so that payment can be ordered by cable, in reply to your cable advising shipping date."

submanager of the Taiwan Bank who had given it as his opinion that he would be able to issue, upon request of Hiwatari, a credit note for the contracted amount, but he added that the submanager was not personally able to place his approval on the contract as that was a matter beyond his authority. Accordingly Hiwatari advised that he was intending to make f urther arrangements when the manager of the bank should return from Formosa. 947 VOL. 46, MARCH 22, 1924 Barton vs. Leyte Asphalt & Mineral Oil Co. In the letter of May 5, 1921, containing Hiwatari's order for one thousand tons of bituminous limestone, it was stated that if the material should prove satisfactory after being thoroughly tested by the Paving Department of the City of Tokio, he would contract with the plaintiff for a minimum quantity of ten thousand additional tons, to be used within a year from September 1, 1921, and that in this event the contract was to be automatically extended for an additional four years. The contents of the letter of May 5 seems to have been conveyed, though imperfectly, by the plaintiff to his attorney, Mr. Frank B. Ingersoll, of Manila; and on May 17, 1921, Ingersoll addressed a note to the defendant company in Cebu in which he stated that he had been requested by the plaintiff to notify the defendant that the plaintiff had accepted an order from Hiwatari, of Tokio, approved by the Bank of Taiwan, for a minimum order of ten thousand tons of the stone annually for a period of five years, the first shipment of one thousand tons to be made as early after July 1 as possible. It will be

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noted that this communication did not truly reflect the contents of Hiwatari's letter, which called unconditionally for only one thousand tons, the taking of the remainder being contingent upon future eventualities. It will be noted that the only written communications between the plaintiff and the defendant company in which the former gave notice of having any orders for the sale of bituminous limestone are the four letters Exhibits Y, AA, BB, and II. In the first of these letters, dated March 15, 1921, the plaintiff advises the defendant company to be prepared to ship five thousand tons of bituminous limestone, to be consigned to John Chapman Co., of San Francisco, to be loaded by May 5, and a further consignment of five thousand tons, through a contract with Henry E. White, consignees to be named later. In the letter Exhibit BB dated May 17, 1921, the plaintiff's attorney gives notice of the acceptance by plaintiff of an order from Hiwatari, of Tokio, approved by the Bank of Taiwan, for a minimum 948 948 PHILIPPINE REPORTS ANNOTATED Barton vs. Leyte Asphalt & Mineral Oil Co. of ten thousand tons annually for a period of five years, first shipment of a thousand tons to be as early after July 1 as possible. In the letter Exhibit II the plaintiff gives notice of an "additional" (?) order from H. E. White, Sydney, for two lots of bituminous limestone of five thousand tons each, one for shipment not later than June 30, 1921, and the other by July 20, 1921. In the same letter the plaintiff reports for the first time an order for five thousand tons from F. B. Smith, to be shipped to Brisbane, Australia, by June 30, and a similar amount within thirty days later. After the suit was brought, the plaintiff filed an amendment to his

complaint in which he set out, in tabulated form, the orders which he claims to have received and upon which his letters of notification to the defendant company were based. In this amended answer the name of Ludvigsen & McCurdy appears for the first time; and the name of Frank B. Smith, of Sydney, is used for the first time as the source of the intended consignments of May 1, May 22, and June 1. We note, furthermore, that the letters, Exhibits G, L, M, and W, containing the orders from Ludvigsen & McCurdy, Frank B. Smith and H. Hiwatari were at no time submitted for inspection to any officer of the defendant company, except possibly the Exhibit G, which the plaintiff claims to have shown to Anderson in Manila on March 12, 1921. The different items comprising the award which the trial judge gave in favor of the plaintiff are all based upon the orders given by Ludvigsen & McCurdy (Exhibit G), by Frank B. Smith (Exhibits L and M), and by Hiwatari in Exhibit W; and the appeal does not involve an order which came from Shanghai, China. We therefore now address ourselves to the question whether or not the orders contained in Exhibits G, L, M, and W, in connection with the subsequent notification thereof given by the plaintiff to the defendant, are sufficient to support the judgment rendered by the trial court. 949 VOL. 46, MARCH 22, 1924 Barton vs. Leyte Asphalt & Mineral Oil Co. The transaction indicated in the orders from Ludvigsen & McCurdy and from Frank B. Smith must, in our opinion, be at once excluded from consideration as emanating from persons who had been constituted mere agents of the plaintiff. The San Francisco order and the Australian

