spec pro rule 74

1SPECIAL PROCEEDINGS CASES – RULE 74

G.R. No. 45904 September 30, 1938

Intestate estate of the deceased Luz Garcia. PABLO G. UTULO, applicant-appellee, vs.LEONA PASION VIUDA DE GARCIA, oppositor-appellant.

Feliciano B. Gardiner for appellant. Gerardo S. Limlingan for appellee.

IMPERIAL, J.:

This is an appeal taken by the oppositor from the order of the Court of First Instance of the Province of Tarlac appointing the applicant as judicial administrator of the property left by the deceased Luz Garcia.

Juan Garcia Sanchez died intestate, and in the proceedings instituted in the Court of First Instance of Tarlac for the administration of his property (special proceedings No. 3475), Leona Pasion Vda. de Garcia, the surviving spouse and the herein oppositor, was appointed judicial administratrix. The said deceased left legitimate children, named Juan Garcia, jr., Patrocinio Garcia and Luz Garcia who, with the widow, are the presumptive forced heirs. Luz Garcia married the applicant Pablo G. Utulo and during the pendency of the administration proceedings of the said deceased, she died in the province without any legitimate descendants, her only forced heirs being her mother and her husband. The latter commenced in the same court the judicial administration of the property of his deceased wife (special proceedings No. 4188), stating in his petition that her only heirs were he himself and his mother-in-law, the oppositor, and that the only property left by the deceased consisted in the share due her from the intestate of her father, Juan Garcia Sanchez, and asking that he be named administrator of the property of said deceased. The oppositor objected to the petition, opposing the judicial administration of the property of her daughter and the appointment of the applicant as administrator. She alleged that inasmuch as the said deceased left no indebtedness, there was no occasion for the said judicial administration; but she stated that should the court grant the administration of the property, she should be appointed the administratrix thereof inasmuch as she had a better right than the applicant. After the required publications, trial was had and the court, on August 28, 1936, finally issued the appealed order to which the oppositor excepted and thereafter filed the record on appeal which was certified and approved.

The oppositor-appellant assigns five errors allegedly committed by the trial court, but these assigned errors raise only two questions for resolution, namely: whether upon the admitted facts the judicial administration of the property left by the deceased Luz Garcia lies, with the consequent appointment of an administrator, and whether the appellant has a better right to the said office than the appellee.

1. As to the first question, we have section 642 of the Code of Civil Procedure providing in part that "if no executor is named in the will, or if a person dies intestate, administration shall be granted" etc. This provision enunciates the general rule that when a person dies living property in the Philippine Islands, his property should be judicially administered and the competent court should appoint a qualified administrator, in the order established in the section, in case the

deceased left no will, or in case he had left one should he fail to name an executor therein. This rule, however, is subject to the exceptions established by sections 596 and 597 of the same Code, as finally amended. According to the first, when all the heirs are of lawful age and there are no debts due from the estate, they may agree in writing to partition the property without instituting the judicial administration or applying for the appointment of an administrator. According to the second, if the property left does not exceed six thousand pesos, the heirs may apply to the competent court, after the required publications, to proceed with the summary partition and, after paying all the known obligations, to partition all the property constituting the inheritance among themselves pursuant to law, without instituting the judicial administration and the appointment of an administrator.

Construing the scope of section 596, this court repeatedly held that when a person dies without leaving pending obligations to be paid, his heirs, whether of age or not, are not bound to submit the property to a judicial administration and the appointment of an administrator are superfluous and unnecessary proceedings (Ilustre vs.Alaras Frondosa, 17 Phil., 321; Malahacan vs. Ignacio, 19 Phil., 434; Bondad vs. Bondad, 34 Phil., 232; Baldemorvs. Malangyaon, 34 Phil., 367; Fule vs. Fule, 46 Phil., 317).

In enunciating the aforesaid doctrine, this court relied on the provisions of articles 657, 659 and 661 of the Civil Code under which the heirs succeed to all the property left by the deceased from the time of his death. In the case of Ilustre vs. Alaras Frondosa, supra, it was said:

Under the provisions of the Civil Code (arts. 657 to 661), the rights to the succession of a person are transmitted from the moment of his death; in other words, the heirs succeeded immediately to all of the property of the deceased ancestor. The property belongs to the heirs at the moment of the death of the ancestor as completely as if the ancestor had executed and delivered to them a deed for the same before his death. In the absence of debts existing against the estate, the heirs may enter upon the administration of the said property immediately. If they desire to administer it jointly, they may do so. If they desire to partition it among themselves and can do this by mutual agreement, they also have that privilege. The Code of Procedure in Civil Actions provides how an estate may be divided by a petition for partition in case they can not mutually agree in the division. When there are no debts existing against the estate, there is certainly no occasion for the intervention of an administrator in the settlement and partition of the estate among the heirs. When the heirs are all of lawful age and there are no debts, there is no reason why the estate should be burdened with the costs and expenses of an administrator. The property belonging absolutely to the heirs, in the absence of existing debts against the estate, the administrator has no right to intervene in any way whatever in the division of the estate among the heirs. They are co-owners of an undivided estate and the law offers them a remedy for the division of the same among themselves. There is nothing in the present case to show that the heirs requested the appointment of the administrator, or that they intervened in any way whatever in the present actions. If there are any heirs of the estate who have not received

NARTATEZ, CARELL RYZA

2 SPECIAL PROCEEDINGS CASES – RULE 74

their participation, they have their remedy by petition for partition of the said estate.

In the cases of Malahacan vs. Ignacio, supra, Bondad vs. Bondad, supra, and Baldemor vs. Malangyaon, supra, the same doctrine was reiterated. And in the case of Fule vs. Fule, supra, this court amplified and ratified the same doctrine in the following language:

Upon the second question — Did the court a quo commit an error in refusing to appoint an administrator for the estate of Saturnino Fule? — it may be said (a) that it is admitted by all of the parties to the present action, that at the time of his death no debts existed against his estate and (b) that all of the heirs of Saturnino Fule were of age.

In this jurisdiction and by virtue of the provisions of articles 657, 659 and 661 of the Civil Code, all of the property, real and personal, of a deceased person who dies intestate, is transmitted immediately to his heirs. (To Guioc-Co vs. Del Rosario, 8 Phil., 546; Ilustre vs. Alaras Frondosa, 17 Phil., 321; Marin vs.Nacianceno, 19 Phil., 238; Malahacan vs. Ignacio, 19 Phil., 434; Nable Jose vs. Uson, 27 Phil., 73; Bondadvs. Bondad, 34 Phil., 232; Baldemor vs. Malangyaon, 34 Phil., 367.)

If then the property of the deceased, who dies intestate, passes immediately to his heirs, as owners, and there are no debts, what reason can there be for the appointment of a judicial administrator to administer the estate for them and to deprive the real owners of their possession to which they are immediately entitled? In the case of Bondad vs. Bondad (34 Phil., 232), Chief Justice Cayetano Arellano, discussing this question, said: Under the provisions of the Civil Code (articles 657 to 661), the rights to the succession of a person are transmitted from the moment of his death; in other words, the heirs succeed immediately to all of the property of the deceased ancestor. The property belongs to the heirs at the moment of the death of the ancestor as completely as if the ancestor had executed and delivered to them a deed for the same before his death. In the absence of debts existing against the estate, the heirs may enter upon the administration of the said property immediately. If they desire to administer it jointly, they may do so. If they desire to partition it among themselves and can do this by mutual agreement, they also have that privilege. The Code of Procedure in Civil Actions provides how an estate may be divided by a petition for partition in case they cannot mutually agree in the division. (Sections 182-184, 196, and 596 of Act No. 190.)

When the heirs are all of lawful age and there are no debts there is no reason why the estate should be burdened with the cost and expenses of an administrator. The administrator has no right to intervene in any way whatsoever in the division of the estate among the heirs when they are adults and when there are no debts against the estate. (Ilustre vs. Alaras Frondosa, supra; Bondad vs. Bondad, supra; Baldemor vs.Malangyaon, supra.)

When there are no debts and the heirs are all adults, their relation to the property left by their ancestor is the same as that of any other coowners or owners in common, and they may recover their individual rights, the same as any other coowners of undivided property. (Succession of Story, 3 La. Ann., 502; Mcintyre vs.Chappell, 4 Tex., 187; Wood et ux. vs. Ford, 29 Miss., 57.)

xxx xxx xxx

The right of the heirs in cases like the one we are discussing, also exist in the divisions of personal as well as the real property. If they cannot agree as to the division, then a suit for partition of such personal property among the heirs of the deceased owner is maintenable where the estate is not in debts, the heirs are all of age, and there is no administration upon the estate and no necessity thereof. (Jordan vs. Jordan, 4 Tex. Civ. App. Rep., 559.)

It is difficult to conceive of any class or item of property susceptible of being held in common which may not be divided by the coowners. It may be of personal property as well as of real estate; of several parcels as well as of a single parcel, and of non-contiguous as well as of adjacent tracts; or of part only of the lands of the coowners as well as of the whole. (Pickering vs. Moore, 67 N. H., 533; 31 L. R. A., 698; Pipes vs.Buckner, 51 Miss., 848; Tewksbury vs. Provizzo, 12 Cal., 20.)

We conceive of no powerful reason which counsels the abandonment of a doctrine so uniformly applied. We are convinced that if the courts had followed it in all cases to which it has application, their files would not have been replete with unnecessary administration proceedings as they are now. There is no weight in the argument adduced by the appellee to the effect that his appointment as judicial administrator is necessary so that he may have legal capacity to appear in the intestate of the deceased Juan Garcia Sanchez. As he would appear in the said intestate by the right of the representation, it would suffice for him to allege in proof of his interest that he is a usufructuary forced heir of his deceased wife who, in turn, would be a forced heir and an interested and necessary party if she were living . In order to intervene in said intestate and to take part in the distribution of the property it is not necessary that the administration of the property of his deceased wife be instituted — an administration which will take up time and occasion inconvenience and unnecessary expenses.

2. In view of the foregoing, there is no need to determine which of the parties has preferential right to the office of administrator.

The appealed order should be reversed, with the costs of this instance to the applicant-appellee. So ordered.

G.R. No. L-7855 November 23, 1955

LEONIDES S. ASUNCION and AMADO CASTRO, petitioners-appellees, vs.CELESTINO DE LA CRUZ, oppositor-appellant.



Aganon and Aganon for appellant.Jaime Amor Yaneza for appellees.

LABRADOR, J.:

The above-entitled proceedings originated with a petition presented in the Court of First Instance of Tarlac for the summary settlement of the estate of the deceased Benedicta de la Cruz. The petition alleges that said deceased left at the time of her death five parcels of land all with original certificates of title in the name of the said deceased. When moved to dismiss the proceedings on the ground that the said oppositor had filed claims in the cadastral proceedings for three of the parcels of land mentioned in the petition. Subsequently the same oppositor filed another opposition on the ground that the said properties did not belong to the deceased Benedicta de la Cruz but to oppositor's father; that if the deceased had any right over the three parcels of land already been transferred by her to the oppositor; that an undivided two-thirds of the other two lots had also been ceded to the oppositor for a valuable consideration and the said decedent had not repurchased the same; etc. After hearing the said opposition the court found that two of the lots mentioned in the petition had been mortgaged to one Juan Cojuangco and another mortgaged also to one Santiago Nicolas, and for this reason the court denied the petition for summary settlement. But a motion for reconsideration was presented, and in accordance therewith the court reconsidered its order of dismissal and granted the summary distribution prayed for, declaring the children of the decedent as her heirs and assigning to all of them in equal shares, a one-half undivided interest in each of the parcels mentioned in the petition. A motion to reconsider the above order having been denied, an appeal from the order of summary distribution was taken to this Court. It is claimed that the lower court erred in finding that the three lots were owned by the deceased and ordering their distribution to her heirs, in the face of the claim of ownership asserted by the oppositor-appellant; that it erred in giving course to the settlement in spite of the fact that the petition in cadastral proceedings had been presented wherein the oppositor-appellant had claimed the three parcels of land in question; and that it erred in not denying the summary settlement in so far as the three lots claimed by the oppositor-appellant are concerned.

It is claimed in support of the first alleged error that the trial judge had no power to declare that the properties mentioned in the petition are properties of the deceased. A study of the order, however, shows that it did not make a definite finding or conclusion to that effect as against the oppositor-appellant. The court only went to say that there was a presumption that said properties were still owned by the deceased at the time of her death and are free from all incumbrances; but it makes the reservation in favor of the oppositor's claim of the right to a separate action if the claims proprietary rights over said properties. The court states thus in its order:

If Celestino de la Cruz claims some proprietary rights over these properties, he can pursue his remedy in a separate and ordinary action which he should bring against the proper parties.

The next contention of the oppositor-appellant is that as the lower court had no jurisdiction to declare the decedent as the owner of the properties in question, it cannot legally distribute and deliver them to he heirs in the exercise of its probate jurisdiction; that such

distribution and delivery of the properties is an unjust deprivation of the appellant's rights and interest over the same. The above argument is based on the mistaken concept of the proceedings for the distribution and settlement of the estate of a deceased person.

The purpose of a summary settlement is to proceed summary with the "allowance of a will, if any there be, to determine who are the persons legally entitled to participate in the estate, and to apportion and divide it among them after the payment of such debts of the estate as the court shall then find to be due; and such persons . . . shall thereupon be entitled to receive and enter into the possession of the portions of the estate so awarded to them respectively. . . .." (Section 2, Rule 72, Rules of Court.) As held in the cases of Intestate of the late Januaria Gonzales, Abarro vs. De Guia, 72 Phil., 245 and Intestate of Jimenez, Jimenez vs. Jimenez, 67 Phil., 263, in a summary distribution the estate of the deceased is valued; his debts, if any, are paid; his will, if any, is allowed; the heirs and legatees are declared, and distribution is made, . . .. (II Moran, Comments on the Rules of Court, 1952 ed., p. 345. In distribution proceedings, the court has no jurisdiction to adjudicate or determine title to properties claimed to be a part of the estate by the heirs and distributees and also claimed by third parties.(Mallari, et al. vs.Mallari,1 40 Off. Gaz., No. 2, p. 503).In the same manner that the court in an administration proceeding determines only in a prima facie manner if a property alleged to belong to the state really belongs to the decedent (Corodova Vda. De Mañalac vs. Ocampo, 73 Phil., 661; Baquial vs. Amihan,2 49 Off. Gaz., No. 2, p. 511),so also the court in a summary settlement proceeding only determines prima facie the ownership and possession of the properties; but such determination does not prevent the heirs or third parties from claiming title adverse to the decedent's, which title or claims must be decided in a separate suit. (Intestate estate of Miguel Guzman. Guzman vs. Anog and Anog, 37 Phil., 61.) In consonance with these principles the orders appealed from found prima facie that the lots sought to be distributed among the heirs of the decedent belong to and were in the possession of the said decedent at the time of her death. The orders do not deprive the oppositor-appellant of his right to claim said properties as his own and to institute a separate action to assert his title thereto as against the decedent or her heirs. The claim of the appellant that the trial court had no power to enter the decree of distribution is, therefore, without merit.

The appeal is hereby dismissed and the order appealed from affirmed, with costs against oppositor-appellant.

G.R. No. L-27876 April 22, 1992

ADELAIDA S. MANECLANG, in her capacity as Administrator of the Intestate Estate of the late Margarita Suri Santos, plaintiff-appellee, vs.JUAN T. BAUN and AMPARO S. BAUN, ET AL., defendants. CITY OF DAGUPAN, defendant-appellant.

DAVIDE, JR., J.:

The issue presented in this case is the validity of a sale of a parcel of land by the administrator of an intestate estate made pursuant to a petition for authority to sell and an order granting it which were filed



and entered, respectively, without notice to the heirs of the decedents.

The records disclose that on 12 June 1947, Margarita Suri Santos died intestate. She was survived by her husband Severo Maneclang and nine (9) children. On 30 July 1947, a petition for the settlement of her estate was filed by Hector S. Maneclang, one of her legitimate children, with the Court of First Instance at Dagupan City, Pangasinan; the case was docketed as Special Proc. No. 3028. At the time of the filing of the petition, the ages of her children were as follows:

Hector Maneclang –– 21 years oldCesar Maneclang –– 19Oscar Maneclang –– 17Amanda Maneclang –– 16Adelaida Meneclang –– 13Linda Maneclang –– 7Priscila Maneclang –– 6Natividad Maneclang –– 3Teresita Maneclang –– 2

No guardian ad litem was appointed by the court for the minor children.

Margarita left several parcels of land, among which is Lot No. 203 of the Cadastral Survey of Dagupan City containing an area of 7, 401 square meters, more or less , and covered by Transfer Certificate of Title No. 1393.

