Agency Finals' Cases 2

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G.R. No. 121824 January 29, 1998

BRITISH AIRWAYS, petitioner,vs.COURT OF APPEALS, GOP MAHTANI, and PHILIPPINE AIRLINES, respondents.

ROMERO, J.:

In this appeal by certiorari, petitioner British Airways (BA) seeks to set aside thedecision of respondent Court of Appeals1promulgated on September 7, 1995, whichaffirmed the award of damages and attorney's fees made by the Regional Trial Court ofCebu, 7th Judicial Region, Branch 17, in favor of private respondent GOP Mahtani aswell as the dismissal of its third-party complaint against Philippine Airlines (PAL). 2

The material and relevant facts are as follows:

On April 16, 1989, MAHTANIdecided to visit his relatives in Bombay, India. Inanticipation of his visit, he obtained the servicesof a certain Mr. Gumar to prepare histravel plans. The latter, in turn, purch ased a t icket from B A where the followingitinerary was indicated:3

CARRIER FLIGHT DATE TIME STATUS

MANILA MNL PR 310 Y 16 APR. 1730 OK

HONGKONG HKG BA 20 M 16 APR. 2100 OK

BOMBAY BOM BA 19 M 23 APR. 0840 OK

HONGKONG HKG PR 311 Y

MANILA MNL

Since BAhad no direct flights from Manila to Bombay, Mahtani had to take a flight toHongkong via PAL, and upon arrival in Hongkong he had to take a connecting flight toBombay on board BA.

Prior to his departure, Mahtani checked in at the PAL counter in Manilahis twopieces of luggage containing his clothings and personal effects, confident that uponreaching Hongkong, the same would be transferred to the BA flight bound for Bombay.

Unfortunately, when Mahtani arrived in Bombay he discovered that his luggage wasmiss ingand that upon inquiry from the BA representatives, he was told that the samemight have been diverted to London. After patiently waitingfor his luggage for one


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week, BA finally advised him to file a claim by accomplishing the "Property IrregularityReport."4

Back in the Philippines, specifically on June 11, 1990, Mahtani filed his complaintfor damages and attorney's fees5against BAandMr. Gumarbefore the trial court,

docketed as Civil Case No. CEB-9076.

On September 4, 1990, BA filed its answerwith counter claim6to the complaintraising, as special and affirmative defenses, that Mahtani did not have a cause ofactionagainst it. Likewise, on November 9, 1990, BA filed a third-partycomplaint 7against PALalleging that the reason for the non-transfer of the luggagewas due to the latter's late arrival in Hongkong, thus leaving hardly any time for theproper transfer of Mahtani's luggage to the BA aircraft bound for Bombay.

On February 25, 1991, PAL filed its answerto the third-party complaint, wherein itdisclaimed any liability, arguing that there was, in fact, adequate timeto transfer the

luggage to BA facilities in Hongkong. Furthermore, the transfer of the luggage toHongkong authorities should be considered as transfer to BA.8

After appropriate proceedings and trial, on March 4, 1993, the trial court rendered itsdecision in favor of Mahtani, 9the dispositive portion of which reads as follows:

WHEREFORE, premises considered, judgment is rendered for the plaintiff andagainst the defendant for which defendant is ordered to pay plaintiff the sum ofSeven Thousand (P7,000.00) Pesos for the value of the two (2) suit cases; FourHundred U.S. ($400.00) Dollars representing the value of the contents ofplaintiff's luggage; Fifty Thousand (P50,000.00) Pesos for moral and actual

damages and twenty percent (20%) of the total amount imposed against thedefendant for attorney's fees and costs of this action.

The Third-Party Complaint against third-party defendant Philippine Airlines isDISMISSED for lack of cause of action.

SO ORDERED.

Dissatisfied, BA appealed to the Court of Appeals, which however, affirmed thetrialcourt's findings. Thus:

WHEREFORE, in view of all the foregoing considerations, finding the Decisionappealed from to be in accordance with law and evidence, the same is herebyAFFIRMED in toto, with costs against defendant-appellant.

SO ORDERED. 10

BA is now before us seeking the reversal of the Court of Appeals' decision.


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In essence, BA assails the award of compensatory damages and attorney's fees,as well as the dismissal of its third-party complaint against PAL .11

Regarding the first assigned issue, BA asserts that the award of compensatorydamagesin the separate sum of P7,000.00 for the loss of Mahtani's two pieces of

luggage was without basis since Mahtani in his complaint12

stated the following as thevalue of his personal belongings:

8. On the said travel, plaintiff took with him the following items and itscorresponding value, to wit:

1. personal belonging P10,000.00

2. gifts for his parents and relatives $5,000.00

Moreover, he failed to declare a higher valuation with respect to his luggage , a

condition provided for in the ticket, which reads:13

Liability for loss, delay, or damage to baggage is limited unless a higher value isdeclared in advance and additional charges are paid:

1. For most international travel (including domestic corporations of internationaljourneys) the liability limit is approximately U.S. $9.07 per pound (U.S. $20.000)per kilo for checked baggage and U.S. $400 per passenger for uncheckedbaggage.

Before we resolve the issues raised by BA, it is needful to state that the nature of an

air l ine's con tract of carr iage partakes of two types, namely: a contract to deliver acargo or merchandise to its destination and a contract to transport passengers to theirdestination.A business intended to serve the traveling public primarily, it is imbued withpublic interest, hence, the law governing common carriers imposes an exactingstandard.14Neglect or malfeasance by the carrier's employees could predictably furnishbases for an action for damages.15

In the instant case, i t is apparent that the co ntract of c arr iage was betweenMahtani and BA . Moreover, it is indubitable that his luggage never arrived in Bombayon time. Therefore, as in a number of cases 16we have assessed the airlines' culpabilityin the form of damages for breach of contract involving misplaced luggage.

In determining the amount of compensatory damagesin this kind of cases, i t isvitalthat the claimant satisfactorily prove during the trial the existence of the factualbasis of the damages and its causal connection to defendant's acts .17

In this regard, the trial court granted the following award as compensatory damages:


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Since plaintiff did not declare the value of the contents in his luggage and evenfailed to show receipts of the alleged gifts for the members of his family inBombay, the most that can be expected for compensation of his lost luggage (2suit cases) is Twenty U.S. Dollars ($20.00) per kilo, or combined value of FourHundred ($400.00) U.S. Dollars for Twenty kilos representing the contents plus

Seven Thousand (P7,000.00) Pesos representing the purchase price of the two(2) suit cases.

However, as earlier stated, it is the position of BAthat there should have been noseparate award for the luggage and the contentsthereof since Mahtani failedtodeclare a separate higher valuation for the luggage,18and therefore, its liability islimited, at most, only to the amount stated in the ticket.

Considering the facts of the case, we cannot assent to such specious argument.

Admittedly, in a contract of air carriage a declaration by the passenger of a higher value

is needed to recover a greater amount. Article 22(1) of the WarsawConvention,19provides as follows:

xxx xxx xxx

(2) In the transportation of checked baggage and goods, the liability of the carriershall be limited to a sum of 250 francs per kilogram, unless the consignor hasmade, at time the package was handed over to the carrier, a special declarationof the value at delivery and has paid a supplementary sum if the case sorequires. In that case the carrier will be liable to pay a sum not exceeding thedeclared sum, unless he proves that the sum is greater than the actual value to

the consignor at delivery.

American jurisprudence provides that an air carrier is not liable for the loss of baggagein an amount in excess of the limits specified in the tariff which was filed with the properauthorities, such tariff being binding, on the passenger regardless of the passenger'slack of knowledge thereof or assent thereto. 20This doctrine is recognized in this

jurisdiction.21

Notwithstanding the foregoing, we have, nevertheless, ruled against blind reliance onadhesion contracts where the facts and circumstances justify that they should bedisregarded.22

In addition, we have held that benefits of limited liability are subject to waiversuchas when the air carrier failed to raise timely objectionsduring the trialwhenquestions and answers regarding the actual claims and damages sustained by thepassenger were asked.23

Given the foregoing postulates, the inescapable conclusion is that BA had waivedthe defense of limited liability when it allowed Mahtani to testify as to the actual


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damages he incurred due to the misplacement of his luggage, without anyobjection. In this regard, we quote the pertinent transcript of stenographic notes ofMahtani's direct testimony:24

Q How much are you going to ask from this court?

A P100,000.00.

Q What else?

A Exemplary damages.

Q How much?

A P100,000.00.

