G.R. No.

L-15568

November 8, 1919

W. G. PHILPOTTS, petitioner,
vs.
PHILIPPINE MANUFACTURING COMPANY and F. N. BERRY, respondents.
Lawrence and Ross for petitioner.
Crossfield and O'Brien for defendants.

The pertinent provision of our law is found in the second paragraph of section 51 of Act No. 1459, which reads
as follows: "The record of all business transactions of the corporation and the minutes of any meeting shall be
open to the inspection of any director, member or stockholder of the corporation at reasonable hours."
This provision is to be read of course in connecting with the related provisions of sections 51 and 52, defining
the duty of the corporation in respect to the keeping of its records.
Now it is our opinion, and we accordingly hold, that the right of inspection given to a stockholder in the
provision above quoted can be exercised either by himself or by any proper representative or attorney in fact,
and either with or without the attendance of the stockholder. This is in conformity with the general rule that
what a man may do in person he may do through another; and we find nothing in the statute that would justify
us in qualifying the right in the manner suggested by the respondents.

STREET, J.:
The petitioner, W. G. Philpotts, a stockholder in the Philippine Manufacturing Company, one of the
respondents herein, seeks by this proceeding to obtain a writ of mandamus to compel the respondents to
permit the plaintiff, in person or by some authorized agent or attorney, to inspect and examine the records of
the business transacted by said company since January 1, 1918. The petition is filed originally in this court
under the authority of section 515 of the Code of Civil Procedure, which gives to this tribunal concurrent
jurisdiction with the Court of First Instance in cases, among others, where any corporation or person unlawfully
excludes the plaintiff from the use and enjoyment of some right to which he is entitled. The respondents
interposed a demurrer, and the controversy is now before us for the determination of the questions thus
presented.
The first point made has reference to a supposed defect of parties, and it is said that the action can not be
maintained jointly against the corporation and its secretary without the addition of the allegation that the latter
is the custodian of the business records of the respondent company.
By the plain language of sections 515 and 222 of our Code of Civil Procedure, the right of action in such a
proceeding as this is given against the corporation; and the respondent corporation in this case was the only
absolutely necessary party. In the Ohio case of Cincinnati Volksblatt Co. vs. Hoffmister (61 Ohio St., 432; 48 L.
R. A., 735), only the corporation was named as defendant, while the complaint, in language almost identical
with that in the case at bar, alleged a demand upon and refusal by the corporation.
Nevertheless the propriety of naming the secretary of the corporation as a codefendant cannot be questioned,
since such official is customarily charged with the custody of all documents, correspondence, and records of a
corporation, and he is presumably the person against whom the personal orders of the court would be made
effective in case the relief sought should be granted. Certainly there is nothing in the complaint to indicate that
the secretary is an improper person to be joined. The petitioner might have named the president of the
corporation as a respondent also; and this official might be brought in later, even after judgment rendered, if
necessary to the effectuation of the order of the court.
Section 222 of our Code of Civil Procedure is taken from the California Code, and a decision of the California
Supreme Court Barber vs. Mulford (117 Cal., 356) is quite clear upon the point that both the corporation
and its officers may be joined as defendants.
The real controversy which has brought these litigants into court is upon the question argued in connection
with the second ground of demurrer, namely, whether the right which the law concedes to a stockholder to
inspect the records can be exercised by a proper agent or attorney of the stockholder as well as by the
stockholder in person. There is no pretense that the respondent corporation or any of its officials has refused
to allow the petitioner himself to examine anything relating to the affairs of the company, and the petition prays
for a peremptory order commanding the respondents to place the records of all business transactions of the
company, during a specified period, at the disposal of the plaintiff or his duly authorized agent or attorney, it
being evident that the petitioner desires to exercise said right through an agent or attorney. In the argument in
support of the demurrer it is conceded by counsel for the respondents that there is a right of examination in the
stockholder granted under section 51 of the Corporation Law, but it is insisted that this right must be exercised
in person.