On 2 September 1949, Pedro M. Feliciano, the administrator of the intestate estate of Margarita, filed a petition in SP Proc. No. 3028 asking the court to give him "the authority to dispose of so much of the estate that is necessary to meet the debts enumerated" in the petition. While notice thereof was given to the surviving spouse, Severo Maneclang, through his counsel, Atty. Teofilo Guadiz, no such notice was sent to the heirs of Margarita.

On 9 September 1949, despite the absence of notice to the heirs, the intestate court issued an Order "authorizing the administrator to mortgage or sell so much of the properties of the estate for the purposes (sic) of paying off the obligations" referred to in the petition.

Pursuant to this Order, Oscar Maneclang, the new administrator of the intestate estate, executed on 4 October 1952 a deed of sale 1 in favor of the City of Dagupan, represented by its mayor, Angel B. Fernandez, of a portion consisting of 4,415 square meters of the aforementioned Lot No. 203 for and in consideration of P11,687.50. This sale was approved by the intestate court on 15 March 1954.

The City of Dagupan immediately took possession of the land and constructed thereon a public market, known as the Perez Boulevard Public Market, at a cost of P100,00.00, more or less. It has been in continuous and uninterrupted possession of the property since the construction of the market. 2

Some other parcels of land belonging to the intestate estate were sold by the administrator pursuant of the same authority granted by the 9 September 1949 Order. 3

On 28 September 1965, the new judicial administratrix of the intestate estate, Adelaida S. Maneclang, daughter of the late Margarita Suri Santos, filed with the Court of First Instance of Pangasinan an action for the annulment of the sales made by the previous administrator pursuant to the order of 9 September 1949, cancellation of titles, recovery of possession and damages against the vendees Juan T. Baun and Amparo Baun, Marcelo Operaña and Aurora Pagurayan, Crispino Tandoc and Brigida Tandoc, Jose Infante and Mercedes Uy Santos, Roberto Cabugao, Basilisa Callanta and Fe Callanta, Ricardo Bravo and Francisca Estrada, the City of Dagupan, and Constantino Daroya and Marciana Caramat. 4 The complaint was docketed as Civil Case No. D-1785. The cause of action against the City of Dagupan centers around the deed of sale executed in its favor on 4 October 1952 by former judicial administrator Oscar S. Maneclang. In its Answer filed on 5 November 1965, 5 the City of Dagupan interposed the following affirmative defenses: (a) the sale in its favor is valid, legal and above board; (b) plaintiff has no cause of action against it, or that the same, if any, had prescribed since the complaint was filed thirteen (13) years after the execution of the sale; (c) plaintiff is barred by estoppel and laches; (d) it is a buyer in good faith; and (e) it has introduced necessary and useful improvements and contructed a supermarket worth P200,000.00; hence, assuming arguendo that the sale was illegal, it has the right to retain the land and the improvements until it is reimbursed for the said improvements.

On 30 March 1966, plaintiff and the City of Dagupan entered into a Stipulation of Facts wherein they agreed on the facts earlier adverted to. They, however, agreed: (a) to adduce evidence concerning the reasonable rental of the property in question and other facts not embodied therein but which are material and vital to the final determination of the case, and (b) to request the court to take judicial notice of SP Proc. No. 3028.

The evidence adduced by plaintiff discloses that Oscar Maneclang was induced by its then incumbent Mayor, Atty. Angel B. Fernandez, to sell the property to the City of Dagupan and that the said City has been leasing the premises out to numerous tenants at the rate of P0.83 per square meter per month, or a total monthly rental of P3,747.45, since 4 October 1952. 6

On 9 November 1966, the trial court rendered a partial decision in Civil Case No. D-1785 against the City of Dagupan, the dispositive portion of which reads as follows:

IN VIEW OF THE FOREGOING CONSIDERATIONS, the Court hereby renders judgment:

(a) Annulling (sic) the Deed of Sale executed by the Administrator on October 4, 1952 (Exh. F) being null and void ab initio;

(b) Ordering the cancellation of the Certificate of Title issued in favor of the defendant City of Dagupan by virtue of said Deed of Sale, and directing the Register of Deeds of said City to issue a new Certificate of Title in favor of the plaintiff as Administratrix covering the property in question;



(c) Ordering the defendant City of Dagupan to restore the possession to the plaintiff in her capacity as Judicial Administratrix of the Intestate Estate of Margarita Suri Santos of the parcel of land in question, together with all the improvements thereon existing;

(d) Ordering the defendant City of Dagupan City to pay the plaintiff the sum of P584,602.20 as accumulated rentals or reasonable value of the use of the property in question from October 4, 1952 up to the filing of the complaint in 1985, plus interest thereon at the rate of 6% per annum from the later date;

(e) Ordering the defendant City of Dagupan to pay a monthly rental or reasonable value of its occupation of the premises in the amount of P3,747.45 from October 9, 1985 up to the date the possession of the premises is delivered (sic) the plaintiff by said defendant, and

(f) Ordering the plaintiff to reimburse the defendant City of Dagupan the sums of P100,000.00 and P11,687.50 both amounts to be deducted from the amount due the plaintiff from said defendant.

Defendant shall also pay the costs.

SO ORDERED. 7

In arriving at the said disposition, the trial court held that:

(a) Under Rule 90 of the Rules of Court, 8 which is similar to the provisions of Section 722 of the Code of Civil Procedure, it is essential and mandatory that the interested parties be given notices of the application for authority to sell the estate or any portion thereof which is pending settlement in a probate court. As held in the early case of Estate of Gamboa vs. Floranza, 9 an order issued by a probate court for the sale of real property belonging to the estate of a deceased person would be void if no notice for the hearing of the petition for such sale is given as required by said Section 722. Under this section, when such a petition is made, the court shall designate a time and place for the hearing and shall require notice of such hearing to be given in a newspaper of general circulation; moreover, the court may require the giving of such further notice as it deems proper.

In the instant case, no notice of the application was given to the heirs; hence, both the order granting authority to sell and the deed of sale executed in favor of the City of Dagupan pursuant thereto, are null and void.

(b) Estoppel does not lie against plaintiff as no estoppel can be predicated on an illegal act and estoppel is founded on ignorance. In the instant case, the nullity is by reason of the non-observance of the requirements of law regarding notice; this legal defect or deficiency deprived the probate court of its jurisdiction to dispose of the property of the estate. Besides, the City of Dagupan was represented in the transaction by lawyers who are presumed to know the law. This being the case, they should not be allowed to plead estoppel; finally, estoppel cannot give validity to an act which is prohibited by law or is against public policy. 10

(c) Laches and prescription do not apply. The deed of sale being void ab initio, it is in contemplation of law inexistent and therefore the right of the plaintiff to bring the action for the declaration of inexistence of such contract does not prescribe. 11

(d) The City of Dagupan is not a purchaser in good faith and for value as the former judicial administrator, Oscar Maneclang, testified that he was induced by then incumbent Mayor of the City Councilor Atty. Teofilo Guadiz, Sr. to sell the property; moreover, the City Fiscal signed as witness to the deed of sale. These lawyers are presumed to know the law.

Not satisfied with the decision, the City of Dagupan appealed to this Court 12 alleging that said decision is contrary to law, the facts and the evidence on record, and that the amount involved exceeds P500,000.00.

In its Brief, the City of Dagupan submits the following assigned errors:

FIRST ERROR

THE LOWER COURT ERRED IN HOLDING THAT THE SALE EXECUTED BY THE JUDICIAL ADMINISTRATOR TO THE CITY OF DAGUPAN IS NULL AND VOID AB INITIO.

SECOND ERROR

THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF IS NOT IN ESTOPPEL FROM ASSAILING THE LEGALITY OF THE SALE.

THIRD ERROR

THE LOWER COURT ERRED IN HOLDING THAT THE INSTANT ACTION IS NOT BARRED BY LACHES AND PRESCRIPTION.

FOURTH ERROR



THE LOWER COURT ERRED IN DECLARING THAT DEFENDANT CITY OF DAGUPAN IS NOT A PURCHASER IN GOOD FAITH AND FOR VALUE.

FIFTH ERROR

THE LOWER COURT ERRED IN ORDERING DEFENDANT CITY OF DAGUPAN TO PAY THE PLAINTIFF THE SUM OF P584,602.20 AS ACCUMULATED RENTALS OR REASONABLE VALUE OF (sic) THE USE OF THE PROPERTY IN QUESTION FROM OCTOBER 4, 1952 UP TO THE FILING OF THE COMPLAINT IN 1965, PLUS INTEREST THEREON AT THE RATE OF 6% PER ANNUM FROM THE LATER DATE.

SIXTH ERROR

THE LOWER COURT ERRED IN ORDERING THE DEFENDANT CITY OF DAGUPAN TO PAY A MONTHLY RENTAL OR REASONABLE VALUE OF (sic) ITS OCCUPATION OF THE PREMISES IN THE AMOUNT OF P3,747,45 FROM OCTOBER 9, 1965 UP TO THE DATE THE POSSESSION OF THE PREMISES IS DELIVERED TO THE PLAINTIFF BY SAID DEFENDANT.

We shall consider these assigned errors sequentially.

1. In support of the first, appellant maintains that notice of the application for authority to sell was given to Severo Maneclang, surviving spouse of Margarita. As the designated legal representative of the minor children in accordance with Article 320 of the Civil Code, notice to him is deemed sufficient notice to the latter; moreover, after Oscar Maneclang signed the deed of sale 13 in his capacity as judicial administrator, he "sent copies of his annual report and the deed of sale to Severo Maneclang, and his brothers Hector Maneclang and Oscar Maneclang and sister Amanda Maneclang, all of legal ages (sic), while the other minor heirs received theirs through his lawyer." 14 Besides, per Flores vs. Ang Bansing, 15 the sale of property by the judicial administrator cannot be set aside on the sole ground of lack of notice.

These contentions are without merit.

Article 320 of the Civil Code does not apply. While the petition for authority to sell was filed on 2 September 1949, the Civil Code took effect only on 30 August 1950. 16 Thus, the governing law at the time of the filing of the petition was Article 159 of the Civil Code of Spain which provides as follows:

The father, or in his default, the mother, shall be the legal administrator of the property of the children who are subject to parental authority.

However, the provisions of the Code of Civil Procedure on guardianship impliedly repealed those of the Civil Code relating to that portion of the patria potestad (parental authority) which gave to the parents the administration and usufruct of their minor children's

property; said parents were however entitled, under normal conditions, to the custody and care of the persons of their minor children. 17

Article 320 of the present Civil Code, taken from the aforesaid Article 159, incorporates the amendment that if the property under administration is worth more than two thousand pesos (P2,000.00), the father or the mother shall give a bond subject to the approval of the Court of First Instance. This provision then restores the old rule 18which made the father or mother, as such, the administrator of the child's property. Be that as it may, it does not follow that for purposes of complying with the requirement of notice under Rule 89 of the Rules of the Court, notice to the father is notice to the children. Sections 2, 4 and 7 of said Rule state explicitly that the notice, which must be in be writing, must be given to the heirs, devisees, and legatees and that the court shall fix a time and place for hearing such petition and cause notice to be given to the interested parties.

There can be no dispute that if the heirs were duly represented by counsel or by a guardian ad litem in the case of the minors, the notice may be given to such counsel or guardian ad litem. In this case, however, only the surviving spouse, Severo Maneclang, was notified through his counsel. Two of the heirs, Hector Maneclang and Oscar Maneclang, who were then of legal age, were not represented by counsel. The remaining seven (7) children were still minors with no guardian ad litem having been appointed to represent them. Obviously then, the requirement of notice was not satisfied. The requisite set forth in the aforesaid sections of Rule 89 are mandatory and essential. Without them, the authority to sell, the sale itself and the order approving it would be null and void ab initio. 19 The reason behind this requirement is that the heirs, as the presumptive owners 20 since they succeed to all the rights and obligations of the deceased from the moment of the latter's death, 21 are the persons directly affected by the sale or mortage and therefore cannot be deprived of the property except in the manner provided by law.

Consequently, for want of notice to the children, the Order of 9 September 1949 granting the application, the sale in question of 4 October 1952 and the Order of 15 March 1954 approving the sale are all void ab initio as against said children. Severo Maneclang, however, stands on different ground altogether. Having been duly notified of the application, he was bound by the said order, sale and approval of the latter. However, the only interest which Severino Maneclang would have over the property is his right of usufruct which is equal to that corresponding by way of legitime pertaining to each of the surviving children pursuant to Article 834 of the Civil Code of Spain, the governing law at that time since Margarita Suri Santos died before the effectivity of the Civil Code of the Philippines.

2 Estoppel is unavailable as an argument against the administratrix of the estate and against the children.

As to the former, this Court, in Boñaga vs. Soler, supra, reiterated the rule "that a decedent's representative is not estopped to question the validity of his own void deed purporting to convey land; 22 and if this be true of the administrator as to his own acts, a fortiori, his successor can not be estopped to question the acts of his predecessor are not conformable to law." 23 Not being the party who petitioned the court for authority to sell and who executed the sale, she cannot be held liable for any act or omission which could give rise to estoppel. Under



Article 1431 of the Civil Code, through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon. In estoppel by pais,as related to the party sought to be estopped, it is necessary that there be a concurrence of the following requisites: (a) conduct amounting to false representation or concealment of material facts or at least calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (b) intent, or at least expectation that this conduct shall be acted upon, or at least influenced by the other party; and (c) knowledge, actual or constructive of the actual facts. 24 In estoppel by conduct, on the other hand, (a) there must have been a representation or concealment of material facts; (c) the party to whom it was made must have been ignorant of the truth of the matter; and (d) it must have been made with the intention that the other party would act upon it. 25

As to the latter, considering that, except as to Oscar Maneclang who executed the deed of sale in his capacity as judicial administrator, the rest of the heirs did not participate in such sale, and considering further that the action was filed solely by the administratrix without the children being impleaded as parties plaintiffs or intervenors, there is neither rhyme nor reason to hold these heirs in estoppel. For having executed the deed of sale, Oscar Maneclang is deemed to have assented to both the motion for and the actual order granting the authority to sell. Estoppel operates solely against him.

3 As to prescription, this Court ruled in the Boñaga case that "[a]ctions to declare the inexsistence of contracts do not prescribe (Art. 1410, N.C.C.), a principle applied even before the effectivity of the new Civil Code (Eugenio, et al. vs. Perdido, et al., supra, citing Tipton vs. Velasco, 6 Phil. 67, and Sabas vs. Germa , 66 Phil. 471 )."

4. Laches is different from prescription. As the court held in Nielsen & Co. Inc . vs. Lepanto Consolidated Mining Co., 26 the defense of laches applies independently of prescription. While prescription is concerned with the fact of delay, laches is concerned with the effect of delay. Prescription is a matter of time; laches is principally a question of inequity of permitting a claim to be enforced, this inequity being founded on some change in the condition of the property or the relation of the parties. Prescription is statutory; laches is not. Laches applies in equity, whereas prescription applies at law. Prescription is based on fixed time, laches is not.

The essential elements of laches are the following: (1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation of which complaint is made and for which the complaint seeks a remedy; (2) delay in asserting the complainant's rights, the complainant having been afforded an opportunity to institute a suit; (3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit; and (4) injury or prejudice to the defendant in the event relief is accorded to the complainant, or the suit is not held barred. 27

In the instant case, from time the deed of sale in favor of the City of Dagupan was executed on 4 October 1952, up to the time of the filing of the complaint for annulment on 28 September 1965, twelve (12) years, ten (10) months and twenty-four (24) days had elapsed.

The respective ages of the children of Margarita Suri Santos on these two dates were, more or less, as follows:

Upon execution At the filingof the deed of sale of the complaint

Hector Maneclang 26 39Cesar Maneclang 24 37Oscar Maneclang 22 35Amanda Maneclang 21 34Adelaida Maneclang 18 31Linda Maneclang 12 25Priscila Maneclang 11 24Natividad Maneclang 8 20Teresita Maneclang 7 20

It is an undisputed fact that the City of Dagupan immediately took possession of the property and constructed thereon a public market; such possession was open, uninterrupted and continuous. Obviously, Hector, Cesar, Oscar and Amanda were already of legal age when the deed of sale was executed. As it was Oscar who executed the deed of sale, he cannot be expected to renounce his own act. With respect to Hector, Cesar and Amanda, they should have taken immediate steps to protect their rights. Their failure to do so for thirteen (13) years amounted to such inaction and delay as to constitute laches. This conclusion, however, cannot apply to the rest of the children — who were then minors and not represented by any legal representative. They could not have filed an action to protect their interests; hence, neither delay nor negligence could be attributed to them as a basis for laches. Accordingly, the estate is entitled to recover 5/9 of the questioned property.

