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G.R. No. 149040 July 4, 2007

EDGAR LEDONIO, petitioner,

vs.

CAPITOL DEVELOPMENT CORPORATION, respondent.

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari1under Rule 45 of the Revised Rules of Court

praying that (1) the Decision,2dated 20 March 2001, of the Court of Appeals in CA-G.R. CV No. 43604,

affirming in toto the Decision,3 dated 6 August 1993, of the Quezon City Regional Trial Court (RTC),

Branch 91, in Civil Case No. Q-90-5247, be set aside; and (2) the Complaint4

in Civil Case No. Q-90-5247

be dismissed.

Herein respondent Capitol Development Corporation instituted Civil Case No. Q-90-5247 by filing a

Complaint for the collection of a sum of money against herein petitioner Edgar Ledonio.

In its Complaint, respondent alleged that petitioner obtained from a Ms. Patrocinio S. Picache two

loans, with the aggregate principal amount of P60,000.00, and covered by promissory notes duly

signed by petitioner. In the first promissory note,5dated 9 November 1988, petitioner promised to pay

to the order of Ms. Picache the principal amount of P30,000.00, in monthly installments of P3,000.00,

with the first monthly installment due on 9 January 1989. In the second promissory note ,6 dated 10

November 1988, petitioner again promised to pay to the order of Ms. Picache the principal amount of

P30,000.00, with 36% interest per annum, on 1 December 1988. In case of default in payment, both

promissory notes provide that (a) petitioner shall be liable for a penalty equivalent to 20% of the total

outstanding balance; (b) unpaid interest shall be compounded or added to the balance of the principal

amount and shall bear the same rate of interest as the latter; and (c) in case the creditor, Ms. Picache,

shall engage the services of counsel to enforce her rights and powers under the promissory notes,

petitioner shall pay as attorney's fees and liquidated damages the sum equivalent to 20% of the total

amount sought to be recovered, but in no case shall the said sum be less that P10,000.00, exclusive of

costs of suit.

On 1 April 1989, Ms. Picache executed an Assignment of Credit7in favor of respondent, which reads

KNOW ALL MEN BY THESE PRESENTS:

That I, PAT S. PICACHE of legal age and with postal address at 373 Quezon Avenue, Quezon

City for and in consideration of SIXTY THOUSAND PESOS (P60,000.00) Philippine Currency,

to me paid by [herein respondent] CAPITOL DEVELOPMENT CORPORATION, a corporation

organized and existing under the laws of the Republic of the Philippines with principal office

at 373 Quezon Avenue, Quezon City receipt whereof is hereby acknowledged have sold,

transferred, assigned and conveyed and (sic) by me these presents do hereby sell, assign,

transfer and convey un to the said [respondent] CAPITOL DEVELOPMENT CORPORATION, a

certain debt due me from [herein petitioner] EDGAR A. LEDONIO in the principal sum of

SIXTY THOUSAND PESOS (P60,000.00) Philippine Currency, under two (2) Promissory Notes

dated November 9, 1988 and November 10, 1988, respectively, photocopies of which are

attached to as annexes A & B to form integral parts hereof with full power to sue for,

collect and discharge, or sell and assign the same.

That I h ereby declare that the principal sum of SIXTY THOUSAND PESOS (P60,000.00) with

interest thereon at THIRTY SIX (36%) PER CENT per annum is justly due and owing to me as

aforesaid.

IN WITNESS WHEREOF, I have hereunto set my hand this 1st

day of April, 1989 at Quezon

City.

(SGD)PAT S. PICACHE

The foregoing document was signed by two witnesses and duly acknowledged by Ms. Picache before a

Notary Public also on 1 April 1989.

Since petitioner did not pay any of the loans covered by the promissory notes when they became due,

respondent -- through its Vice President Nina P. King and its counsel King, Capuchino, Banico &

Associates -- sent petitioner several demand letters.8 Despite receiving the said demand letters,

petitioner still failed and refused to settle his indebtedness, thus, prompting respondent to file the

Complaint with the RTC, docketed as Civil Case No. Q-90-5247.

In his Answer filed with the RTC, petitioner sought the dismissal of the Complaint averring that

respondent had no cause of action against him. He denied obtaining any loan from Ms. Picache and

questioned the genuineness and due execution of the promissory notes, for they were the result of

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intimidation and fraud; hence, void. He asserted that there had been no transaction or privity of

contract between him, on one hand, and Ms. Picache and respondent, on the other. The assignment

by Ms. Picache of the promissory notes to respondent was a mere ploy and simulation to effect the

unjust enforcement of the invalid promissory notes and to insulate Ms. Picache from any direct

counterclaims, and he never consented or agreed to the said assignment.

Petitioner then presented his own narration of events leading to the filing of Civil Case No. Q-90-5247.

According to him, on 24 February 1988, he entered into a Contract of Lease9of real property located in

Quezon City with Mission Realty & Management Corporation (MRMC), of which Ms. Picache is an

incorporator and member of the Board of Directors.10

Petitioner relocated the plant and machines

used in his garments business to the leased property. After a month or two, a foreign investor was

interested in doing business with him and sent a representative to conduct an ocular inspection of

petitioner's plant at the leased property. During the inspection, a group of Meralco employees entered

the leased property to cut off the electric power connections of the plant. The event gave an

unfavorable impression to the foreign investor who desisted from further transacting with petitioner.

Upon verification with Meralco, petitioner discovered that there were unpaid electric bills on theleased property amounting to hundreds of thousands of pesos. These electric bills were supposedly

due to the surreptitious electrical connections to the leased property. Petitioner claimed that he was

never informed or advised by MRMC of the existence of said unpaid electric bills. It took Meralco

considerable time to restore electric power to the leased property and only after petitioner pleaded

that he was not responsible for the illegal electrical connections and/or the unpaid electric bills, for he

was only a recent lessee of the leased property. Because of the work stoppage and loss of business

opportunities resulting from the foregoing incident, petitioner purportedly suffered damages

amounting to United States $60,000.00, for which petitioner verbally attempted to recover

compensation from MRMC.

Having failed to obtain compensation from MRMC, petitioner decided to vacate and pull out his

machines from the leased property but he can only do so, unhampered and uninterrupted by MRMC

security personnel, if he signed, as he did, blank promissory note forms. Petitioner alleged that when

he signed the promissory note forms, the allotted spaces for the principal amount of the loans,

interest rates, and names of the promisee/s were in blank; and that Ms. Picache took advantage of

petitioner's signatures on the blank p romissory note forms by filling up the blanks.

To raise even more suspicions of fraud and spuriousness of the promissory notes and their subsequent

assignment to respondent, petitioner called attention to the fact that Ms. Picache is an incorporator

and member of the Board of Directors of both MRMC and respondent.11

After the pre-trial conference and the trial proper, the RTC rendered a Decisio n12

on 6 August 1993,

ruling in favor of respondent. The RTC gave more credence to respondent's version of the facts, finding

that

[Herein petitioner]'s disclaimer of the promissory note[s] does not inspire belief. He is a

holder of a degree in Bachelor of Science in Chemical Engineering and has been a

manufacturer of garments since 1979. As a matter of fact, [petitioner]'s testimony that he

was made to sign blank sheets of paper is contrary to his admission in paragraphs 12 and 13

of his Answer that as a condition to his removal of his machines [from] the leased premises,

he was made to sign blank promissory note forms with respect to the amount, interest and

promisee. It thus appears incredulous that a businessman like [petitioner] would simply

sign blank sheets of paper or blank promissory notes just [to] be able to vacate the leased

premises.