This conclusion is supported by the undoubted weight of authority in the United States, where it is generally
held that the provisions of law conceding the right of inspection to stockholders of corporations are to be
liberally construed and that said right may be exercised through any other properly authorized person. As was
said in Foster vs. White (86 Ala., 467), "The right may be regarded as personal, in the sense that only a
stockholder may enjoy it; but the inspection and examination may be made by another. Otherwise it would be
unavailing in many instances." An observation to the same effect is contained in Martin vs. Bienville Oil Works
Co. (28 La., 204), where it is said: "The possession of the right in question would be futile if the possessor of it,
through lack of knowledge necessary to exercise it, were debarred the right of procuring in his behalf the
services of one who could exercise it." In Deadreck vs. Wilson (8 Baxt. [Tenn.], 108), the court said: "That
stockholders have the right to inspect the books of the corporation, taking minutes from the same, at all
reasonable times, and may be aided in this by experts and counsel, so as to make the inspection valuable to
them, is a principle too well settled to need discussion." Authorities on this point could be accumulated in great
abundance, but as they may be found cited in any legal encyclopedia or treaties devoted to the subject of
corporations, it is unnecessary here to refer to other cases announcing the same rule.
In order that the rule above stated may not be taken in too sweeping a sense, we deem it advisable to say that
there are some things which a corporation may undoubtedly keep secret, notwithstanding the right of
inspection given by law to the stockholder; as for instance, where a corporation, engaged in the business of
manufacture, has acquired a formula or process, not generally known, which has proved of utility to it in the
manufacture of its products. It is not our intention to declare that the authorities of the corporation, and more
particularly the Board of Directors, might not adopt measures for the protection of such process form publicity.
There is, however, nothing in the petition which would indicate that the petitioner in this case is seeking to
discover anything which the corporation is entitled to keep secret; and if anything of the sort is involved in the
case it may be brought out at a more advanced stage of the proceedings.lawphil.net
The demurrer is overruled; and it is ordered that the writ of mandamus shall issue as prayed, unless within 5
days from notification hereof the respondents answer to the merits. So ordered.
G.R. No. L-24332 January 31, 1978
RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS, petitioner,
vs.
FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF APPEALS, respondents.
Seno, Mendoza & Associates for petitioner.
Ramon Duterte for private respondent.

MUOZ PALMA, J.:

This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of his principal, Concepcion Rallos,
sold the latter's undivided share in a parcel of land pursuant to a power of attorney which the principal had
executed in favor. The administrator of the estate of the went to court to have the sale declared
uneanforceable and to recover the disposed share. The trial court granted the relief prayed for, but upon
appeal the Court of Appeals uphold the validity of the sale and the complaint.
Hence, this Petition for Review on certiorari.
The following facts are not disputed. Concepcion and Gerundia both surnamed Rallos were sisters and
registered co-owners of a parcel of land known as Lot No. 5983 of the Cadastral Survey of Cebu covered by
Transfer Certificate of Title No. 11116 of the Registry of Cebu. On April 21, 1954, the sisters executed a special
power of attorney in favor of their brother, Simeon Rallos, authorizing him to sell for and in their behalf lot
5983. On March 3, 1955, Concepcion Rallos died. On September 12, 1955, Simeon Rallos sold the undivided
shares of his sisters Concepcion and Gerundia in lot 5983 to Felix Go Chan & Sons Realty Corporation for the
sum of P10,686.90. The deed of sale was registered in the Registry of Deeds of Cebu, TCT No. 11118 was
cancelled, and a new transfer certificate of Title No. 12989 was issued in the named of the vendee.
On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of Concepcion Rallos filed a complaint
docketed as Civil Case No. R-4530 of the Court of First Instance of Cebu, praying (1) that the sale of the
undivided share of the deceased Concepcion Rallos in lot 5983 be d unenforceable, and said share be
reconveyed to her estate; (2) that the Certificate of 'title issued in the name of Felix Go Chan & Sons Realty
Corporation be cancelled and another title be issued in the names of the corporation and the "Intestate estate
of Concepcion Rallos" in equal undivided and (3) that plaintiff be indemnified by way of attorney's fees and
payment of costs of suit. Named party defendants were Felix Go Chan & Sons Realty Corporation, Simeon
Rallos, and the Register of Deeds of Cebu, but subsequently, the latter was dropped from the complaint. The
complaint was amended twice; defendant Corporation's Answer contained a crossclaim against its codefendant, Simon Rallos while the latter filed third-party complaint against his sister, Gerundia Rallos While
the case was pending in the trial court, both Simon and his sister Gerundia died and they were substituted by
the respective administrators of their estates.
After trial the court a quo rendered judgment with the following dispositive portion:
A. On Plaintiffs Complaint