5. In ruling out good faith, the trial court took into account the testimony of Oscar Maneclang to the effect that it was Mayor Fernandez of Dagupan City and Councilor Teofilo Guadiz, Sr., both lawyers, who induced him to sell the property and that the execution of the sale was witnessed by the City Fiscal.

We are unable to agree.

While the order granting the motion for authority to sell was actually issued on 9 September 1949, the same was secured during the incumbency of the then judicial administrator Pedro Feliciano. Even if it is to be assumed that Mayor Fernandez and Councilor Guadiz induced Oscar Maneclang to sell the property, the fact remains that there was already the order authorizing the sale. Having been issued by a Judge who was lawfully appointed to his position, he was disputably presumed to have acted in the lawful exercise of jurisdiction and that his official duty was regularly performed. 28 It was not incumbent upon them to go beyond the order to find out if indeed there was a valid motion for authority to sell. Otherwise, no order of any court can be relied upon by the parties. Under Article 526 of the Civil Code, a possessor in good faith is one who is not aware that there exists in his title or mode of acquisition any flaw which invalidates it; furthermore, mistake upon a doubtful or difficult question of law may be the basis of good faith. It implies freedom from knowledge and circumstances which ought to put a person on inquiry. 29 We find no circumstance in this case to have alerted the vendee, the City of Dagupan, to a possible flaw or defect in the authority of the judicial administrator to sell the property. Since good faith is always



presumed, and upon him who alleges bad faith on the part of the possessor rests the burden of proof, 30 it was incumbent upon the administrator to established such proof, which We find to be wanting. However, Article 528 of the Civil Code provides that: "Possession acquired in good faith does not lose this character except in the case and from the moment facts exist which show that the possessor is not unaware that he possesses the thing improperly or wrongfully." The filing of a case alleging bad faith on the part of a vendee gives cause for cessation of good faith.

In Tacas vs. Tobon, 31 this Court held that if there are no other facts from which the interruption of good faith may be determined, and an action is filed to recover possession, good faith ceases from the date of receipt of the summons to appear at the trial and if such date does not appear in the record, that of the filing of the answer would control. 32

The date of service of summons to the City of Dagupan in Civil Case No. D-1785 is not clear from the record. Its Answer, however, was filed on 5 November 1965. Accordingly, its possession in good faith must be considered to have lasted up to that date. As a possessor in good faith, it was entitled to all the fruits of the property and was under no obligation to pay rental to the intestate of Margarita for the use thereof. Under Article 544 of the Civil Code, a possessor in good faith is entitled to the fruits received before the possession is legally interrupted. Thus, the trial court committed an error when it ordered the City of Dagupan to pay accumulated rentals in the amount of P584,602.20 from 4 October 1952 up to the filing of the complaint.

6. However, upon the filing of the Answer, the City of Dagupan already became a possessor in bad faith. This brings Us to the issue of reasonable rentals, which the trial court fixed at P3,747.45 a month. The basis thereof is the monthly earnings of the city from the lessees of the market stalls inside the Perez Boulevard Supermarket. The lesses were paying rental at the rate of P0.83 per square meter. Appellant maintains that this is both unfair and unjust. The property in question is located near the Chinese cemetery and at the time of the questioned sale, it had no access to the national road, was located "in the hinterland" and, as admitted by the former judicial administrator, Oscar Maneclang, the persons who built houses thereon prior to the sale paid only P6.00 to P8.00 as monthly rentals and the total income from them amounted only to P40.00 a month. Appellant contends that it is this income which should be made the basis for determining the reasonable rental for the use of the property.

There is merit in this contention since indeed, if the rental value of the property had increased, it would be because of the construction by the City of Dagupan of the public market and not as a consequence of any act imputable to the intestate estate. It cannot, however, be denied that considering that the property is located within the city, its value would never decrease; neither can it be asserted that its price remained constant. On the contrary, the land appreciated in value at least annually, if not monthly. It is the opinion of this Court that the reasonable compensation for the use of the property should be fixed at P1,000.00 a month. Taking into account the fact that Severo Maneclang, insofar as his usufructuary right is concerned, but only until his death, is precluded from assailing the sale, having been properly notified of the motion for authority to sell and considering further that the heirs, Hector, Cesar, Oscar and Amanda, all surnamed Maneclang, are, as discussed above, barred by laches, only those

portions of the monthly rentals which correspond to the presumptive shares of Adelaida, Linda, Priscila, Natividad and Teresita, all surnamed Maneclang, to the extent untouched by the usufructuary right of Severo Maneclang, should be paid by the City of Dagupan. There is no showing as to when Severo Maneclang died; this date of death is necessary to be able to determine the cessation of his usufructuary right and the commencement of the full enjoyment of the fruits of the property by the unaffected heirs. Under the circumstances, and for facility of computation, We hereby fix the presumptive shares in the rentals of the aforenamed unaffected heirs at P500.00 a month, or at P100.00 each, effective 5 November 1965 until the City of Dagupan shall have effectively delivered to the intestate estate 5/9 of the property in question. The latter, however, shall reimburse the City of Dagupan of that portion of the real estate taxes it had paid on the land corresponding to 5/9 of the lot commencing from taxable year 1965 until said 5/9 part is effectively delivered to the intestate estate.

Pursuant to Article 546 of the Civil Code, the City of Dagupan may retain possession of the property until it shall have been fully reimbursed the value of the building in the amount of P100,000.00 and 5/9 of the purchase price amounting to P6,493.05

WHEREFORE, judgment is hereby rendered AFFIRMING the decision in all respects, except to the extent as above modified. As modified, (a) the sale in favor of the City of Dagupan, executed on 4 October 1952 (Exhibit "F"), is hereby declared null and void; however, by reason of estoppel and laches as abovestated, only 5/9 of the subject property representing the presumptive shares of Adelaida, Linda, Priscila, Natividad and Teresita, all surnamed Maneclang, may be recovered; (b) subject, however, to its right to retain the property until it shall have been refunded the amounts of P100,000.00 and P6,493.05, the City of Dagupan is hereby ordered to reconvey to the intestate estate of Margarita Suri Santos 5/9 of the property in question, for which purpose said parties shall cause the appropriate partition thereof, expenses for which shall be borne by them proportionately; and (c) the City of Dagupan is further ordered to pay reasonable compensation for the use of 5/9 of the property in question at the rate of P500.00 a month from 5 November 1965 until it shall have effectively delivered the possession of the property to the intestate estate of Margarita Suri Santos. Upon the other hand, said intestate estate is hereby ordered to refund to the City of Dagupan that portion of the real estate taxes the latter had paid for the lot corresponding to 5/9 thereof effective taxable year 1965 and until the latter shall have delivered to said intestate estate.

SO ORDERED.

G.R. No. L-15717 June 30, 1961

JULIAN BOÑAGA, plaintiff-appellant, vs.ROBERTO SOLER, ET AL., defendants-appellants.

Luis Contreras for plaintiff-appellant.Segismundo Garga, Luis Isaac and Augusto Pardalis for defendants-appellants.

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



From the order dated April 30, 1959 dismissing the complaint in Civil Case No. 2123 of the Court of First Instance f Camarines Sur, Julian Boñaga, Administrator of the state of the deceased spouses Alejandro Ros and Maria Isaac, appeals directly to this Court.

It appears that following the death of the spouses Alejandro Ros and Maria Isaac in 1935 and 1940, respectively, intestate proceedings for the settlement of their estate were commenced in the Court of First Instance of Camarines Sur, Special Proceeding No. 7194 of that court. In time Juan Garza was appointed administrator of the estate Upon application, Juan Garza was authorized by he probate court on August 29, 1944 (Annex "X") to sell certain parcels of land pertaining to the estate. Pursuant hereto, Garza sold said parcels of land on August 30, 944 in favor of appellee Roberto Soler (Annex "A"), which sale was subsequently approved on October 9, 1944 (Annex "B"). On October 14, 1944, the heirs of the deceased wife, Maria Isaac, after having been declared as such (Annex "B"), sold all their shares and interests over certain parcels of land in favor of appellee Soler (Annex "C").

Sometime during the war, the records of Special Proceeding No. 7194 were destroyed. Upon reconstitution of these records by court order, Julian Boñaga was issued letters of administration on September 6, 1951. On May 1952, the instant action was filed by Boñaga in his capacity as administrator, seeking to annul the sales of August 30, 1944 and October 14, 1944 in favor of Roberto Soler on the ground that said transactions were fraudulent made without notice to the heirs of Alejandro Ros of the hearing of the application to sell, and that the sales were not beneficial to the heirs for various reasons, and praying for reconveyance of the lands sold, since they were fraudulently registered under Act 496 in the name of Roberto Soler on December 17, 1949 and on January 2, 1952, and for recovery of damages.

A motion to dismiss interposed by Soler on August 29, 1952, alleging lack of legal capacity to sue and failure to state a cause of action as grounds, was denied on September 17, 1952. Soler then filed his answer and counter-claim on September 26, 1952. On June 11, 1953, Soler filed his second motion to dismiss, raising the same grounds contained in the first motion; this was again denied on August 29, 1953. On July 18, 1955, Soler filed histhird motion to dismiss, for the first time raising estoppel, prescription of the action, and non-inclusion of necessary parties, as grounds. Upon an order for plaintiff to include the vendors in the sales as parties to the case, the court, on August 22, 1955, denied the motion to dismiss, but apparently without resolving the issues of estoppel and prescription. On February 9, 1959, Soler sought a resolution of his third motion to dismiss. On April 30, 1959, and over plaintiff's objections, the court ordered the dismissal of the action, sustaining the contention that as administrator of the estate succeeding Juan Garza, plaintiff was estopped to file an action to annul the sales, and, moreover, that the action had prescribed. Hence, this appeal.

The sale on August 30, 1944 appears to be of 21 parcels of abaca, coconut, forest and pasture lands, covering an aggregate area of more than 1,001 hectares for the lump sum of P142,800, Japanese currency (Annex "A"). Plaintiff-appellant alleges (and the record nowhere indicates the contrary), that these lands comprised almost the entire estate. Nothing in the record would show whether, as required by Rule 90, sections 4 and 7, the application for authority to sell was set for hearing, or that the court ever caused notice thereof to be issued

to the heirs of Alejandro Ros Incidentally, these heirs seem not to have gotten any part of the purchase price since they were then allegedly in Spain. Yet, in the order of declaration of heirs of the wife and approving the sale to Soler (Annex "B"), the declaration of the heirs of the husband Alejandro Ros was expressly held in abeyance, indicating a recognition of their existence. Appellees maintain that the sale was made for the purpose of paying debts, but this, at lease, is controversial. Appellant asserts that the total outstanding debts of the estate at the time of the sale amounted to only P4,641.48, a relatively meager sum compared to the large tracts of land sold.

We think the lower court erred in dismissing the action without a hearing on the merits. A sale of properties of an estate as beneficial to the interested parties, under Sections 4 and 7, Rule 90, must comply with the requisites therein provided, which are mandatory. Among these requisites, the fixing of the time and place of hearing for an application to sell, and the notice thereof to the heirs, are essential; and without them, the authority to sell, the sale itself, and the order approving it, would be null and void ab initio (Arcilla vs. David, 77 Phil. 718; Gabriel, et al. vs. Encarnacion, et al., L-6736, May 4, 1954, and others cited therein). Rule 90, Section 4, does not distinguish between heirs residing in and those residing outside the Philippines. Therefore, its requirements should apply regardless of the place of residence of those required to be notified under said rule.

The contention that the sale was made under Section 2, Rule 90 (wherein notice is required only to those heirs, etc., residing in the Philippines), is not substantiated by the record. Neither the deed of sale on August 30, 1944, nor the orders issued by the probate court in connection there with, show whether, as required by said Section 2, the personal properties were insufficient to pay the debts and expenses of administration. There is not even a showing, to start with, that the sale was made for the purpose of paying debts or expenses of administration (or legacies), a condition which circumscribes the applicability of that section. On the face of the reamended complaint at any rate, it does not appear that the contested sale was one under section 2 of Rule 90; and the same can not be invoked to sustain the motion to dismiss. Without reception of further evidence to determine whether the requisites of the applicable provisions of the Rules had been followed, the dismissal of the action was erroneous and improvident. Plaintiff should at least have been given a chance to prove his case.

As to the plea of estoppel, the rule is that a decedent's representative is not estopped to question the validity of his own void deed purporting to convey land (Chase vs. Cartwright, 22 Am. St. Rep. 207, and cases cited; Meeks vs. Olpherts, 25 L. Ed. (U.S.) 735; 21 Am. Jur. 756, s. 667); and if this be true of the administrator as to his own acts, a fortiori, his successor can not be estopped to question the acts of his predecessor are not conformable to law (cf. Walker vs. Portland Savings Bank, L.R.A. 1915 E, p. 840; 21 Am. Jur. p. 820, s. 785).

We also find untenable the claim of prescription of the action. Actions to declare the inexistence of contracts do not prescribe (Art. 1410, N.C.C.), a principle applied even before the effectivity of the new Civil Code (Eugenio, et al. vs. Perdido, et al., supra., citing Tipton vs. Velasco, 6 Phil. 67 and Sabas vs. Germa, 66 Phil. 471). The sale on October 14, 1944 by the heirs of Maria Isaac of whatever interests or participation they might have in the four parcels of land covered by the deed may be valid (De Guanzon vs. Jalandoni and Ramos, L-5049,



October 31, 1953; De Jesus vs. Daza, 77 Phil. 152; Cea vs. C.A., 84 Phil. 798), yet it could not have effected an immediate absolute transfer of title to appellee Soler over any part of the parcels of land themselves, much less over their entirety. Necessarily, the sale was subject to the result of the administration proceedings, a contingency upon which the deed of sale itself expressly founded the transaction. By its terms, not only was the existence of possible heirs of Alejandro Ros recognized, but it also provided for the contingency that said heirs could yet be declared or adjudicated in the administration proceedings as the sole owners of the four parcels being sold.

The subsequent registration of those lands covered by the sale of October 14, 1944 and that of August 30, 1944, allegedly in the exclusive name of appellee Roberto Soler, gave rise to an action for reconveyance based on trust. Assuming that this case is one of constructive trust, and under the theory that actions to recover property held in constructive trust would prescribe, there is here no showing as to when the alleged fraud was discovered (Article 1391, N.C.C.). Hence, it cannot be said that prescription has tolled the action.

Finally, neither in the first motion to dismiss on August 29, 1952; nor in the Answer on September 26, 1952; nor in the second motion to dismiss on June 11, 1953, was the defense of prescription raised. From the time the Complaint was filed on May 9, 1952 to the third motion to dismiss on July 18, 1955, was a period of more than three (3) years in which it took Soler just to raise prescription as an issue. Not having been set up in the two (2) motions to dismiss or in the answer as affirmative defense, it is deemed to have been waived (Rule 9, See. 10; Rule 26, Sec. 8; Pascua vs. Copuyoc, L-9595, November 28, 1958). Obviously, prescription in this case does not appear on the face of the pleadings, where failure to plead it would not have constituted a waiver (Chua Lamko vs. Diego, et al., L-5279, October 31, 1955). On the contrary, it would appear to raise an issue of fact not contained in the pleadings, i.e., the time the fraud was discovered. And this, furthermore, necessitates reception of evidence.

WHEREFORE, the appealed order dismissing the complaint in Civil Case No. 2123 of the court below is reversed, and the case remanded, with instructions to proceed in accordance with this decision. Costs against appellee Roberto Soler.

G.R. No. L-27782 July 31, 1970

OCTAVIO A. KALALO, plaintiff-appellee, vs.ALFREDO J. LUZ, defendant-appellant.

Amelia K. del Rosario for plaintiff-appellee.

Pelaez, Jalandoni & Jamir for defendant-appellant.

ZALDIVAR, J.:

Appeal from the decision, dated, February 10, 1967, of the Court of First Instance of Rizal (Branch V, Quezon City) in its Civil Case No. Q-6561.

