Sales Cases 3

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SECOND DIVISION

ARMANDO BARCELLANO,Petitioner,

-versus-

DOLORES BAAS, represented by her son andAttorney-in-fact CRISPINOBERMILLO,

Respondent.

G.R. No. 165287

Present:

CARPIO,J.,Chairperson,BRION,

ABAD,*

PEREZ, and

SERENO,JJ.

Promulgated:

September 14,2011

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

D E C I S I O N

PEREZ,J.:

Before the Court is an appeal by certiorari[1]

from the Decision[2]

of the Fifteenth Division of the Court

of Appeals in CA-G.R. CV No. 67702 dated 26 February 2004, granting the petition of Dolores Baas,

herein respondent, to reverse and set aside the Decision[3]

of the lower court.

The dispositive portion of the assailed decision reads:

WHEREFORE, premises considered, the instant appeal is hereby GRANTED. The

decision of the court a quo is hereby REVERSED AND SET ASIDE and in its stead another one

is rendered GRANTING to petitioner-appellants the right to redeem the subject property for theamount of Php 60,000.00 within thirty (30) days from the finality of this decision.

The facts as gathered by the court follow:

Respondent Baas is an heir of Bartolome Baas who owns in fee simple Lot 4485, PLS-722-D situated

in Hindi, Bacacay, Albay. Adjoining the said lot is the property of Vicente Medina (Medina), covered by

Original Certificate of Title No. VH-9094, with an area of 1,877 square meters. On 17 March 1997, Medina

offered his lot for sale to the adjoining owners of the property, the heirs of Bartolome Baas, including herein

respondent Dolores Baas, Crispino Bermillo (Bermillo) and Isabela Bermillo-Beruela (Beruela)[4]

Crispino
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Bermillo, as the representative of his family, agreed to the offer of Medina, the sale to take place after the

harvest season.[5]

On 3 April 1997, Medina sold the property to herein petitioner Armando Barcellano forP60,000.00. The

following day, the heirs of Baas learned about the sale and went to the house of Medina to inquire about

it.[6]

Medina confirmed that the lot was sold to Barcellano. The heirs conveyed their intention to redeem the

property but Medina replied that there was already a deed of sale executed between the parties.[7]

Also, the

Baas heirs failed to tender the P60,000.00 redemption amount to Medina.[8]

Aggrieved, the heirs went to the Office of theBarangayCouncil on 5 April 1997.[9]

Medina sent only

his tenant to attend the proceeding. On 9 April 1997, the Baas heirs and Barcellano, with neither Medina nor

his tenant in attendance, went to the Office of theBarangayCouncil to settle the dispute. According to one of

the Baas heirs, Barcellano told them that he would be willing to sell the property but for a higher price

of P90,000.00.[10]

Because the parties could not agree on the price and for failure to settle the dispute,

theLuponissued a Certification to File Action.[11]

On 24 October 1997, Dolores Baas filed an action for Legal Redemption before the Regional Trial

Court. However, on 5 February 1998, the petition was withdrawn on the ground that:

xxx considering the present worse economic situation in the country, petitioner opted that

the amount they are supposed to pay for the redemption be readily available for their immediateand emergency needs.

On 11 March 1998, Dolores Baas, as represented by Bermillo, filed another action[12]

for Lega

Redemption. It was opposed by Barcellano insisting that he complied with the provisions of Art. 1623 of the

New Civil Code but Baas failed to exercise her right within the period provided by law.

Trial ensued. On 15 March 2000, the trial court dismissed the complaint of the Baas heirs for their

failure to comply with the condition precedent of making a formal offer to redeem and for failure to file an

action in court together with the consignation of the redemption price within the reglementary period of 30

days.[13]

The dispositive portion reads:

WHEREFORE, premises considered, the complaint is hereby ordered DISMISSED.

On appeal, the Court of Appeals reversed and set aside the ruling of the lower court and granted the

heirs the right to redeem the subject property. The appellate court ruled that the filing of a complaint beforetheKatarungang Pambarangayshould be considered as a notice to Barcellano and Medina that the heirs were

exercising their right of redemption over the subject property; and as having set in motion the judicial process of

legal redemption.[14]

Further, the appellate court ruled that a formal offer to redeem, coupled with a tender of

payment of the redemption price, and consignation are proper only if the redemptioner wishes to avail himself

of his right of redemption in the future. The tender of payment and consignation become inconsequential when

the redemptioner files a case to redeem the property within the 30-day period.[15]

Hence, this Petition for Review on Certiorari.
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In this petition, Barcellano questions the ruling of the appellate court for being contrary to the admitted

facts on record and applicable jurisprudence.

The Courts Ruling

Barcellano maintains that the written notice required under Art. 1623 to be given to adjoining owner was

no longer necessary because there was already actual notice. Further, he asserts that the appellate court erred in

ruling that the tender of payment of the redemption price and consignation are not required in this case,

effectively affirming that the respondents had validly exercised their right of redemption. Lastly, he questions

as erroneous the application of Presidential Decree No. 1508, otherwise known as Establishing a System of

Amicably Settling Disputes at the Barangay Level,thereby ruling that the filing by the heirs of the complaint

before theBarangaywas an exercise of right of redemption.

We need only to discuss the requirement of notice under Art. 1623 of the New Civil Code, which

provides that:

The right of legal pre-emption or redemption shall not be exercised except within thirtydaysfrom the notice in writing by the prospective vendor, or by the vendor, as the case may

be. The deed of sale shall not be recorded in the Registry of Property, unless accompanied by an

affidavit of the vendor that he has given written notice thereof to all possible redemptioners.

Nothing in the records and pleadings submitted by the parties shows that there was a written notice sent

to the respondents. Without a written notice, the period of thirty days within which the right of legal pre-

emption may be exercised, does not start.

The indispensability of a written notice had long been discussed in the early case ofConejerov. Court of

Appeals,[16]

penned by Justice J.B.L. Reyes:

With regard to the written notice, we agree with petitioners that such notice isindispensable, and that, in view of the terms in which Article of the Philippine Civil Code is

couched, mere knowledge of the sale, acquired in some other manner by the redemptioner, doesnot satisfy the statute. The written notice was obviously exacted by the Code to remove alluncertainty as to the sale, its terms and its validity, and to quiet any doubts that the alienation is

not definitive. The statute not having provided for any alternative, the method of notification

prescribed remains exclusive.