B. On GO CHANTS Cross-Claim:
(1) Sentencing the co-defendant Juan T. Borromeo,
administrator of the Estate of Simeon Rallos, to pay to
defendant Felix Co Chan & Sons Realty Corporation the sum of
P5,343.45, representing the price of one-half (1/2) share of lot
5983;
(2) Ordering co-defendant Juan T. Borromeo, administrator of
the Estate of Simeon Rallos, to pay in concept of reasonable
attorney's fees to Felix Go Chan & Sons Realty Corporation the
sum of P500.00.
C. On Third-Party Complaint of defendant Juan T. Borromeo administrator of Estate of
Simeon Rallos, against Josefina Rallos special administratrix of the Estate of Gerundia
Rallos:
(1) Dismissing the third-party complaint without prejudice to filing either a complaint
against the regular administrator of the Estate of Gerundia Rallos or a claim in the
Intestate-Estate of Cerundia Rallos, covering the same subject-matter of the third-party
complaint, at bar. (pp. 98-100, Record on Appeal)
Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of Appeals from the foregoing
judgment insofar as it set aside the sale of the one-half (1/2) share of Concepcion Rallos. The appellate
tribunal, as adverted to earlier, resolved the appeal on November 20, 1964 in favor of the appellant corporation
sustaining the sale in question. 1 The appellee administrator, Ramon Rallos, moved for a reconsider of the
decision but the same was denied in a resolution of March 4, 1965. 2
What is the legal effect of an act performed by an agent after the death of his principal? Applied more
particularly to the instant case, We have the query. is the sale of the undivided share of Concepcion Rallos in
lot 5983 valid although it was executed by the agent after the death of his principal? What is the law in this
jurisdiction as to the effect of the death of the principal on the authority of the agent to act for and in behalf of
the latter? Is the fact of knowledge of the death of the principal a material factor in determining the legal effect
of an act performed after such death?

(1) Declaring the deed of sale, Exh. "C", null and void insofar as
the one-half pro-indiviso share of Concepcion Rallos in the
property in question, Lot 5983 of the Cadastral Survey of
Cebu is concerned;

Before proceedings to the issues, We shall briefly restate certain principles of law relevant to the matter tinder
consideration.

(2) Ordering the Register of Deeds of Cebu City to cancel

Transfer Certificate of Title No. 12989 covering Lot 5983 and to
issue in lieu thereof another in the names of FELIX GO CHAN
& SONS REALTY CORPORATION and the Estate of
Concepcion Rallos in the proportion of one-half (1/2) share
each pro-indiviso;

1. It is a basic axiom in civil law embodied in our Civil Code that no one may contract in the name of another
without being authorized by the latter, or unless he has by law a right to represent him. 3 A contract entered
into in the name of another by one who has no authority or the legal representation or who has acted beyond
his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf
it has been executed, before it is revoked by the other contracting party. 4 Article 1403 (1) of the same Code
also provides:

(3) Ordering Felix Go Chan & Sons Realty Corporation to

deliver the possession of an undivided one-half (1/2) share of
Lot 5983 to the herein plaintiff;
(4) Sentencing the defendant Juan T. Borromeo, administrator
of the Estate of Simeon Rallos, to pay to plaintiff in concept of
reasonable attorney's fees the sum of P1,000.00; and
(5) Ordering both defendants to pay the costs jointly and
severally.