Moreover, the credibility of [petitioner]'s testimony leaves much to be desired. He

contradicted his earlier testimony that he only met Patrocinio Picache once, which took

place in the office of Mission Realty and Management Corporation, by stating that he saw

Patrocinio Picache a second time when she went to his house. Likewise, his claim that the

electric power in the leased premises was cut off only two months after he occupied the

same is belied by his own evidence. The contract of lease submitted by [petitioner] is dated

February 24, 1988 and took effect on March 1, 1988. His letter to Mission Realty and

Management Corporation dated September 21, 1988, complained of the electric power

disconnection that took place on September 6, 1988, that is, six (6) months after he had

occupied the leased premises, and did not even give a hint of his intention to vacate the

premises because of said incident. It appears that [petitioner] was already advised to pay

his rental arrearages in a letter dated August 9, 1988 (Exh. "2") and was notified of the

termination of the lease contract in a letter dated September 19, 1988 (Exh. "4"). However,

in a letter dated September 26, 1988, [petitioner] requested for time to look for a place to

transfer.

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The RTC also sustained the validity and enforceability of the Assignment of Credit executed by Ms.

Picache in favor of respondent, even in the absence of petitioner's consent to the said assignment,

based on the following reasoning

The promissory notes (Exhs. "A" and "B") were assigned by Ms. Patrocinio Picache to

[herein respondent] by virtue of a notarized Assignment of Credit dated April 1, 1989 for a

consideration of P60,000.00 (Exh. "C"). The fact that the assignment of credit does not bear

the conformity of [herein petitioner] is of no moment. In C & C Commercial Corporation vs.

Philippine National Bank, 175 SCRA 1, 11, the Supreme Court held thus:

"x x x Article 1624 of the Civil Code provides that 'an assignment of credits and

other incorporeal rights shall be perfected in accordance with the provisions of

Article 1475' which in turn states that 'the contract of sale is perfected at the

moment there is a meeting of the minds upon the thing which is the object of

the contract and upon the price.' The meeting of the minds contemplated here

is that between the assignor of the credit and his assignee, there being no

necessity for the consent of the debtor, contrary to petitioner's claim. It is

sufficient that the assignment be brought to his knowledge in order to be

binding upon him. This may be inferred from Article 1626 of the Civil Code which

declares that 'the debtor who, before having knowledge of the assignment, pays

his creditor shall be released from the obligation.'"

[Petitioner] does not deny having been notified of the assignment of credit by Patrocinio

Picache to the [respondent]. Thus, [respondent] sent several demand letters to the

[petitioner] in connection with the loan[s] (Exhs. "D", "E", "F" and "G"). [Petitioner]

acknowledged receipt of [respondent]'s letter of demand dated June 13, 1989 (Exh. "F")

and assured [respondent] that he would settle his account, as per their telephone

conversation (Exhs. "H" and "9"). Such communications between [respondent] and

[petitioner] show that the latter had been duly notified of the said assignment of credit. x x

x.

Given its aforequoted findings, the RTC proceeded to a determination of petitioner's liabilities to

respondent, taking into account the provisions of the promissory notes, thus

x x x Consequently, [herein respondent] is entitled to recover from [herein petitioner] the

principal amount of P30,000.00 for the promissory note dated November 9, 1988. As said

note did not provide for any interest, [respondent] may only recover interest at the legal

rate of 12% per annum from April 18, 1990, the date of the filing of the complaint. With

respect to the promissory note dated November 10, 1988, the same provided for interest at

36% per annum and that interest not paid when due shall be added to and shall become

part of the principal and shall bear the same rate of interest as the p rincipal. Likewise, both

promissory notes provided for a penalty of 20% of the total outstanding balance thereon

and attorney's fees equivalent to 20% of the sum sought to be recovered in case of

litigation.

In Garcia vs. Court of Appeals, 167 SCRA 815, it was held that penalty interests are in the

nature of liquidated damages and may be equitably reduced by the courts if they are

iniquitous or unconscionable, pursuant to Articles 1229 and 2227 of the Civil Code.

Considering that the promissory note dated November 10, 1988 already provided for

interest at 36% per annum on the principal obligation, as well as for the capitalization ofthe unpaid interest, the penalty charge of 20% of the total outstanding balance of the

obligation thus appears to be excessive and unconscionable. The interest charges are

enough punishment for [petitioner]'s failure to comply with his obligation under the

promissory note dated November 10, 1988.

With respect to the attorney's fees, the court is likewise empowered to reduce the same if

they are unreasonable or unconscionable, notwithstanding the express contract therefor.

(Insular Bank of Asia and America vs. Spouses Salazar, 159 SCRA 133, 139). Thus, an award

of P10,000.00 as and for attorney's fees appears to be enough.

Consequently, thefallo of the RTC Decision reads

WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the [herein

respondent] and against [herein p etitioner] ordering the latter as follows:

1. To pay [respondent], on the promissory note dated November 9, 1988, the

amount of P30,000.00 with interest thereon at the legal rate of 12% per annum

from April 18, 1990 until fully paid and a penalty of 20% on the total amount;

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2. To pay [respondent], on the promissory note dated November 10, 1988, the

amount of P30,000.00 with interest thereon at 36% per annum compounded at

the same rate until fully paid;

3. To pay [respondent] the amount of P10,000.00, as and for attorney's fees;

and

4. To pay the costs of the suit .13

Aggrieved by the RTC Decision, dated 6 August 1993, petitioner filed an appeal with the Court of

Appeals, which was docketed as CA-G.R. CV No. 43604. The appellate court, in a Decision,14

dated 20

March 2001, found no cogent reason to depart from the conclusions arrived at by the RTC in its

appealed Decision, dated 6 August 1993, and affirmed the latter Decision in toto. The Court of Appeals

likewise denied petitioner's Motion for Reconsideration in a Resolution,15

dated 16 July 2001, stating

that the grounds relied upon by petitioner in his Motion were mere reiterations of the issues and

matters already considered, weighed and passed upon; and that no new matter or substantial

argument was adduced by petitioner to warrant a modification, much less a reversal, of the Court of

Appeals Decision, dated 20 March 2001.

Comes now petitioner to this Court, via a Petition for Review on Certiorariunder Rule 45 of the

Revised Rules of Court, raising the sole issue16

of whether or not the Court of Appeals committed grave

abuse of discretion in affirming in toto the RTC Decision, dated 6 August 1993. Petitioner's main

argument is that the Court of Appeals erred when it ruled that there was an assignment of credit and

that there was no novation/subrogation in the case at bar. Petitioner asserts the position that consent

of the debtor to the assignment of credit is a basic/essential element in order for the assignee to have

a cause of action against the debtor. Without the debtor's consent, the recourse of the assignee in

case of non-payment of the assigned credit, is to recover from the assignor. Petitioner further argues

that even if there was indeed an assignment of credit, as alleged by the respondent, then there had

been a novation of the original loan contracts when the respondent was subrogated in the rights of

Ms. Picache, the original creditor. In support of said argument, petitioner invokes the following

provisions of the Civil Code

ART. 1300. Subrogation of a third person in the rights of the creditor is either legal or

conventional. The former is not presumed, except in cases expressly mentioned in this

Code; the latter must be clearly established in order that it may take effect.

ART. 1301. Conventional subrogation of a third person requires the consent of the original

parties and the third person.

According to petitioner, the assignment of credit constitutes conventional subrogation which requires

the consent of the original parties to the loan contract, namely, Ms. Picache (the creditor) and

petitioner (the debtor); and the third person, the respondent (the assignee). Since petitioner never

gave his consent to the assignment of credit, then the subrogation of respondent in the rights of Ms.

Picache as creditor by virtue of said assignment is without force and effect.

This Court finds no merit in the present Petition.