This is the same ruling in Verdad v. Court of Appeals:[17]
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The written notice of sale is mandatory. This Court has long established the rule that

notwithstanding actual knowledge of a co-owner, the latter is still entitled to a written noticefrom the selling co-owner in order to remove all uncertainties about the sale, its terms and

conditions, as well as its efficacy and status.

Lately, in Gosiengfiao Guillen v. the Court of Appeals,[18]

this Court again emphasized the mandatory

character of a written notice in legal redemption:

From these premises, we ruled that [P]etitioner-heirs have not lost their right toredeem, for in the absence of a written notification of the sale by the vendors, the 30-day period

has not even begun to run. These premises and conclusion leave no doubt about the thrust

ofMariano: The right of the petitioner-heirs to exercise their right of legal redemptionexists, and the running of the period for its exercise has not even been triggered becausethey have not been notified in writing of the fact of sale. (Emphasis supplied)

The petitioner argues that the only purpose behind Art. 1623 of the New Civil Code is to ensure that the

owner of the adjoining land is actually notified of the intention of the owner to sell his property. To advance

their argument, they citedDestrito v. Court of Appealsas cited inAlonzo v. Intermediate Appellate

Court,[19]

where this Court pronounced that written notice is no longer necessary in case of actual notice of the

sale of property.

TheAlonzocase does not apply to this case. There, we pronounced that the disregard of the mandatory

written rule was an exception due to the peculiar circumstance of the case. Thus:

In the face of the established facts, we cannot accept the private respondents' pretense

that they were unaware of the sales made by their brother and sister in 1963 and 1964. Byrequiring written proof of such notice, we would be closing our eyes to the obvious truth in favorof their palpably false claim of ignorance, thus exalting the letter of the law over its purpose. The

purpose is clear enough: to make sure that the redemptioners are duly notified. We are satisfied

that in this case the other brothers and sisters were actually informed, although not in writing, ofthe sales made in 1963 and 1964, and that such notice was sufficient.

Now, when did the 30-day period of redemption begin?

While we do not here declare that this period started from the dates of such sales in 1963

and 1964, we do say that sometime between those years and 1976, when the first complaint for

redemption was filed, the other co-heirs were actually informed of the sale and that thereafter the30-day period started running and ultimately expired. This could have happened any time during

the interval of thirteen years, when none of the co-heirs made a move to redeem the properties

sold. By 1977, in other words, when Tecla Padua filed her complaint, the right of redemption had

already been extinguished because the period for its exercise had already expired.

The following doctrine is also worth noting:

While the general rule is, that to charge a party with laches in the assertion of an alleged

right it is essential that he should have knowledge of the facts upon which he bases his claim, yet

if the circumstances were such as should have induced inquiry, and the means of ascertaining the
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truth were readily available upon inquiry, but the party neglects to make it, he will be chargeable

with laches, the same as if he had known the facts.It was the perfectly natural thing for the co-heirs to wonder why the spouses Alonzo, who

were not among them, should enclose a portion of the inherited lot and build thereon a house of

strong materials. This definitely was not the act of a temporary possessor or a mere mortgagee.

This certainly looked like an act of ownership. Yet, given this unseemly situation, none of theco-heirs saw fit to object or at least inquire, to ascertain the facts, which were readily available. It

took all ofthirteenyears before one of them chose to claim the right of redemption, but then it

was already too late.[20]

x x x x

The co-heirs in this case were undeniably informed of the sales although no notice inwriting was given them. And there is no doubt either that the 30-day period began and ended

during the 14 years between the sales in question and the filing of the complaint for redemption

in 1977, without the co-heirs exercising their right of redemption. These are the justifications for

this exception.

The Court clarified that:

We realize that in arriving at our conclusion today, we are deviating from the strictletter of the law, which the respondent court understandably applied pursuant to existingjurisprudence. The said court acted properly as it had no competence to reverse thedoctrines laid down by this Court in the above-cited cases. In fact, and this should beclearly stressed, we ourselves are not abandoning the De Conejero and Buttle doctrines.What we are doing simply is adopting an exception to the general rule, in view of thepeculiar circumstances of this case.[21](Emphasis supplied)

Without the peculiar circumstances in the present case, Alonzo cannot find application. The

impossibility inAlonzo of the parties not knowing about the sale of a portion of the property they were actually

occupying is not presented in this case. The strict letter of the law must apply. That a departure from the strict

letter should only be for extraordinary reasons is clear from the second sentence of Art. 1623 that The deed of

sale shall not be recorded in the Registry of Property, unless accompanied by an affidavit of the vendor that he

has given written notice thereof to all possible redemptioners.

Justice Edgardo Paras, referring to the origins of the requirement, would explain in his commentaries on

the New Civil Code that despite actual knowledge, the person having the right to redeem is STILLentitled tothe written notice. Both the letter and the spirit of the New Civil Code argue against any attempt to widen the

scope of the written notice by including therein any other kind of notice such as an oral one, or by

registration. If the intent of the law has been to include verbal notice or any other means of information as

sufficient to give the effect of this notice, there would have been no necessity or reason to specify in the article

that said notice be in writing, for under the old law, a verbal notice or mere information was already deemed

sufficient.[22]

Time and time again, it has been repeatedly declared by this Court that where the law speaks in clear and

categorical language, there is no room for interpretation. There is only room for application.[23]

Where the

language of a statute is clear and unambiguous, the law is applied according to its express terms, and

interpretation should be resorted to only where a literal interpretation would be either impossible or absurd or
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would lead to an injustice. The law is clear in this case, there must first be a written notice to the family of

Baas.

Absolute Sentencia Expositore Non Indiget, when the language of the law is clear, no explanation of it is

required.[24]

We find no need to rule on the other issues presented by the petitioner. The respondent Baas has a

perfect right of redemption and was never in danger of losing such right even if there was no redemptioncomplaint filed with the barangay, no tender of payment or no consignation.

WHEREFORE, the appeal is DENIED. The 26 February 2004 Decision of the Court of Appeals inCA-G.R. CV No. 67702, granting to petitioner-appellants the right to redeem the subject property for the

amount of Php60,000.00 within thirty (30) days from the finality of this decision is hereby AFFIRMED. Nocost.

SO ORDERED.
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G.R. No. 171845 October 10, 2012

SPOUSES GODFREY and GERARDINA SERFINO, Petitioners,vs.

FAR EAST BANK AND TRUST COMPANY, INC., now BANK OF THE PHILIPPINEISLANDS, Respondent.