Q What else?

A The things I lost, $5,000.00 for the gifts I lost and my personalbelongings, P10,000.00.

Q What about the filing of this case?

A The court expenses and attorney's fees is 30%.

Indeed, it is a well-settled doctrinethat where the proponent offers evidencedeemedby counsel of the adverse party to be inadmissiblefor any reason, the latter

has the right to object. However, such right is a mere privilege which can be waived.Necessarily, the objection must be made at the earliest opportunity, lest silence whenthere is opportunity to speak may operate as a waiver of objections. 25BA has preciselyfailed in this regard.

To compound matters for BA, its counsel failed, not only to interpose a timely objection,but even conducted his own cross-examination as well.26In the early case ofAbrenicav. Gonda,27we ruled that:

. . . (I)t has been repeatedly laid down as a rule of evidence that a protest orobjection against the admission of any evidence must be made at the proper

time, and that if not so made it will be understood to have been waived. Theproper time to make a protest or objection is when, from the question addressedto the witness, or from the answer thereto, or from the presentation of proof, theinadmissibility of evidence is, or may be inferred.

Needless to say, factual findings of the trial court, as affirmed by the Court of Appeals,are entitled to great respect.28Since the actual value of the luggage involvedappreciation of evidence, a task within the competence of the Court of Appeals, its


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ruling regarding the amount is assuredly a question of fact, thus, a finding notreviewable by this Court.29

As to the issue of the dismissal of BA's third-party complaint against PAL, the Court ofAppeals justified its ruling in this wise, and we quote:30

Lastly, we sustain the trial court's ruling dismissing appellant's third-partycomplaint against PAL.

The contract of air transportation in this case pursuant to the ticket issued byappellant to plaintiff-appellee was exclusively between the plaintiff Mahtani anddefendant-appellant BA. When plaintiff boarded the PAL plane from Manila toHongkong, PAL was merely acting as a subcontractor or agent of BA. This isshown by the fact that in the ticket issued by appellant to plaintiff-appellee, it isspecifically provided on the "Conditions of Contract," paragraph 4 thereof that:

4. . . . carriage to be performed hereunder by several successivecarriers is regarded as a single operation.

The rulethat carriage by plane al though p erformed by su ccessive carriersisregarded as a single op erat ionand that the carr ier issuin g th e passenger 's t icketis con sidered the pr incipal partyand the OTHER CARRIER MERELYSUBCONTRACTORS OR AGENT, is a sett led iss ue.

We cannot agree with the dismissal of the third-complaint.

In Firestone Tire and Rubber Company of the Philippines v. Tempengko,31we

expounded on the nature of a third-party complaint thus:

The third-party complaint is, therefore, a procedural device whereby a "thirdparty" who is neither a party nor privy to the act or deed complained of by theplaintiff, may be brought into the case with leave of court, by the defendant, whoacts, as third-party plaintiff to enforce against such third-party defendant a rightfor contribution, indemnity, subrogation or any other relief, in respect of theplaintiff's claim. The third-party complaint is actually independent of and separateand distinct from the plaintiff's complaint. Were it not for this provision of theRules of Court, it would have to be filed independently and separately from theoriginal complaint by the defendant against the third-party. But the Rules permit

defendant to bring in a third-party defendant or so to speak, to litigate hisseparate cause of action in respect of plaintiff's claim against a third-party in theoriginal and principal case with the object of avoiding circuitry of action andunnecessary proliferation of law suits and of disposing expeditiously in onelitigation the entire subject matter arising from one particular set of facts.

Undeniably, for the loss of his luggage, Mahtani is entitled to damages from BA, inview of their contract of carriage.Yet, BA adamantly disclaimed its liabilityand


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instead imputed it to PALwhich the latter naturally denies. In other words, BA andPAL are blaming each o ther for the incident.

In resolving this issue, it is worth observing that the contract of air transportation wasexclusively between Mahtani and BA,the latter merely endorsing the Manila to

Hongkong leg of the former's journey to PAL, as its subcontractor or agent. In fact,the fourth paragraph of the "Conditions of Contracts" of the ticket 32issued by BA toMahtani confirms that the contract was one of continuous air transportation from Manilato Bombay.

4. . . . carriage to be performed hereunder by several successive carriers isregarded as a single operation.

Prescinding from the above discussion, it is undisputed that PAL, in transportingMahtani from Manila to Hongkong ACTED AS THE AGENTof BA.

Parenthetically, the Court of Appeals should have been cognizant of the well-settledrulethat AN AGENT IS ALSO RESPONSIBLE FOR ANY NEGLIGENCEin theperformance of its function.33and is liable for damages which the principal may sufferby reason of its negligent act. 34Hence, the Court of Appeals erred when it opined thatBA, being the principal, had no cause of action against PAL, its agent or sub-contractor.

Also, it is worth mentioningthat both BA and PAL are members ofthe InternationalAir Transport Association (IATA),wherein member airlines are regarded as agents ofeach other in the issuance of the tickets and other matters pertaining to theirrelationship.35Therefore, in the instant case, the CONTRACTUAL RELATIONSHIPBETWEEN BA AND PAL IS ONE OF AGENCY,the former being the principal, since it

was the one which issued the confirmed ticket, and the latter the agent.

Our pronouncement that BA is the principal is consistent with our ruling in LufthansaGerman Airlines v.Court of Appeals.36In that case, Lufthansa issued a confirmed ticketto Tirso Antiporda covering five-leg trip aboard different airlines. Unfortunately, AirKenya, one of the airlines which was to carry Antiporda to a specific destination"bumped" him off.

An action for damages was filed against Lufthansa which, however, denied any liability,contending that its responsibility towards its passenger is limited to the occurrence of amishap on its own line. Consequently, when Antiporda transferred to Air Kenya, its

obligation as a principal in the contract of carriage ceased; from there on, it merelyacted as a ticketing agent for Air Kenya.

In rejecting Lufthansa's argument, we ruled:

In the very nature of their contract, Lufthansa is clearly the principal in thecontract of carriage with Antiporda and remains to be so, regardless of thoseinstances when actual carriage was to be performed by various carriers. The


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issuance of confirmed Lufthansa ticket in favor of Antiporda covering his entirefive-leg trip abroad successive carriers concretely attest to this.

Since the instant petition was based on breach of contract of carriage, Mahtani can onlysue BA alone, and not PAL, since the latter was not a party to the contract. However,

this is not to say that PAL is relieved from any liability due to any of its negligent acts.In China Air Lines, Ltd.v.Court of Appeals,37while not exactly in point, the case,however, illustrates the principle which governs this particular situation. In that case, werecognized that a carrier (PAL), acting as an agent of another carrier, is also liable for itsown negligent acts or omission in the performance of its duties.

Accordingly, to deny BA the procedural remedy of filing a third-party complaint againstPAL for the purpose of ultimately determining who was primarily at fault as betweenthem, is without legal basis. After all, such proceeding is in accord with the doctrineagainst multiplicity of cases which would entail receiving the same or similar evidencefor both cases and enforcing separate judgments therefor. It must be borne in mind that

the purpose of a third-party complaint is precisely to avoid delay and circuitry of actionand to enable the controversy to be disposed of in one suit. 38It is but logical, fair andequitable to allow BA to sue PAL for indemnification, if it is proven that the latter'snegligence was the proximate cause of Mahtani's unfortunate experience, instead oftotally absolving PAL from any liability.

WHEREFORE, in view of the foregoing, the decision of the Court of Appeals in CA-G.R.CV No. 43309 dated September 7, 1995 is hereby MODIFIED, reinstating the third-partycomplaint filed by British Airways dated November 9, 1990 against Philippine Airlines.No costs.

SO ORDERED.


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G.R. No. L-20567 July 30, 1965

PHILIPPINE NATIONAL BANK,petitioner,vs.MANILA SURETY and FIDELITY CO., INC. and THE COURT OF APPEALS (Second

Division),respondents.

Besa, Galang and Medina for petitioner.De Santos and Delfino for respondents.

REYES, J.B.L., J.:

The Philippine National Bank petitions for the review and reversal of the decisionrendered 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 Bankhad op ened a let ter of credi tand 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 & TagubaCorporation (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, ATACOCONSTITUTED THE BANK ITS ASSIGNEE AND ATTORNEY-IN-FACTto receive andcollect 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") stipulatedthat:

The conditions of this assignment are as follows:

1. The same shall remain irrevocable until the said credit accomodation is fullyliquidated.

2. The PHILIPPINE NATIONAL BANK is hereby appointed as our Attorney-in-Fact for us and in our name, place and stead, to collect and to receive thepayments to be made by virtue of the aforesaid Purchase Order, with full power

and authority to execute and deliver on our behalf, receipt for all payments madeto it; to endorse for deposit or encashment checks, money order and treasurywarrants which said Bank may receive, and to apply said payments to thesettlement of said credit accommodation.