Before proceeding to a discussion of the points raised by petitioner, this Court deems it appropriate to

emphasize that the findings of fact of the Court of Appeals and the RTC in this case shall no longer be

disturbed. It is axiomatic that this Court will not review, much less reverse, the factual findings of the

Court of Appeals, especially where, as in this case, such findings coincide with those of the trial court,

since this Court is not a trier of facts.17

The jurisdiction of this Court in a Petition for Review on Certiorari under Rule 45 of the Revised Rules

of Court is limited to reviewing only errors of law, not of fact, unless it is shown, inter alia, that: (a) the

conclusion is grounded entirely on speculations, surmises and conjectures; (b) the inference is

manifestly mistaken, absurd and impossible; (c) there is grave abuse of discretion; (d) the judgment is

based on a misapplication of facts; (e) the findings of fact of the trial court and the appellate court are

contradicted by the evidence on record and (f) the Court of Appeals went beyond the issues of the

case and its findings are contrary to the admissions of both parties.18

None of these circumstances are

present in the case at bar. After a perusal of the records, this Court can only conclude that the factual

findings of the Court of Appeals, affirming those of the RTC, are amply supported by evidence and are,

resultantly, conclusive on this Court.19

Therefore, the following facts are already beyond cavil: (1) petitioner obtained two loans totaling

P60,000.00 from Ms. Picache, for which he executed promissory notes, dated 9 November 1988 and

10 November 1988; (2) he failed to pay any of the said loans; (3) Ms. Picache executed on 1 April 1989

an Assignment of Credit covering petitioner's loans in favor of respondent for the consideration of

P60,000.00; (4) petitioner had knowledge of the assignment of credit; and (5) petitioner still failed to

pay his indebtedness despite repeated demands by respondent and its counsel. Petitioner's persistent

assertions that he never acquired any loan from Ms. Picache, or that he signed the promissory notes in

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blank and under duress, deserve scant consideration. They were already found by both the Court of

Appeals and the RTC to be implausible and inconsistent with petitioner's own evidence.

Now this Court turns to the questions of law raised by petitioner, all of which hinges on the contention

that a conventional subrogation occurred when Ms. Picache assigned the debt, due her from the

petitioner, to the respondent; and without petitioner's consent as debtor, the said conventional

subrogation should be deemed to be without force and effect.

This Court cannot sustain petitioner's contention and hereby declares that the transaction between

Ms. Picache and respondent was an assignment of credit, not conventional subrogation, and does not

require petitioner's consent as debtor for its validity and enforceability.

An assignment of credit has been defined as an agreement by virtue of which the owner of a credit

(known as the assignor), by a legal cause - such as sale, dation in payment or exchange or donation -

and without need of the debtor's consent, transfers that credit and its accessory rights to another

(known as the assignee), who acquires the power to enforce it, to the same extent as the assignor

could have enforced it against the debtor.20

On the other hand, subrogation, by definition, is the transfer of all the rights of the creditor to a third

person, who substitutes him in all his rights. It may either be legal or conventional. Legal subrogation is

that which takes place without agreement but by operation of law because of certain acts.

Conventional subrogation is that which takes place by agreement of parties.21

Although it may be said that the effect of the assignment of credit is to subrogate the assignee in the

rights of the original creditor, this Court still cannot definitively rule that assignment of credit and

conventional subrogation are one and the same.

A noted authority on civil law provided a discourse22

on the difference between these two

transactions, to wit

Conventional Subrogation and Assignment of Credits. In the Argentine Civil Code, there

is essentially no difference between conventional subrogation and assignment of credit.

The subrogation is merely the effect of the assignment. In fact it is expressly provided

(article 769) that conventional redemption shall be governed by the provisions on

assignment of credit.

Under our Code, however, conventional subrogation is not identical to assignment of

credit. In the former, the debtor's consent is necessary; in the latter, it is not required.

Subrogation extinguishes an obligation and gives rise to a new one; assignment refers to

the same right which passes from one person to another. The nullity of an old obligation

may be cured by subrogation, such that the new obligation will be perfectly valid; but the

nullity of an obligation is not remedied by the assignment of the creditor's right to another.

(Emphasis supplied.)

This Court has consistently adhered to the foregoing distinction between an assignment of credit and a

conventional subrogation.23

Such distinction is crucial because it would determine the necessity of the

debtor's consent. In an assignment of credit, the consent of the debtor is not necessary in order that

the assignment may fully produce the legal effects. What the law requires in an assignment of credit is

not the consent of the debtor, but merely notice to him as the assignment takes effect only from the

time he has knowledge thereof. A creditor may, therefore, validly assign his credit and its accessories

without the debtor's consent. On the other hand, conventional subrogation requires an agreement

among the parties concerned the original creditor, the debtor, and the new creditor. It is a newcontractual relation based on the mutual agreement among all the necessary parties.

24

Article 1300 of the Civil Code provides that conventional subrogation must be clearly established in

order that it may take effect. Since it is petitioner who claims that there is conventional subrogation in

this case, the burden of proof rests upon him to establish the sam e25

by a preponderance of

evidence.26

In Licaros v. Gatmaitan,27

this Court ruled that there was conventional subrogation, not just an

assignment of credit; thus, consent of the debtor is required for the effectivity of the subrogation. This

Court arrived at such a conclusion in said case based on its following findings

We agree with the finding of the Court of Appeals that the Memorandum of Agreement

dated July 29, 1988 was in the nature of a conventional subrogation which requires the

consent of the debtor, Anglo-Asean Bank, for its validity. We note with approval the

following pronouncement of the Court of Appeals:

"Immediately discernible from above is the common feature of contracts

involving conventional subrogation, namely, the approval of the debtor to the

subrogation of a third person in place of the creditor. That Gatmaitan and

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Licaros had intended to treat their agreement as one of conventional

subrogation is plainly borne by a stipulation in their Memorandum of

Agreement, to wit:

"WHEREAS, the parties herein have come to an agreement on the

nature, form and extent of their mutual prestations which they now

record herein with the express conformity of the third parties

concerned" (emphasis supplied),

which third party is admittedly Anglo-Asean Bank.

Had the intention been merely to confer on appellant the status of a mere "assignee" of

appellee's credit, there is simply no sense for them to have stipulated in their agreement

that the same is conditioned on the "express conformity" thereto of Anglo-Asean Bank.

That they did so only accentuates their intention to treat the agreement as one of

conventional subrogation. And it is basic in the interpretation of contracts that the

intention of the parties must be the one pursued (Rule 130, Section 12, Rules of Court).

x x x x

Aside for the 'whereas clause" cited by the appellate court in its decision, we likewise note

that on the signature page, right under the place reserved for the signatures of petitioner

and respondent, there is, typewritten, the words "WITH OUR CONFORME." Under this

notation, the words "ANGLO-ASEAN BANK AND TRUST" were written by hand. To our mind,

this provision which contemplates the signed conformity of Anglo-Asean Bank, taken

together with the aforementioned preambulatory clause leads to the conclusion that both

parties intended that Anglo-Asean Bank should signify its agreement and conformity to the

contractual arrangement between petitioner and respondent. The fact that Anglo-Asean

Bank did not give such consent rendered the agreement inoperative considering that, as

previously discussed, the consent of the debtor is needed in the subrogation of a third

person to the rights of a creditor.

None of the foregoing circumstances are attendant in the present case. The Assignment of Credit,

dated 1 April 1989, executed by Ms. Picache in favor of respondent, was a simple deed of assignment.

There is nothing in the said Assignment of Credit which imparts to this Court, whether literally or

deductively, that a conventional subrogation was intended by the parties thereto. The terms of the

Assignment of Credit only convey the straightforward intention of Ms. Picache to "sell, assign, transfer,

and convey" to respondent the debt due her from petitioner, as evidenced by the two promissory

notes of the latter, dated 9 November 1988 and 10 November 1988, for the consideration of

P60,000.00. By virtue of the same document, Ms. Picache gave respondent full power "to sue for,

collect and discharge, or sell and assign" the very same debt. The Assignment of Credit was signed

solely by Ms. Picache, witnessed by two other persons. No reference was made to securing the

conforme of petitioner to the transaction, nor any space provided for his signature on the said

document.