On November 17, 1959, plaintiff-appellee Octavio A. Kalalo hereinafter referred to as appellee), a licensed civil engineer doing business under the firm name of O. A. Kalalo and Associates, entered into an agreement (Exhibit A ) 1 with defendant-appellant Alfredo J . Luz (hereinafter referred to as appellant), a licensed architect, doing business under firm name of A. J. Luz and Associates, whereby the former was to render engineering design services to the latter for fees, as stipulated in the agreement. The services included design computation and sketches, contract drawing and technical specifications of all engineering phases of the project designed by O. A. Kalalo and Associates bill of quantities and cost estimate, and consultation and advice during construction relative to the work. The fees agreed upon were percentages of the architect's fee, to wit: structural engineering, 12-½%; electrical engineering, 2-½%. The agreement was subsequently supplemented by a "clarification to letter-proposal" which provided, among other things, that "the schedule of engineering fees in this agreement does not cover the following: ... D. Foundation soil exploration, testing and evaluation; E. Projects that are principally engineering works such as industrial plants, ..." and "O. A. Kalalo and Associates reserve the right to increase fees on projects ,which cost less than P100,000 ...." 2 Pursuant to said agreement, appellee rendered engineering services to appellant in the following projects:

(a) Fil-American Life Insurance Building at Legaspi City;

(b) Fil-American Life Insurance Building at Iloilo City;

(c) General Milling Corporation Flour Mill at Opon Cebu;

(d) Menzi Building at Ayala Blvd., Makati, Rizal;

(e) International Rice Research Institute, Research center Los Baños, Laguna;

(f) Aurelia's Building at Mabini, Ermita, Manila;

(g) Far East Bank's Office at Fil-American Life Insurance Building at Isaac Peral Ermita, Manila;

(h) Arthur Young's residence at Forbes Park, Makati, Rizal;

(i) L & S Building at Dewey Blvd., Manila; and

(j) Stanvac Refinery Service Building at Limay, Bataan.

On December 1 1, '1961, appellee sent to appellant a statement of account (Exhibit "1"), 3 to which was attached an itemized statement of defendant-appellant's account (Exh. "1-A"), according to which the total engineering fee asked by appellee for services rendered amounted to P116,565.00 from which sum was to be deducted the previous payments made in the amount of P57,000.00, thus leaving a balance due in the amount of P59,565.00.



On May 18, 1962 appellant sent appellee a resume of fees due to the latter. Said fees, according to appellant. amounted to P10,861.08 instead of the amount claimed by the appellee. On June 14, 1962 appellant sent appellee a check for said amount, which appellee refused to accept as full payment of the balance of the fees due him.

On August 10, 1962, appellee filed a complaint against appellant, containing four causes of action. In the first cause of action, appellee alleged that for services rendered in connection with the different projects therein mentioned there was due him fees in sum s consisting of $28,000 (U.S.) and P100,204.46, excluding interests, of which sums only P69,323.21 had been paid, thus leaving unpaid the $28,000.00 and the balance of P30,881.25. In the second cause of action, appellee claimed P17,000.00 as consequential and moral damages; in the third cause of action claimed P55,000.00 as moral damages, attorney's fees and expenses of litigation; and in the fourth cause of action he claimed P25,000.00 as actual damages, and also for attorney's fees and expenses of litigation.

In his answer, appellant admitted that appellee rendered engineering services, as alleged in the first cause of action, but averred that some of appellee's services were not in accordance with the agreement and appellee's claims were not justified by the services actually rendered, and that the aggregate amount actually due to appellee was only P80,336.29, of which P69,475.21 had already been paid, thus leaving a balance of only P10,861.08. Appellant denied liability for any damage claimed by appellee to have suffered, as alleged in the second, third and fourth causes of action. Appellant also set up affirmative and special defenses, alleging that appellee had no cause of action, that appellee was in estoppel because of certain acts, representations, admissions and/or silence, which led appellant to believe certain facts to exist and to act upon said facts, that appellee's claim regarding the Menzi project was premature because appellant had not yet been paid for said project, and that appellee's services were not complete or were performed in violation of the agreement and/or otherwise unsatisfactory. Appellant also set up a counterclaim for actual and moral damages for such amount as the court may deem fair to assess, and for attorney's fees of P10,000.00.

Inasmuch as the pleadings showed that the appellee's right to certain fees for services rendered was not denied, the only question being the assessment of the proper fees and the balance due to appellee after deducting the admitted payments made by appellant, the trial court, upon agreement of the parties, authorized the case to be heard before a Commissioner. The Commissioner rendered a report which, in resume, states that the amount due to appellee was $28,000.00 (U.S.) as his fee in the International Research Institute Project which was twenty percent (20%) of the $140,000.00 that was paid to appellant, and P51,539.91 for the other projects, less the sum of P69,475.46 which was already paid by the appellant. The Commissioner also recommended the payment to appellee of the sum of P5,000.00 as attorney's fees.

At the hearing on the Report of the Commissioner, the respective counsel of the parties manifested to the court that they had no objection to the findings of fact of the Commissioner contained in the Report, and they agreed that the said Report posed only two legal issues, namely: (1) whether under the facts stated in the Report, the doctrine of estoppel would apply; and (2) whether the recommendation in the Report that the payment of the amount. due

to the plaintiff in dollars was legally permissible, and if not, at what rate of exchange it should be paid in pesos. After the parties had submitted their respective memorandum on said issues, the trial court rendered its decision dated February 10, 1967, the dispositive portion of which reads as follows:

WHEREFORE, judgment is rendered in favor of plaintiff and against the defendant, by ordering the defendant to pay plaintiff the sum of P51,539.91 and $28,000.00, the latter to be converted into the Philippine currency on the basis of the current rate of exchange at the time of the payment of this judgment, as certified to by the Central Bank of the Philippines, from which shall be deducted the sum of P69,475.46, which the defendant had paid the plaintiff, and the legal rate of interest thereon from the filing of the complaint in the case until fully paid for; by ordering the defendant to pay to plaintiff the further sum of P8,000.00 by way of attorney's fees which the Court finds to be reasonable in the premises, with costs against the defendant. The counterclaim of the defendant is ordered dismissed.

From the decision, this appeal was brought, directly to this Court, raising only questions of law.

During the pendency of this appeal, appellee filed a petition for the issuance of a writ of attachment under Section 1 (f) of Rule 57 of the Rules of Court upon the ground that appellant is presently residing in Canada as a permanent resident thereof. On June 3, 1969, this Court resolved, upon appellee's posting a bond of P10,000.00, to issue the writ of attachment, and ordered the Provincial Sheriff of Rizal to attach the estate, real and personal, of appellant Alfredo J. Luz within the province, to the value of not less than P140,000.00.

The appellant made the following assignments of errors:

I. The lower court erred in not declaring and holding that plaintiff-appellee's letter dated December 11, 1961 (Exhibit "1") and the statement of account (Exhibit "1-A") therein enclosed, had the effect, cumulatively or alternatively, of placing plaintiff-appellee in estoppel from thereafter modifying the representations made in said exhibits, or of making plaintiff-appellee otherwise bound by said representations, or of being of decisive weight in determining the true intent of the parties as to the nature and extent of the engineering services rendered and/or the amount of fees due.

II. The lower court erred in declaring and holding that the balance owing from defendant-appellant to plaintiff-appellee on the IRRI Project should be paid on the basis of the rate of exchange of the U.S. dollar to the Philippine peso at the time of payment of judgment. .



III. The lower court erred in not declaring and holding that the aggregate amount of the balance due from defendant-appellant to plaintiff-appellee is only P15,792.05.

IV. The lower court erred in awarding attorney's fees in the sum of P8,000.00, despite the commissioner's finding, which plaintiff-appellee has accepted and has not questioned, that said fee be only P5,000.00; and

V. The lower court erred in not granting defendant-appellant relief on his counter-claim.

1. In support of his first assignment of error appellant argues that in Exhibit 1-A, which is a statement of accounts dated December 11, 1961, sent by appellee to appellant, appellee specified the various projects for which he claimed engineering fees, the precise amount due on each particular engineering service rendered on each of the various projects, and the total of his claims; that such a statement barred appellee from asserting any claim contrary to what was stated therein, or from taking any position different from what he asserted therein with respect to the nature of the engineering services rendered; and consequently the trial court could not award fees in excess of what was stated in said statement of accounts. Appellant argues that for estoppel to apply it is not necessary, contrary to the ruling of the trial court, that the appellant should have actually relied on the representation, but that it is sufficient that the representations were intended to make the defendant act there on; that assuming arguendo that Exhibit 1-A did not put appellee in estoppel, the said Exhibit 1-A nevertheless constituted a formal admission that would be binding on appellee under the law on evidence, and would not only belie any inconsistent claim but also would discredit any evidence adduced by appellee in support of any claim inconsistent with what appears therein; that, moreover, Exhibit 1-A, being a statement of account, establishesprima facie the accuracy and correctness of the items stated therein and its correctness can no longer be impeached except for fraud or mistake; that Exhibit 1-A furthermore, constitutes appellee's own interpretation of the contract between him and appellant, and hence, is conclusive against him.

On the other hand, appellee admits that Exhibit 1-A itemized the services rendered by him in the various construction projects of appellant and that the total engineering fees charged therein was P116,565.00, but maintains that he was not in estoppel: first, because when he prepared Exhibit 1-A he was laboring under an innocent mistake, as found by the trial court; second, because appellant was not ignorant of the services actually rendered by appellee and the fees due to the latter under the original agreement, Exhibit "A."

We find merit in the stand of appellee.

The statement of accounts (Exh. 1-A) could not estop appellee, because appellant did not rely thereon as found by the Commissioner, from whose Report we read:

While it is true that plaintiff vacillated in his claim, yet, defendant did not in anyway rely or believe in the different claims asserted by the plaintiff and

instead insisted on a claim that plaintiff was only entitled to P10,861.08 as per a separate resume of fees he sent to the plaintiff on May 18, 1962 (See Exhibit 6). 4

The foregoing finding of the Commissioner, not disputed by appellant, was adopted by the trial court in its decision. Under article 1431 of the Civil Code, in order that estoppel may apply the person, to whom representations have been made and who claims the estoppel in his favor must have relied or acted on such representations. Said article provides:

Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon.

An essential element of estoppel is that the person invoking it has been influenced and has relied on the representations or conduct of the person sought to be estopped, and this element is wanting in the instant case. InCristobal vs. Gomez, 5 this Court held that no estoppel based on a document can be invoked by one who has not been mislead by the false statements contained therein. And in Republic of the Philippines vs. Garcia, et al., 6 this Court ruled that there is no estoppel when the statement or action invoked as its basis did not mislead the adverse party-Estoppel has been characterized as harsh or odious and not favored in law. 7 When misapplied, estoppel becomes a most effective weapon to accomplish an injustice, inasmuch as it shuts a man's mouth from speaking the truth and debars the truth in a particular case. 8 Estoppel cannot be sustained by mere argument or doubtful inference: it must be clearly proved in all its essential elements by clear, convincing and satisfactory evidence. 9No party should be precluded from making out his case according to its truth unless by force of some positive principle of law, and, consequently, estoppel in pains must be applied strictly and should not be enforced unless substantiated in every particular. 1 0

The essential elements of estoppel in pais may be considered in relation to the party sought to be estopped, and in relation to the party invoking the estoppel in his favor. As related to the party to be estopped, the essential elements are: (1) conduct amounting to false representation or concealment of material facts or at least calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (2) intent, or at least expectation that his conduct shall be acted upon by, or at least influence, the other party; and (3) knowledge, actual or constructive, of the real facts. As related to the party claiming the estoppel, the essential elements are (1) lack of knowledge and of the means of knowledge of the truth as the facts in questions; (2) (reliance, in good faith, upon the conduct or statements of the party to be estopped; (3) action or inaction based thereon of such character as To change the position or status of the party claiming the estoppel, to his injury, detriment or prejudice. 1 1

The first essential element in relation to the party sought to be estopped does not obtain in the instant case, for, as appears in the Report of the Commissioner, appellee testified "that when he wrote Exhibit 1 and prepared Exhibit 1-A, he had not yet consulted the services of his counsel and it was only upon advice of counsel that the terms of the contract were interpreted to him resulting in his



subsequent letters to the defendant demanding payments of his fees pursuant to the contract Exhibit A." 1 2 This finding of the Commissioner was adopted by the trial court. 1 3 It is established , therefore, that Exhibit 1-A was written by appellee through ignorance or mistake. Anent this matter, it has been held that if an act, conduct or misrepresentation of the party sought to be estopped is due to ignorance founded on innocent mistake, estoppel will not arise. 1 4 Regarding the essential elements of estoppel in relation to the party claiming the estoppel, the first element does not obtain in the instant case, for it cannot be said that appellant did not know, or at least did not have the means of knowing, the services rendered to him by appellee and the fees due thereon as provided in Exhibit A. The second element is also wanting, for, as adverted to, appellant did not rely on Exhibit 1-A but consistently denied the accounts stated therein. Neither does the third element obtain, for appellant did not act on the basis of the representations in Exhibit 1-A, and there was no change in his position, to his own injury or prejudice.

Appellant, however, insists that if Exhibit 1-A did not put appellee in estoppel, it at least constituted an admission binding upon the latter. In this connection, it cannot be gainsaid that Exhibit 1-A is not a judicial admission. Statements which are not estoppels nor judicial admissions have no quality of conclusiveness, and an opponent. whose admissions have been offered against him may offer any evidence which serves as an explanation for his former assertion of what he now denies as a fact. This may involve the showing of a mistake. Accordingly, in Oas vs. Roa, 1 6 it was held that when a party to a suit has made an admission of any fact pertinent to the issue involved, the admission can be received against him; but such an admission is not conclusive against him, and he is entitled to present evidence to overcome the effect of the admission. Appellee did explain, and the trial court concluded, that Exhibit 1-A was based on either his ignorance or innocent mistake and he, therefore, is not bound by it.

Appellant further contends that Exhibit 1-A being a statement of account, establishes prima facie the accuracy and correctness of the items stated therein. If prima facie, as contended by appellant, then it is not absolutely conclusive upon the parties. An account stated may be impeached for fraud, mistake or error. In American Decisions, Vol. 62, p. 95, cited as authority by appellant himself. we read thus:

An account stated or settled is a mere admission that the account is correct. It is not an estoppel. The account is still open to impeachment for mistakes or errors. Its effect is to establish, prima facie, the accuracy of the items without other proof; and the party seeking to impeach it is bound to show affirmatively the mistake or error alleged. The force of the admission and the strength of the evidence necessary to overcome it will depend upon the circumstances of the case.

In the instant case, it is Our view that the ignorance mistake that attended the writing of Exhibit 1-A by appellee was sufficient to overcome the prima facie evidence of correctness and accuracy of said Exhibit 1-A.

Appellant also urges that Exhibit 1-A constitutes appellee's own interpretation of the contract, and is, therefore, conclusive against

him. Although the practical construction of the contract by one party, evidenced by his words or acts, can be used against him in behalf of the other party, 1 7 yet, if one of the parties carelessly makes a wrong interpretation of the words of his contract, or performs more than the contract requires (as reasonably interpreted independently of his performance), as happened in the instant case, he should be entitled to a restitutionary remedy, instead of being bound to continue to his erroneous interpretation or his erroneous performance and "the other party should not be permitted to profit by such mistake unless he can establish an estoppel by proving a material change of position made in good faith. The rule as to practical construction does not nullify the equitable rules with respect to performance by mistake." 1 8 In the instant case, it has been shown that Exhibit 1-A was written through mistake by appellee and that the latter is not estopped by it. Hence, even if said Exhibit 1-A be considered as practical construction of the contract by appellee, he cannot be bound by such erroneous interpretation. It has been held that if by mistake the parties followed a practice in violation of the terms of the agreement, the court should not perpetuate the error. 1 9

2. In support of the second assignment of error, that the lower court erred in holding that the balance from appellant on the IRRI project should be paid on the basis of the rate of exchange of the U.S. dollar to the Philippine peso at the time of payment of the judgment, appellant contends: first, that the official rate at the time appellant received his architect's fees for the IRRI project, and correspondingly his obligation to appellee's fee on August 25, 1961, was P2.00 to $1.00, and cites in support thereof Section 1612 of the Revised Administrative Code, Section 48 of Republic Act 265 and Section 6 of Commonwealth Act No. 699; second, that the lower court's conclusion that the rate of exchange to be applied in the conversion of the $28,000.00 is the current rate of exchange at the time the judgment shall be satisfied was based solely on a mere presumption of the trial court that the defendant did not convert, there being no showing to that effect, the dollars into Philippine currency at the official rate, when the legal presumption should be that the dollars were converted at the official rate of $1.00 to P2.00 because on August 25, 1961, when the IRRI project became due and payable, foreign exchange controls were in full force and effect, and partial decontrol was effected only afterwards, during the Macapagal administration; third, that the other ground advanced by the lower court for its ruling, to wit, that appellant committed a breach of his obligation to turn over to the appellee the engineering fees received in U.S. dollars for the IRRI project, cannot be upheld, because there was no such breach, as proven by the fact that appellee never claimed in Exhibit 1-A that he should be paid in dollars; and there was no provision in the basic contract (Exh. "A") that he should be paid in dollars; and, finally, even if there were such provision, it would have no binding effect under the provision of Republic Act 529; that, moreover, it cannot really be said that no payment was made on that account for appellant had already paid P57,000.00 to appellee, and under Article 125 of the Civil Code, said payment could be said to have been applied to the fees due from the IRRI project, this project being the biggest and this debt being the most onerous.