ART. 1403. The following contracts are unenforceable, unless they are justified:
(1) Those entered into in the name of another person by one who hi - been given no
authority or legal representation or who has acted beyond his powers; ...
Out of the above given principles, sprung the creation and acceptance of the relationship of agency whereby
one party, caged the principal (mandante), authorizes another, called the agent (mandatario), to act for and in
his behalf in transactions with third persons. The essential elements of agency are: (1) there is consent,
express or implied of the parties to establish the relationship; (2) the object is the execution of a juridical act in

relation to a third person; (3) the agents acts as a representative and not for himself, and (4) the agent acts
within the scope of his authority. 5
Agency is basically personal representative, and derivative in nature. The authority of the agent to act
emanates from the powers granted to him by his principal; his act is the act of the principal if done within the
scope of the authority. Qui facit per alium facit se. "He who acts through another acts himself". 6
2. There are various ways of extinguishing agency, 7 but her We are concerned only with one cause death
of the principal Paragraph 3 of Art. 1919 of the Civil Code which was taken from Art. 1709 of the Spanish Civil
Code provides:
ART. 1919. Agency is extinguished.
xxx xxx xxx
3. By the death, civil interdiction, insanity or insolvency of the principal or of the
agent; ... (Emphasis supplied)
By reason of the very nature of the relationship between Principal and agent, agency is extinguished by the
death of the principal or the agent. This is the law in this jurisdiction. 8
Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the rationale for the law is found in
thejuridical basis of agency which is representation Them being an in. integration of the personality of the
principal integration that of the agent it is not possible for the representation to continue to exist once the death
of either is establish. Pothier agrees with Manresa that by reason of the nature of agency, death is a
necessary cause for its extinction. Laurent says that the juridical tie between the principal and the agent is
severed ipso jure upon the death of either without necessity for the heirs of the fact to notify the agent of the
fact of death of the former. 9
The same rule prevails at common law the death of the principal effects instantaneous and absolute
revocation of the authority of the agent unless the Power be coupled with an interest. 10 This is the prevalent
rule in American Jurisprudence where it is well-settled that a power without an interest confer. red upon an
agent is dissolved by the principal's death, and any attempted execution of the power afterward is not binding
on the heirs or representatives of the deceased. 11
3. Is the general rule provided for in Article 1919 that the death of the principal or of the agent extinguishes the
agency, subject to any exception, and if so, is the instant case within that exception? That is the determinative
point in issue in this litigation. It is the contention of respondent corporation which was sustained by
respondent court that notwithstanding the death of the principal Concepcion Rallos the act of the attorney-infact, Simeon Rallos in selling the former's sham in the property is valid and enforceable inasmuch as the
corporation acted in good faith in buying the property in question.
Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule afore-mentioned.
ART. 1930. The agency shall remain in full force and effect even after the death of the
principal, if it has been constituted in the common interest of the latter and of the agent,
or in the interest of a third person who has accepted the stipulation in his favor.
ART. 1931. Anything done by the agent, without knowledge of the death of the principal
or of any other cause which extinguishes the agency, is valid and shall be fully effective
with respect to third persons who may have contracted with him in good. faith.
Article 1930 is not involved because admittedly the special power of attorney executed in favor of Simeon
Rallos was not coupled with an interest.