Perhaps more in point to the case at bar is Rodriguez v. Court of Appeals,28

in which this Court found

that

The basis of the complaint is not a deed of subrogation but an assignment of credit

whereby the private respondent became the owner, not the subrogee of the credit since

the assignment was supported by HK $1.00 and other valuable considerations.

x x x x

The petitioner further contends that the consent of the debtor is essential to the

subrogation. Since there was no consent on his part, then he allegedly is not bound.

Again, we find for the respondent. The questioned deed of assignment is neither one of

subrogation nor a power of attorney as the petitioner alleges. The deed of assignment

clearly states that the private respondent became an assignee and, therefore, he became

the only party entitled to collect the indebtedness. As a result of the Deed of Assignment,

the plaintiff acquired all rights of the assignor including the right to sue in his own name as

the legal assignee. Moreover, in assignment, the debtor's consent is not essential for the

validity of the assignment (Art. 1624 in relation to Art. 1475, Civil Code), his knowledge

thereof affecting only the validity of the payment he might make (Article 1626, Civil Code).

Since the Assignment of Credit, dated 1 April 1989, is just as its title suggests, then petitioner's consent

as debtor is not necessary in order that the assignment may fully produce legal effects. The duty to pay

does not depend on the consent of the debtor; otherwise, all creditors would be prevented from

assigning their credits because of the possibility of the debtors' refusal to give consent .29

Moreover,

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which he replied with another letter, dated 21 June 1989, stating that he would settle his account with

respondent but also requesting consideration of the losses he suffered from the electric power

disconnection at the property he leased from MRMC. It further appears that petitioner had never

questioned why it was respondent seeking payment of the loans and not the original creditor, Ms.

Picache. All these circumstances tend to establish that respondent already knew of the assignment of

credit made by Ms. Picache in favor of respondent and explains his acceptance of all the demands for

payment of the loans made upon him by the respondent.

Finally, assuming arguendo that this Court considers petitioner a third person to the Assignment of

Credit, dated 1 April 1989, the fact that the said document was duly notarized makes it legally

enforceable even as to him. According to Article 1625 of the Civil Code

ART. 1625. An assignment of credit, right or action shall produce no effect as against third

persons, unless it appears in a public instrument, or the instrument is recorded in the

Registry of Property in case the assignment involves real property.

Notarization converted the Assignment of Credit, dated 1 April 1989, a private document, into a public

document,33

thus, complying with the mandate of the afore-quoted provision and making it

enforceable even as against third persons.

WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED, and the Decision,

dated 20 March 2001, of the Court of Appeals in CA-G.R. CV No. 43604, affirming in toto the Decision,

dated 6 August 1993, of the Quezon City Regional Trial Court, Branch 91, in Civil Case No. Q -90-5247, is

hereby AFFIRMED. Costs against the petitioner.

SO ORDERED.

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G.R. No. L-30150 August 31, 1971

NATIONAL INVESTMENT AND DEVELOPMENT CORPORATION, petitioner,

vs.

HONORABLE WALFRIDO DE LOS ANGELES, in his capacity as Judge of the Court of First Instance of

Rizal, Branch IV (Quezon City), THE SPOUSES BASILISA ROQUE and FRANCISCO BAUTISTA; LEONILA

SANCHEZ and BENJAMIN N. BONUS; AURORA SANCHEZ and BONIFACIO EUGENIO; CARMELITA

SANCHEZ and FRANCISCO IGNACIO; BIENVENIDO SANCHEZ, LEONARDO SANCHEZ, ROQUE VILLAGE

SUBDIVISION and THE REGISTER OF DEEDS OF QUEZON City, respondents.

CASTRO,J.:

By the instant petition for certiorari and mandamus with preliminary injunction, the petitioner

National Investment and Development Corporation (hereinafter referred to as the NIDC) impugns

three orders issued by the respondent Court of First Instance of Rizal in civil case Q-8407, namely, (1)

an order dated May 28, 1968 dismissing the appeal of the NIDC from that court's order dated March

31, 1967 which directed the cancellation of the annotation, on several certificates of title involved in

the said case, of the assignment of mortgage rights made by the Philippine Commercial and Industrial

Bank (hereinafter referred to as the PCIB), a defendant in the said civil case, in favor of the NIDC, the

respondent Judge stating that since the NIDC had not been properly substituted for PCIB and latter

had failed to perfect an appeal from the order of March 31, 1967, therefore, the appeal which was

taken by the NIDC was ineffective, and moreover filed out of time; (2) an order dated November 9,

1968 directing the NIDC to surrender to the Register of Deeds of Quezon City the certificates of title

over parcels of land involved in the said civil case which the lower court, in a judgment rendered

therein which had already become final and executory, ordered reconveyed to the herein private

respondents (the spouses Basilisa Roque and Francisco Bautista, Leonila Sanchez and Benjamin N.

Bonus, Aurora Sanchez and Bonifacio Eugenio, Carmelita Sanchez and Francisco Ignacio, Bienvenido

Sanchez, Leonardo Sanchez and Roque Village Subdivision), plaintiffs in the case below, subject,

however, to the mortgage executed in favor of the PCIB by the defendant therein, Araceli W. Vda. de

Del Rosario; and (3) an order dated January 27, 1969 declaring as cancelled and null and void the

certificates of title involved in the mentioned civil case which were then held by the NIDC, for failure of

the latter to comply with the respondent Judge's order of November 9, 1968 requiring the NIDC to

surrender the said title certificates to the Register of Deeds of Quezon City.1

The essential facts are undisputed.

Sometime in July, 1963 the private respondents herein sold several lots registered in their names to

Araceli W. Vda. de Del Rosario who, after securing registration of the said lots in her name, mortgaged

them to the PCIB. Del Rosario failed to complete payment of the purchase price agreed upon, for

which reason, on November 17, 1964, the herein private respondents filed a complaint against her and

the PCIB for reconveyance to them of the said lots or rescission of the contracts of sale executed

thereon and the cancellation of the mortgages held by the PCIB.

On January 25, 1965 the court a quo rendered summary judgment directing the rescission of the

contracts of sale adverted to above and the reconveyance of the lots in dispute covered by TCTs

70809, 70813, 70814 and 76401 to 76472. The rescission of the purchase contracts on the lots was,

however, declared to be without prejudice to the rights of the PCIB thereon which was adjudged as

mortgaged in good faith. The lower court reserved for a separate hearing the parties' respective claims

for damages.

This decision of the trial court was appealed to this Court by del Rosario in

L-24873. The appeal was, however, dismissed on September 23, 1966 because it was taken out of

time. No appeal was interposed by the private respondents herein with respect to the portion of the

lower court's decision in favor of the PCIB.

On June 16, 1965 the PCIB foreclosed its mortgage on the lots covered by TCTs 70809, 70813 and

70814. At the auction sale, it appeared as the highest bidder; on December 2, 1965 the certificate of

sale issued in its favor was duly registered.

On May 4, 1966 the PCIB assigned its mortgage rights over the lots covered by TCTs 70809, 70813,

70814 and 76401 to 76472 to the NIDC, as well as its rights as highest bidder for the lots covered by

the first three titles mentioned. This assignment was duly inscribed and annotated at the back of the

certificates of the title concerned on May 16, 1966.