This power of attorney shall also remain IRREVOCABLEuntil our totalindebtedness to the said Bank have been fully liquidated. (Exhibit E)


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ATACO delivered to the Bureau of Public Works, and the latter accepted, asphalt tothe total value of P431,466.52. Of this amount the Bank regularly collected, from

April 21, 1948 to November 18, 1948, P106,382.01. Thereafter, for unexplainedreasons, the Bank ceased to collect,until in 1952 its investigators found that moremoneys were payable to ATACOfrom the Public Works office, because the latter

had allowed mother creditor to collect funds due to ATACOunder the samepurchase order to a total of P311,230.41.

Its demands on the principal debtor and the Surety having been refused, the Banksued bothin the Court of First Instance of Manila to recover the balance ofP158,563.18as of February 15, 1950, plus interests and costs.

On October 4, 1958, the trial court rendered a decision, the dispositive portion ofwhich reads:

WHEREFORE, judgment is hereby rendered as follows:

1. Ordering defendants, Adams & Taguba Corporation and Manila Surety &Fidelity Co., Inc., to pay plaintiff,Philippines National Bank, the sum ofP174,462.34 as of February 24, 1956, minus the amount of P8,000 whichdefendant, Manila Surety Co., Inc. paid from March, 1956 to October, 1956 withinterest at the rate of 5% per annum from February 25, 1956, until fully paidprovided that the total amount that should be paid by defendant Manila SuretyCo., Inc., on account of this case shall not exceed P75,000.00, and to pay thecosts;

2. Orderinq cross-defendant, Adams & Taguba Corporation, and third-party

defendant, Pedro A. Taguba, jointly and severally, to pay cross and third-partyplaintiff, Manila Surety & Fidelity Co., Inc., whatever amount the latter has paid orshall pay under this judgment;

3. Dismissing the complaint insofar as the claim for 17% special tax isconcerned; and

4. Dismissing the counterclaim of defendants Adams & Taguba Corporation andManila Surety & Fidelity Co., Inc.

From said decision, only the defendant Surety Companyhas duly perfected its

appeal. The Central Bank of the Philippines did not appeal, while defendantATACO failed to perfect its appeal.

The Bank recoursed to the Court of Appeals, which rendered an adverse decisionand modified the judgment of the court of origin as to the surety's liability. Its motionsfor reconsideration having proved unavailing, the Bank appealed to this Court.


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The Court of Appeals found the Bankto have been negligentin having stoppedcollecting from the Bureau of Public Works the moneys falling due in favor of theprincipal debtor, ATACO, from and after November 18, 1948, before the debt was fullycollected, thereby allowing such funds to be taken and exhausted by other creditors tothe 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 obtainedfrom ATACO was merely in additional security in its favor, and that it was the duty ofthe surety, and not that of the creditor, owed see to it that the obligor fulfills hisobligation, and that the creditor owed the surety no duty of active diligence to collectany, 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 holdthe Bank answerable for negligence in failing to collect from the principal

debtorbut for its neglect in collecting the sums due to the debtor from the Bureauof Public Works, contrary to its duty as holder of an exclusive and irrevocable power ofattorney to make such collections,since an agent is required to act with the care ofa good father of a family (Civ. Code, Art. 1887) and becomes liable for the damageswhich 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 dutyunder its power of attorney, but because they could not have collected from the Bureaueven if they had attempted to do so. It must not be forgotten that the Bank's power tocollect was expressly made irrevocable, so that the Bureau of Public Works could verywell refuse to make payments to the principal debtor itself, and a fortiorireject anydemands by the surety.

Even if the assignment with power of attorneyfrom the principal debtor wereconsidered as mere additional securityst i l l, by allowing the assigned funds to beexhausted without notifying the surety, the Bank deprived the former of anypossibility of recoursing against that security.The Bank thereby exonerated thesurety, pursuant to Article 2080 of the Civil Code:

ART. 2080. The guarantors, even though they be solidary, are released fromtheir obligation whenever by come act of the creditor they cannot be subrogatedto the rights, mortgages and preferences of the latter. (Emphasis supplied.)

The appellant points out to its letter of demand, Exhibit "K", addressed to the Bureau ofPublic Works, on May 5, 1949, and its letter to ATACO, Exhibit "G", informing the debtorthat as of its date, October 31, 1949, its outstanding balance was P156,374.83. SaidExhibit "G" has no bearing on the issue whether the Bank has exercised due diligencein 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 thePublic Works office, it does not appear that any reply thereto was made; nor that thedemand was pressed, nor that the debtor or the surety were ever apprised that payment


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was not being made. The fact remains that because of the Bank's inactivitythe othercredito rs were enabled to c ol lect P173,870.31, when the balance due to appellantBank was only P158,563.18.The finding of negligence made by the Court of Appeals isthus 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 thedecision now under appeal, because the rules on application of payments, givingpreference to secured obligations are only operative in cases where there are severaldistinct debts, and not where there is only one that is partially secured, the error is of noimportance, since the principal reason based on the Bank's negligence furnishesadequate support to the decision of the Court of Appeals that the surety was therebyreleased.

WHEREFORE, the appealed decision is affirmed, with costs against appellantPhilippine National Bank.


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G.R. No. L-21237 March 22, 1924

JAMES D. BARTON,plaintiff-appellee,vs.LEYTE ASPHALT & MINERAL OIL CO., LTD.,defendant-appellant.

Block, Johnston & Greenbaum and Ross, Lawrence & Selph for appellant.Frank B. Ingersoll 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 forbreach of contract, the sum of $318,563.30, United States currency, and further tosecure a judicial pronouncement to the effect that the plaintiff is entitled to an extensionof the terms of the sales agencies specified in the contract Exhibit A. The defendant

answered with a general denial, and the cause was heard upon the proof, bothdocumentary and oral, after which the trial judge entered a judgment absolving thedefendant corporation from four of the six causes of action set forth in the complaint andgiving judgment for the plaintiff to recover of said defendant, upon the first and fourthcauses of action, the sum of $202,500, United States currency, equivalent to $405,000,Philippine currency, with legal interest from June 2, 1921, and with costs. From this

judgment the defendant company appealed.

The PLAINTIFFis a citizen of the United States, resident in the City of Manila, whilethe DEFENDANTis a corporationorganized under the law of the Philippine Islandswith its principal office in the City of Cebu, Province of Cebu, Philippine Islands. Said

company appears to be the owner by a valuable depositof bituminous limestoneand other asphalt products, located on the Island of Leyte and known as the Luciomine.On April 21, 1920, one William Anderson, as president and general manager of thedefendant company, addressed a letter Exhibit B, to the plaintiff Barton, authorizingthe latter to sell the products of the Lucio minein the Commonwealth of Australiaand New Zealandupon a scale of prices indicated in said letter.

In the third cause of action stated in the complaint the PLAINTIFF ALLEGESthatduring the life of the agency indicated in Exhibit B, he rendered servicesto thedefendant company in the way of advertising and demonstrating the products of thedefendant and expended large sums of money in visiting various parts of the world forthe purpose of carrying on said advertising and demonstrations, in shipping to variousparts of the world samples of the products of the defendant, and in otherwise carryingon advertising work. For these servicesand expendituresthe plaintiff sought, insaid third cause of action, to recover the sum of $16,563.80,United States currency.The court, however, absolved the defendantfrom all liability on this cause of actionand the plaintiff did not appeal, with the result that we are not now concerned with thisphase of the case. Besides, the authority contained in said Exhibit B was admittedlysuperseded by the authority expressed in a later letter, Exhibit A, dated October 1,


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1920. This document bears the approval of the board of directors of the defendantcompany and was formally accepted by the plaintiff. As it supplies the principalbasis of the action, it will be quoted in its entirety.

(Exhibit A)

CEBU, CEBU, P. I.October 1, 1920.

JAMES D. BARTON, Esq.,Cebu Hotel City.