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orders are the same in legal effect as if they were orders signed by the plaintiff and drawn upon himself; and it cannot be pretended that those orders represent sales to bona fide purchasers found by the plaintiff. The original contract by which the plaintiff was appointed sales agent for a limited period of time in Australia and the United States contemplated that he should find reliable and solvent buyers who should be prepared to obligate themselves to take the quantity of bituminous limestone contracted for upon terms consistent with the contract. These conditions were not met by the taking of these orders from the plaintiff s own subagents, which was as if the plaintiff had bought for himself the commodity which he was authorized to sell to others. Article 267 of the Code of Commerce declares that no agent shall purchase for himself or for another that which he has been ordered to sell. The law has placed its ban upon a broker's purchasing from his principal unless the latter with full knowledge of all the facts and circumstances acquiesces in such course; and even then the broker's action must be characterized by the utmost good faith. A sale made by a broker to himself without the consent of the principal is ineffectual whether the broker has been guilty of fraudulent conduct or not. (4 R. G. L., 276-277.) We think, therefore, that the position of the defendant company is indubitably sound in so far as it rests upon the contention that the plaintiff has not in fact found any bona fide purchasers ready and able to take the commodity contracted for upon terms compatible with the contract which is the basis of the action. It will be observed that the contract set out at the beginning of this opinion contains provisions under which the period of the contract might be extended. That privilege 950

950 PHILIPPINE REPORTS ANNOTATED Barton vs. Leyte Asphalt & Mineral Oil Co. was probably considered a highly important incident of the contract; and it will be seen that the sale of five thousand tons which the plaintiff reported for shipment to San Francisco was precisely adjusted to the purpose of the extension of the contract for the United States for the period of an additional year; and the sales reported for shipment to Australia were likewise adjusted to the requirements for the extension of the contract in that territory. Given the circumstances surrounding these contracts as they were reported to the defendant company and the concealment by the plaintiff of the names of the authors of the orders, — who after all were merely the plaintiff's subagents,—the officers of the defendant company might justly have entertained the suspicion that the real and only person behind those contracts was the plaintiff himself. Such at least turns out to have been the case. Much energy has been expended in the briefs upon this appeal over the contention whether the defendant was justified in laying down the condition mentioned in the letter of March 26, 1921, to the effect that no order would be entertained unless cash should be deposited with either the International Banking Corporation or the Chartered Bank of India, Australia and China, in Cebu. In this connection the plaintiff points to the stipulation of the contract which provides that contracts with responsible parties are to be accepted "subject to draft attached to bill of lading in full payment of such shipment." What passed between the parties upon this point appears to have the character of mere diplomatic parrying, as the plaintiff had no contract from any responsible purchaser other than his

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own subagents and the defendant company could not probably have filled the contracts even if they had been backed by the Bank of England, Upon inspection of the plaintiff's letters (Exhibits Y and AA), there will be found ample assurance that deposits for the amount of each shipment would be made with a bank in Manila provided the defendant would indicate its 951 VOL. 46, MARCH 22, 1924 Barton vs. Leyte Asphalt & Mineral Oil Co. ability to fill the orders; but these assurances rested upon no other basis than the financial responsibility of the plaintiff himself, and this circumstance doubtless did not escape the discernment of the defendant's officers. With respect to the order from H. Hiwatari, we observe that while he intimates that he had been promised the exclusive agency under the plaintiff for Japan, nevertheless it does not affirmatively appear that he had been in fact appointed to be such at the time he signed the order Exhibit W at the request of the plaintiff. It may be assumed, therefore, that he was at that time a stranger to the contract of agency. It clearly appears, however, that he did not expect to purchase the thousand tons of bituminous limestone referred to in his order without banking assistance; and although the submanager of the Bank of Taiwan had said something encouraging in respect to the matter, nevertheless that official had refrained from giving his approval to the order Exhibit W. It is therefore not shown affirmatively that this order proceeds from a responsible source. The first assignment of error in the appellant's brief is directed to the

action of the trial judge in refusing to admit Exhibits 2, 7, 8, 9 and 10, offered by the defendant, and in admitting Exhibit E, offered by the plaintiff. The Exhibit 2 is a letter dated June 25, 1921, or more than three weeks after the action was instituted, in which the defendant's assistant general manager undertakes to reply to the plaintiff's letter of March 29 preceding. It was evidently intended as an argumentative presentation of the plaintiff's point of view in the litigation then pending, and its probative value is so951 slight, even if admissible at all, that there was no error on the part of the trial court in excluding it. Exhibits 7, 8, 9 and 10 comprise correspondence which passed between the parties by mail or telegraph during the first part of the year 1921. The subject-matter of this correspondence relates to efforts that were being made by 952 952 PHILIPPINE REPORTS ANNOTATED Barton vs. Leyte Asphalt & Mineral Oil Co. Anderson to dispose of the controlling interest in the defendant corporation, and Exhibit 9 in particular contains an offer from the plaintiff, representing certain associates, to buy out Anderson's interest for, a fixed sum. While these exhibits perhaps shed some light upon the relations of the parties during the time this controversy was brewing, the bearing of the matter upon the litigation before us is too remote to exert any definitive influence on the case. The trial court was not in error in our opinion in excluding these documents. Exhibit E is a letter from Anderson to the plaintiff, dated April 21, 1920, in which information is given concerning the property of the defendant company. It is stated in this letter that the output of the Lucio