On November 16, 1966 the private respondents filed with the trial court, in the same civil case Q-8407,

a motion to cancel time encumbrance held by the NIDC appearing at the back of TCTs 76401 to 76472

and 70809. The private respondents alleged in their motion that del Rosario had negotiated a loan

with the NIDC by virtue of which the latter assumed the payment of, and did pay, del Rosario's

mortgage indebtedness to the PCIB. For this reason, and for the further reason that there was no

privity of contract between them and del Rosario and the PCIB concerning the said indebtedness, the

private respondents maintained that the mortgage lien of the PCIB over the lots subject of their

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motion was thereby discharged. They further argued that the mortgage lien has been extinguished

because when it assumed payment of the indebtedness of del Rosario to the PCIB, the NIDC was aware

of the respondents' claim over the lots in question which was annotated at the back of the certificates

of title in dispute. Lastly, the respondents contended that their claim is superior to that of the NIDC

under the provisions of articles 2242(2) and 2243 of the new Civil Code. The respondents served a

copy of this motion on the NIDC.

On November 19, 1966, at the hearing on the above motion, the NIDC, through counsel, having been

notified thereof, entered its appearance. The respondent Judge at the said hearing gave the NIDC

opportunity to file its written opposition to the motion.

On December 20, 1966 the NIDC filed its written opposition, claiming that it merely stepped into the

shoes of the PCIB as an assignee and that the private respondents must respect its rights as such

assignee in the same manner that they would respect the rights of the PCIB the adjudication regarding

which, it was alleged, had already long become final when they were acquired by the NIDC, citing

article 1625 of the new Civil Code.

On January 5, 1967 the private respondents filed a rejoinder to the above opposition, furnishing the

NIDC a copy of the same.

On March 31, 1967 the respondent Judge issued an order granting the private respondents' motion to

cancel the encumbrance of the NIDC from the certificates of title in dispute, reasoning as follows:

... There is no question that the deed of assignment in question is valid between

the defendant Bank and the National Investment & Development Corporation.

But this Court, however, is not inclined to sustain incumbrancer's view; first, it

should have submitted the deed of assignment for approval of the Court

knowing that the subject-matter of the said deed of assignment is in custodia

legis, and so that the consent of all the parties plaintiffs could be taken; second,

the payment of the mortgage debt of defendant Del Rosario by the National

Investment & Development Corporation to the PCI Bank extinguished the

plaintiff's obligation to respect the mortgage lien of the PCI Bank; and third, the

NIDC could ask for reimbursement of its expenses and the amount it has paid to

the PCI Bank from defendant Del Rosario. Moreover, it is more on equity and

justice as well as in law that the incumbrancer should not enforce its rights

against the plaintiffs who, in the first place; were not benefited by the mortgage

debt incurred by defendant Del Rosario.

A copy of this order was, however, not furnished the NIDC, although the PCIB was served a copy

thereof.

On April 22, 1967 the respondent Judge issued another order directing the NIDC to surrender the

certificates of title in dispute to the Register of Deeds of Quezon City in order that its order of March

31, 1967 could be implemented. The NIDC filed a motion for reconsideration on the ground that the

issuance of the order was premature for it had not yet received a copy of the court's order of March

31, 1967. The private respondents opposed the said motion.

On September 19, 1967 the NIDC received a copy of the respondent court's order dated March 31,

1967. The NIDC then filed, on October 16, 1967, or 27 days from its receipt of the said order, a motion

for reconsideration thereof. On January 8, 1968 the NIDC received another order from the respondent

court dated December 29, 1967 denying its motion for reconsideration "for lack of merit."

On January, 9 1968 the NIDC filed with the court below a notice of appeal on "purely questions of law"

from the order of March 31, 1967 and an appeal bond; on January 11, 1968 it filed its record on

appeal.

On February 7, 1968 the private respondents filed with the lower court a motion to dismiss the appeal

of the NIDC stating (a) that the appeal was filed out of time since the PCIB did not appeal from the

appealed order and the NIDC had not been properly substituted for the PCIB as a party in the case

(citing section 20, Rule 3 of the Ru les of Court and Oria Hermanos vs. Gutierrez Hermanos, 52 Phil. 156

[1928] and Feltalino vs. Sanz , 44 Phil. [1923]); and (b) that the appeal is frivolous and dilatory because

the trial court's decision ordering reconveyance to the private respondents of the lots in dispute by del

Rosario had long become final and executory. The NIDC opposed this motion, contending that it had

acquired the necessary personality in civil case Q-8407 by virtue of the respondents' and the lower

court's recognition thereof.

On May 28, 1968 the respondent Judge issued an order dismissing the appeal interposed by the NIDC

for reasons substantially identical to those adduced by the private respondents in their motion to

dismiss the appeal.

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On July 3, 1968 the NIDC filed a motion for reconsideration of the dismissal of its app eal. This motion

was denied on December 18, 1968.

Meanwhile, on September 12, 1968, the NIDC received a copy of a petition of the private respondents

to declare TCTs 70809, 70813, 70814 and 76401 to 76472 null and void for failure of the NIDC to

surrender the certificates of title in question to the Register of Deeds of Quezon City "in order that the

deeds of reconveyance executed by the Clerk of Court and orders of this Honorable Court may be

given due course for registration ..."

The NIDC opposed this petition, alleging that to grant it will amount to enforcement of the lower

court's order of March 31, 1967 which had not yet become final and executory as the NIDC had

appealed within the prescribed period. It was also pointed out by the NIDC that its motion for

reconsideration of the order dismissing its appeal had not as yet been resolved.

On November 9, 1968 the respondent Judge issued another order requiring the NIDC to surrender the

certificates of title in dispute to the Register of Deeds of Quezon City within five days, otherwise the

said certificates would be declared null and void. The NIDC filed a motion for reconsideration of this

order on the ground that its motion for reconsideration of the order dismissing its appeal had not up

to that time been resolved.

On January 27, 1969, the NIDC received a copy of a "Manifestation" dated January 21, 1969 wherein

the private respondents prayed for the cancellation of the mentioned certificates of title on the

ground that the NIDC had already received a copy of the order of the respondent Judge dated

December 18, 1968 denying the motion for reconsideration of the NIDC dated November 19, 1968. It

turned out, however (as explained by the NIDC in one of its pleadings filed with this Court), that while

the NIDC did receive on January 13, 1969 the said order dated December 18, 1968, the same was

overlooked because the copy of the s aid order sent by the respondent Judge was stapled beneath two

other orders also dated December 18, 1968. One of these orders which was stapled on top of the

others, was in connection with another case (civil case 10636) involving the same parties herein.

According to the NIDC, it was thought that the papers stapled beneath were mere copies of the order

in the said civil case. The third order, similarly dated, was an order denying the NIDC's motion for

reconsideration of the respondent Judge's order dismissing its appeal from the order of March 31,

1967.

On January 30, 1969 the counsel of the NIDC went to the lower court to inquire if it had already acted

upon the said "Manifestation"; and there and then he was served a copy of an order dated January 27,

1969, declaring TCTs 70809, 70813, 70814 and 76401 to 76472 null and void and cancelled.

The submission of the parties for resolution by this Court involves mainly the question of whether the

petitioner has legal personality to appeal the order a quo dated March 31, 1967. If the answer be in

the affirmative, then the order of the respondent Judge dismissing the appeal and all subsequent

orders adverse to the petitioner will not avail the private respondents any.

We do not think, however, that this is the real issue that should first be resolved in order to bundle

properly the contending claims of the parties. Of basic crucial importance, in our opinion, is an inquiry

into, and resolution of, whether, in the first place, the lower court had jurisdiction to entertain the

motion of the private respondents that led to the issuance of the order of March 31, 1967. Obviously,

it will not be necessary to resolve the question posited by the parties if, from the facts which the

instant petition opened for inquiry by this Court, it will be determined that the lower court was devoid

of jurisdiction to take cognizance of the mentioned motion of the private respondents.