DEAR SIR: You are hereby given the sole and exclusive sales agency for ourbituminous limestone and other asphalt products of the Leyte Asphalt and Mineral OilCompany, Ltd., May first, 1922, in the following territory:

Australia Saigon Java

New Zealand India China

Tasmania Sumatra Hongkong

Siam and the Straits Settlements, also in the United States of America until May 1,1921.

As regard bituminous limestone mined from the Lucio property. No orders for less thanone thousand (1,000) tons will be accepted except under special agreement with us. Allorders for said products are to be billed to you as follows:

Per ton

In 1,000 ton lots ........................................... P15

In 2,000 ton lots ........................................... 14

In 5,000 ton lots ........................................... 12

In 10,000 ton lots .......................................... 10

with the understanding, however that, should the sales in the above territory equal orexceed ten thousand (10,000) tons in the year ending October 1, 1921, then in thatevent 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 customersor buyers in the aforesaidterritory in excess of ten pesos (P10) per ton, shal l be rebated to y ou. Said rebate tobe 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 lessersales to apply as per above price list.

You are to have full authority to sell said product of the Luc iomine for any sumsee fit in excess of the prices quoted above and such excess in price shall be


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your extra and additional profit and commission. Should we make any collection inexcess of the prices quoted, we agree to remit same to your within ten (10) days of thedate of such collections or payments.

All contracts taken with municipal governments will be subject to inspector before

shipping, by any authorized representative of such governments at whatever price maybe contracted for by you and we agree to accept such contracts subject to draftattached to bill of lading in full payment of such shipment.

It is understood that the purchasers of the products of the Luciomine are to pay freightfrom the mine carriers to destination and are to be responsible for all freight, insuranceand 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 withmunicipal governments.

All contracts will be subject to delays caused by the acts of God, over which the partieshereto have no control.

It is understood and agreed that we agree to load all ships, steamers, boats or othercarriers prompty and without delay and load not less than 1,000 tons each twenty-fourhours after March 1, 1921, unless we so notify you specifically prior to that date we areprepared to load at that rate, and it is also stipulated that we shall not be required toship orders of 5,000 tons except on 30 days notice and 10,000 tons except on 60 daysnotice.

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 yoursales in the second year reach or exceed ten thousand tons you are to have the optionto renew the agreement for this territory on the same terms for an additional two years.

Should your sales equal exceed ten thousand (10,000) tons in the year ending October1, 1921, or twenty thousand (20,000) tons by May 1, 1922, then this contract is to becontinued automatically for an additional three years ending April 30, 1925, under thesame terms and conditions as above stipulated.

The products of the other mines can be sold by youin the aforesaid territories underthe same terms and conditions as the products of the Luciomine; scale of prices to be

mutually agreed upon between us.

LEYTE ASPHALT & MINERAL OIL CO., LTD.By (Sgd.) WM. ANDERSON

President

(Sgd.) W. C. A. PALMERSecretary


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Approved by Board of Directors,October 1, 1920.(Sgd.) WM. ANDERSONPresident

Accepted.(Sgd.) JAMES D. BARTONWitness D. G. MCVEAN

Upon careful perusal of the fourth paragraph from the end of this letter it is apparent thatsome negative word has been inadvertently omitted before "prepared," so that the fullexpression should be "unless we should notify you specifically prior to that date that weare unprepared to load at that rate," or "not prepared to load at that rate."

Very soon after the aforesaid contract became effective, the PLAINTIFFrequestedthe defendant company to give him a similar selling agency for Japan. To this

request the defendant company, through its president, Wm. Anderson, replied, underdate 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 asyour Australian sales, but we do not feel like giving you a regular agency forJapan until you can make some large sized sales there, because some otherpeople 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 Franciscoand upon arriving at that

port he entered into an agreement with LUDVIGSEN & MCCURDY, of that city,whereby said firm was constituted A SUBAGENTand given the sole sel l ing r igh tsfor the bituminous limestone products of the defendant company for the period of oneyear from November 11, 1920, on terms stated in the letter Exhibit K. The territoryassigned to Ludvigsen & McCurdy included San Francisco and all territory inCalifornia north of said city.Upon an earlier voyage during the same year toAustralia, the plaintiffhad already made an agreement with Frank B. Smith, ofSydney, whereby the latter was to act as the plaintiff's sales agentfor bituminouslimestone mined at the defendant's quarry in Leyte, until February 12, 1921. Later thesame agreement was extended for the period of one year from January 1, 1921.(Exhibit Q.)

On February 5, 1921, Ludvigsen & McCurdy, of San Francisco, addressed a lettertothe plaintiff, then in San Francisco, advising him that he might enter an order for sixthousand tonsof bituminous limestone to be loaded at Leyte not later than May 5,1921, upon terms stated in the letter Exhibit G. Upon this letter the plaintiff immediatelyindorsed his acceptance.


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The plaintiff then returned to Manila; and on March 2, 1921, Anderson wrote to himfrom Cebu, to the effect that the company was behindwith construction and was notthen able to handle big contracts. (Exhibit FF.) On March 12, Anderson was in Manilaand the two had an interview in the Manila Hotel, in the course of which the plaintiffinformed Andersonof the San Francisco order. Anderson thereupon said that, owing

to lack of capital, adequate facilities had not been provided by the company forfilling large ordersand suggested that the plaintiff had better hold up in the matter oftaking orders. The plaintiff expressed surpriseat this and told Anderson that he hadnot only the San Francisco order (which he says he exhibited to Anderson) but otherorders for large quantities of bituminous limestone to be shipped to Australia andShanghai. In another interview on the same Anderson definitely informed the plaintiffthat the contracts which be claimed to have procured would not be filled.

Three days later the plaintiff addressed a letter(Exhibit Y) to the defendantcompanyin Cebu, in which he notified the company to be prepared to ship fivethousand tonsof 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 ofeach twenty-four hours, weather permitting.

On March 5, 1921, Frank B. Smith, of Sydney, had cabled the plaintiff an order forfive thousand tons of bituminous limestone; and in his letter of March 15 to thedefendant, the plaintiff advised the defendant companyto be prepared to shipanother five thousand tons of bituminous limestone, on or about May 6, 1921, inaddition to the intended consignment for San Francisco. The name Henry E. Whitewas indicated as the name of the personthrough whom this contract had beenmade, and it was stated that the consignee would be named later, no destination for theshipment 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 byFrank B. Smith, and his intention was to have the second shipment consigned toAustralia in response to Smith's order.

It will be noted in connection with this letter of the plaintiff, of March 15, 1921, that nomention was made of the names of the person, or firm, for whom the shipments werereally intended. The obvious explanation that occurs in connection with this is that theplaintiff did not then care to reveal the fact that the two ordershad originatedfrom hisown subagents in San Francisco and Sydney.

To the plaintiff's letter of March 15, the assistant manager of the defendant companyreplied on March, 25, 1921, acknowledging the receipt of an order for five thousand tonsof bituminous limestone to be consigned to John Chapman Co., of San Francisco, andthe further amount of five thousand tons of the same material to be consigned to HenryE. White, and it was stated that "no orders can be entertained unless cash has beenactually depositedwith either the International Banking Corporation or the CharteredBank of India, Australia and China, Cebu." (Exhibit Z.)


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To this letter the plaintiff in turn replied from Manila, under date of March, 1921,questioning the right of the defendant to insist upon a cash deposit in Cebu prior to thefilling of the orders. In conclusion the plaintiff gave orders for shipment to Australia offive 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 on these additional shipments if you will signify your ability to fulfill these orderson the dates mentioned." No name was mentioned as the purchaser, or purchases, ofthese intended Australian consignments.

Soon after writing the letter last above-mentioned, the plaintiff embarked for China andJapan. 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 suitableperson for handling bituminous limestone for construction work in Japan. In the letterExhibit X, Hiwatari speaks of himself as if he had been appointed exclusive sales agentfor the plaintiff in Japan, but no document expressly appointing him such is in evidence.

While the plaintiff was in Tokiohe procu red the let ter Exhibi t W, addressed tohimself, to be signed by Hiwatari. This letter, endited by the plaintiff himself, contains anorder for one thousand tons of bituminous limestone from the quarries of the defendantcompany, to be delivered as soon after July 1, 1921, as possible. In this letter Hiwataristates, "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, tothe Asia Banking Corporation, of Manila, P. I., the entire payment of $16,000 gold, to besubject to our order on delivery of documents covering bill of lading of shipments, thecustoms report of weight, and prepaid export tax receipt. I will arrange in advance aconfirmed or irrevocable letter of credit for the above amounts so that payment can beordered by cable, in reply to your cable advising shipping date."