D E C I S I O N

BRION, J.:

Before the Court is a petition for review on certiorari,1filed under Rule 45 of the Rules of Court, assailing the

decision2dated February 23, 2006 of the Regional Trial Court (RTC) of Bacolod City, Branch 41, in Civil Case

No. 95-9344.

FACTUAL ANTECEDENTS

The present case traces its roots to the compromise judgment dated October 24, 19953of the RTC of BacolodCity, Branch 47, in Civil Case No. 95-9880. Civil Case No. 95-9880 was an action for collection of sum of

money instituted by the petitioner spouses Godfrey and Gerardina Serfino (collectively,spouses Serfino) againstthe spouses Domingo and Magdalena Cortez (collectively,spouses Cortez). By way of settlement, the spouses

Serfino and the spouses Cortez executed a compromise agreement on October 20, 1995, in which the spouses

Cortez acknowledged their indebtedness to the spouses Serfino in the amount of P 108,245.71. To satisfy the

debt, Magdalena bound herself "to pay in full the judgment debt out of her retirement benefits [.]"4Paymentof the debt shall be made one (1) week after Magdalena has received her retirement benefits from the

Government Service Insurance System (GSIS). In case of default, the debt may be executed against any of the

properties of the spouses Cortez that is subject to execution, upon motion of the spouses Serfino.5After finding

that the compromise agreement was not contrary to law, morals, good custom, public order or public policy, the

RTC approved the entirety of the parties agreement and issued a compromise judgment based thereon.6The

debt was later reduced to P 155,000.00 from P 197,000.00 (including interest), with the promise that the spouses

Cortez would pay in full the judgment debt not later than April 23, 1996.7

No payment was made as promised. Instead, Godfrey discovered that Magdalena deposited her retirement

benefits in the savings account of her daughter-in-law, Grace Cortez, with the respondent, Far East Bank and

Trust Company, Inc. (FEBTC). As of April 23, 1996, Graces savings account with FEBTC amounted

to P245,830.37, the entire deposit coming from Magdalenas retirement benefits.8That same day, the spouses

Serfinos counsel sent two letters to FEBTC informing the bank that the deposit in Graces name was

owned by the spouses Serfino by virtue of an assignment made in their favor by the spouses Cortez. Theletter requested FEBTC to prevent the delivery of the deposit to either Grace or the spouses Cortez until its

actual ownership has been resolved in court.

On April 25, 1996, the spouses Serfino instituted Civil Case No. 95- 9344 against the spouses Cortez, Grace andher husband, Dante Cortez, and FEBTC for the recovery of money on deposit and the payment of damages ,with a prayer for preliminary attachment.

On April 26, 1996, Grace withdrew P 150,000.00 from her savings account with FEBTC . On the same day,the spouses Serfino sent another letter to FEBTC informing it of the pending action; attached to the letter was acopy of the complaint filed as Civil Case No. 95-9344.

During the pendency of Civil Case No. 95-9344, the spouses Cortez manifested that they were turning over the

balance of the deposit in FEBTC (amounting to P 54,534.00) to the spouses Serfino as partial payment of their
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obligation under the compromise judgment. The RTC issued an order dated July 30, 1997, authorizing FEBTC

to turn over the balance of the deposit to the spouses Serfino.

On February 23, 2006, the RTC issued the assailed decision (a) finding the spouses Cortez, Grace and Danteliable for fraudulently diverting the amount due the spouses Serfino, but (b) absolving FEBTC from anyliability for allowing Grace to withdraw the deposit. The RTC declared that FEBTC was not a party to thecompromise judgment; FEBTC was thus not chargeable with notice of the parties agreement, as there was novalid court order or processes requiring it to withhold payment of the deposit. Given the nature of bank deposits,

FEBTC was primarily bound by its contract of loan with Grace. There was, therefore, no legal justification forthe bank to refuse payment of the account, notwithstanding the claim of the spouses Serfino as stated in their

three letters.

THE PARTIES ARGUMENTS

The spouses Serfino appealed the RTCs ruling absolving FEBTC from liability for allowing the

withdrawal of the deposit. They allege that the RTC cited no legal basis for declaring that only a court order orprocess can justify the withholding of the deposit in Graces name. Since FEBTC was informed of their adverse

claim after they sent three letters, they claim that:

Upon receipt of a notice of adverse claim in proper form, it becomes the duty of the bank to: 1. Withholdpayment of the deposit until there is a reasonable opportunity to institute legal proceedings to contest

ownership; and 2) give prompt notice of the adverse claim to the depositor. The bank may be held liable to the

adverse claimant if it disregards the notice of adverse claim and pays the depositor.

When the bank has reasonable notice of a bona fide claim that money deposited with it is the property ofanother than the depositor, it should withhold payment until there is reasonable opportunity to institute legalproceedings to contest the ownership.

9(emphases and underscoring supplied)

Aside from the three letters, FEBTC should be deemed bound by the compromise judgment, since Article 1625

of the Civil Code states that an assignment of credit binds third persons if it appears in a public

instrument.10

They conclude that FEBTC, having been notified of their adverse claim, should not have allowedGrace to withdraw the deposit.

While they acknowledged that bank deposits are governed by the Civil Code provisions on loan, the spouses

Serfino allege that the provisions on voluntary deposits should apply by analogy in this case, particularly Article

1988 of the Civil Code, which states:

Article 1988. The thing deposited must be returned to the depositor upon demand, even though a specifiedperiod or time for such return may have been fixed.

This provision shall not apply when the thing is judicially attached while in the depositarys possession,

or should he have been notified of the opposition of a third person to the return or the removal of thething deposited. In these cases, the depositary must immediately inform the depositor of the attachment oropposition.

Based on Article 1988 of the Civil Code, the depository is not obliged to return the thing to the depositor if

notified of a third partys adverse claim.

By allowing Grace to withdraw the deposit that is due them under the compromise judgment, the spousesSerfino claim that FEBTC committed an actionable wrong that entitles them to the payment of actualand moral damages.
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FEBTC, on the other hand, insists on the correctness of the RTC ruling. It claims that it is not bound by the

compromise judgment, but only by its contract of loan with its depositor. As a loan, the bank deposit is ownedby the bank; hence, the spouses Serfinos claim of ownership over it is erroneous.

Based on these arguments, the case essentially involves a determination of the obligation of banks to a thi rd

party who claims rights over a bank deposit standing in the name of another.