Article 1931 is the applicable law. Under this provision, an act done by the agent after the death of his principal
is valid and effective only under two conditions, viz: (1) that the agent acted without knowledge of the death of
the principal and (2) that the third person who contracted with the agent himself acted in good faith. Good faith
here means that the third person was not aware of the death of the principal at the time he contracted with
said agent. These two requisites must concur the absence of one will render the act of the agent invalid and
unenforceable.
In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the death of his principal at
the time he sold the latter's share in Lot No. 5983 to respondent corporation. The knowledge of the death is
clearly to be inferred from the pleadings filed by Simon Rallos before the trial court. 12 That Simeon Rallos
knew of the death of his sister Concepcion is also a finding of fact of the court a quo 13 and of respondent
appellate court when the latter stated that Simon Rallos 'must have known of the death of his sister, and yet he
proceeded with the sale of the lot in the name of both his sisters Concepcion and Gerundia Rallos without
informing appellant (the realty corporation) of the death of the former. 14
On the basis of the established knowledge of Simon Rallos concerning the death of his principal Concepcion
Rallos, Article 1931 of the Civil Code is inapplicable. The law expressly requires for its application lack of
knowledge on the part of the agent of the death of his principal; it is not enough that the third person acted in
good faith. Thus in Buason & Reyes v. Panuyas, the Court applying Article 1738 of the old Civil rode now Art.
1931 of the new Civil Code sustained the validity , of a sale made after the death of the principal because it
was not shown that the agent knew of his principal's demise. 15 To the same effect is the case of Herrera, et
al., v. Luy Kim Guan, et al., 1961, where in the words of Justice Jesus Barrera the Court stated:
... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs presented no
proof and there is no indication in the record, that the agent Luy Kim Guan was aware
of the death of his principal at the time he sold the property. The death 6f the principal
does not render the act of an agent unenforceable, where the latter had no knowledge
of such extinguishment of the agency. (1 SCRA 406, 412)
4. In sustaining the validity of the sale to respondent consideration the Court of Appeals reasoned out that
there is no provision in the Code which provides that whatever is done by an agent having knowledge of the
death of his principal is void even with respect to third persons who may have contracted with him in good faith
and without knowledge of the death of the principal. 16
We cannot see the merits of the foregoing argument as it ignores the existence of the general rule enunciated
in Article 1919 that the death of the principal extinguishes the agency. That being the general rule it follows
a fortiorithat any act of an agent after the death of his principal is void ab initio unless the same fags under the
exception provided for in the aforementioned Articles 1930 and 1931. Article 1931, being an exception to the
general rule, is to be strictly construed, it is not to be given an interpretation or application beyond the clear
import of its terms for otherwise the courts will be involved in a process of legislation outside of their judicial
function.
5. Another argument advanced by respondent court is that the vendee acting in good faith relied on the power
of attorney which was duly registered on the original certificate of title recorded in the Register of Deeds of the
province of Cebu, that no notice of the death was aver annotated on said certificate of title by the heirs of the
principal and accordingly they must suffer the consequences of such omission. 17
To support such argument reference is made to a portion in Manresa's Commentaries which We quote:
If the agency has been granted for the purpose of contracting with certain persons, the
revocation must be made known to them. But if the agency is general iii nature, without
reference to particular person with whom the agent is to contract, it is sufficient that the
principal exercise due diligence to make the revocation of the agency publicity known.
In case of a general power which does not specify the persons to whom represents' on
should be made, it is the general opinion that all acts, executed with third persons who
contracted in good faith, Without knowledge of the revocation, are valid. In such case,