In a letter, Exhibit X, of May 16, 1921, Hiwatari informs the plaintiff that he had shownthe contract, signed by himself, to the submanager of the Taiwan Bank who had given itas his opinion that he would be able to issue, upon request of Hiwatari, a credit note forthe contracted amount, but he added that the submanager was not personally able toplace his approval on the contract as that was a matter beyond his authority.

Accordingly Hiwatari advised that he was intending to make further arrangements whenthe manager of the bank should return from Formosa.

In the letter of May 5, 1921, containing Hiwatari's order for one thousand tons ofbituminous limestone, it was stated that if the material should prove satisfactory afterbeing thoroughly tested by the Paving Department of the City of Tokio, he wouldcontract with the plaintiff for a minimum quantity of ten thousand additional tons, to beused within a year from September 1, 1921, and that in this event the contract was to beautomatically extended for an additional four years. The contents of the letter of May 5seems 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 thedefendant company in Cebu in which he stated that he had been requested by theplaintiff to notify the defendant that the plaintiff had accepted an order from Hiwatari, of


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Tokio, approved by the Bank of Taiwan, for a minimum order of ten thousand tons of thestone annually for a period of five years, the first shipment of one thousand tons to bemade as early after July 1 as possible. It will be noted that this communication did nottruly reflect the contents of Hiwatari's letter, which called unconditionally for only onethousand tons, the taking of the remainder being contingent upon future eventualities.

It will be noted that the only written communications between the plaintiff and thedefendant company in which the former gave notice of having any orders for the sale ofbituminous limestone are the four letters Exhibit Y, AA, BB, and II. In the first of theseletters,dated March 15, 1921, the plaintiff advises the defendant company to beprepared to ship five thousand tonsof bituminous limestone, to be consigned to JohnChapman, Co., of San Francisco, to be loaded by March 5, and a further consignmentof five thousand tons, through a contract with Henry E. White, consignees to be namedlater. In the letter Exhibit BBdated May 17, 1921, the plaintiff's attorney gives noticeof the acceptance by plaintiff of an order from Hiwatari, of Tokio , approved by theBank of Taiwan, for a minimum of ten thousand 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 ExhibitH the plaintiff gives notice of an "additional" (?) order from H. E. White, Sydney, for twolots of bituminous limestone of five thousand tons each, one for shipment not later thanJune 30, 1921, and the other by July 20, 1921. In the same letter thousand tons from F.B. Smith, to be shipped to Brisbane, Australia, by June 30, and a similar amount withinthirty days later.

After the suit was brought, the plaintiff filed an amendment to his complaint in which heset out, in tabulated form, the orders which he claims to have received and upon whichhis letters of notification to the defendant company were based. In this amended answerthe 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 consignmentsof the letters, Exhibits G, L, M, and W, containing the orders from Ludvigen & McCurdy,Frank B. Smith and H. Hiwatari were at no time submitted for inspection to any officer ofthe defendant company, except possibly the Exhibit G, which the plaintiff claims to haveshown to Anderson in Manila on March, 12, 1921.

The different items conspiring the award which the trial judge gave in favor of theplaintiff are all based upon the orders given by Ludvigsen & McCurdy (Exhibit G), byFrank B. Smith (Exhibit L and M), and by Hiwatari in Exhibit W; and the appealed doesnot involve an order which came from Shanghai, China. We therefore now addressourselves to the question whether or not the orders contained in Exhibit G, L, M, and W,in connection with the subsequent notification thereof given by the plaintiff to thedefendant, are sufficient to support the judgment rendered by the trial court.

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 frompersons who had been constituted mere agents of the plaintiff. The San Franciscoorderand the Australian ordersare the same in legal effectas if they were orderssigned by the plaintiff and drawn upon himself;and i t cannot be pretended that those


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orders represent sales to bon a f ide purchasers found by the plaint i f f .The originalcontract by which the plaintiff was appointed sales agentfor a limited period of timein Australia and the United States contemplated that he should find reliable andsolvent buyerswho should be prepared to obligate themselves to take the quantity ofbituminous limestone contracted for upon terms consistent with the contract. These

conditions were not met by the taking of these orders from the plaint i f f 's ow nsubagents,which was as if the plaint i f f had bought for him sel f the comm oditywhich he was author ized to sel l to others.Article 267 of the Code of Commercedeclares that no agent shall purchase for himself or for another that which he hasbeen ordered to sell.The law has placed its ban upon a broker's purchasing from hisprincipal unless the latter with full knowledge of all the facts and circumstancesacquiesces in such course; and even then the broker's action must be characterized bythe utmost good faith. A sale made by a broker to himself without the consent of theprincipal is ineffectual whether the broker has been guilty of fraudulent conduct or not.(4 R. C. L., 276-277.) We think, therefore, that the position of the defendant company isindubitably sound in so far as it rest upon the contention that the plaintiff has not in fact

found any bona fide purchasers ready and able to take the commodity contracted forupon 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 containsprovisions under which the period of the contract might be extended. That privilege wasprobably considered a highly important incident of the contract and it will be seen thatthe sale of five thousand tons which the plaintiff reported for shipment to San Franciscowas precisely adjusted to the purpose of the extension of the contract for the UnitedStates for the period of an additional year; and the sales reported for shipment to

Australia were likewise adjusted to the requirements for the extention of the contract inthat territory. Given the circumstances surrounding these contracts as they werereported to the defendant company and the concealment by the plaintiff of thenames of the authors of the orders, -- who after all were merely the plaintiff'ssubagents,the officers of the defendant company might justly have entertained thesuspicion 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 his appeal over the contentionwhether the defendant was justified in laying down the condition mentioned in the letterof March 26, 1921, to the effect that no order would be entertained unless cash shouldbe deposited with either the International Banking Corporation of the Chartered Bank ofIndia, Australia and China, in Cebu. In this connection the plaintiff points to thestipulation of the contract which provides that contracts with responsible parties are tobe 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 merediplomatic parrying, as the plaintiff had no contract from any responsible purchaserother than his own subagents and the defendant company could no probably have filledthe contracts even if they had been backed by the Bank of England.


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Upon inspection of the plaintiff's letters (Exhibit Y and AA), there will be found ampleassurance that deposits for the amount of each shipment would be made with a bank inManila provided the defendant would indicated its ability to fill the orders; but theseassurance rested upon no other basis than the financial responsibility of the plaintiffhimself, 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 hehad been promised the exclusive agency under the plaintiff for Japan, nevertheless itdoes not affirmatively appear that he had been in fact appointed to be such at the timehe signed to 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 clearlyappears, however, that he did not expect to purchase the thousand tons of bituminouslimestone referred to in his order without banking assistance; and although thesubmanager of the Bank of Taiwan had said something encouraging in respect to thematter, 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 aresponsible source.

The first assignment of error in the appellant's brief is directed to the action of the trialjudge in refusing to admit Exhibit 2, 7, 8, 9 and 10, offered by the defendant, and inadmitting 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'sassistant general manager undertakes to reply to the plaintiff's letter of March 29proceeding. It was evidently intended as an argumentative presentation of the plaintiff'spoint of view in the litigation then pending, and its probative value is so slight, even ifadmissible at all, that there was no error on the part of the trial court in excluding it.

Exhibit 7, 8, 9 and 10 comprise correspondence which passed between the parties bymail or telegraph during the first part of the year 1921. The subject-matter of thiscorrespondence relates to efforts that were being made by Anderson to dispose of thecontrolling in the defendant corporation, and Exhibit 9 in particular contains an offerfrom the plaintiff, representing certain associates, to but out Anderson's interest for afixed sum. While these exhibits perhaps shed some light upon the relations of theparties during the time this controversy was brewing, the bearing of the matter upon thelitigation before us is too remote to exert any definitive influence on the case. The trialcourt 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 whichinformation is given concerning the property of the defendant company. It is stated inthis letter that the output of the Lucio (quarry) during the coming year would probably beat the rate of about five tons for twenty-four hours, with the equipment then on hand, butthat with the installation of a model cableway which was under contemplation, thecompany would be able to handle two thousand tons in twenty-four hours. We see nolegitimate reason for rejecting this document, although of slight probative value; and hererror imputed to the court in admitting the same was not committed.