THE COURTS RULING

We find the petition unmeritorious and see no reason to reverse the RTCs ruling.

Claim for actual damages not

meri tor ious because there could be

no pecuniary loss that should be

compensated i f there was no

assignment of credit

The spouses Serfinos claim for damages against FEBTC is premised on their claim of ownership of the depositwith FEBTC. The deposit consists of Magdalenas retirement benefits, which the spouses Serfino claim to have

been assigned to them under the compromise judgment. That the retirement benefits were deposited in Gracessavings account with FEBTC supposedly did not divest them of ownership of the amount, as "the moneyalready belongs to the [spouses Serfino] having been absolutely assigned to them and constructively delivered

by virtue of the x x x public instrument[.]"11

By virtue of the assignment of credit, the spouses Serfino claimownership of the deposit, and they posit that FEBTC was duty bound to protect their right by preventing the

withdrawal of the deposit since the bank had been notified of the assignment and of their claim.

We find no basis to support the spouses Serfinos claim of ownership of the deposit.

"An assignment of credit is 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, exchange or donation, and without the consent of the debtor,

transfers his credit and accessory rights to another, known as the assignee, who acquires the power to enforce itto the same extent as the assignor could enforce it against the debtor. It may be in the form of sale, but at timesit may constitute a dation in payment, such as when a debtor, in order to obtain a release from his debt,assigns to his creditor a credit he has against a third person ."12As a dation in payment, the assignment ofcredit operates as a mode of extinguishing the obligation;13the delivery and transmission of ownership of athing (in this case, the credit due from a third person) by the debtor to the creditor is accepted as the equivalentof the performance of the obligation.

14

The terms of the compromise judgment, however, did not convey an intent to equate the assignment of

Magdalenas retirement benefits (the credit) as the equivalent of the payment of the debt due the spouses

Serfino (the obligation). There was actually no assignment of credit; if at all, the compromise judgment

merely identified the fund from which payment for the judgment debt would be sourced:

(c) That before the plaintiffs file a motion for execution of the decision or order based [on this] Compromise

Agreement, the defendant, Magdalena Cortez undertake[s] and bind[s] herself to pay in full the judgmentdebt out of her retirement benefits as Local [T]reasury Operation Officer in the City of Bacolod, Philippines,upon which full payment, the plaintiffs waive, abandon and relinquish absolutely any of their claims forattorneys fees stipulated in the Promissory Note (Annex "A" to the Complaint).

15[emphasis ours]

Only when Magdalena has received and turned over to the spouses Serfino the portion of her retirement benefits

corresponding to the debt due would the debt be deemed paid.
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InAquitey v. Tibong,16

the issue raised was whether the obligation to pay the loan was extinguished by the

execution of the deeds of assignment. The Court ruled in the affirmative, given that, in the deeds involved, therespondent (the debtor) assigned to the petitioner (the creditor) her credits "to make good" the balance of her

obligation; the parties agreed to relieve the respondent of her obligation to pay the balance of her account, and

for the petitioner to collect the same from the respondents debtors.17

The Court concluded that the respondents

obligation to pay the balance of her accounts with the petitioner was extinguished,pro tanto, by the deeds ofassignment of credit executed by the respondent in favor of the petitioner.

18

In the present case, the judgment debt was not extinguished by the mere designation in the compromisejudgment of Magdalenas retirement benefits as the fund from which payment shall be sourced. That the

compromise agreement authorizes recourse in case of default on other executable properties of the spousesCortez, to satisfy the judgment debt, further supports our conclusion that there was no assignment of

Magdalenas credit with the GSIS that would have extinguished the obligation.

The compromise judgment in this case also did not give the supposed assignees, the spouses Serfino, the power

to enforce Magdalenas credit against the GSIS. In fact, the spouses Serfino are prohibited from enforcing their

claim until after the lapse of one (1) week from Magdalenas receipt of her retirement benefits:

(d) That the plaintiffs shall refrain from having the judgment based upon this Compromise Agreement executed

until after one (1) week from receipt by the defendant, Magdalena Cortez of her retirement benefits from the[GSIS] but fails to pay within the said period the defendants judgment debt in this case, in which case [this]Compromise Agreement [may be] executed upon any property of the defendants that are subject to execution

upon motion by the plaintiffs.19

An assignment of credit not only entitles the assignee to the credit itself, but also gives him the power to enforce

it as against the debtor of the assignor.

Since no valid assignment of credit took place, the spouses Serfino cannot validly claim ownership of the

retirement benefits that were deposited with FEBTC. Without ownership rights over the amount, theysuffered no pecuniary loss that has to be compensated by actual damages . The grant of actual damages

presupposes that the claimant suffered a duly proven pecuniary loss.20

Claim for moral damages not

meri tor ious because no duty exists

on the part of the bank to protect

in terest of thi rd person claiming

deposit in the name of another

Under Article 2219 of the Civil Code, moral damages are recoverable for acts referred to in Article 21 of the

Civil Code.21

Article 21 of the Civil Code, in conjunction with Article 19 of the Civil Code, is part of the causeof action known in this jurisdiction as "abuse of rights." The elements of abuse of rights are: (a) there is a legal

right or duty; (b) exercised in bad faith; and (c) for the sole intent of prejudicing or injuring another.1wphi1

The spouses Serfino invoke American common law that imposes a duty upon a bank receiving a notice ofadverse claim to the fund in a depositors account to freeze the account for a reasonable length of time,sufficient to allow the adverse claimant to institute legal proceedings to enforce his right to the fund .22Inother words, the bank has a duty not to release the deposits unreasonably early after a third party makes known

his adverse claim to the bank deposit. Acknowledging that no such duty is imposed by law in this jurisdiction,the spouses Serfino ask the Court to adopt this foreign rule.

23

To adopt the foreign rule, however, goes beyond the power of this Court to promulgate rules governing

pleading, practice and procedure in all courts.24

The rule reflects a matter of policy that is better addressed
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by the other branches of government, particularly, theBangko Sentral ng Pilipinas, which is the agency thatsupervises the operations and activities of banks, and which has the power to issue "rules of conduct or theestablishment of standards of operation for uniform application to all institutions or functions covered[.]"