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mine (quarry) during the coming year would probably be at the rate of about five tons for twenty-four hours, with the equipment then on hand, but that with the installation of a model cableway which was under contemplation, the company would be able to handle two thousand tons in twenty-four hours. We see no legitimate reason for rejecting this document, although of slight probative value; and the error imputed to the court in admitting the same was not committed. Exhibit 14, which was offered in evidence by the defendant, consists of a carbon copy of a letter dated June 13, 1921, written by the plaintiff to his attorney, Frank B. Ingersoll, Esq., of Manila, and in which plaintiff states, among other things, that his profits from the San Francisco contract would have been at the rate of eighty-five cents (gold) per ton. The authenticity of this document is admitted, and when it was offered in evidence by the attorney for the defendant the counsel for the plaintiff announced that he had no objection to the introduction of this carbon copy in evidence if counsel for the defendant would explain where this copy was secured. Upon this the attorney for the defendant informed the court that he received the letter from the former attorneys of the defendant without explanation of the manner in which the 953 VOL. 46, MARCH 22, 1924 Barton vs. Leyte Asphalt & Mineral Oil Co. document had come into their possession. Upon this the attorney for the plaintiff made this announcement: "We hereby give notice at this time that unless such an explanation is made, explaining fully how this carbon copy came into the possession of the defendant company, or any one representing it, we propose to object to its admission on the ground that

it is a confidential communication between client and lawyer." No further information was then given by the attorney for the defendant as to the manner in which the letter had come to his hands and the trial judge thereupon excluded the document, on the ground that it was a privileged communication between client and attorney. We are of the opinion that this ruling was erroneous; for even supposing that the letter was within the privilege which protects communications between attorney and client, this privilege was lost when the letter came to the hands of the adverse party. And it makes no difference how the adversary acquired possession. The law protects 'the client from the effect of disclosures made by him to his attorney in the confidence of the legal relation, but when such a document, containing admissions of the client, comes to the hand of a third party, and reaches the adversary, it is admissible in evidence. In this connection Mr. Wigmore says: "The law provides subjective freedom for the client by assuring him of exemption from its processes of disclosure against himself or the attorney or their agents of communication. This much, but not a whit more, is necessary for the maintenance of the privilege. Since the means of preserving secrecy of communication are entirely in the client's hands, and since the 953privilege is a derogation f rom the general testimonial duty and should be strictly construed, it would be improper to extend its prohibition to third persons who obtain knowledge of the communications One who overhears the- communication, whether with or .without the client's knowledge, is not within the protection 954 954 PHILIPPINE REPORTS ANNOTATED

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Barton vs. Leyte Asphalt & Mineral Oil Co. of the privilege. The same rule ought to apply to one who surreptitiously reads or obtains possession of a document in original or copy." (5 Wigmore on Evidence, 2d ed., sec. 2326.) Although the precedents are somewhat confusing, the better doctrine is to the effect that when papers are offered in evidence a court will take no notice of how they were obtained, whether legally or illegally, properly or improperly; nor will it form a collateral issue to try that question. (10 R. C. L., 931; 1 Greenl. Evid., sec. 254a; State vs. Mathers, 15 L. R. A., 268; Gross vs. State, 33 L. R. A., [N. S.], 477, note.) Our conclusion upon the entire record is that the judgment appealed from must be reversed; and the defendant will be absolved from the complaint. It is so ordered, without special pronouncement as to costs of either instance. Araullo, C. J., Johnson, Avanceña, Ostrand, Johns, and Romualdez, JJ., concur. MALCOLM, J., dissenting: An intensive scrutiny of every phase of this case leads me to the conclusion that the trial judge was correct in his findings of fact and in his decision. Without encumbering the case with a long and tedious dissent, I shall endeavor to explain my point of view as briefly and clearly as possible. A decision must be reached on the record as it is and not on a record as we would like to have it. The plaintiff and the defendant deliberately entered into a contract, the basis of this action. The plaintiff, proceeding pursuant to this contract, spent considerable effort and used