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Exhibit 14, which was offered in evidence by the defendant, consists of a carbon copy ofa 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 profit from theSan Francisco contract would have been at the rate of eigthy-five cents (gold) per ton.The authenticity of this city 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 noobjection to the introduction of this carbon copy in evidence if counsel for the defendantwould explain where this copy was secured. Upon this the attorney for the defendantinformed the court that he received the letter from the former attorneys of the defendantwithout explanation of the manner in which the document had come into theirpossession. Upon this the attorney for the plaintiff made this announcement: "Wehereby give notice at this time that unless such an explanation is made, explaining fullyhow this carbon copy came into the possession of the defendant company, or any onerepresenting it, we propose to object to its admission on the ground that it is aconfidential communication between client and lawyer." No further information was thengiven 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 itwas a privileged communication between client and attorney.

We are of the opinion that this ruling was erroneous; for even supposing that the letterwas 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 itmakes no difference how the adversary acquired possession. The law protects theclient from the effect of disclosures made by him to his attorney in the confidence of thelegal relation, but when such a document, containing admissions of the client, comes tothe hand of a third party, and reaches the adversary, it is admissible in evidence. In thisconnection Mr. Wigmore says:

The law provides subjective freedom for the client by assuring him of exemptionfrom its processes of disclosure against himself or the attorney or their agents ofcommunication. This much, but not a whit more, is necessary for themaintenance of the privilege. Since the means of preserving secrecy ofcommunication are entirely in the client's hands, and since the privilege is aderogation from the general testimonial duty and should be strictly construed, itwould be improper to extend its prohibition to third persons who obtainknowledge of the communications. One who overhears the communication,whether with or without the client's knowledge, is not within the protection of theprivilege. The same rule ought to apply to one who surreptitiously reads orobtains 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 effectthat when papers are offered in evidence a court will take no notice of how they wereobtained, whether legally or illegally, properly or improperly; nor will it form a collateralissue 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.)


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Our conclusion upon the entire record is that the judgment appealed from must bereversed; 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, Avancea, Ostrand, Johns and Romualdez, JJ., concur.

Separate Opinions

MALCOLM, J., dissenting:

An intensive scrutiny of every phase of this case leads me to the conclusion that the trialjudge was correct in his findings of fact and in his decision. Without encumbering thecase 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 liketo have it. The plaintiff and the defendant deliberately entered into a contract, the basisof this action. The plaintiff, proceeding pursuant to this contract, spent considerableeffort and used considerable money to advance the interests of the defendant and tosecure orders for its products. These orders were submitted to the president of thedefendant company personally and later formally by writing. Prior to the institution of thesuit, the only objection of the defendant was that the money should be deposited witheither the International Banking Corporation or the Chartered Bank of India, Australiaand China at Cebu, a stipulation not found in the contract.

A reasonable deduction, therefore, is that the plaintiff presented orders undercircumstances which were a substantial compliance with the terms of the contract withthe defendant, and which insured to the defendant payment for its deliveries accordingto the price agreed upon, and that as the defendant has breached its contract, it mustrespond in damages.

The current running through the majority opinion is that the order emanated fromsubagents of the plaintiff, and that no bona fidepurchasers were ready and able to takethe commodity contracted for upon terms compatible with the contract. The answer is, inthe 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 personsmaking them personally responsible. The Ludvigsen & McCurdy order from SanFrancisco begins: "You can enter our order for 6,000 tons of bituminous limestone asper sample submitted, at $10 gold per ton, f. o. b., island of Leyte, subject to thefollowing terms and conditions:

* * * "(Exhibit G). The Smith order from Australia contains the following: "It is thereforewith great pleasure I confirm the booking of the following orders, to be shipped at least


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within a week of respective dates: . . ." (Exhibit L). The Japan order starts with thefollowing sentence: "You can enter my order for 1,000 tons of 1,000 kilos each ofbituminous 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 onthe proposition that the orders were communicated by the plaintiff to the defendant, andthat the only objection the defendant had related to the manner of payment. Toemphasize this thought again, let me quote the reply of the defendant to the plaintiffwhen the defendant acknowledge receipts of the orders placed by the plaintiff. Theletter reads: "In reply to same we have to advice you that no orders can be entertainedunless cash has been actually deposited with either the International BankingCorporation 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 anyquestioned 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 fromraising new objections for rejection of the orders. (Mechem on Agency, section 2441.)

The majority decision incidentally takes up for consideration assignments of error 1 and2 having to do with either the admission or the rejection by the trial court of certainexhibits. Having in mind that the Court reverses the court a quo on the facts, what issaid relative to these two assignments is absolutely unnecessary for a judgment, andeven as obiter dicta, contains unfortunate expressions. Exhibit 14, for example, is aletter addressed by the plaintiff to his lawyer and probably merely shown to the counselof the defendant during negotiations to seek a compromise. Whether that exhibit beconsidered 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 adversaryacquired possession of the document, and that a court will take no notice of how it wasobtained, is destructive of the attorney's privilege and constitutes and obstacle toattempts at friendly compromise. In the case of Uy Chico vs. Union Life AssuranceSociety ([1915], 29 Phil., 163), it was held that communications made by a client to hisattorney for the purpose of being communicated to others are not privileged if they havebeen so communicated. But here, there is no intimation that Exhibit 14 was sent by theclient to the lawyer for the purpose of being communicated to others. The SupremeCourt 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 theopponent's attorney, are confidential communications and must be excluded.

Briefly, the decision of the majority appears to me to be defective in the followingparticulars: (1) It sets aside without good reason the fair findings of fact as made by thetrial court and substitutes therefor other findings not warranted by the proof; (2) it fails tostress plaintiff's main argument, and (3) it lay downs uncalled for rules which underminethe inviolability of a client's communications to his attorney.


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G.R. No. L-3572 September 30, 1952

PAULINO DUMAGUIN,plaintiff-appellant,vs.A.I. REYNOLDS, E.J. HARRISON and BIG WEDGE MINING COMPANY, defendants-

appellees.

Ernesto Sibal and Taada, Pelaez and Teehankee for appellant.Juan L. Orbeta for appellee A.I. Reynolds.Basilio Francisco for appellee E.J. Harrison.Claro M. Recto for appellee Big Wedge Mining Company.

MONTEMAYOR, J .:

For purposes of this decision, the following facts may be said to be agreed upon by theparties or to be without dispute. Because the plaintiff Paulino M. Dumaguin would

appear to be the central figure in this case, we shall begin by making reference to hisbackground and his status at the time he entered into the transactions and executed thedeeds of conveyance whose legality is now the subject of the present petition.

PAULINO M. DUMAGUINwas a teacherin the public elementary schools for a yearand a half, and from 1916 to 1918was the Manager of the Head Waters MiningCompany in Baguio. As Manager of said mining company Paulino acquired someknowledge of mining.On or before May 21, 1929, he was a supervising line-man ofthe Bureau of Posts. On that date, (May 21, 1929) he was admitted to the InsularPsychopathic Hospital at San Felipe Neri (now National Psychopathic Hospital),Mandaluyong, Rizal, said to be suffering from "paranoia". On October 15, 1929, Dr.Toribio Joson, assistant alienist of said Hospital, submitted the following memorandum:

"MEMORANDUM

To: the Alienist in Charge Insular Psychopathic Hospital, San Felipe Neri, Rizal.

Subject: Paulino M. Dumaguin. Male, married, 33 years old, Ex-Supervising Lineman of the Bureau of Posts, admitted to the hospital at11:25 a.m. on May 21, 1929.

1. The patient is well-behaved, oriented in all spheres, coherent in hisspeech and has no more illusion or hallucinations; but is having a delusionthat one of the patients in the Hospital is trying to chloroform him. Heconsequently keeps away from the said patient.

2. He is not also sure that his former officemates whom he erroneouslybelieved chloroformed him before, would not chloroform him anymorewhen he goes home.


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3. This type of insanity which Paulino M. Dumaguin is suffering from istherefore that of Paranoia, which runs a very chronic course of usually alifetime, but which may show improvement as the patient grow older. (SeeExhibits 42, folio 195; Emphasis ours).

After Paulino's dischargefrom the Hospital on or about November 11, 1929, inorder to enable his wife to withdraw his retirement gratuity from the government,on September 16, 1930, she filed guardianship proceedingsin the Court ofFirst Instance of Camarines Sur. Said court relying presumably on the report ofDr. Joson above-quoted, granted the petition and appointed her as Paulino'sguardian.

On February 2, 1931, Paulino and his guardian in a joint motion before theCourt of Camarines Sur among others alleged that

4. Que en la actualidad, el citado Paulino M. Dumaguin, ya esta

restablecido, por lo que se le ha permitido dejar el Hospital y ahora vivecon su familia en esta localidad, que es su residencia.