25To

adopt this rule will have significant implications on the banking industry and practices, as the American

experience has shown. Recognizing that the rule imposing duty on banks to freeze the deposit upon notice of

adverse claim adopts a policy adverse to the bank and its functions, and opens it to liability to both the depositorand the adverse claimant,

26many American states have since adopted adverse claim statutes that shifted or, at

least, equalized the burden. Essentially, these statutes do not impose a duty on banks to freeze the deposit upon

a mere notice of adverse claim; they first require either a court order or an indemnity bond.27

In the absence of a law or a rule binding on the Court, it has no option but to uphold the existing policy thatrecognizes the fiduciary nature of banking. It likewise rejects the adoption of a judicially-imposed rule giving

third parties with unverified claims against the deposit of another a better right over the deposit. As current laws

provide, the banks contractual relations are with its depositor, not with the third party;28

"a bank is under

obligation to treat the accounts of its depositors with meticulous care and always to have in mind the fiduciarynature of its relationship with them."

29In the absence of any positive duty of the bank to an adverse claimant,

there could be no breach that entitles the latter to moral damages.

WHEREFORE, in view of the foregoing, the petition for review on certiorari is DENIED, and the decision

dated February 23, 2006 of the Regional Trial Court of Bacolod City, Branch 41, in Civil Case No. 95-9344isAFFIRMED. Costs against the petitioners.

SO ORDERED.

ARTURO D. BRIONAssociate Justice

WE CONCUR:
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G.R. No. L-21601 December 28, 1968

NIELSON & COMPANY, INC.,plaintiff-appellant,vs.LEPANTO CONSOLIDATED MINING COMPANY,defendant-appellee.

R E S O L U T I O N

ZALDIVAR, J .:

Lepanto seeks the reconsideration of the decision rendered on December 17, 1966. The motion for reconsiderationis based on two sets of grounds the first set consisting of four principal grounds, and the second set consisting offive alternative grounds, as follows:

Principal Grounds:

1. The court erred in overlooking and failing to apply the proper law applicable to the agency or managementcontract in question, namely, Article 1733 of the Old Civil Code (Article 1920 of the new), by virtue of whichsaid agency was effectively revoked and terminated in 1945 when, as stated in paragraph 20 of thecomplaint, "defendant voluntarily ... prevented plaintiff from resuming management and operation of saidmining properties."

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

3. The court erred in reversing the ruling of the trial judge, based on well-settled jurisprudence of thisSupreme Court, that the management agreement was only suspended but not extended on account of thewar.

4. The court erred in reversing the finding of the trial judge that Nielson's action had prescribed, butconsidering 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 fromFebruary 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 themonth of January, 1942; and (c) the full contract price for the extended period of sixty months, since thesedamages were neither demanded nor proved and, in any case, not allowable under the general law ofdamages.

7. Assuming arguendo that appellant is entitled to any relief, the court erred in ordering appellee to issueand 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, whichaward cannot be ascertained and executed without further litigation.

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

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

1. In its first principal ground Lepanto claims that its own counsel and this Court had overlooked the real nature ofthe management contract entered into by and between Lepanto and Nielson, and the law that is applicable on saidcontract. Lepanto now asserts for the first time and this is done in a motion for reconsideration - that the


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management contract in question is a contract of agency such that it has the right to revoke and terminate the saidcontract, as it did terminate the same, under the law of agency, and particularly pursuant to Article 1733 of the OldCivil 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 byLepanto in the lower court, its memorandum and its brief on appeal, and never did it assert the theory that it has theright 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, Lepantopleaded 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 uponthe ground that Nielson had allegedly not complied with certain terms of the management contract. If Lepanto hadthought of considering the management contract as one of agency it could have amended its answer by statingexactly its position. It could have asserted its theory of agency in its memorandum for the lower court and in its briefon appeal. This, Lepanto did not do. It is the rule, and the settled doctrine of this Court, that a party cannot changehis theory on appealthat is, that a party cannot raise in the appellate court any question of law or of fact that wasnot 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 Courtcannot sustain the same.

Lepanto contends that the management contract in question (Exhibit C) is one of agency because: (1) Nielson wasto manage and operate the mining properties and mill on behalf, and for the account, of Lepanto; and (2) Nielsonwas 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 Nielsonwas, by the terms of the contract, destined to execute juridical acts not on its own behalf but on behalf of Lepantounder the control of the Board of Directors of Lepanto "at all times". Hence Lepanto claims that the contract is one ofagency. Lepanto then maintains that an agency is revocable at the will of the principal (Article 1733 of the Old CivilCode), regardless of any term or period stipulated in the contract, and it was in pursuance of that right that Lepantoterminated the contract in 1945 when it took over and assumed exclusive management of the work previouslyentrusted to Nielson under the contract. Lepanto finally maintains that Nielson as an agent is not entitled todamages 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 accountor 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 aservice 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, whilein the lease of work or services the basis is employment. The lessor of services does not represent his employer,while the agent represents his principal. Manresa, in his "Commentarios al Codigo Civil Espaol" (1931, Tomo IX,pp. 372-373), points out that the element of representation distinguishes agency from lease of services, as follows:

Nuestro art. 1.709 como el art. 1.984 del Codigo de Napoleon y cuantos textos legales citamos enlasconcordancias, expresan claramente esta idea de la representacion, "hacer alguna cosa por cuenta oencargo de otra" dice nuestro Codigo; "poder de hacer alguna cosa para el mandante o en su nombre" dice


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el Codigo de Napoleon, y en tales palabras aparece vivo y luminoso el concepto y la teoria de larepresentacion, tan fecunda en ensenanzas, que a su sola luz es como se explican las diferencias queseparan el mandato del arrendamiento de servicios, de los contratos inominados, del consejo y de lagestion de negocios.

En efecto, en el arrendamiento de servicios al obligarse para su ejecucion, se trabaja, en verdad, para eldueno 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 inrepresentation or on behalf of another, with the consent or authority of the latter.