In refutation of appellant's argument in support of the second assignment of error, appellee argues that notwithstanding Republic Act 529, appellant can be compelled to pay the appellee in dollars in view of the fact that appellant received his fees in dollars, and appellee's fee is 20% of appellant's fees; and that if said amount is be



converted into Philippine Currency, the rate of exchange should be that at the time of the execution of the judgment. 2 0

We have taken note of the fact that on August 25, 1961, the date when appellant said his obligation to pay appellee's fees became due, there was two rates of exchange, to wit: the preferred rate of P2.00 to $1.00, and the free market rate. It was so provided in Circular No. 121 of the Central Bank of the Philippines, dated March 2, 1961. amending an earlier Circular No. 117, and in force until January 21, 1962 when it was amended by Circular No. 133, thus:

1. All foreign exchange receipts shall be surrendered to the Central Bank of those authorized to deal in foreign exchange as follows:

Percentage of Total to be surrendered at

Preferred: Free Market Rate: Rate:

(a) Export Proceeds, U.S. Government Expenditures invisibles other than those specifically mentioned below. ................................................ 25 75

(b) Foreign Investments, Gold Proceeds, Tourists and Inward Remittances of Veterans and Filipino Citizens; and Personal Expenses of Diplomatic Per personnel ................................. 100" 2 1

The amount of $140,000.00 received by appellant foil the International Rice Research Institute project is not within the scope of sub-paragraph (a) of paragraph No. 1 of Circular No. 121. Appellant has not shown that 25% of said amount had to be surrendered to the Central Bank at the preferred rate because it was either export proceeds, or U.S. Government expenditures, or invisibles not included in sub-paragraph (b). Hence, it cannot be said that the trial court erred in presuming that appellant converted said amount at the free market rate. It is hard to believe that a person possessing dollars would exchange his dollars at the preferred rate of P2.00 to $1.00, when he is not obligated to do so, rather than at the free market rate which is much higher. A person is presumed to take ordinary care of his concerns, and that the ordinary course of business has been followed. 2 2

Under the agreement, Exhibit A, appellee was entitled to 20% of $140,000.00, or the amount of $28,000.00. Appellee, however, cannot oblige the appellant to pay him in dollars, even if appellant himself had received his fee for the IRRI project in dollars. This payment in dollars is prohibited by Republic Act 529 which was enacted on June 16, 1950. Said act provides as follows:

SECTION 1. Every provision contained in, or made with respect to, any obligation which provision purports to give the obligee the right to require payment in gold or in a particular kind of coin or currency other than Philippine currency or in an amount of money of the Philippines measured thereby, be as it is hereby declared against public policy, and null, void and of no effect, and no such

provision shall be contained in, or made with respect to, any obligation hereafter incurred. Every obligation heretofore or here after incurred, whether or not any such provision as to payment is contained therein or made with respect thereto, shall be discharged upon payment in any coin or currency which at the time of payment is legal tender for public and private debts: Provided, That, ( a) if the obligation was incurred prior to the enactment of this Act and required payment in a particular kind of coin or currency other than Philippine currency, it shall be discharged in Philippine currency measured at the prevailing rate of exchange at the time the obligation was incurred, (b) except in case of a loan made in a foreign currency stipulated to be payable in the same currency in which case the rate of exchange prevailing at the time of the stipulated date of payment shall prevail. All coin and currency, including Central Bank notes, heretofore or hereafter issued and declared by the Government of the Philippines shall be legal tender for all debts, public and private.

Under the above-quoted provision of Republic Act 529, if the obligation was incurred prior to the enactment of the Act and require payment in a particular kind of coin or currency other than the Philippine currency the same shall be discharged in Philippine currency measured at the prevailing rate of exchange at the time the obligation was incurred. As We have adverted to, Republic Act 529 was enacted on June 16, 1950. In the case now before Us the obligation of appellant to pay appellee the 20% of $140,000.00, or the sum of $28,000.00, accrued on August 25, 1961, or after the enactment of Republic Act 529. It follows that the provision of Republic Act 529 which requires payment at the prevailing rate of exchange when the obligation was incurred cannot be applied. Republic Act 529 does not provide for the rate of exchange for the payment of obligation incurred after the enactment of said Act. The logical Conclusion, therefore, is that the rate of exchange should be that prevailing at the time of payment. This view finds support in the ruling of this Court in the case of Engel vs. Velasco & Co. 2 3 where this Court held that even if the obligation assumed by the defendant was to pay the plaintiff a sum of money expressed in American currency, the indemnity to be allowed should be expressed in Philippine currency at the rate of exchange at the time of judgment rather than at the rate of exchange prevailing on the date of defendant's breach. This is also the ruling of American court as follows:

The value in domestic money of a payment made in foreign money is fixed with respect to the rate of exchange at the time of payment. (70 CJS p. 228)

According to the weight of authority the amount of recovery depends upon the current rate of exchange, and not the par value of the particular money involved. (48 C.J. 605-606)

The value in domestic money of a payment made in foreign money is fixed in reference to the rate of



exchange at the time of such payment. (48 C.J. 605)

It is Our considered view, therefore, that appellant should pay the appellee the equivalent in pesos of the $28,000.00 at the free market rate of exchange at the time of payment. And so the trial court did not err when it held that herein appellant should pay appellee $28,000.00 "to be converted into the Philippine currency on the basis of the current rate of exchange at the time of payment of this judgment, as certified to by the Central Bank of the Philippines, ...." 2 4

Appellant also contends that the P57,000.00 that he had paid to appellee should have been applied to the due to the latter on the IRRI project because such debt was the most onerous to appellant. This contention is untenable. The Commissioner who was authorized by the trial court to receive evidence in this case, however, reports that the appellee had not been paid for the account of the $28,000.00 which represents the fees of appellee equivalent to 20% of the $140,000.00 that the appellant received as fee for the IRRI project. This is a finding of fact by the Commissioner which was adopted by the trial court. The parties in this case have agreed that they do not question the finding of fact of the Commissioner. Thus, in the decision appealed from the lower court says:

At the hearing on the Report of the Commissioner on February 15, 1966, the counsels for both parties manifested to the court that they have no objection to the findings of facts of the Commissioner in his report; and agreed that the said report only poses two (2)legal issues, namely: (1) whether under the facts stated in the Report, the doctrine of estoppel will apply; and (2) whether the recommendation in the Report that the payment of amount due to the plaintiff in dollars is permissible under the law, and, if not, at what rate of exchange should it be paid in pesos (Philippine currency) .... 2 5

In the Commissioner's report, it is spetifically recommended that the appellant be ordered to pay the plaintiff the sum of "$28,000. 00 or its equivalent as the fee of the plaintiff under Exhibit A on the IRRI project." It is clear from this report of the Commissioner that no payment for the account of this $28,000.00 had been made. Indeed, it is not shown in the record that the peso equivalent of the $28,000.00 had been fixed or agreed upon by the parties at the different times when the appellant had made partial payments to the appellee.

3. In his third assignment of error, appellant contends that the lower court erred in not declaring that the aggregate amount due from him to appellee is only P15,792.05. Appellant questions the propriety or correctness of most of the items of fees that were found by the Commissioner to be due to appellee for services rendered. We believe that it is too late for the appellant to question the propriety or correctness of those items in the present appeal. The record shows that after the Commissioner had submitted his report the lower court, on February 15, 1966, issued the following order:

When this case was called for hearing today on the report of the Commissioner, the counsels of the parties manifested that they have no objection to

the findings of facts in the report. However, the report poses only legal issues, namely: (1) whether under the facts stated in the report, the doctrine of estoppel will apply; and (2) whether the recommendation in the report that the alleged payment of the defendant be made in dollars is permissible by law and, if not, in what rate it should be paid in pesos (Philippine Currency). For the purpose of resolving these issues the parties prayed that they be allowed to file their respective memoranda which will aid the court in the determination of said issues. 2 6

In consonance with the afore-quoted order of the trial court, the appellant submitted his memorandum which opens with the following statements:

As previously manifested, this Memorandum shall be confined to:

(a) the finding in the Commissioner's Report that defendant's defense of estoppel will not lie (pp. 17-18, Report); and

(b) the recommendation in the Commissioner's Report that defendant be ordered to pay plaintiff the sum of '$28,000.00 (U.S.) or its equivalent as the fee of the plaintiff under Exhibit 'A' in the IRRI project.'

More specifically this Memorandum proposes to demonstrate the affirmative of three legal issuesposed, namely:

First: Whether or not plaintiff's letter dated December 11, 1961 (Exhibit 'I') and/or Statement of Account (Exhibit '1-A') therein enclosed has the effect of placing plaintiff in estoppel from thereafter modifying the representations made in said letter and Statement of Account or of making plaintiff otherwise bound thereby; or of being decisive or great weight in determining the true intent of the parties as to the amount of the engineering fees owing from defendant to plaintiff;

Second: Whether or not defendant can be compelled to pay whatever balance is owing to plaintiff on the IRRI (International Rice and Research Institute) project in United States dollars; and

Third: Whether or not in case the ruling of this Honorable Court be that defendant cannot be compelled to pay plaintiff in United States dollars, the dollar-to-peso convertion rate for determining the peso equivalent of whatever balance is owing to plaintiff in connection with the IRRI project should be the 2 to 1 official rate and not any other rate. 2 7



It is clear, therefore, that what was submitted by appellant to the lower court for resolution did not include the question of correctness or propriety of the amounts due to appellee in connection with the different projects for which the appellee had rendered engineering services. Only legal questions, as above enumerated, were submitted to the trial court for resolution. So much so, that the lower court in another portion of its decision said, as follows:

The objections to the Commissioner's Report embodied in defendant's memorandum of objections, dated March 18, 1966, cannot likewise be entertained by the Court because at the hearing of the Commissioner's Report the parties had expressly manifested that they had no objection to the findings of facts embodied therein.

We, therefore hold that the third assignment of error of the appellant has no merit.

4. In his fourth assignment of error, appellant questions the award by the lower court of P8,000.00 for attorney's fees. Appellant argues that the Commissioner, in his report, fixed the sum of P5,000.00 as "just and reasonable" attorney's fees, to which amount appellee did not interpose any objection, and by not so objecting he is bound by said finding; and that, moreover, the lower court gave no reason in its decision for increasing the amount to P8,000.00.

Appellee contends that while the parties had not objected to the findings of the Commissioner, the assessment of attorney's fees is always subject to the court's appraisal, and in increasing the recommended fees from P5,000.00 to P8,000.00 the trial court must have taken into consideration certain circumstances which warrant the award of P8,000.00 for attorney's fees.

We believe that the trial court committed no error in this connection. Section 12 of Rule 33 of the Rules of Court, on which the fourth assignment of error is presumably based, provides that when the parties stipulate that a commissioner's findings of fact shall be final, only questions of law arising from the facts mentioned in the report shall thereafter be considered. Consequently, an agreement by the parties to abide by the findings of fact of the commissioner is equivalent to an agreement of facts binding upon them which the court cannot disregard. The question, therefore, is whether or not the estimate of the reasonable fees stated in the report of the Commissioner is a finding of fact.

The report of the Commissioner on this matter reads as follows:

As regards attorney's fees, under the provisions of Art 2208, par (11), the same may be awarded, and considering the number of hearings held in this case, the nature of the case (taking into account the technical nature of the case and the voluminous exhibits offered in evidence), as well as the way the case was handled by counsel, it is believed, subject to the Court's appraisal of the matter, that the sum of P5,000.00 is just and reasonable as attorney's fees." 2 8

It is thus seen that the estimate made by the Commissioner was an expression of belief, or an opinion. An opinionis different from a fact.

The generally recognized distinction between a statement of "fact" and an expression of "opinion" is that whatever is susceptible of exact knowledge is a matter of fact, while that not susceptible of exact knowledge is generally regarded as an expression of opinion. 2 9 It has also been said that the word "fact," as employed in the legal sense includes "those conclusions reached by the trior from shifting testimony, weighing evidence, and passing on the credit of the witnesses, and it does not denote those inferences drawn by the trial court from the facts ascertained and settled by it. 3 0 In the case at bar, the estimate made by the Commissioner of the attorney's fees was an inference from the facts ascertained by him, and is, therefore, not a finding of facts. The trial court was, consequently, not bound by that estimate, in spite of the manifestation of the parties that they had no objection to the findings of facts of the Commissioner in his report. Moreover, under Section 11 of Rule 33 of the Rules of Court, the court may adopt, modify, or reject the report of the commissioner, in whole or in part, and hence, it was within the trial court's authority to increase the recommended attorney's fees of P5,000.00 to P8,000.00. It is a settled rule that the amount of attorney's fees is addressed to the sound discretion of the court. 31

It is true, as appellant contends, that the trial court did not state in the decision the reasons for increasing the attorney's fees. The trial court, however, had adopted the report of the Commissioner, and in adopting the report the trial court is deemed to have adopted the reasons given by the Commissioner in awarding attorney's fees, as stated in the above-quoted portion of the report. Based on the reasons stated in the report, the trial court must have considered that the reasonable attorney's fees should be P8,000.00. Considering that the judgment against the appellant would amount to more than P100,000.00, We believe that the award of P8,000.00 for attorney's fees is reasonable.

5. In his fifth assignment of error appellant urges that he is entitled to relief on his counterclaim. In view of what We have stated in connection with the preceding four assignments of error, We do not consider it necessary to dwell any further on this assignment of error.

WHEREFORE, the decision appealed from is affirmed, with costs against the defendant-appellant. It is so ordered.

G.R. No. L-30058 March 28, 1969

LUIS G. DE CASTRO, petitioner, vs.JULIAN G. GINETE and UBALDO Y. ARCANGEL Judge of the Court of First Instance of Sorsogon, 10th Judicial District, Branch I, respondents.

ZALDIVAR, J.:

Petitioner Luis G. De Castro and respondent Julio G. Ginete were opposing candidates for the office of municipal mayor of the municipality of Bulan, province of Sorsogon, in the general elections held on November 14, 1967. On January 1, 1968 the board of canvassers, as constituted by the Commission on Elections, proclaimed petitioner as the winning candidate with a margin of 12 votes over respondent.



On January 8, 1968 Ginete filed a motion of protest against the election of De Castro before the Court of First Instance of Sorsogon, alleging the commission of frauds and irregularities to favor the candidacy of De Castro. In due time De Castro, as protestee in the election ease, filed a counter-protest, also alleging the commission of frauds and irregularities to favor the candidacy of Ginete.

On April 15, 1968, after the ballots in 20 out of the 25 precincts that were protested by Ginete were revised, De Castro filed a so-called "Manifestation and Motion" which is practically a motion to dismiss the protest upon the ground of estoppel. It is alleged in the "Manifestation and Motion" that Ginete filed his protest after he had made a written concession of the election of De Castro, and after he had publicly declared during the inauguration and induction of De Castro as Mayor that De Castro had won by a margin of 12 votes and on that occasion he urged the people of Bulan to cooperate with the administration of De Castro. On April 22, 1968, before the hearing on the "Manifestation and Motion", De Castro filed an "Amended Manifestation and Motion" wherein he alleged another ground for the dismissal of the protest, namely: the failure on the part of protestant Ginete to allege in his motion of protest that if the irregularities mentioned in the protest are corrected the result would be the election of the protestant, "hence there is no claim upon which the relief sought in the prayer of the protestant may be granted." 1 After healing, wherein the parties were afforded opportunity to present evidence, and after they had filed their respective memoranda, on September 6, 1968, respondent Judge Ubaldo Y. Arcangel of the Court of First Instance of Sorsogon issued an order denying De Castro's amended manifestation and motion. On October 4, 1968 De Castro filed a motion for reconsideration of the order denying the amended manifestation and motion, upon the ground that the order was not in conformity with law. Ginete filed his opposition to the motion for reconsideration. The motion for reconsideration was set for hearing on November 12, 1968. On December 16, 1968, respondent Judge, the Hon. Ubaldo Y. Arcangel issued an order denying De Castro's motion for reconsideration. Thereafter, De Castro filed before this Court a petition for certiorari with preliminary injunction, alleging that respondent Judge acted without or in excess of jurisdiction, or with grave abuse of discretion, in denying his manifestation and motion as well as his motion for reconsideration. The petition prayed that the orders of respondent Judge denying his amended manifestation and motion and his motion for reconsideration be annulled and a new one entered finally dismissing the protest; and that pending the resolution of the petition by this Court a writ of preliminary injunction be issued against respondent Judge enjoining him from proceeding further with the election protest of Ginete.