After a painstaking study of the matter, we reach the view and we so hold that the respondent Judge's

assumption of jurisdiction over the private respondents' motion that led to the order of March 31,

1967 dismissing the appeal of the NIDC, is completely devoid of legal authority. The judgment of the

court a quo in civil case Q-8407, on the matter of the recognition of the mortgage rights of the PCIB

over the lots in question, had already become final and executory when the said bank assigned its

rights to the NIDC. It had, in fact, foreclosed its mortgage rights over some of the lots and had

purchased them at an auction sale before it executed the deed of assignment to the NIDC. Such being

the case, the lower court no longer had jurisdiction in the said case to resolve, by a mere motion

therein, issues having to do with the disposition made by the PCIB of its rights over the lots in

question, which rights were then no longer in litigation as they had been adjudged with finality.

An independent action, or any other appropriate remedy, securing to all the real parties in interest the

proceses and due opportunities afforded by the Rules of Court will be of the essence if the private

respondents, as the judicially declared owners of the lots in question by final judgment prior to the

present controversy, believe that they have a right of action to cause the extinguishment by judicial

fiat of the mortgage constituted over those lots on account of the assignment by the mortgagee

and/or purchaser at public auction of its rights to the parcels in question.

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The necessity for such an independent action or other appropriate remedy becomes more patent, as a

matter of due process, when it is considered that the NIDC, as assignee after a final adjudication of the

rights of the PCIB over the said lots, will be the real party to be affected directly by any action which

the private respondents will commence whose object is to render inutile the legal efficacy of the

PCIB's assignment of its rights thereon. In such an action, the NIDC will clearly be an indispensable

party, which it will be the duty of the private respondent to include as a party in the case, otherwise, it

will not be bound by any adjudication which will adversely affect its rights over the lots in dispute.

It would appear, however, from the facts admitted by the parties, that a valid assignment, binding

upon the private respondents, has been made by the PCIB to the NIDC of its mortgage rights as well as

its rights as purchaser of the lots in q uestion. There does not appear to be anything in our statutes or

jurisprudence which prohibits a creditor without the consent of the debtor from making an assignment

of his credit and the rights accessory thereto; and, certainly, an assignment of credit and its accessory

rights does not at all obliterate the obligation of the debtor to pay, but merely puts the assignee in the

place of his assignor. Indeed, article 1634 of the new Civil Code definitely recognizes the likelihood that

credits and other incorporeal rights in litigation may be assigned pendente lite, and, in such event,

provides that the debtor may extinguish his obligation by making appropriate reimbursement to the

assignee.2

In other words, an assignment of credit pendente lite, contrary to the respondent Judge's

opinion of March 31, 1967, under which it was construed that the mortgage rights and rights as

purchaser of the PCIB over the lots in question were still in custodia legis at the time of their

assignment to the NIDC, does not extinguish the credit or accessory rights assigned, but simply

changes the bag into which the debtor must empty his money in payment.

ACCORDINGLY, the order of the court a quo dated March 31, 1967, and its subsequent orders dated

May 28, 1968, November 9, 1968 and January 27, 1969, and all related orders are hereby declared null

and void and without legal effect, for having been issued without jurisdiction. The preliminary

injunction issued by this Court on March 11, 1970 is hereby made permanent. No pronouncement as

to costs.

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G.R. No. L-21601 December 28, 1968

NIELSON & COMPANY, INC., plaintiff-appellant,

vs.

LEPANTO CONSOLIDATED MINING COMPANY, defendant-appellee.

ZALDIVAR,J.:

Lepanto seeks the reconsideration of the decision rendered on December 17, 1966. The motion for

reconsideration is based on two sets of grounds the first set consisting of four principal grounds,

and the second set consisting of five alternative grounds, as follows:

Principal Grounds:

1. The court erred in overlooking and failing to apply the proper law applicable to the

agency or management contract in question, namely, Article 1733 of the Old Civil Code

(Article 1920 of the new), by virtue of which said agency was effectively revoked and

terminated in 1945 when, as stated in paragraph 20 of the complaint, "defendant

voluntarily ... prevented plaintiff from resuming management and operation of said mining

properties."

2. The court erred in holding that paragraph II of the management contract (Exhibit C)

suspended the period of said contract.

3. The court erred in reversing the ruling of the trial judge, based on well-settled

jurisprudence of this Supreme Court, that the management agreement was only suspendedbut not extended on account of the war.

4. The court erred in reversing the finding of the trial judge that Nielson's action had

prescribed, but considering only the first claim and ignoring the prescriptibility of the other

claims.

Alternative Grounds:

5. The court erred in holding that the period of suspension of the contract on account of

the war lasted from February 1942 to June 26, 1948.

6. Assuming arguendo that Nielson is entitled to any relief, the court erred in awarding as

damages (a) 10% of the cash dividends declared and paid in December, 1941; (b) the

management fee of P2,500.00 for the month of January, 1942; and (c) the full contract

price for the extended period of sixty months, since these damages were neither

demanded nor proved and, in any case, not allowable under the general law of damages.

7. Assuming arguendo that appellant is entitled to any relief, the court erred in ordering

appellee to issue and deliver to appellant shares of stock together with fruits thereof.

8. The court erred in awarding to appellant an undetermined amount of shares of stock

and/or cash, which award cannot be ascertained and executed without further litigation.

9. The court erred in rendering judgment for a ttorney's fees.

We are going to dwell on these grounds in the order they are presented.

1. In its first principal ground Lepanto claims that its own counsel and this Court had overlooked the

real nature of the management contract entered into by and between Lepanto and Nielson, and the

law that is applicable on said contract. Lepanto now asserts for the first time and this is done in a

motion for reconsideration - that the management contract in question is a contract of agency such

that it has the right to revoke and terminate the said contract, as it did terminate the same, under the

law of agency, and particularly pursuant to Article 1733 of the Old Civil Code (Article 1920 of the New

Civil Code).

We have taken note that Lepanto is advancing a new theory. We have carefully examined the

pleadings filed by Lepanto in the lower court, its memorandum and its brief on appeal, and never did it

assert the theory that it has the right to terminate the management contract because that contract is

one of agency which it could terminate at will. While it is true that in its ninth and tenth special

affirmative defenses, in its answer in the court below, Lepanto pleaded that it had the right to

terminate the management contract in question, that plea of its right to terminate was not based

upon the ground that the relation between Lepanto and Nielson was that of principal and agent but

upon the ground that Nielson had allegedly not complied with certain terms of the management

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contract. If Lepanto had thought of considering the management contract as one of agency it could

have amended its answer by stating exactly its position. It could have asserted its theory of agency in

its memorandum for the lower court and in its brief on appeal. This, Lepanto did not do. It is the rule,

and the settled doctrine of this Court, that a party cannot change his theory on appeal that is, that a

party cannot raise in the appellate court any question of law or of fact that was n ot raised in the court

below or which was not within the issue made by the parties in their pleadings (Section 19, Rule 49 of

the old Rules of Court, and also Section 18 of the new Rules of Court; Hautea vs. Magallon, L-20345,

November 28, 1964; Northern Motors, Inc. vs. Prince Line, L-13884, February 29, 1960; American

Express Co. vs. Natividad, 46 Phil. 207; Agoncillo vs. Javier, 38 Phil. 424 and Molina vs. Somes, 24 Phil

49).

At any rate, even if we allow Lepanto to assert its new theory at this very late stage of the

proceedings, this Court cannot sustain the same.