There is another obvious distinction between agency and lease of services. Agency is a preparatory contract, asagency "does not stop with the agency because the purpose is to enter into other contracts." The most characteristicfeature of an agency relationship is the agent's power to bring about business relations between his principal andthird persons. "The agent is destined to execute juridical acts (creation, modification or extinction of relations withthird parties). Lease of services contemplate only material (non-juridical) acts." (Reyes and Puno, "An Outline ofPhilippine 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 ofthe management contract in question. Under the contract, Nielson had agreed, for a period of five years, with theright to renew for a like period, to explore, develop and operate the mining claims of Lepanto, and to mine, or mineand mill, such pay ore as may be found therein and to market the metallic products recovered therefrom which mayprove to be marketable, as well as to render for Lepanto other services specified in the contract. We gather from thecontract that the work undertaken by Nielson was to take complete charge subject at all times to the general controlof the Board of Directors of Lepanto, of the exploration and development of the mining claims, of the hiring of asufficient and competent staff and of sufficient and capable laborers, of the prospecting and development of themine, of the erection and operation of the mill, and of the benefication and marketing of the minerals found on themining properties; and in carrying out said obligation Nielson should proceed diligently and in accordance with thebest mining practice. In connection with its work Nielson was to submit reports, maps, plans and recommendationswith respect to the operation and development of the mining properties, make recommendations and plans on theerection or enlargement of any existing mill, dispatch mining engineers and technicians to the mining properties asfrom time to time may reasonably be required to investigate and make recommendations without cost or expense toLepanto. Nielson was also to "act as purchasing agent of supplies, equipment and other necessary purchases byLepanto, provided, however, that no purchase shall be made without the prior approval of Lepanto; and providedfurther, that no commission shall be claimed or retained by Nielson on such purchase"; and "to submit all requisitionfor supplies, all constricts and arrangement with engineers, and staff and all matters requiring the expenditures ofmoney, present or future, for prior approval by Lepanto; and also to make contracts subject to the prior approve ofLepanto for the sale and marketing of the minerals mined from said properties, when said products are in a suitablecondition for marketing."1

It thus appears that the principal and paramount undertaking of Nielson under the management contract was theoperation and development of the mine and the operation of the mill. All the other undertakings mentioned in thecontract 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 principalundertaking Nielson was not in any way executing juridical acts for Lepanto, destined to create, modify or extinguishbusiness relations between Lepanto and third persons. In other words, in performing its principal undertakingNielson was not acting as an agent of Lepanto, in the sense that the term agent is interpreted under the law ofagency, 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 andenter into contracts regarding the sale of mineral, but the contract also provides that Nielson could not make anypurchase, or sell the minerals, without the prior approval of Lepanto. It is clear, therefore, that even in these casesNielson 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.


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Lepanto contends that the management contract in question being one of agency it had the right to terminate thecontract at will pursuant to the provision of Article 1733 of the old Civil Code. We find, however, a proviso in themanagement 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 onlybecause of the faith or confidence that the Officials of each company have in the other; therefore, in order toassure that such confidence and faith shall abide and continue, NIELSON agrees that LEPANTO maycancel this Agreement at any time upon ninety (90) days written notice, in the event that NIELSON for anyreason whatsoever, except acts of God, strike and other causes beyond its control, shall cease to prosecute

the operation and development of the properties herein described, in good faith and in accordance withapproved mining practice.

It is thus seen, from the above-quoted provision of paragraph XI of the management contract, that Lepanto could notterminate the agreement at will. Lepanto could terminate or cancel the agreement by giving notice of terminationninety days in advance only in the event that Nielson should prosecute in bad faith and not in accordance withapproved mining practice the operation and development of the mining properties of Lepanto. Lepanto could notterminate the agreement if Nielson should cease to prosecute the operation and development of the miningproperties 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 onlybecause 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 agentbased on trust and confidence, such that the contractual relation may be terminated by the principal at any time thatthe principal loses trust and confidence in the agent. Rather, that phrase simply implies the circumstance thatbrought about the execution of the management contract. Thus, in the annual report for 1936 2, 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 offerto underwrite the entire issue of stock of a corporation to be formed for the purpose of taking oversaid properties, said corporation to have an authorized capital of P1,750,000.00, of whichP700,000.00 will be issued in escrow to the claim-owners in exchange for their claims, and thebalance 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 tothe 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 soldfor cash to the public, said commission to be payable from the first payment of 50% on eachsubscription.


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3. We will bear the cost of preparing and mailing any prospectus that may be required, but no suchprospectus will be sent out until the text thereof has been first approved by the Board of Directors ofthe proposed corporation.

4. That after the organization of the corporation, all operating contract be entered into betweenourselves and said corporation, under the terms which the property will be developed and mined anda mill erected, under our supervision, our compensation to be P2,000.00 per month until the propertyis put on a profitable basis and P2,500.00 per month plus 10% of the net profits for a period of fiveyears thereafter.

5. That we shall have the option to renew said operating contract for an additional period of fiveyears, 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 themill thereon, and the expenditures therefor shall be subject to the general control of the Board ofDirectors of the proposed corporation, and, in case you accept this proposition, that a detailedoperating contract will be entered into, covering the relationships between the parties.

Yours very truly,(Sgd.) L. R. Nielson

Pursuant to the provisions of paragraph 2 of this offer, Messrs. Nielson & Co., took subscriptions for OneMillion Fifty Thousand Pesos (P1,050,000.00) in shares of our Company and their underwriting andbrokerage commission has been paid. More than fifty per cent of these subscriptions have been paid to theCompany in cash. The claim owners have transferred their claims to the Corporation, but the P700,000.00 instock 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 theproperty under the control of the Board of Directors. A modification in the Management Contract was madewith 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 wasnot 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 XIof the Management contract, that the employment by Lepanto of Nielson to operate and manage its mines wasprincipally in consideration of the know-how and technical services that Nielson offered Lepanto. The contract thusentered into pursuant to the offer made by Nielson and accepted by Lepanto was a "detailed operating contract". Itwas not a contract of agency. Nowhere in the record is it shown that Lepanto considered Nielson as its agent andthat 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 themines from Japanese control, because the relation between it and Nielson was one of agency and as such it couldterminate the agency at will, is, therefore, untenable. On the other hand, it can be said that, in asserting that it hadterminated or cancelled the management contract in 1945, Lepanto had thereby violated the express terms of themanagement contract. The management contract was renewed to last until January 31, 1947, so that the contracthad yet almost two years to go upon the liberation of the mines in 1945. There is no showing that Nielson hadceased to prosecute the operation and development of the mines in good faith and in accordance with approvedmining practice which would warrant the termination of the contract upon ninety days written notice. In fact therewas no such written notice of termination. It is an admitted fact that Nielson ceased to operate and develop themines because of the war a cause beyond the control of Nielson. Indeed, if the management contract in questionwas intended to create a relationship of principal and agent between Lepanto and Nielson, paragraph XI of the


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contract should not have been inserted because, as provided in Article 1733 of the old Civil Code, agency isessentially revocable at the will of the principal that means, with or without cause. But precisely said paragraph XIwas inserted in the management contract to provide for the cause for its revocation. The provision of paragraph XImust be given effect.