It is now urged by petitioner De Castro before this Court that the lower court should have dismissed the protest because respondent Ginete, by his own acts and utterances, is estopped from contesting the election of herein petitioner.

The evidence shows that on January 1, 1968, after petitioner De Castro was proclaimed elected by the board of canvassers respondent Ginete wrote a note to petitioner, which reads as follows:

January 1, 1968

To Mayor Cesing De Castro:

Our congratulations to the winner and here's hoping you good luck and success in your administration. Wishing you Happy New Year and may God bless us all. (Inclosed are the keys)

J. Ginete

Petitioner De Castro invited respondent Ginete to attend the ceremony on his inauguration as municipal mayor scheduled for January 6, 1968, and said respondent accepted the invitation. During the inauguration respondent Ginete accompanied the petitioner to the municipal building and to the plaza where the inaugural program was held. Respondent Ginete went up the inaugural stage along with other officials. Before turning over the symbolic key of responsibility to petitioner De Castro, respondent Ginete delivered a speech saying that the mayor elect had been proclaimed with a majority vote and that the people of Bulan should cooperate with his administration. The outgoing mayor Ginete pleaded with the people that if he had any shortcomings during the four years of his incumbency that he be forgiven by the people.

We do not consider that the acts or conduct, or utterances, of respondent Ginete, as mentioned in the foregoing paragraph, had placed him in estoppel to protest the election of petitioner De Castro. We view the conduct and utterances of respondent as simply a laudable gesture of sportsmanship and a manifestation of his respect for the proclamation made by the board of canvassers. There is no showing that Ginete had admitted that De Castro had won in an election that was clean and honest, or free from irregularities. Ginete, as a law-abiding citizen, had to abide by the proclamation of the board of canvassers. But, certainly, his having recognized De Castro as the winner in virtue of the proclamation by the board of canvassers did not preclude him from questioning the validity of De Castro's election in the manner prescribed by law, if he had grounds to show that the election of De Castro was brought about through the commission of frauds and other election irregularities.

We cannot sustain the contention of De Castro that Ginete is in estoppel to contest his election. Estoppel rests on this rule: "Whenever a party has, by his own declaration, act or omission, intentionally and deliberately led another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation arising out of such declaration, act, or omission, be permitted to falsify it. 2 The elements of estoppel by conduct are: (1) that there must have been a representation or concealment of material facts; (2) that the representation must have been made with knowledge of the faculty (3) that the party to whom it was made must have been ignorant of the truth of the matter; and (4) that it must have been made with intention that the other party would act upon it. 3

In the case now before Us, it cannot be said that Ginete had by his acts and declarations made representations of fact regarding De Castro's election which were not known to the latter. Ginete simply made a formal recognition of the fact that De Castro had been proclaimed winner by the municipal board of canvassers of Bulan, and congratulated him — and this Ginete did only after the board of canvassers had proclaimed De Castro winner. It can not be said that De Castro came to know about his having won the election because Ginete told him so. Ginete did not mislead De Castro to the belief that he had won the election. It can not be said that De Castro was led to



act — in assuming the office as mayor — because Ginete had made representation to him that he (De Castro) had won the election. De Castro assumed office as mayor by operation of law, because he was proclaimed elected by the municipal board of canvassers in accordance with law. Ginete, by his acts and/or utterances, had not induced De Castro to believe that his election was unquestionable. Ginete is not the one called upon to declare the election of De Castro valid, and so De Castro can not claim that he was induced to believe that he was elected and he assumed office as mayor simply on the basis of Ginete's act and utterances. Ginete never made any statement that he would not question the election of De Castro. The election case, or the election protest, that Ginete brought against De Castro did not arise out of any act or declaration of Ginete. The election case that Ginete brought against De Castro has for its basis circumstances that had taken place during the election held on November 14, 1967, or long before Ginete had recognized the proclamation of De Castro as winner. If De Castro was not the real winner in the elections it would not help his case in the election protest to assert that Ginete had congratulated him after he was proclaimed winner by the board of canvassers. We do not see in the facts and/or circumstances shown by the evidence in this case the elements of estoppel that would bar Ginete from questioning the election of De Castro.

The purpose of an election protest is to ascertain whether the candidate proclaimed elected by the board of canvassers is really the lawful choice of the electorate. What is sought in an election protest is the correction of the canvass of the votes, which is the basis of the proclamation of the winning candidate. 4 An election contest involves a public office in which the public has an interest. Certainly, the act of a losing candidate of recognized the one who is proclaimed the winner should not bar the losing candidate from questioning the validity of the election of the winner in the manner provided by law.lawphi1.ñet

The only case where this Court has held that a party is estopped to Court the election of the winning candidate is in the case of a tie where the candidates who were declared to have obtained equal number of votes had voluntarily submitted themselves to the drawing of lots to determine the winner, as provided by law. It was ruled by this Court that the candidate who lost in the drawing of lots is estopped from contesting the election of the one who won in the draw, because by submitting himself to the draw the defeated candidate is considered to have admitted that the announcement made by the board of canvassers regarding the tie was the result of a valid and lawful canvass. The candidate who submitted himself to the draw is considered as having deliberately induced his opponent to believe that that canvass which resulted in a tie was legal and he had thereby led his opponent to act upon such belief in the validity of the canvass and the tie so that he can not be permitted to repudiate his own acts. 5

This Court has even adopted a more liberal view on this matter when in a latter case 6 it held that a candidate who has tied with another and who submits himself to the drawing of lots, stating that if the result of said drawing of lots should be adverse to him, he would file a protest before a competent court, is not estopped from doing so. The view adopted by the Court in this latter case is in keeping with the doctrine that an election protest involves public interest, so that the court should allow all opportunity possible for the ascertainment of the true result of the elections.

We, therefore, find no merit in the contention of petitioner De Castro that respondent Ginete is estopped from contesting his election.

Likewise, We find no merit in the contention of petitioner that there is no claim upon which the relief sought in the prayer of the protest may be granted because there is no allegation in the protest that the irregularities mentioned therein, if corrected, would result in the election of the protestant. By this contention, petitioner seeks the dismissal of the protest upon the ground that the motion of protest does not state a cause of action. 7

It is a settled rule that when a complaint — the motion of protest in the present case — is sought to be dismissed upon the ground that it does not state a cause of action the party seeking the dismissal admits hypothetically the facts alleged in the complaint. A cursory reading of the motion of protest readily apprises one of the existence of a cause of action. The motion of protest alleges that protestee De Castro was proclaimed winner by the municipal board of canvassers of Bulan with a margin of only 12 votes over the protestant. The motion of protest impugns the votes of the protestee in 26 election precincts in the municipality of Bulan. Among the irregularities alleged are: (1) that protestee had resorted to vote-buying, such that over 450 ballots were marked by the voters in order to identify the same, following instructions from the protestee; (2) that in precincts 40, 46 and 63 of Bulan, absent registered voters were misrepresented by men of protestee who were allowed to cast the votes of the absent voters, resulting in the illegal adjudication of over 100 votes in protestees favor; (3) that at least 100 ballots where the protestee was not properly voted in the space for mayor adjudicated to protestee; (4) that 200 ballots where the protestant was properly voted for mayor were wrongfully counted by the board of inspectors in favor of protestee; (5) that in precinct 45 of Bulan over 50 ballots where protestee was voted were written by only one hand, and about 50 ballots where protestee was voted were prepared by two distinct persons; and in same precinct 45 about 50 ballots in a bunch were credited in favor of protestee without the chairman of the board of inspectors having read their contents, thereby depriving protestant's watchers the opportunity of seeing whether the ballots cast were for the protestant or for the protestee. It thus follows that if those allegations of frauds and irregularities in the motion of protest are proved, the majority of 12 votes whereby the protestee was declared winner by the board of canvassers would easily be overcome, and the result of the election would change in favor of the protestant. It would be an undue recourse to technicality to dismiss the motion of protest simply because there is no allegation that if the irregularities are corrected the result of the election would be changed, when it is very apparent that if the allegations in the motion of protest are proved a change in the result of the election would necessarily follow. It is a settled rule that statutes providing for election contests are to be liberally construed, and that immaterial defects in pleadings should be disregarded, to the end that the will of the people in the choice of public officers may not be defeated by merely formal or technical objections. 8 When an election protest alleges frauds and irregularities such that the legality of the election of the protestee is placed in serious doubt, the courts should proceed to ascertain the truth of the allegations of frauds and irregularities, not necessarily to declare the protestant elected but to determine whether the protestee was legally elected, because once it is shown that frauds and irregularities had characterized the election the court may annul the election and declare that no candidate had been elected. 9



IN VIEW OF THE FOREGOING, the Court resolves to dismiss the instant petition for certiorari with preliminary injunction. No pronouncement as to costs. It is so ordered.

G.R. No. L-21601 December 17, 1966

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

W. H. Quasha and Associates for plaintiff-appellant.Ponce Enrile, Siguion-Reyna, Montecillo and Belo for defendant-appellee.

ZALDIVAR, J.:

On February 6, 1958, plaintiff brought this action against defendant before the Court of First Instance of Manila to recover certain sums of money representing damages allegedly suffered by the former in view of the refusal of the latter to comply with the terms of a management contract entered into between them on January 30, 1937, including attorney's fees and costs.

Defendant in its answer denied the material allegations of the complaint and set up certain special defenses, among them, prescription and laches, as bars against the institution of the present action.

After trial, during which the parties presented testimonial and numerous documentary evidence, the court a quorendered a decision dismissing the complaint with costs. The court stated that it did not find sufficient evidence to establish defendant's counterclaim and so it likewise dismissed the same.

The present appeal was taken to this Court directly by the plaintiff in view of the amount involved in the case.

The facts of this case, as stated in the decision appealed from, are hereunder quoted for purposes of this decision:

It appears that the suit involves an operating agreement executed before World War II between the plaintiff and the defendant whereby the former operated and managed the mining properties owned by the latter for a management fee of P2,500.00 a month and a 10% participation in the net profits resulting from the operation of the mining properties. For brevity and convenience, hereafter the plaintiff shall be referred to as NIELSON and the defendant, LEPANTO.

The antecedents of the case are: The contract in question (Exhibit `C') was made by the parties on January 30, 1937 for a period of five (5) years. In the latter part of 1941, the parties agreed to renew the contract for another period of five (5) years, but in the meantime, the Pacific War broke out in December, 1941.

In January, 1942 operation of the mining properties was disrupted on account of the war. In February of 1942, the

mill, power plant, supplies on hand, equipment, concentrates on hand and mines, were destroyed upon orders of the United States Army, to prevent their utilization by the invading Japanese Army. The Japanese forces thereafter occupied the mining properties, operated the mines during the continuance of the war, and who were ousted from the mining properties only in August of 1945.

After the mining properties were liberated from the Japanese forces, LEPANTO took possession thereof and embarked in rebuilding and reconstructing the mines and mill; setting up new organization; clearing the mill site; repairing the mines; erecting staff quarters and bodegas and repairing existing structures; installing new machinery and equipment; repairing roads and maintaining the same; salvaging equipment and storing the same within the bodegas; doing police work necessary to take care of the materials and equipment recovered; repairing and renewing the water system; and remembering (Exhibits "D" and "E"). The rehabilitation and reconstruction of the mine and mill was not completed until 1948 (Exhibit "F"). On June 26, 1948 the mines resumed operation under the exclusive management of LEPANTO (Exhibit "F-l").

Shortly after the mines were liberated from the Japanese invaders in 1945, a disagreement arose between NIELSON and LEPANTO over the status of the operating contract in question which as renewed expired in 1947. Under the terms thereof, the management contract shall remain in suspense in case fortuitous event or force majeure, such as war or civil commotion, adversely affects the work of mining and milling.

"In the event of inundations, floodings of mine, typhoon, earthquake or any other force majeure, war, insurrection, civil commotion, organized strike, riot, injury to the machinery or other event or cause reasonably beyond the control of NIELSON and which adversely affects the work of mining and milling; NIELSON shall report such fact to LEPANTO and without liability or breach of the terms of this Agreement, the same shall remain in suspense, wholly or partially during the terms of such inability." (Clause II of Exhibit "C").

NIELSON held the view that, on account of the war, the contract was suspended during the war; hence the life of the contract should be considered extended for such time of the period of suspension. On the other hand, LEPANTO contended that the contract should expire in 1947 as originally agreed upon because the period of suspension accorded by virtue of the war did not operate to extend further the life of the contract.

No understanding appeared from the record to have been bad by the parties to resolve the disagreement. In the meantime, LEPANTO rebuilt and reconstructed the mines and was able to bring the property into operation only in June of 1948, . . . .



Appellant in its brief makes an alternative assignment of errors depending on whether or not the management contract basis of the action has been extended for a period equivalent to the period of suspension. If the agreement is suspended our attention should be focused on the first set of errors claimed to have been committed by the court a quo; but if the contrary is true, the discussion will then be switched to the alternative set that is claimed to have been committed. We will first take up the question whether the management agreement has been extended as a result of the supervening war, and after this question shall have been determined in the sense sustained by appellant, then the discussion of the defense of laches and prescription will follow as a consequence.

The pertinent portion of the management contract (Exh. C) which refers to suspension should any event constituting force majeure happen appears in Clause II thereof which we quote hereunder:

In the event of inundations, floodings of the mine, typhoon, earthquake or any other force majeure, war, insurrection, civil commotion, organized strike, riot, injury to the machinery or other event or cause reasonably beyond the control of NIELSON and which adversely affects the work of mining and milling; NIELSON shall report such fact to LEPANTO and without liability or breach of the terms of this Agreement, the same shall remain in suspense, wholly or partially during the terms of such inability.

A careful scrutiny of the clause above-quoted will at once reveal that in order that the management contract may be deemed suspended two events must take place which must be brought in a satisfactory manner to the attention of defendant within a reasonable time, to wit: (1) the event constituting the force majeure must be reasonably beyond the control of Nielson, and (2) it must adversely affect the work of mining and milling the company is called upon to undertake. As long as these two condition exist the agreement is deem suspended.

Does the evidence on record show that these two conditions had existed which may justify the conclusion that the management agreement had been suspended in the sense entertained by appellant? Let us go to the evidence.

It is a matter that this Court can take judicial notice of that war supervened in our country and that the mines in the Philippines were either destroyed or taken over by the occupation forces with a view to their operation. The Lepanto mines were no exception for not was the mine itself destroyed but the mill, power plant, supplies on hand, equipment and the like that were being used there were destroyed as well. Thus, the following is what appears in the Lepanto Company Mining Report dated March 13, 1946 submitted by its President C. A. DeWitt to the defendant:1 "In February of 1942, our mill, power plant, supplies on hand, equipment, concentrates on hand, and mine, were destroyed upon orders of the U.S. Army to prevent their utilization by the enemy." The report also mentions the report submitted by Mr. Blessing, an official of Nielson, that "the original mill was destroyed in 1942" and "the original power plant and all the installed equipment were destroyed in 1942." It is then undeniable that beginning February, 1942 the operation of the Lepanto mines stopped or became suspended as a result of the destruction of the mill, power

plant and other important equipment necessary for such operation in view of a cause which was clearly beyond the control of Nielson and that as a consequence such destruction adversely affected the work of mining and milling which the latter was called upon to undertake under the management contract. Consequently, by virtue of the very terms of said contract the same may be deemed suspended from February, 1942 and as of that month the contract still had 60 months to go.

On the other hand, the record shows that the defendant admitted that the occupation forces operated its mining properties subject of the management contract,2 and from the very report submitted by President DeWitt it appears that the date of the liberation of the mine was August 1, 1945 although at the time there were still many booby traps.3 Similarly, in a report submitted by the defendant to its stockholders dated August 25, 1948, the following appears: "Your Directors take pleasure in reporting that June 26, 1948 marked the official return to operations of this Company of its properties in Mankayan, Mountain Province, Philippines."4

It is, therefore, clear from the foregoing that the Lepanto mines were liberated on August 1, 1945, but because of the period of rehabilitation and reconstruction that had to be made as a result of the destruction of the mill, power plant and other necessary equipment for its operation it cannot be said that the suspension of the contract ended on that date. Hence, the contract must still be deemed suspended during the succeeding years of reconstruction and rehabilitation, and this period can only be said to have ended on June 26, 1948 when, as reported by the defendant, the company officially resumed the mining operations of the Lepanto. It should here be stated that this period of suspension from February, 1942 to June 26, 1948 is the one urged by plaintiff.5

It having been shown that the operation of the Lepanto mines on the part of Nielson had been suspended during the period set out above within the purview of the management contract, the next question that needs to be determined is the effect of such suspension. Stated in another way, the question now to be determined is whether such suspension had the effect of extending the period of the management contract for the period of said suspension. To elucidate this matter, we again need to resort to the evidence.