considerable money to advance the interests of the defendant and to secure orders for its products. These orders were submitted to the president of the defendant company personally and later formally by writing. Prior to the institution of the suit, the only objection of the defendant was that the money should be deposited with either the International Banking Corporation or the Chartered Bank of India, 955 VOL. 46, MARCH 22, 1924 Barton vs. Leyte Asphalt & Mineral Oil Co. Australia and China at Cebu, a stipulation not found in the contract. A reasonable deduction, therefore, is that the plaintiff presented orders under circumstances which were a substantial compliance with the terms of the contract with the defendant, and which insured to the defendant payment for its deliveries according to the price agreed upon, and that as the defendant has breached its contract, it must respond in damages. The current running through the majority opinion is that the orders emanated from subagents of the plaintiff, and that no bona fide purchasers were ready and able to take the commodity contracted for upon terms compatible with the contract. The answer is, in the first place, that the contract nowhere prohibits the plaintiff to secure subagents. The answer is, in the second place, that the orders were so phrased as to make the persons making them personally responsible. The Ludvigsen & McCurdy order f rom San Francisco begins: "You can enter our order for 6,000 tons of bituminous limestone as per sample submitted, at $10 gold per ton, f. o. b., island of Leyte, subject to the following terms and conditions: * * *" (Exhibit G). The Smith order from Australia contains the

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following: "It is therefore with great pleasure I confirm the booking of the following orders, to be shipped at least within a week of respective dates: * * *" (Exhibit L), The Japan order starts with the following sentence: "You can enter my order for 1,000 tons of 1,000 kilos each of bituminous limestone from the quarries of the Leyte Asphalt and Mineral Oil Co. * * *" (Exhibit W.) But the main point of the plaintiff which the majority decision misses entirely centers on the proposition that the orders were communicated by the plaintiff to the defendant, and that the only objection the defendant had related to the manner of payment. To emphasize this thought again, let me quote the reply of the def endant to the plaintiff when the defendant acknowledged receipt of the orders placed by the plaintiff. The letter reads: "In 956 956 PHILIPPINE REPORTS ANNOTATED Barton vs. Leyte Asphalt & Mineral Oil Co. reply to same we have to advise you that no orders can be entertained unless cash has been actually deposited with either the International Banking Corporation or the Chartered Bank of India, Australia and China, Cebu." (Exhibit Y.) Prior to the filing of suit, the defendant company never at any time raised any question as to whether the customers secured by plaintiff were "responsible firms" within the meaning of the contract, and never secured any information whatsoever as to their financial standing. Consequently, defendant is now estopped by its conduct from raising new objections for rejection of the orders. (Mechem on Agency, section 2441.) The majority decision incidentally takes up for consideration

assignments of error 1 and 2 having to do with either the admission or the rejection by the trial court of certain exhibits. Having in mind that the Court reverses the court a quo on the facts, what is said relative to these two assignments is absolutely unnecessary for a judgment, and even as obiter dicta, contains unfortunate expressions. Exhibit 14, for example, is a letter addressed by the plaintiff to his lawyer and probably merely shown to the counsel of the defendant during negotiations to seek a compromise. Whether that exhibit be considered improperly rejected or not would not change the result one iota. The rule now announced by the Court that it makes no difference how the adversary acquired possession of the document, and that a court will take no notice of how it was obtained, is destructive of the attorney's privilege and constitutes an obstacle to attempts at friendly compromise. In the case of Uy Chico vs. Union Life Assurance Society ([1915], 29 Phil., 163), it was held that communications made by a client to his attorney for the purpose of being communicated to others are not privileged if they have been so communicated. But here, there is no intimation that Exhibit 14 was sent by the client to the lawyer for the purpose of being communicated to others. The Su957 VOL. 46, MARCH 24, 1924 Carrillo vs. Jaojoco and Jaojoco preme Court of Georgia in the case of Southern Railway Co. vs. White ([1899], 108 Ga., 201), held that statements in a letter to a party's attorney handed by the latter to the opponent's attorney, are confidential communications and must be excluded. Briefly, the decision of the majority appears to me to be defective in

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the following particulars: (1) It sets aside without good reason the fair findings of fact as made by the trial court and substitutes therefor other findings not warranted by the proof; (2) it fails to stress plaintiff's main argument, and (3) it lays down uncalled for rules which undermine the inviolability of a client's communications to his attorney. Accordingly, I dissent and vote for an affirmance of the judgment. Judgment reversed. _____________ © Copyright 2013 Central Book Supply, Inc. All rights reserved.

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