Lepanto contends that the management contract in question (Exhibit C) is one of agency because: (1)

Nielson was to manage and operate the mining properties and mill on behalf, and for the account, of

Lepanto; and (2) Nielson was authorized to represent Lepanto in entering, on Lepanto's behalf, into

contracts for the hiring of laborers, purchase of supplies, and the sale and marketing of the ores

mined. All these, Lepanto claims, show that Nielson was, by the terms of the contract, destined to

execute juridical acts not on its own behalf but on behalf of Lepanto under the control of the Board of

Directors of Lepanto "at all times". Hence Lepanto claims that the contract is one of agency. Lepanto

then maintains that an agency is revocable at the will of the principal (Article 1733 of the Old Civil

Code), regardless of any term or period stipulated in the contract, and it was in pursuance of that right

that Lepanto terminated the contract in 1945 when it took over and assumed exclusive management

of the work previously entrusted to Nielson under the contract. Lepanto finally maintains that Nielson

as an agent is not entitled to damages since the law gives to the principal the right to terminate the

agency at will.

Because of Lepanto's new theory We consider it necessary to determine the nature of the

management contract whether it is a contract of agency or a contract of lease of services.

Incidentally, we have noted that the lower court, in the decision appealed from, considered the

management contract as a contract of lease of services.

Article 1709 of the Old Civil Code, defining contract of agency, provides:

By the contract of agency, one person binds himself to render some service or do

something for the account or at the request of another.

Article 1544, defining contract of lease of service, provides:

In a lease of work or services, one of the parties binds himself to make or construct

something or to render a service to the other for a price certain.

In both agency and lease of services one of the parties binds himself to render some service to the

other party. Agency, however, is distinguished from lease of work or services in that the basis of

agency is representation, while in the lease of work or services the basis is employment. The lessor of

services does not represent his employer, while the agent represents his principal. Manresa, in his

"Commentarios al Codigo Civil Espaol" (1931, Tomo IX, p p. 372-373), points out that the element of

representation distinguishes agency from lease of services, as follows:

Nuestro art. 1.709 como el art. 1.984 del Codigo de Napoleon y cuantos textos legales

citamos en las concordancias, expresan claramente esta idea de la representacion, "hacer

alguna cosa por cuenta o encargo de otra" dice nuestro Codigo; "poder de hacer alguna

cosa para el mandante o en su nombre" dice el Codigo de Napoleon, y en tales palabras

aparece vivo y luminoso el concepto y la teoria de la representacion, tan fecunda en

ensenanzas, que a su sola luz es como se explican las diferencias que separan el mandato

del arrendamiento de servicios, de los contratos inominados, del consejo y de la gestion de

negocios.

En efecto, en el arrendamiento de servicios al obligarse para su ejecucion, se trabaja, en

verdad, para el dueno que remunera la labor, pero ni se le representa ni se obra en su

nombre....

On the basis of the interpretation of Article 1709 of the old Civil Code, Article 1868 of the new Civil

Code has defined the contract of agency in more explicit terms, as follows:

By the contract of agency a person binds himself to render some service or to do something

in representation or on behalf ofanother, with the consent or authority of the latter.

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There is another obvious distinction between agency and lease of services. Agency is a preparatory

contract, as agency "does not stop with the agency because the purpose is to enter into other

contracts." The most characteristic feature of an agency relationship is the agent's power to bring

about business relations between his principal and third persons. "The agent is destined to execute

juridical acts (creation, modification or extinction of relations with third parties). Lease of services

contemplate only material (non-juridical) acts." (Reyes and Puno, "An Outline of Philippine Civil Law,"

Vol. V, p. 277).

In the light of the interpretations we have mentioned in the foregoing paragraphs let us now

determine the nature of the management contract in question. Under the contract, Nielson had

agreed, for a period of five years, with the right to renew for a like period, to explore, develop and

operate the mining claims of Lepanto, and to mine, or mine and mill, such pay ore as may be found

therein and to market the metallic products recovered therefrom which may prove to be marketable,

as well as to render for Lepanto other services specified in the contract. We gather from the contract

that the work undertaken by Nielson was to take complete charge subject at all times to the general

control of the Board of Directors of Lepanto, of the exploration and development of the mining claims,

of the hiring of a sufficient and competent staff and of sufficient and capable laborers, of the

prospecting and development of the mine, of the erection and operation of the mill, and of the

benefication and marketing of the minerals found on the mining properties; and in carrying out said

obligation Nielson should proceed diligently and in accordance with the best mining practice. In

connection with its work Nielson was to submit reports, maps, plans and recommendations with

respect to the operation and development of the mining properties, make recommendations and

plans on the erection or enlargement of any existing mill, dispatch mining engineers and technicians to

the mining properties as from time to time may reasonably be required to investigate and make

recommendations without cost or expense to Lepanto. Nielson was also to "act as purchasing agent of

supplies, equipment and other necessary purchases by Lepanto, provided, however, that no purchase

shall be made without the prior approval of Lepanto; and provided further, that no commission shall

be claimed or retained by Nielson on such purchase"; and "to submit all requisition for supplies, all

constricts and arrangement with engineers, and staff and all matters requiring the expenditures of

money, present or future, for prior approval by Lepanto; and also to make contracts subject to the

prior approve of Lepanto for the sale and marketing of the minerals mined from said properties, when

said products are in a suitable condition for marketing."1

It thus appears that the principal and paramount undertaking of Nielson under the management

contract was the operation and development of the mine and the operation of the mill. All the other

undertakings mentioned in the contract are necessary or incidental to the principal undertaking

these other undertakings being dependent upon the work on the development of the mine and the

operation of the mill. In the performance of this principal undertaking Nielson was not in any way

executing juridical acts for Lepanto, destined to create, modify or extinguish business relations

between Lepanto and third persons. In other words, in performing its principal undertaking Nielson

was not acting as an agent of Lepanto, in the sense that the term agent is interpreted under the law of

agency, but as one who was performing material acts for an employer, for a compensation.

It is true that the management contract provides that Nielson would also act as purchasing agent of

supplies and enter into contracts regarding the sale of mineral, but the contract also provides that

Nielson could not make any purchase, or sell the minerals, without the prior approval of Lepanto. It is

clear, therefore, that even in these cases Nielson could not execute juridical acts which would bind

Lepanto without first securing the approval of Lepanto. Nielson, then, was to act only as an

intermediary, not as an agent.

Lepanto contends that the management contract in question being one of agency it had the right to

terminate the contract at will pursuant to the provision of Article 1733 of the old Civil Code. We find,

however, a proviso in the management contract which militates against this stand of Lepanto.

Paragraph XI of the contract provides:

Both parties to this agreement fully recognize that the terms of this Agreement are made

possible only because of the faith or confidence that the Officials of each company have in

the other; therefore, in order to assure that such confidence and faith shall abide and

continue, NIELSON agrees that LEPANTO may cancel this Agreement at any time upon

ninety (90) days written notice, in the event that NIELSON for any reason whatsoever,

except acts of God, strike and other causes beyond its control, shall cease to p rosecute the

operation and development of the properties herein described, in good faith and in

accordance with approved mining practice.

It is thus seen, from the above-quoted provision of paragraph XI of the management contract, that

Lepanto could not terminate the agreement at will. Lepanto could terminate or cancel the agreement

by giving notice of termination ninety days in advance only in the event that Nielson should prosecute

in bad faith and not in accordance with approved mining practice the operation and development of

the mining properties of Lepanto. Lepanto could not terminate the agreement if Nielson should cease

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to prosecute the operation and development of the mining properties by reason of acts of God, strike

and other causes beyond the control of Nielson.

The phrase "Both parties to this agreement fully recognize that the terms of this agreement are made

possible only because of the faith and confidence of the officials of each company have in the other" in

paragraph XI of the management contract does not qualify the relation between Lepanto and Nielson

as that of principal and agent based on trust and confidence, such that the contractual relation may be

terminated by the principal at any time that the principal loses trust and confidence in the agent.

Rather, that phrase simply implies the circumstance that brought about the execution of the

management contract. Thus, in the annual report for 19362, submitted by Mr. C. A. Dewit, President of

Lepanto, to its stockholders, under date of March 15, 1937, we read the following:

To the stockholders

xxx xxx xxx

The incorporation of our Company was effected as a result of negotiations with Messrs.