In the construction of an instrument where there are several provisions or particulars, such a construction is, ifpossible, to be adopted as will give effect to all,3and if some stipulation of any contract should admit of severalmeanings, 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 notrevocable at the will of Lepanto. We rule that this management contract is not a contract of agency as defined in

Article 1709 of the old Civil Code, but a contract of lease of services as defined in Article 1544 of the same Code.This contract can not be unilaterally revoked by Lepanto.

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

2. In the second, third and fifth grounds of its motion for reconsideration, Lepanto maintains that this Court erred, inholding that paragraph 11 of the management contract suspended the period of said contract, in holding that theagreement was not only suspended but was extended on account of the war, and in holding that the period ofsuspension on account of the war lasted from February, 1942 to June 26, 1948. We are going to discuss these threegrounds together because they are interrelated.

In our decision we have dwelt lengthily on the points that the management contract was suspended because of thewar, and that the period of the contract was extended for a period equivalent to the time when Nielson was unable toperform the work of mining and milling because of the adverse effects of the war on the work of mining and milling.

It is the contention of Lepanto that the happening of those events, and the effects of those events, simplysuspended the performance of the obligations by either party in the contract, but did not suspend the period of thecontract, 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 notpersuaded 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 asfollows:

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 causereasonably 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 sameshall 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 eventsenumerated therein, which adversely affects the work of mining and milling, the agreement is deemed suspendedfor as long as Nielson is unable to perform its work of mining and milling because of the adverse effects of thehappening of the event on the work of mining and milling. During the period when the adverse effects on the work ofmining and milling exist, neither party in the contract would be held liable for non-compliance of its obligation underthe contract. In other words, the operation of the contract is suspended for as long as the adverse effects of thehappening of any of those events had impeded or obstructed the work of mining and milling. An analysis of thephraseology of the above-quoted paragraph II of the management contract readily supports the conclusion that it isthe 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 thissituation will depend on whether the event wholly or partially affected adversely the work of mining and milling. Inthe instant case, the war had adversely affected and wholly at thatthe work of mining and milling. We haveclearly stated in Our decision the circumstances brought about by the war which caused the whole or totalsuspension of the agreement or of the management contract.


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LEPANTO itself admits that the management contract was suspended. We quote from the brief of LEPANTO:

Probably, what Nielson meant was, it was prevented by Lepanto to assume again the management of themine in 1945, at the precise time when defendant was at the feverish phase of rehabilitation and althoughthe contract had already been suspended. (Lepanto's Brief, p. 9).

... it was impossible, as a result of the destruction of the mine, for the plaintiff to manage and operate thesame and because, as provided in the agreement, the contract was suspended by reason of the war(Lepanto's Brief, pp. 9-10).

Clause II, by its terms, is clear that the contract is suspendedin case fortuitous event or force majeure, suchas war, adversely affects the work of mining and milling. (Lepanto's Brief, p. 49).

Lepanto is correct when it said that the obligations under the contract were suspended upon the happening of any ofthe events enumerated in paragraph II of the management contract. Indeed, those obligations were suspendedbecause the contract itself was suspended. When we talk of a contract that has been suspended we certainly meanthat the contract temporarily ceased to be operative, and the contract becomes operative again upon the happeningof a conditionor when a situation obtainswhich warrants the termination of the suspension of the contract.

In Our decision We pointed out that the agreement in the management contract would be suspended when twoconditions concur, namely: (1) the happening of the event constituting aforce majeurethat was reasonably beyond

the control of Nielson, and (2) that the event constituting the force majeure adversely affected the work of miningand milling. The suspension, therefore, would last not only while the event constituting the force majeure continuedto occur but also for as long as the adverse effects of the force majeure on the work of mining and milling had notbeen eliminated. Under the management contract the happening alone of the event constituting the force majeurewhich did not affect adversely the work of mining and milling would not suspend the period of the contract. It is onlywhen the two conditions concur that the period of the agreement is suspended.

It is not denied that because of the war, in February 1942, the mine, the original mill, the original power plant, thesupplies and equipment, and all installations at the Mankayan mines of Lepanto, were destroyed upon order of theUnited States Army, to prevent their utilization by the enemy. It is not denied that for the duration of the war Nielsoncould not undertake the work of mining and milling. When the mines were liberated from the enemy in August, 1945,the condition of the mines, the mill, the power plant and other installations, was not the same as in February 1942when they were ordered destroyed by the US army. Certainly, upon the liberation of the mines from the enemy, thework of mining and milling could not be undertaken by Nielson under the same favorable circumstances thatobtained before February 1942. The work of mining and milling, as undertaken by Nielson in January, 1942, couldnot be resumed by Nielson soon after liberation because of the adverse effects of the war, and this situationcontinued until June of 1948. Hence, the suspension of the management contract did not end upon the liberation ofthe mines in August, 1945. The mines and the mill and the installations, laid waste by the ravages of war, had to bereconstructed and rehabilitated, and it can be said that it was only on June 26, 1948 that the adverse effects of thewar on the work of mining and milling had ended, because it was on that date that the operation of the mines andthe mill was resumed. The period of suspension should, therefore, be reckoned from February 1942 until June 26,1948, because it was during this period that the war and the adverse effects of the war on the work of mining andmilling had lasted. The mines and the installations had to be rehabilitated because of the adverse effects of the war.The work of rehabilitation started soon after the liberation of the mines in August, 1945 and lasted until June 26,1948 when, as stated in Lepanto's annual report to its stockholders for the year 1948, "June 28, 1948 marked the

official return to operation of this company at its properties at Mankayan, Mountain Province, Philippines" (Exh. F-1).

Lepanto would argue that if the management contract was suspended at all the suspension should cease in Augustof 1945, contending that the effects of the war should cease upon the liberation of the mines from the enemy. Thiscontention cannot be sustained, because the period of rehabilitation was still a period when the physical effects ofthe warthe destruction of the mines and of all the mining installations adversely affected, and madeimpossible, the work of mining and milling. Hence, the period of the reconstruction and rehabilitation of the minesand the installations must be counted as part of the period of suspension of the contract.