5. Que el mencionado Paulino M. Dumaguin ha recibido un cheque delGobierno por la cantidad de P412.38, como parte de su pension.

6. Que los comparecientes necesitan el importe de dicho cheque paraatender a su subsistencia, pues se hallan en la actualidad faltos de todonecesario.

and asked that they be authorized to cash said check and use its proceeds for

their support:

"Por tanto, suplican al Juzgado que se les autorice a cambiar el referidocheque, y disponer de su producto para su manutencion."

In 1934, the guardianship proceedings were closed.

In and before the year 1930, DEFENDANTSA.I. Reynolds and E.J. Harrisonas goldprospectors had located some mineral claims in the Itogon District, sub-province ofBenguet, Mountain Province, known as the "ANACONDA GROUP". They employedFructuoso Dumaguin, brotherof plaintiffPaulino, in their work as prospectors.

At the beginning of 1931, Fructuoso Dumaguinwas thus working for said defendantsReynolds and Harrison relocating some of their mining claims previously located andlocating new ones, for which work he was paid P5.00 a day. About the same time hisbrother Paulino M. Dumaguin,plaintiff herein, leaving his home in Camarines Surwent up to Baguio in search of work. To help him Fructuoso got him employed by thedefendants and the two brothers worked together in the mining business for thedefendants.


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The theory of the plaintiffsthat he was employed only to relocate defendants' miningclaims in the Anaconda Group whilethe defense claimsthat like his brother Fructuoso,Paulino was employed not only to relocate mining claims within the Anaconda Groupbut also to stake and locate new mining claims for them. For said work Paulino was alsopaid by the day by the defendants.

During the monthsof May, June and July of that year 1931the two brothersFructuoso and Paulino staked and located ten mining claims or fractions thereofnamed Victoria, Greta, Triangle, Lolita, Frank, Paul, Leo, Loreto, Arthur and G. Ubalde,all said claims or fractions being late registered in the name of Paulino M.Dumaguinas locator in the office of the Mining Recorder. By virtue of an instrument(Exhibit A) entitled "Deed of Transfer" dated September 10, 1931, Paulino M.Dumaguin conveyed and transferred to defendantsA.I. Reynolds and E.J. Harrisonnine of the ten mineral claimsjust mentioned, and in another instrument (Exhibit B)on the same date September 10, 1931, Paulino transferred and conveyed todefendant Reynold sthe remaining claim Victoria.

Later, Reynoldsas vendeeof the mining claim Victoriaby virtue of a Deed of Sale(Exhibit C) dated November 2, 1931 sold and transferred said claimto theDEFENDANTBig Wedge Mining Companythe claims Frank, Paul, Leo, Loreto, and

Arthur. In still another Deed of Sale (Exhibit J) Reynolds and Harrison soldandtransferred to the same Big Wedge Mining Co. the Greta, Lolita and Triangle fractionsor mineral claims. As a result all the ten mineral claims or fractions transferred byPaulino to Reynolds and Harrison,with the exceptionof the claim G. Ubalde were inturn sold and transferred to the Big Wedge Mining Co.. What was doneto this lastclaim or f ract ion G. Ubalde, does not appear on th e record, but it must still remain inthe name of Reynolds and Harrison.

Plaintiff Dumaguininitiated this case in the Court of First Instance of Baguio by filinghis original complaint on November 5, 1934, later amending it on July 26, 1939 andfinally re-amending it on June 4, 1940. Under his re-amended complaint which containsthree case of action, he alleges that when he executed the deeds of transfer(Exhibits A and B) he was under guardianshipand did not possess the mentalcapacityto contract and so asked the court that the said two deeds be declared nulland void.He also alleged that those two deed being void, Reynolds and Harrison hadno title to transmit to the Big Wedge Mining Co., by virtue of the deeds of sale , ExhibitsC and D (plaintiff evidently overlooked the deed, Exhibit J) and therefore those twodeeds of sale (Exhibit C and D) should also be declared null and void, and that h e,(Paul ino) should b e declared the owner of the ten min ing claims or fract ions in

quest ion.Finally, he claimed that the Big Wedge Mining Co., had illegally takenpossession of the ten mining claimsand profitably worked or operated them andso he asked that said company be ordered to render an accoun t ingof its operationsand profits made therefrom, and that the defendants should be ordered jointly andseverally to pay to the plaintiff such profits, as may have been derived by the BigWedge Mining Co. as shown by its accounts.


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Defendants Reynolds and Harrisonf led their or iginal answ erson January 30, 1935and April 12, 1935, respectively, both superseded by their amended answers onJanuary 22, 1936. Defendant Big Wedge Mining Co., filed its answeron January 30,1935 which was amended January 18, 1936 and later re-amended on February 5, 1940.Reynolds and Harrison claimedin their answersthat plainti f f Paulinoand his brother

Fructuoso had been expressly employed by them to locate and stake mineralclaims, and that said two brothers staked and located the ten mineral claims in questionfor them (defendants), and that there was an understanding between the two brothersand the two defendants that the said mineral claims so located would eventually betransferred to them. In its turn defendant Big Wedge Mining Co., followed the theoryof Reynolds and Harrison about Paulino having been employedby them andhaving made the location of the mineral claims in question for their employers, and thatthe company was not aware of the alleged mental incapacity of plaintiff at the timethat he executed the deeds of transfer in favor of Reynolds and Harrison , and thateven if the plaintiff was under guardianship at the time, yet he confirmed and ratified thedeeds of transfer by his acts and letters after his release from guardianship, and that

said company bought the said mineral claims in good faith and for valuableconsideration from the registered owners.

Hearing was held on July 31, 1940. The evidence submitted was mainly documentary.Only three witnesses took the witness stand. Atty. Alberto Jamir was presented by theBig Wedge Mining Co. to identify a copy of a decision rendered by the Securities andExchange Commission. Defendant Reynolds testified for the defense. For the plaintiff,only Fructuoso Dumaguin testified for his brother. Why Paulino, the plaintiff, did not takethe witness stand, if not to support the allegations of his complaint, at least to refute theevidence for the defense particularly that which tended to show that he was employedby defendants Reynolds and Harrison to stake and locate mineral claims for them withthe understanding that he would later transfer said claims to his employers, is notknown to this court. After trial, Judge Jose R. Carlos before whom the hearing was held,rendered judgment on January 16, 1941, dismissing the complaint.

Paulino Dumaguin appealedfrom that decision. His Record on Appeal was approvedon April 16, 1941 and the brief was filed on November 3, 1941 and the brief for the BigWedge Mining Co. was filed or rather is dated December 31, 1941. It is not knownwhether defendants Reynolds and Harrison ever filed a brief. The fact is that therecord of the case was lost or destroyed during the war and only copies of therecord on appeal and the briefs were salvaged.As to the oral and documentaryevidence which was lost, only those portions of the transcript and documentsreproduced and appearing in the briefs are now available. But the parties have agreedto the correctness of these portions so quoted in the briefs.

After the reconstitution of the case, the Court of Appeals which had taken charge ofthe appeal found that the amount involved was beyond its jurisdiction and socertified the case to us.Neither Reynolds nor Harrison has appeared before the Courtof appeals or before this Court. Appellant's attorney represented that Harrison's counselcould not appear in the appeal due to lack of authority, not having heard from his client


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since liberation and being of the belief that his client is dead. There was also informationto the effect that defendant Reynolds had been killed during the early part of theoccupation by the Japanese. So, only the Big Wedge Mining Co., is opposing thepresent appeal.

The decisive and pivotal question here is whether plaintiff Paulino M. Dumaguin and hidbrother Fructuoso acting on their account staked and located these mining claims orfractions in dispute for Paulino, or whether they acting as employees and agents ofdefendants Reynolds and Harrison, staked and located said claims for and in behalf oftheir employers. We agree with the trial court that the great preponderance of evidenceis to the effect that these claims were located for Reynolds and Harr ison by Paul inoand Fructuos o AS EMPLOYEES,and that the latter were purposely employed andpaid for this work.All the expenses incident to the skating and location of said claimsand registration of the corresponding declarations of location were paid by Reynoldsand Harrison. It is true that in one part of his testimony, Fructuoso claimed that he andhis brother were employed merely to relocate the mining claims of the defendants within

the Anaconda Group but later on, he admitted in his testimonyand also in his affidavit(Exhibit 1) which was prepared before these proceedings were initiated in court that heand his brother Paulino working together were paid by the defendants Reynoldsand Harrison to locate new mining claims outside the Anaconda Group; that as amatter of fact, Paulino engaged in this work at the beginning, but because he(Fructuoso) found that Paulino physically was not equal to the arduous work of climbingup and down mountains to stake and locate claims, he was placed in charge of thepayroll of the defendants and detailed to do paper work which, it is presumed, includedin the registration of the declarations of location of the mining claims in the office of theMining Recorder, in his name. Fructuoso also admittedthat there was anunderstanding before and pending the staking and location of said mining claims thatthey would eventually be transferred to their real owners, Reynolds and Harr ison.