Nielson & Co., Inc., and an offer by these gentlemen to Messrs. C. I. Cookes and V. L.

Lednicky, dated August 11, 1936, reading as follows:

Messrs. Cookes and Lednicky,

Present

Re: Mankayan Copper Mines

GENTLEMEN:

After an examination of your property by our engineers, we have decided to

offer as we hereby offer to underwrite the entire issue of stock of a corporation

to be formed for the purpose of taking over said properties, said corporation to

have an authorized capital of P1,750,000.00, of which P700,000.00 will be issued

in escrow to the claim-owners in exchange for their claims, and the balance of

P1,050,000.00 we will sell to the public at par or take ourselves.

The arrangement will be under the following conditions:

1. The subscriptions for cash shall be payable 50% at time of subscription and

the balance subject to the call of the Board of Directors of the proposed

corporation.

2. We shall have an underwriting and brokerage commission of 10% of the

P1,050,000.00 to be sold for cash to the public, said commission to be payable

from the first payment of 50% on each subscription.

3. We will bear the cost of preparing and mailing any prospectus that may be

required, but no such prospectus will be sent out until the text thereof has been

first approved by the Board of Directors of the proposed corporation.

4. That after the organization of the corporation, all operating contract be

entered into between ourselves and said corporation, under the terms which

the property will be developed and mined and a mill erected, under our

supervision, our compensation to be P2,000.00 per month until the property is

put on a profitable basis and P2,500.00 per month plus 10% of the net profits for

a period of five years thereafter.

5. That we shall have the option to renew said operating contract for an

additional period of five years, on the same basis as the original contract, upon

the expiration thereof.

It is understood that the development and mining operations on said property,and the erection of the mill thereon, and the expenditures therefor shall be

subject to the general control of the Board of Directors of the proposed

corporation, and, in case you accept this proposition, that a detailed operating

contract will be entered into, covering the relationships between the parties.

Yours very truly,

(Sgd.) L. R. Nielson

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Pursuant to the provisions of paragraph 2 of this offer, Messrs. Nielson & Co., took

subscriptions for One Million Fifty Thousand Pesos (P1,050,000.00) in shares of our

Company and their underwriting and brokerage commission has been paid. More than fifty

per cent of these subscriptions have been paid to the Company in cash. The claim owners

have transferred their claims to the Corporation, but the P700,000.00 in stock which they

are to receive therefor, is as yet held in escrow.

Immediately upon the formation of the Corporation Messrs. Nielson & Co., assumed the

Management of the property under the control of the Board of Directors. A modification in

the Management Contract was made with the consent of all the then stockholders, in virtue

of which the compensation of Messrs. Nielson & Co., was increased to P2,500.00 per month

when mill construction began. The formal Management Contract was not entered into until

January 30, 1937.

xxx xxx xxx

Manila, March 15, 1937

(Sgd.) C. A. DeWitt

President

We can gather from the foregoing statements in the annual report for 1936, and from the provision of

paragraph XI of the Management contract, that the employment by Lepanto of Nielson to operate and

manage its mines was principally in consideration of the know-how and technical services that Nielson

offered Lepanto. The contract thus entered into pursuant to the offer made by Nielson and accepted

by Lepanto was a "detailed operating contract". It was not a contract of agency. Nowhere in the record

is it shown that Lepanto considered Nielson as its agent and that Lepanto terminated the management

contract because it had lost its trust and confidence in Nielson.

The contention of Lepanto that it had terminated the management contract in 1945, following the

liberation of the mines from Japanese control, because the relation between it and Nielson was one of

agency and as such it could terminate the agency at will, is, therefore, untenable. On the other hand, it

can be said that, in asserting that it had terminated or cancelled the management contract in 1945,

Lepanto had thereby violated the express terms of the management contract. The management

contract was renewed to last until January 31, 1947, so that the contract had yet almost two years to

go upon the liberation of the mines in 1945. There is no showing that Nielson had ceased to

prosecute the operation and development of the mines in good faith and in accordance with approved

mining practice which would warrant the termination of the contract upon ninety days written notice.

In fact there was no such written notice of termination. It is an admitted fact that Nielson ceased to

operate and develop the mines because of the war a cause beyond the control of Nielson. Indeed, if

the management contract in question was intended to create a relationship of principal and agent

between Lepanto and Nielson, paragraph XI of the contract should not have been inserted because, as

provided in Article 1733 of the old Civil Code, agency is essentially revocable at the will of the principal

that means, with or without cause. But precisely said paragraph XI was inserted in the management

contract to provide for the cause for its revocation. The provision of paragraph XI must be given effect.

In the construction of an instrument where there are several provisions or particulars, such a

construction is, if possible, to be adopted as will give effect to all,3

and if some stipulation of any

contract should admit of several meanings, it shall be understood as bearing that import which is most

adequate to render it effectual.4

It is Our considered view that by express stipulation of the parties, the management contract in

question is not revocable at the will of Lepanto. We rule that this management contract is not a

contract of agency as defined in Article 1709 of the old Civil Code, but a contract of lease of services as

defined in Article 1544 of the same Code. This contract can not be unilaterally revoked by Lepanto.

The first ground of the motion for reconsideration should, therefore, be brushed aside.

2. In the second, third and fifth g rounds of its motion for reconsideration, Lepanto maintains that this

Court erred, in holding that paragraph 11 of the management contract suspended the period of said

contract, in holding that the agreement was not only suspended but was extended on account of the

war, and in holding that the period of suspension on account of the war lasted from February, 1942 to

June 26, 1948. We are going to discuss these three grounds together because they are interrelated.

In our decision we have dwelt lengthily on the points that the management contract was suspended

because of the war, and that the period of the contract was extended for a period equivalent to the

time when Nielson was unable to perform the work of mining and milling because of the adverse

effects of the war on the work of mining and milling.

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It is the contention of Lepanto that the happening of those events, and the effects of those events,

simply suspended the performance of the obligations by either party in the contract, but did not

suspend the period of the contract, much less extended the period of the contract.

We have conscientiously considered the arguments of Lepanto in support of these three grounds, but

We are not persuaded to reconsider the rulings that We made in Our decision.

We want to say a little more on these points, however. Paragraph II of the management contract

provides as follows:

In the event of inundation, flooding of the mine, typhoon, earthquake or any other force

majeure, war, insurrection, civil commotion, organized strike, riot, fire, injury to the

machinery or other event or cause reasonably beyond the control of NIELSON and which

adversely affects the work of mining and milling; NIELSON shall report such fact to

LEPANTO and without liability or breach of the terms of this Agreement, the same shall

remain in suspense, wholly or partially during the terms of such inability. (Emphasis

supplied)

A reading of the above-quoted paragraph II cannot but convey the idea that upon the happening of

any of the events enumerated therein, which adversely affects the work of mining and milling, the

agreement is deemed suspended for as long as Nielson is unable to perform its work of mining and

milling because of the adverse effects of the happening of the event on the work of mining and milling.

During the period when the adverse effects on the work of mining and milling exist, neither party in

the contract would be held liable for non-compliance of its obligation under the contract. In other

words, the operation of the contract is suspended for as long as the adverse effects of the happening

of any of those events had impeded or obstructed the work of mining and milling. An analysis of the

phraseology of the above-quoted paragraph II of the management contract readily supports the

conclusion that it is the agreement, or the contract, that is suspended. The phrase "the same" can

refer to no other than the term "Agreement" which immediately precedes it. The "Agreement" may be

wholly or partially suspended, and this situation will depend on whether the event wholly or partially

affected adversely the work of mining and milling. In the instant case, the war had adversely affected

and wholly at that the work of mining and milling. We have clearly stated in Our decision the

circumstances brought about by the war which caused the whole or total suspension of the agreement