For appellant Nielson two witnesses testified, declaring that the suspension had the effect of extending the period of the contract, namely, George T. Scholey and Mark Nestle. Scholey was a mining engineer since 1929, an incorporator, general manager and director of Nielson and Company; and for some time he was also the vice-president and director of the Lepanto Company during the pre-war days and, as such, he was an officer of both appellant and appellee companies. As vice-president of Lepanto and general manager of Nielson, Scholey participated in the negotiation of the management contract to the extent that he initialed the same both as witness and as an officer of both corporations. This witness testified in this case to the effect that the standard force majeure clause embodied in the management contract was taken from similar mining contracts regarding mining operations and the understanding regarding the nature and effect of said clause was that when there is suspension of the operation that suspension meant the extension of the contract. Thus, to the question, "Before the war, what was the understanding of the people in the particular trend of business with respect to the force



majeure clause?", Scholey answered: "That was our understanding that the suspension meant the extension of time lost."6

Mark Nestle, the other witness, testified along similar line. He had been connected with Nielson since 1937 until the time he took the witness stand and had been a director, manager, and president of the same company. When he was propounded the question: "Do you know what was the custom or usage at that time in connection with force majeure clause?", Nestle answered, "In the mining world the force majeure clause is generally considered. When a calamity comes up and stops the work like in war, flood, inundation or fire, etc., the work is suspended for the duration of the calamity, and the period of the contract is extended after the calamity is over to enable the person to do the big work or recover his money which he has invested, or accomplish what his obligation is to a third person ."7

And the above testimonial evidence finds support in the very minutes of the special meeting of the Board of Directors of the Lepanto Company issued on March 10, 1945 which was then chairmaned by Atty. C. A. DeWitt. We read the following from said report:

The Chairman also stated that the contract with Nielson and Company would soon expire if the obligations were not suspended, in which case we should have to pay them the retaining fee of P2,500.00 a month. He believes however, that there is a provision in the contract suspending the effects thereof in cases like the present, and that even if it were not there, the law itself would suspend the operations of the contract on account of the war. Anyhow, he stated, we shall have no difficulty in solving satisfactorily any problem we may have with Nielson and Company.8

Thus, we can see from the above that even in the opinion of Mr. DeWitt himself, who at the time was the chairman of the Board of Directors of the Lepanto Company, the management contract would then expire unless the period therein rated is suspended but that, however, he expressed the belief that the period was extended because of the provision contained therein suspending the effects thereof should any of the case of force majeure happen like in the present case, and that even if such provision did not exist the law would have the effect of suspending it on account of the war. In substance, Atty. DeWitt expressed the opinion that as a result of the suspension of the mining operation because of the effects of the war the period of the contract had been extended.

Contrary to what appellant's evidence reflects insofar as the interpretation of the force majeure clause is concerned, however, appellee gives Us an opposite interpretation invoking in support thereof not only a letter Atty. DeWitt sent to Nielson on October 20, 1945,9 wherein he expressed for the first time an opinion contrary to what he reported to the Board of Directors of Lepanto Company as stated in the portion of the minutes of its Board of Directors as quoted above, but also the ruling laid down by our Supreme Court in some cases decided sometime ago, to the effect that the war does not have the effect of extending the term of a contract that the parties may enter into regarding a particular transaction, citing in this connection the cases of Victorias Planters Association v. Victorias Milling Company, 51 O.G. 4010; Rosario S. Vda. de Lacson, et al. v. Abelardo G. Diaz, 87 Phil. 150; andLo Ching y So Young Chong Co. v. Court of Appeals, et al., 81 Phil. 601.

To bolster up its theory, appellee also contends that the evidence regarding the alleged custom or usage in mining contract that appellant's witnesses tried to introduce was incompetent because (a) said custom was not specifically pleaded; (b) Lepanto made timely and repeated objections to the introduction of said evidence; (c) Nielson failed to show the essential elements of usage which must be shown to exist before any proof thereof can be given to affect the contract; and (d) the testimony of its witnesses cannot prevail over the very terms of the management contract which, as a rule, is supposed to contain all the terms and conditions by which the parties intended to be bound.

It is here necessary to analyze the contradictory evidence which the parties have presented regarding the interpretation of the force majeure clause in the management contract.

At the outset, it should be stated that, as a rule, in the construction and interpretation of a document the intention of the parties must be sought (Rule 130, Section 10, Rules of Court). This is the basic rule in the interpretation of contracts because all other rules are but ancilliary to the ascertainment of the meaning intended by the parties. And once this intention has been ascertained it becomes an integral part of the contract as though it had been originally expressed therein in unequivocal terms (Shoreline Oil Corp. v. Guy, App. 189, So., 348, cited in 17A C.J.S., p. 47). How is this intention determined?

One pattern is to ascertain the contemporaneous and subsequent acts of the contracting parties in relation to the transaction under consideration (Article 1371, Civil Code). In this particular case, it is worthy of note what Atty. C. A. DeWitt has stated in the special meeting of the Board of Directors of Lepanto in the portion of the minutes already quoted above wherein, as already stated, he expressed the opinion that the life of the contract, if not extended, would last only until January, 1947 and yet he said that there is a provision in the contract that the war had the effect of suspending the agreement and that the effect of that suspension was that the agreement would have to continue with the result that Lepanto would have to pay the monthly retaining fee of P2,500.00. And this belief that the war suspended the agreement and that the suspension meant its extension was so firm that he went to the extent that even if there was no provision for suspension in the agreement the law itself would suspend it.

It is true that Mr. DeWitt later sent a letter to Nielson dated October 20, 1945 wherein apparently he changed his mind because there he stated that the contract was merely suspended, but not extended, by reason of the war, contrary to the opinion he expressed in the meeting of the Board of Directors already adverted to, but between the two opinions of Atty. DeWitt We are inclined to give more weight and validity to the former not only because such was given by him against his own interest but also because it was given before the Board of Directors of Lepanto and in the presence, of some Nielson officials 10 who, on that occasion were naturally led to believe that that was the true meaning of the suspension clause, while the second opinion was merely self-serving and was given as a mere afterthought.

Appellee also claims that the issue of true intent of the parties was not brought out in the complaint, but anent this matter suffice it to state that in paragraph No. 19 of the complaint appellant pleaded that the



contract was extended. 11 This is a sufficient allegation considering that the rules on pleadings must as a rule be liberally construed.

It is likewise noteworthy that in this issue of the intention of the parties regarding the meaning and usage concerning the force majeure clause, the testimony adduced by appellant is uncontradicted. If such were not true, appellee should have at least attempted to offer contradictory evidence. This it did not do. Not even Lepanto's President, Mr. V. E. Lednicky who took the witness stand, contradicted said evidence.

In holding that the suspension of the agreement meant the extension of the same for a period equivalent to the suspension, We do not have the least intention of overruling the cases cited by appellee. We simply want to say that the ruling laid down in said cases does not apply here because the material facts involved therein are not the same as those obtaining in the present. The rule of stare decisis cannot be invoked where there is no analogy between the material facts of the decision relied upon and those of the instant case.

Thus, in Victorias Planters Association vs. Victorias Milling Company, 51 O.G. 4010, there was no evidence at all regarding the intention of the parties to extend the contract equivalent to the period of suspension caused by the war. Neither was there evidence that the parties understood the suspension to mean extension; nor was there evidence of usage and custom in the industry that the suspension meant the extension of the agreement. All these matters, however, obtain in the instant case.

Again, in the case of Rosario S. Vda. de Lacson vs. Abelardo G. Diaz, 87 Phil. 150, the issue referred to the interpretation of a pre-war contract of lease of sugar cane lands and the liability of the lessee to pay rent during and immediately following the Japanese occupation and where the defendant claimed the right of an extension of the lease to make up for the time when no cane was planted. This Court, in holding that the years which the lessee could not use the land because of the war could not be discounted from the period agreed upon, held that "Nowhere is there any insinuation that the defendant-lessee was to have possession of lands for seven years excluding years on which he could not harvest sugar." Clearly, this ratio decidendi is not applicable to the case at bar wherein there is evidence that the parties understood the "suspension clause by force majeure" to mean the extension of the period of agreement.

Lastly, in the case of Lo Ching y So Young Chong Co. vs. Court of Appeals, et al., 81 Phil. 601, appellant leased a building from appellee beginning September 13, 1940 for three years, renewable for two years. The lessee's possession was interrupted in February, 1942 when he was ousted by the Japanese who turned the same over to German Otto Schulze, the latter occupying the same until January, 1945 upon the arrival of the liberation forces. Appellant contended that the period during which he did not enjoy the leased premises because of his dispossession by the Japanese had to be deducted from the period of the lease, but this was overruled by this Court, reasoning that such dispossession was merely a simple "perturbacion de merohecho y de la cual no responde el arrendador" under Article 1560 of the old Civil Code Art. 1664). This ruling is also not applicable in the instant case because in that case there was no evidence of the intention of the parties that any suspension of the lease by force majeure would be understood to extend the period of the agreement.

In resume, there is sufficient justification for Us to conclude that the cases cited by appellee are inapplicable because the facts therein involved do not run parallel to those obtaining in the present case.

We shall now consider appellee's defense of laches. Appellee is correct in its contention that the defense of laches applies independently of prescription. Laches is different from the statute of limitations. Prescription is concerned with the fact of delay, whereas laches is concerned with the effect of delay. Prescription is a matter of time; laches is principally a question of inequity of permitting a claim to be enforced, this inequity being founded on some change in the condition of the property or the relation of the parties. Prescription is statutory; laches is not. Laches applies in equity, whereas prescription applies at law. Prescription is based on fixed time, laches is not. (30 C.J.S., p. 522; See also Pomeroy's Equity Jurisprudence, Vol. 2, 5th ed., p. 177).

The question to determine is whether appellant Nielson is guilty of laches within the meaning contemplated by the authorities on the matter. In the leading case of Go Chi Gun, et al. vs. Go Cho, et al., 96 Phil. 622, this Court enumerated the essential elements of laches as follows:

(1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation of which complaint is made and for which the complaint seeks a remedy; (2) delay in asserting the complainant's rights, the complainant having had knowledge or notice of the defendant's conduct and having been afforded an opportunity to institute a suit; (3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit; and (4) injury or prejudice to the defendant in the event relief is accorded to the complainant, or the suit is not held barred.

Are these requisites present in the case at bar?

The first element is conceded by appellant Nielson when it claimed that defendant refused to pay its management fees, its percentage of profits and refused to allow it to resume the management operation.

Anent the second element, while it is true that appellant Nielson knew since 1945 that appellee Lepanto has refused to permit it to resume management and that since 1948 appellee has resumed operation of the mines and it filed its complaint only on February 6, 1958, there being apparent delay in filing the present action, We find the delay justified and as such cannot constitute laches. It appears that appellant had not abandoned its right to operate the mines for even before the termination of the suspension of the agreement as early as January 20, 194612 and even before March 10, 1945, it already claimed its right to the extension of the contract,13 and it pressed its claim for the balance of its share in the profits from the 1941 operation14 by reason of which negotiations had taken place for the settlement of the claim15 and it was only on June 25, 1957 that appellee finally denied the claim. There is, therefore, only a period of less than one year that had elapsed from the date of the final denial of the claim to the date of the filing of the complaint, which certainly cannot be considered as unreasonable delay.



The third element of laches is absent in this case. It cannot be said that appellee Lepanto did not know that appellant would assert its rights on which it based suit. The evidence shows that Nielson had been claiming for some time its rights under the contract, as already shown above.

Neither is the fourth element present, for if there has been some delay in bringing the case to court it was mainly due to the attempts at arbitration and negotiation made by both parties. If Lepanto's documents were lost, it was not caused by the delay of the filing of the suit but because of the war.

Another reason why appellant Nielson cannot be held guilty of laches is that the delay in the filing of the complaint in the present case was the inevitable of the protracted negotiations between the parties concerning the settlement of their differences. It appears that Nielson asked for arbitration16 which was granted. A committee consisting of Messrs. DeWitt, Farnell and Blessing was appointed to act on said differences but Mr. DeWitt always tried to evade the issue17 until he was taken ill and died. Mr. Farnell offered to Nielson the sum of P13,000.58 by way of compromise of all its claim arising from the management contract18 but apparently the offer was refused. Negotiations continued with the exchange of letters between the parties but with no satisfactory result.19 It can be said that the delay due to protracted negotiations was caused by both parties. Lepanto, therefore, cannot be permitted to take advantage of such delay or to question the propriety of the action taken by Nielson. The defense of laches is an equitable one and equity should be applied with an even hand. A person will not be permitted to take advantage of, or to question the validity, or propriety of, any act or omission of another which was committed or omitted upon his own request or was caused by his conduct (R. H. Stearns Co. vs. United States, 291 U.S. 54, 78 L. Ed. 647, 54 S. Ct., 325; United States vs. Henry Prentiss & Co., 288 U.S. 73, 77 L. Ed., 626, 53 S. Ct., 283).

Had the action of Nielson prescribed? The court a quo held that the action of Nielson is already barred by the statute of limitations, and that ruling is now assailed by the appellant in this appeal. In urging that the court a quoerred in reaching that conclusion the appellant has discussed the issue with reference to particular claims.

The first claim is with regard to the 10% share in profits of 1941 operations. Inasmuch as appellee Lepanto alleges that the correct basis of the computation of the sharing in the net profits shall be as provided for in Clause V of the Management Contract, while appellant Nielson maintains that the basis should be what is contained in the minutes of the special meeting of the Board of Directors of Lepanto on August 21, 1940, this question must first be elucidated before the main issue is discussed.

The facts relative to the matter of profit sharing follow: In the management contract entered into between the parties on January 30, 1937, which was renewed for another five years, it was stipulated that Nielson would receive a compensation of P2,500.00 a month plus 10% of the net profits from the operation of the properties for the preceding month. In 1940, a dispute arose regarding the computation of the 10% share of Nielson in the profits. The Board of Directors of Lepanto, realizing that the mechanics of the contract was unfair to Nielson, authorized its President to enter into an agreement with Nielson modifying the pertinent provision of the contract effective

January 1, 1940 in such a way that Nielson shall receive (1) 10% of the dividends declared and paid, when and as paid, during the period of the contract and at the end of each year, (2) 10% of any depletion reserve that may be set up, and (3) 10% of any amount expended during the year out of surplus earnings for capital account. 20 Counsel for the appellee admitted during the trial that the extract of the minutes as found in Exhibit B is a faithful copy from the original. 21 Mr. George Scholey testified that the foregoing modification was agreed upon. 22

Lepanto claims that this new basis of computation should be rejected (1) because the contract was clear on the point of the 10% share and it was so alleged by Nielson in its complaint, and (2) the minutes of the special meeting held on August 21, 1940 was not signed.

It appearing that the issue concerning the sharing of the profits had been raised in appellant's complaint and evidence on the matter was introduced 23 the same can be taken into account even if no amendment of the pleading to make it conform to the evidence has been made, for the same is authorized by Section 4, Rule 17, of the old Rules of Court (now Section 5, Rule 10, of the new Rules of Court).

Coming now to the question of prescription raised by defendant Lepanto, it is contended by the latter that the period to be considered for the prescription of the claim regarding participation in the profits is only four years, because the modification of the sharing embodied in the management contract is merely verbal, no written document to that effect having been presented. This contention is untenable. The modification appears in the minutes of the special meeting of the Board of Directors of Lepanto held on August 21, 1940, it having been made upon the authority of its President, and in said minutes the terms of the modification had been specified. This is sufficient to have the agreement considered, for the purpose of applying the statute of limitations, as a written contract even if the minutes were not signed by the parties (3 A.L.R., 2d, p. 831). It has been held that a writing containing the terms of a contract if adopted by two persons may constitute a contract in writing even if the same is not signed by either of the parties (3 A.L.R., 2d, pp. 812-813). Another authority says that an unsigned agreement the terms of which are embodied in a document unconditionally accepted by both parties is a written contract (Corbin on Contracts, Vol. 1, p. 85)

The modification, therefore, made in the management contract relative to the participation in the profits by appellant, as contained in the minutes of the special meeting of the Board of Directors of Lepanto held on August 21, 1940, should be considered as a written contract insofar as the application of the statutes of limitations is concerned. Hence, the action thereon prescribes within ten (10) years pursuant to Section 43 of Act 190.

Coming now to the facts, We find that the right of Nielson to its 10% participation in the 1941 operations accrued on December 21, 1941 and the right to commence an action thereon began on January 1, 1942 so that the action must be brought within ten (10) years from the latter date. It is true that the complaint was filed only on February 6, 1958, that is sixteen (16) years, one (1) month and five (5) days after the right of action accrued, but the action has not yet prescribed for various reasons which We will hereafter discuss.