the principal may exercise his right against the agent, who, knowing of the revocation,
continued to assume a personality which he no longer had. (Manresa Vol. 11, pp. 561
and 575; pp. 15-16, rollo)
The above discourse however, treats of revocation by an act of the principal as a mode of terminating an
agency which is to be distinguished from revocation by operation of law such as death of the principal which
obtains in this case. On page six of this Opinion We stressed that by reason of the very nature of the
relationship between principal and agent, agency is extinguished ipso jure upon the death of either principal or
agent. Although a revocation of a power of attorney to be effective must be communicated to the parties
concerned, 18 yet a revocation by operation of law, such as by death of the principal is, as a rule,
instantaneously effective inasmuch as "by legal fiction the agent's exercise of authority is regarded as an
execution of the principal's continuing will. 19 With death, the principal's will ceases or is the of authority is
extinguished.
The Civil Code does not impose a duty on the heirs to notify the agent of the death of the principal What the
Code provides in Article 1932 is that, if the agent die his heirs must notify the principal thereof, and in the
meantime adopt such measures as the circumstances may demand in the interest of the latter. Hence, the fact
that no notice of the death of the principal was registered on the certificate of title of the property in the Office
of the Register of Deeds, is not fatal to the cause of the estate of the principal
6. Holding that the good faith of a third person in said with an agent affords the former sufficient protection,
respondent court drew a "parallel" between the instant case and that of an innocent purchaser for value of a
land, stating that if a person purchases a registered land from one who acquired it in bad faith even to the
extent of foregoing or falsifying the deed of sale in his favor the registered owner has no recourse against
such innocent purchaser for value but only against the forger. 20
To support the correctness of this respondent corporation, in its brief, cites the case of Blondeau, et al., v.
Nano and Vallejo, 61 Phil. 625. We quote from the brief:
In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630, one Vallejo
was a co-owner of lands with Agustin Nano. The latter had a power of attorney
supposedly executed by Vallejo Nano in his favor. Vallejo delivered to Nano his land
titles. The power was registered in the Office of the Register of Deeds. When the
lawyer-husband of Angela Blondeau went to that Office, he found all in order including
the power of attorney. But Vallejo denied having executed the power The lower court
sustained Vallejo and the plaintiff Blondeau appealed. Reversing the decision of the
court a quo, the Supreme Court, quoting the ruling in the case of Eliason v.
Wilborn, 261 U.S. 457, held:
But there is a narrower ground on which the defenses of the
defendant- appellee must be overruled. Agustin Nano had
possession of Jose Vallejo's title papers. Without those title
papers handed over to Nano with the acquiescence of Vallejo, a
fraud could not have been perpetuated. When Fernando de la
Canters, a member of the Philippine Bar and the husband of
Angela Blondeau, the principal plaintiff, searched the
registration record, he found them in due form including the
power of attorney of Vallajo in favor of Nano. If this had not
been so and if thereafter the proper notation of the
encumbrance could not have been made, Angela Blondeau
would not have sent P12,000.00 to the defendant Vallejo.' An
executed transfer of registered lands placed by the registered
owner thereof in the hands of another operates as a
representation to a third party that the holder of the transfer is
authorized to deal with the land.

As between two innocent persons, one of whom must suffer the

consequence of a breach of trust, the one who made it possible
by his act of coincidence bear the loss. (pp. 19-21)
The Blondeau decision, however, is not on all fours with the case before Us because here We are confronted
with one who admittedly was an agent of his sister and who sold the property of the latter after her death with
full knowledge of such death. The situation is expressly covered by a provision of law on agency the terms of
which are clear and unmistakable leaving no room for an interpretation contrary to its tenor, in the same
manner that the ruling in Blondeau and the cases cited therein found a basis in Section 55 of the Land
Registration Law which in part provides:
xxx xxx xxx
The production of the owner's duplicate certificate whenever any voluntary instrument
is presented for registration shall be conclusive authority from the registered owner to
the register of deeds to enter a new certificate or to make a memorandum of
registration in accordance with such instruments, and the new certificate or
memorandum Shall be binding upon the registered owner and upon all persons
claiming under him in favor of every purchaser for value and in good faith: Provided
however, That in all cases of registration provided by fraud, the owner may pursue all
his legal and equitable remedies against the parties to such fraud without prejudice,
however, to the right, of any innocent holder for value of a certificate of title. ... (Act No.
496 as amended)
7. One last point raised by respondent corporation in support of the appealed decision is an 1842 ruling of the
Supreme Court of Pennsylvania in Cassiday v. McKenzie wherein payments made to an agent after the death
of the principal were held to be "good", "the parties being ignorant of the death". Let us take note that the
Opinion of Justice Rogers was premised on the statement that the parties were ignorant of the death of the
principal. We quote from that decision the following:
... Here the precise point is, whether a payment to an agent when the Parties are
ignorant of the death is a good payment. in addition to the case in Campbell before
cited, the same judge Lord Ellenboruogh, has decided in 5 Esp. 117, the general
question that a payment after the death of principal is not good. Thus, a payment of
sailor's wages to a person having a power of attorney to receive them, has been held
void when the principal was dead at the time of the payment. If, by this case, it is
meant merely to decide the general proposition that by operation of law the death of
the principal is a revocation of the powers of the attorney, no objection can be taken to
it. But if it intended to say that his principle applies where there was 110 notice of
death, or opportunity of twice I must be permitted to dissent from it.
... That a payment may be good today, or bad tomorrow, from the accident
circumstance of the death of the principal, which he did not know, and which by no
possibility could he know? It would be unjust to the agent and unjust to the debtor. In
the civil law, the acts of the agent, done bona fide in ignorance of the death of his
principal are held valid and binding upon the heirs of the latter. The same rule holds in
the Scottish law, and I cannot believe the common law is so unreasonable... (39 Am.
Dec. 76, 80, 81; emphasis supplied)
To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may evoke, mention may be made
that the above represents the minority view in American jurisprudence. Thus in Clayton v. Merrett, the Court
said.
There are several cases which seem to hold that although, as a general principle,
death revokes an agency and renders null every act of the agent thereafter performed,
yet that where a payment has been made in ignorance of the death, such payment will
be good. The leading case so holding is that of Cassiday v. McKenzie, 4 Watts & S.