Lepanto claims that it would not be unfair to end the period of suspension upon the liberation of the mines becausesoon after the liberation of the mines Nielson insisted to resume the management work, and that Nielson was underobligation to reconstruct the mill in the same way that it was under obligation to construct the mill in 1937. This


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contention is untenable. It is true that Nielson insisted to resume its management work after liberation, but this wasonly for the purpose of restoring the mines, the mill, and other installations to their operating and producing conditionas of February 1942 when they were ordered destroyed. It is not shown by any evidence in the record, that Nielsonhad agreed, or would have agreed, that the period of suspension of the contract would end upon the liberation of themines. This is so because, as found by this Court, the intention of the parties in the management contract, and asunderstood by them, the management contract was suspended for as long as the adverse effects of the forcemajeure on the work of mining and milling had not been removed, and the contract would be extended for as long asit was suspended. Under the management contract Nielson had the obligation to erect and operate the mill, but notto erect or reconstruct the mill in case of its destruction byforce majeure.

It is the considered view of this court that it would not be fair to Nielson to consider the suspension of the contract asterminated upon the liberation of the mines because then Nielson would be placed in a situation whereby it wouldhave to suffer the adverse effects of the war on the work of mining and milling. The evidence shows that as ofJanuary 1942 the operation of the mines under the management of Nielson was already under beneficial conditions,so much so that dividends were already declared by Lepanto for the years 1939, 1940 and 1941. To make themanagement contract immediately operative after the liberation of the mines from the Japanese, at the time whenthe mines and all its installations were laid waste as a result of the war, would be to place Nielson in a situationwhereby it would lose all the benefits of what it had accomplished in placing the Lepanto mines in profitableoperation before the outbreak of the war in December, 1941. The record shows that Nielson started its managementoperation way back in 1936, even before the management contract was entered into. As early as August 1936Nielson negotiated with Messrs. C. I. Cookes and V. L. Lednicky for the operation of the Mankayan mines and it wasthe result of those negotiations that Lepanto was incorporated; that it was Nielson that helped to capitalize Lepanto,and that after the formation of the corporation (Lepanto) Nielson immediately assumed the management of themining properties of Lepanto. It was not until January 30, 1937 when the management contract in question wasentered into between Lepanto and Nielson (Exhibit A).

A contract for the management and operation of mines calls for a speculative and risky venture on the part of themanager-operator. The manager-operator invests its technical know-how, undertakes back-breaking efforts andtremendous spade-work, so to say, in the first years of its management and operation of the mines, in theexpectation that the investment and the efforts employed might be rewarded later with success. This expectedsuccess may never come. This had happened in the very case of the Mankayan mines where, as recounted by Mr.Lednicky of Lepanto, various persons and entities of different nationalities, including Lednicky himself, invested alltheir money and failed. The manager-operator may not strike sufficient ore in the first, second, third, or fourth year ofthe management contract, or he may not strike ore even until the end of the fifth year. Unless the manager-operator

strikes sufficient quantity of ore he cannot expect profits or reward for his investment and efforts. In the case ofNielson, its corps of competent engineers, geologists, and technicians begun working on the Mankayan mines ofLepanto since the latter part of 1936, and continued their work without success and profit through 1937, 1938, andthe earlier part of 1939. It was only in December of 1939 when the efforts of Nielson started to be rewarded whenLepanto realized profits and the first dividends were declared. From that time on Nielson could expect profit to cometo itas in fact Lepanto declared dividends for 1940 and 1941 if the development and operation of the minesand the mill would continue unhampered. The operation, and the expected profits, however, would still be subject tohazards due to the occurrence of fortuitous events, fires, earthquakes, strikes, war, etc., constituting force majeure,which would result in the destruction of the mines and the mill. One of these diverse causes, or one after the other,may consume the whole period of the contract, and if it should happen that way the manager-operator would reapno profit to compensate for the first years of spade-work and investment of efforts and know-how. Hence, in fairnessto the manager-operator, so that he may not be deprived of the benefits of the work he had accomplished, the forcemajeure clause is incorporated as a standard clause in contracts for the management and operation of mines.

The nature of the contract for the management and operation of mines justifies the interpretation of the forcemajeure clause, that a period equal to the period of suspension due to force majeure should be added to the originalterm of the contract by way of an extension. We, therefore, reiterate the ruling in Our decision that the managementcontract in the instant case was suspended from February, 1942 to June 26, 1948, and that from the latter date thecontract had yet five years to go.

3. In the fourth ground of its motion for reconsideration, Lepanto maintains that this Court erred in reversing thefinding of the trial court that Nielson's action has prescribed, by considering only the first claim and ignoring theprescriptibility of the other claims.


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This ground of the motion for reconsideration has no merit.

In Our decision We stated that the claims of Nielson are based on a written document, and, as such, the cause ofaction prescribes in ten years.5Inasmuch as there are different claims which accrued on different dates theprescriptive periods for all the claims are not the same. The claims of Nielson that have been awarded by this Courtare itemized in the dispositive part of the decision.

Thefirstitem of the awards in Our decision refers to Nielson's compensation in the sum of P17,500.00, which isequivalent to 10% of the cash dividends declared by Lepanto in December, 1941. As we have stated in Our

decision, this claim accrued on December 31, 1941, and the right to commence an action thereon started onJanuary 1, 1942. We declared that the action on this claim did not prescribe although the complaint was filed onFebruary 6, 1958or after a lapse of 16 years, 1 month and 5 days because of the operation of the moratoriumlaw.

We declared that under the applicable decisions of this Court6the moratorium period of 8 years, 2 months and 8days should be deducted from the period that had elapsed since the accrual of the cause of action to the date of thefiling of the complaint, so that there is a period of less than 8 years to be reckoned for the purpose of prescription.

This claim of Nielson is covered by Executive Order No. 32, issued on March 10, 1945, which provides as follows:

Enforcement of payments of all debts and other monetary obligationspayable in the Philippines, except

debts and other monetary obligations entered into in any area after declaration by Presidential Proclamationthat such area has been freed from enemy occupation and control, is temporarily suspended pending actionby the Commonwealth Government. (41 O.G. 56-57; Emphasis supplied)

Executive Order No. 32 covered all debts and monetary obligation contracted before the war (or before December 8,1941) and those contracted subsequent to December 8, 1941 and during the Japanese occupation. Republic ActNo. 342, approved on July 26, 1948, lifted the moratorium provided for in Executive Order No. 32 on pre-war (or preDecember 8, 1941) debts of debtors who had not filed war damage claims with the United States War DamageCommission. In other words, after the effectivity of Republic Act No. 342, the debt moratorium was limited: (1) todebts and other monetary obligations which were contracted after December 8, 1941 and during the Japaneseoccupa

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