The first reason is the operation of the Moratorium Law, for appellant's claim is undeniably a claim for money. Said claim accrued on December 31, 1941, and Lepanto is a war sufferer. Hence the claim was covered by Executive Order No. 32 of March 10, 1945. It is well settled that the operation of the Moratorium Law suspends the running of the statue of limitations (Pacific Commercial Co. vs. Aquino, G.R. No. L-10274, February 27, 1957).

This Court has held that the Moratorium Law had been enforced for eight (8) years, two (2) months and eight (8) days (Tioseco vs. Day, et al., L-9944, April 30, 1957; Levy Hermanos, Inc. vs. Perez, L-14487, April 29, 1960), and deducting this period from the time that had elapsed since the accrual of the right of action to the date of the filing of the complaint, the extent of which is sixteen (16) years, one (1) month and five (5) days, we would have less than eight (8) years to be counted for purposes of prescription. Hence appellant's action on its claim of 10% on the 1941 profits had not yet prescribed.

Another reason that may be taken into account in support of the no-bar theory of appellant is the arbitration clause embodied in the management contract which requires that any disagreement as to any amount of profits before an action may be taken to court shall be subject to arbitration. 24 This agreement to arbitrate is valid and binding. 25 It cannot be ignored by Lepanto. Hence Nielson could not bring an action on its participation in the 1941 operations-profits until the condition relative to arbitration had been first complied with. 26 The evidence shows that an arbitration committee was constituted but it failed to accomplish its purpose on June 25, 1957. 27From this date to the filing of the complaint the required period for prescription has not yet elapsed.

Nielson claims the following: (1) 10% share in the dividends declared in 1941, exclusive of interest, amounting to P17,500.00; (2) 10% in the depletion reserves for 1941; and (3) 10% in the profits for years prior to 1948 amounting to P19,764.70.

With regard to the first claim, the Lepanto's report for the calendar year of 1954 28 shows that it declared a 10% cash dividend in December, 1941, the amount of which is P175,000.00. The evidence in this connection (Exhibits L and O) was admitted without objection by counsel for Lepanto. 29 Nielson claims 10% share in said amount with interest thereon at 6% per annum. The document (Exhibit L) was even recognized by Lepanto's President V. L. Lednicky, 30 and this claim is predicated on the provision of paragraph V of the management contract as modified pursuant to the proposal of Lepanto at the special meeting of the Board of Directors on August 21, 1940 (Exh. B), whereby it was provided that Nielson would be entitled to 10% of any dividends to be declared and paid during the period of the contract.

With regard to the second claim, Nielson admits that there is no evidence regarding the amount set aside by Lepanto for depletion reserve for 1941 31 and so the 10% participation claimed thereon cannot be assessed.

Anent the third claim relative to the 10% participation of Nielson on the sum of P197,647.08, which appears in Lepanto's annual report for 1948 32 and entered as profit for prior years in the statement of income and surplus, which amount consisted "almost in its entirety of proceeds of copper concentrates shipped to the United States during 1947," this claim should to denied because the amount is not

"dividend declared and paid" within the purview of the management contract.

The fifth assignment of error of appellant refers to the failure of the lower court to order Lepanto to pay its management fees for January, 1942, and for the full period of extension amounting to P150,000.00, or P2,500.00 a month for sixty (60) months, — a total of P152,500.00 — with interest thereon from the date of judicial demand.

It is true that the claim of management fee for January, 1942 was not among the causes of action in the complaint, but inasmuch as the contract was suspended in February, 1942 and the management fees asked for included that of January, 1942, the fact that such claim was not included in a specific manner in the complaint is of no moment because an appellate court may treat the pleading as amended to conform to the evidence where the facts show that the plaintiff is entitled to relief other than what is asked for in the complaint (Alonzo vs. Villamor, 16 Phil. 315). The evidence shows that the last payment made by Lepanto for management fee was for November and December, 1941. 33 If, as We have declared, the management contract was suspended beginning February 1942, it follows that Nielson is entitled to the management fee for January, 1942.

Let us now come to the management fees claimed by Nielson for the period of extension. In this respect, it has been shown that the management contract was extended from June 27, 1948 to June 26, 1953, or for a period of sixty (60) months. During this period Nielson had a right to continue in the management of the mining properties of Lepanto and Lepanto was under obligation to let Nielson do it and to pay the corresponding management fees. Appellant Nielson insisted in performing its part of the contract but Lepanto prevented it from doing so. Hence, by virtue of Article 1186 of the Civil Code, there was a constructive fulfillment an the part of Nielson of its obligation to manage said mining properties in accordance with the contract and Lepanto had the reciprocal obligation to pay the corresponding management fees and other benefits that would have accrued to Nielson if Lepanto allowed it (Nielson) to continue in the management of the mines during the extended period of five (5) years.

We find that the preponderance of evidence is to the effect that Nielson had insisted in managing the mining properties soon after liberation. In the report 34 of Lepanto, submitted to its stockholders for the period from 1941 to March 13, 1946, are stated the activities of Nielson's officials in relation to Nielson's insistence in continuing the management. This report was admitted in evidence without objection. We find the following in the report:

Mr. Blessing, in May, 1945, accompanied Clark and Stanford to San Fernando (La Union) to await the liberation of the mines. (Mr. Blessing was the Treasurer and Metallurgist of Nielson). Blessing with Clark and Stanford went to the property on July 16 and found that while the mill site had been cleared of the enemy the latter was still holding the area around the staff houses and putting up a strong defense. As a result, they returned to San Fernando and later went back to the mines on July 26. Mr. Blessing made the report, dated August 6, recommending a program of operation. Mr. Nielson himself spent a day in the mine early in December, 1945 and reiterated the program which Mr. Blessing had outlined. Two or three weeks before the date of the report, Mr. Coldren of the Nielson organization also visited the mine and told President C. A. DeWitt of Lepanto that he thought that the



mine could be put in condition for the delivery of the ore within ten (10) days. And according to Mark Nestle, a witness of appellant, Nielson had several men including engineers to do the job in the mines and to resume the work. These engineers were in fact sent to the mine site and submitted reports of what they had done. 35

On the other hand, appellee claims that Nielson was not ready and able to resume the work in the mines, relying mainly on the testimony of Dr. Juan Nabong, former secretary of both Nielson and Lepanto, given in the separate case of Nancy Irving Romero vs. Lepanto Consolidated Mining Company (Civil Case No. 652, CFI, Baguio), to the effect that as far as he knew "Nielson and Company had not attempted to operate the Lepanto Consolidated Mining Company because Mr. Nielson was not here in the Philippines after the last war. He came back later," and that Nielson and Company had no money nor stocks with which to start the operation. He was asked by counsel for the appellee if he had testified that way in Civil Case No. 652 of the Court of First Instance of Baguio, and he answered that he did not confirm it fully. When this witness was asked by the same counsel whether he confirmed that testimony, he said that when he testified in that case he was not fully aware of what happened and that after he learned more about the officials of the corporation it was only then that he became aware that Nielson had really sent his men to the mines along with Mr. Blessing and that he was aware of this fact personally. He further said that Mr. Nielson was here in 1945 and "he was going out and contacting his people." 36

Lepanto admits, in its own brief, that Nielson had really insisted in taking over the management and operation of the mines but that it (Lepanto) unequivocally refuse to allow it. The following is what appears in the brief of the appellee:

It was while defendant was in the midst of the rehabilitation work which was fully described earlier, still reeling under the terrible devastation and destruction wrought by war on its mine that Nielson insisted in taking over the management and operation of the mine. Nielson thus put Lepanto in a position where defendant, under the circumstances, had to refuse, as in fact it did, Nielson's insistence in taking over the management and operation because, as was obvious, it was impossible, as a result of the destruction of the mine, for the plaintiff to manage and operate the same and because, as provided in the agreement, the contract was suspended by reason of the war. The stand of Lepanto in disallowing Nielson to assume again the management of the mine in 1945 was unequivocal and cannot be misinterpreted, infra.37

Based on the foregoing facts and circumstances, and Our conclusion that the management contract was extended, We believe that Nielson is entitled to the management fees for the period of extension. Nielson should be awarded on this claim sixty times its monthly pay of P2,500.00, or a total of P150,000.00.

In its sixth assignment of error Nielson contends that the lower court erred in not ordering Lepanto to pay it (Nielson) the 10% share in the profits of operation realized during the period of five (5) years from the resumption of its post-war operations of the Mankayan mines, in the total sum of P2,403,053.20 with interest thereon at the rate of 6% per annum from February 6, 1958 until full payment. 38

The above claim of Nielson refers to four categories, namely: (1) cash dividends; (2) stock dividends; (3) depletion reserves; and (4) amount expended on capital investment.

Anent the first category, Lepanto's report for the calendar year 1954 39 contains a record of the cash dividends it paid up to the date of said report, and the post-war dividends paid by it corresponding to the years included in the period of extension of the management contract are as follows:

POST-WAR

8 10% November 1949 P 200,000.00

9 10% July 1950 300,000.00

10 10% October 1950 500,000.00

11 20% December 1950 1,000,000.00

12 20% March 1951 1,000,000.00

13 20% June 1951 1,000,000.00

14 20% September 1951 1,000,000.00

15 40% December 1951 2,000,000.00

16 20% March 1952 1,000,000.00

17 20% May 1952 1,000,000.00

18 20% July 1952 1,000,000.00

19 20% September 1952 1,000,000.00

20 20% December 1952 1,000,000.00

21 20% March 1953 1,000,000.00

22 20% June 1953 1,000,000.00

TOTAL P14,000,000.00

According to the terms of the management contract as modified, appellant is entitled to 10% of the P14,000,000.00 cash dividends that



had been distributed, as stated in the above-mentioned report, or the sum of P1,400,000.00.

With regard to the second category, the stock dividends declared by Lepanto during the period of extension of the contract are: On November 28, 1949, the stock dividend declared was 50% of the outstanding authorized capital of P2,000,000.00 of the company, or stock dividends worth P1,000,000.00; and on August 22, 1950, the stock dividends declared was 66-2/3% of the standing authorized capital of P3,000,000.00 of the company, or stock dividends worth P2,000,000.00. 40

Appellant's claim that it should be given 10% of the cash value of said stock dividends with interest thereon at 6% from February 6, 1958 cannot be granted for that would not be in accordance with the management contract which entitles Nielson to 10% of any dividends declared paid, when and as paid. Nielson, therefore, is entitled to 10% of the stock dividends and to the fruits that may have accrued to said stock dividends pursuant to Article 1164 of the Civil Code. Hence to Nielson is due shares of stock worth P100,000.00, as per stock dividends declared on November 28, 1949 and all the fruits accruing to said shares after said date; and also shares of stock worth P200,000.00 as per stock dividends declared on August 20, 1950 and all fruits accruing thereto after said date.

Anent the third category, the depletion reserve appearing in the statement of income and surplus submitted by Lepanto corresponding to the years covered by the period of extension of the contract, may be itemized as follows:

In 1948, as per Exh. F, p. 36 and Exh. Q, p. 5, the depletion reserve set up was P11,602.80.

In 1949, as per Exh. G, p. 49 and Exh. Q, p. 5, the depletion reserve set up was P33,556.07.

In 1950, as per Exh. H, p. 37, Exh. Q, p. 6 and Exh. I, p. 37, the depletion reserve set up was P84,963.30.

In 1951, as per Exh. I, p. 45, Exh. Q, p. 6, and Exh. J, p. 45, the depletion reserve set up was P129,089.88.

In 1952, as per Exh. J, p. 45, Exh. Q, p. 6 and Exh. K p. 41, the depletion reserve was P147,141.54.

In 1953, as per Exh. K, p. 41, and Exh. Q, p. 6, the depletion reserve set up as P277,493.25.

Regarding the depletion reserve set up in 1948 it should be noted that the amount given was for the whole year. Inasmuch as the contract was extended only for the last half of the year 1948, said amount of P11,602.80 should be divided by two, and so Nielson is only entitled to 10% of the half amounting to P5,801.40.

Likewise, the amount of depletion reserve for the year 1953 was for the whole year and since the contract was extended only until the first half of the year, said amount of P277,493.25 should be divided by two, and so Nielson is only entitled to 10% of the half amounting to

P138,746.62. Summing up the entire depletion reserves, from the middle of 1948 to the middle of 1953, we would have a total of P539,298.81, of which Nielson is entitled to 10%, or to the sum of P53,928.88.

Finally, with regard to the fourth category, there is no figure in the record representing the value of the fixed assets as of the beginning of the period of extension on June 27, 1948. It is possible, however, to arrive at the amount needed by adding to the value of the fixed assets as of December 31, 1947 one-half of the amount spent for capital account in the year 1948. As of December 31, 1947, the value of the fixed assets was P1,061,878.88 41and as of December 31, 1948, the value of the fixed assets was P3,270,408.07. 42 Hence, the increase in the value of the fixed assets for the year 1948 was P2,208,529.19, one-half of which is P1,104,264.59, which amount represents the expenses for capital account for the first half of the year 1948. If to this amount we add the fixed assets as of December 31, 1947 amounting to P1,061,878.88, we would have a total of P2,166,143.47 which represents the fixed assets at the beginning of the second half of the year 1948.

There is also no figure representing the value of the fixed assets when the contract, as extended, ended on June 26, 1953; but this may be computed by getting one-half of the expenses for capital account made in 1953 and adding the same to the value of the fixed assets as of December 31, 1953 is P9,755,840.41 43 which the value of the fixed assets as of December 31, 1952 is P8,463,741.82, the difference being P1,292,098.69. One-half of this amount is P646,049.34 which would represent the expenses for capital account up to June, 1953. This amount added to the value of the fixed assets as of December 31, 1952 would give a total of P9,109,791.16 which would be the value of fixed assets at the end of June, 1953.

The increase, therefore, of the value of the fixed assets of Lepanto from June, 1948 to June, 1953 is P6,943,647.69, which amount represents the difference between the value of the fixed assets of Lepanto in the year 1948 and in the year 1953, as stated above. On this amount Nielson is entitled to a share of 10% or to the amount of P694,364.76.

Considering that most of the claims of appellant have been entertained, as pointed out in this decision, We believe that appellant is entitled to be awarded attorney's fees, especially when, according to the undisputed testimony of Mr. Mark Nestle, Nielson obliged himself to pay attorney's fees in connection with the institution of the present case. In this respect, We believe, considering the intricate nature of the case, an award of fifty thousand (P50,000.00) pesos for attorney's fees would be reasonable.

IN VIEW OF THE FOREGOING CONSIDERATIONS, We hereby reverse the decision of the court a quo and enter in lieu thereof another, ordering the appellee Lepanto to pay appellant Nielson the different amounts as specified hereinbelow:

(1) 10% share of cash dividends of December, 1941 in the amount of P17,500.00, with legal interest thereon from the date of the filing of the complaint;



(2) management fee for January, 1942 in the amount of P2,500.00, with legal interest thereon from the date of the filing of the complaint;

(3) management fees for the sixty-month period of extension of the management contract, amounting to P150,000.00, with legal interest from the date of the filing of the complaint;

(4) 10% share in the cash dividends during the period of extension of the management contract, amounting to P1,400,000.00, with legal interest thereon from the date of the filing of the complaint;

(5) 10% of the depletion reserve set up during the period of extension, amounting to P53,928.88, with legal interest thereon from the date of the filing of the complaint;

(6) 10% of the expenses for capital account during the period of extension, amounting to P694,364.76, with legal interest thereon from the date of the filing of the complaint;

(7) to issue and deliver to Nielson and Co., Inc. shares of stock of Lepanto Consolidated Mining Co. at par value equivalent to the total of Nielson's l0% share in the stock dividends declared on November 28, 1949 and August 22, 1950, together with all cash and stock dividends, if any, as may have been declared and issued subsequent to November 28, 1949 and August 22, 1950, as fruits that accrued to said shares;

If sufficient shares of stock of Lepanto's are not available to satisfy this judgment, defendant-appellee shall pay plaintiff-appellant an amount in cash equivalent to the market value of said shares at the time of default (12 C.J.S., p. 130), that is, all shares of the stock that should have been delivered to Nielson before the filing of the complaint must be paid at their market value as of the date of the filing of the complaint; and all shares, if any, that should have been delivered after the filing of the complaint at the market value of the shares at the time Lepanto disposed of all its available shares, for it is only then that Lepanto placed itself in condition of not being able to perform its obligation (Article 1160, Civil Code);

(8) the sum of P50,000.00 as attorney's fees; and

(9) the costs. It is so ordered.


spec pro rule 74

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