In consonance to this correct theory that these mining claims were located fordefendants Reynolds and Harrison, as counsel for appellee well observes, Exhibit Aand E are both entitled "Deed of Transfer". This conveys the idea that Paulino wasmerely transferring to the real owners property which technically and in namewere registered as his own.Otherwise, if he really owned these mining claims, thetwo deeds (Exhibit A and B) would have been more appropriately entitled "Deed ofSale" and the body of said instruments should have stated that he was selling themining claims. On the other hand, we have the instruments (Exhibits C and D) whereinReynolds and Harrison sold said mining claims or fractions to the Big Wedge MiningCo., and the documents were each entitled "Deed of Sale".

It would really be unfair, even against public policy to allow a person employed to stakeand locate mining claims for his employer to make locations on his own account and forhis own benefit tho done outside hours of work or employment, because there is anobvious incompatibility and conflict of interest between those of the employer on the onehand and those of the employee on the other, unless there is a clear and expressagreement to the contrary. Judge Carlos in his well-considered decision correctly states


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the fiduciary relation between Paulino and his employers Reynolds and Harrison andthe sound and correct rule and public policy on this matter.

The fiduciary relation between the plaintiff and the defendants A.I. Reynolds andE.J. Harrison, is very clear from the evidence. Fructuoso M. Dumaguin, has

clearly stated that his brother, Paulino M. Dumaguin, was working under himwhile he was locating the claims in question for A.I. Reynolds and E.J. Harrison.There can be no doubt that these claims in question were among those whichthese defendants wanted staked because, according to Fructuoso Dumaguinhimself, they all adjoined the Anaconda Group, which ground he was speciallyinstructed to stake for the said defendants. The plaintiff, herein, therefore,learned of the existence, especially of the fractional mineral claims, because hewas with the party who staked the rest of the claims in that locality. To permit the

plaintiff herein to assert his claim of ownership over these claims in questionwould be tantamount to allowing him to violate and infringe all the sound andage-old rules which govern principal and agent.There can be no doubt that this

relation existed because Fructuoso M. Dumaguin, the sole witness for theplaintiff, stated categorically in his affidavit Exhibit I that all the claims subject ofthis litigation, except G. Ubalde mineral claim, had been located and staked byhim for A.I. Reynolds and E.J. Harrison, though the same were recorded in thename of his brother Paulino. It is quite evident, therefore, that even if no transferswere made or Exhibit "A" and "B did not exist, these two defendants would still beentitled to an assignment of the said claims. The evidence of the fiduciaryrelation between plaintiff and the defendants A.I. Reynolds and E.J. Harrison wasgiven by none other than Fructuoso M. Dumaguin, the brother the only witness ofthe plaintiff in this case.

ANY ACT OF AN AGENT, the object or tendency of which is to commit a fraudor breach of the agency, should be discouraged. In the first place, such acts arecondemned by public policy. They are against the morals; therefore, they shouldnever be tolerated. An agent or trustee, or anybody who acts in a fiduciarycapacity, should never be permitted to capitalize on his fiduciary position to mulctor take advantage of his principal or employer.

It has been the practice of miners to employ others to stake mining claims forthem. This is usually done after the prospectors have assured themselves that amine exists in a certain locality. The man who place the stake could easily leavefractional mineral claims in between the claims without reporting the existence ofthis fractions to his principal. Later he could stake and claim them. If this ispermitted to happen, bona fide miners can easily be held up by the very manwhom they have employed to stake their mining claims. If the mining industryshall be protected and the exploitation of the natural resource of this countryencouraged, such practice should not be tolerated. The wrong or the damagethat can be done is unlimited. If agents or employees or laborers are permitted toconceal or withhold certain mining claims ordered staked by their employer whogave them specific instructions to stake the entire ground in a certain locality, the


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effect will practically be the condonation and legalization of a holdup. For thisreason Mechem on Agency, Sec. 1224, said the following:

"The well-settled and salutary principle that person who undertakes to act foranother shall not be in the same matter, act for himself, results also in the other

rule, that all profits made and advantage gained by the agent in the execution ofthe agency belong to the principal. And it matters not whether such profit oradvantage be the result of the performance or of the violation of the duty of theagent if it be the fruit of the agency. If his duty be strictly performed, the resultingprofit accrues to their principal as the legitimate consequence of the relation. Ifprofit accrues from his violation of duty while executing the agency, that likewisebelongs to the principal, not only because the principal has to assume theresponsibility of the transaction, but also because the agent cannot be permittedto derive advantage from his own fault.

"It is only by rigid adherence to this rule that all temptation can be removed from

one acting in a fiduciary capacity, to abuse his trust or seek his own advantage inthe position which it affords him."

In view of our conclusion and holding that these mining claims were staked and locatedfor the benefit of the defendants Reynolds and Harrison, the other points and questionsinvolved in the appeal exhaustively, in detail and with a wealth of authorities, discussedby counsel for both appellant and appellee with ability and skill, become incidental andnot of much if any relevancy whatsoever, although we may discuss one or two of themnot so much to strengthen our decision but rather to render more clear our views.

Appellants contends that the deeds of transfer (Exhibits A and B) should be annulled for

lack of mental capacity because at the time of their execution he was underguardianship for insanity. It is contended that altho in a case of execution of a will by atestator who was under guardianship for mental derangement, the presumption ofinsanity is onlyjuris tantum, subject to rebuttal, and nevertheless, mental incapacity asregards contracts, particularly those transferring property, under similar circumstances,involves a conclusive presumption which cannot be rebutted by evidence, We havestudied the arguments and authorities adduced by both counsel on this point and weare inclined to agree with counsel for appellee that the better rule is that even in theexecution of contracts, in the absence of a statute to the contrary, the presumption ofinsanity and mental incapacity is onlyprima facie and may be rebutted by evidence; andthat a person under guardianship for insanity may still enter into a valid contract andeven convey property, provided it is proven that at the time if entering into said contract,he was not insane or that his mental defect if mentally deranged did not interfere with oraffect his capacity to appreciate the meaning and significance of the transaction enteredinto by him.

Section 66. Generally. Of course, not every substandard mentality or evenevery mental infirmity has the effect of rendering the afflicted person disabled forthe purpose of entering into contract and making conveyance. . . . A reasonable


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test, suggested by several courts for the purpose of determining whether aninfirmity operates to render a person incapable of binding himself absolutely bycontract, is whether his mind has been so affected as to render him incapable ofunderstanding the nature and consequences of his acts, or more exactly,whether his mental powers have become so far affected as to make him unable

to understand the character of the transaction in question. . . . Some authoritiestake a view that a grantor may be competent to execute a deed notwithstandinghis disability to transact business generally, provided he understands the natureof what he is doing and recollects the property of which he is making adisposition and to whom he is conveying it. Other authorities, however, take theposition that to sustain a deed, the grantor must have the ability to transactordinary business. In any event, if it appears that the grantor in a deed wasincapable of comprehending that the effect of the instrument, when made,executed, and delivered, would be to divest him of title to the land covered by theinstrument, it is not binding upon him. . . . (28 Am. Jur., Insane, etc., See Sec. 66,pp. 701-702.)

. . . Even partial insanity will not render a contract voidable unless it exists inconnection with or is referable to the subject matter of the contract. Similarly, adelusion if unconnected with the transaction in question, is not sufficient to affectthe validity of a contract consummated by the person thus affected. Monomaniaor a mental fixation or abnormality respecting a matter disconnected with the actof conveying property will not affect the validity of the conveyance. . . . ( Ibid, p.703.)

There are many case of persons mentally deranged who although they have beenhaving obsessions and delusions for many years regarding certain subjects and

situations, still are mentally sound in other respects. There are others who thoughinsane, have their lucid intervals when in

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