(Pa) 282, 39 Am. 76, where, in an elaborate opinion, this view ii broadly announced. It
is referred to, and seems to have been followed, in the case of Dick v. Page,17 Mo.
234, 57 AmD 267; but in this latter case it appeared that the estate of the deceased
principal had received the benefit of the money paid, and therefore the representative
of the estate might well have been held to be estopped from suing for it again. . . .
These cases, in so far, at least, as they announce the doctrine under discussion, are
exceptional. The Pennsylvania Case, supra (Cassiday v. McKenzie 4 Watts & S. 282,
39 AmD 76), is believed to stand almost, if not quite, alone in announcing the principle
in its broadest scope. (52, Misc. 353, 357, cited in 2 C.J. 549)
So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out that the opinion, except so far
as it related to the particular facts, was a mere dictum, Baldwin J. said:
The opinion, therefore, of the learned Judge may be regarded more as an extrajudicial
indication of his views on the general subject, than as the adjudication of the Court
upon the point in question. But accordingly all power weight to this opinion, as the
judgment of a of great respectability, it stands alone among common law authorities
and is opposed by an array too formidable to permit us to following it. (15 Cal. 12,17,
cited in 2 C.J. 549)
Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in American jurisprudence, no such
conflict exists in our own for the simple reason that our statute, the Civil Code, expressly provides for two
exceptions to the general rule that death of the principal revokes ipso jure the agency, to wit: (1) that the
agency is coupled with an interest (Art 1930), and (2) that the act of the agent was executed without
knowledge of the death of the principal and the third person who contracted with the agent acted also in good
faith (Art. 1931). Exception No. 2 is the doctrine followed in Cassiday, and again We stress the indispensable
requirement that the agent acted without knowledge or notice of the death of the principal In the case before
Us the agent Ramon Rallos executed the sale notwithstanding notice of the death of his principal Accordingly,
the agent's act is unenforceable against the estate of his principal.
IN VIEW OF ALL THE FOREGOING, We set aside the ecision of respondent appellate court, and We affirm en
toto the judgment rendered by then Hon. Amador E. Gomez of the Court of First Instance of Cebu, quoted in
pages 2 and 3 of this Opinion, with costs against respondent realty corporation at all instances.

PADILLA, J.:
This case is a consolidation of two (2) petitions for review on certiorari of a decision 1 of the Court of Appeals in
CA-G.R. No. CV-04294, entitled "American Airlines, Inc. vs. Orient Air Services and Hotel Representatives,
Inc." which affirmed, with modification, the decision 2 of the Regional Trial Court of Manila, Branch IV, which
dismissed the complaint and granted therein defendant's counterclaim for agent's overriding commission and
damages.
The antecedent facts are as follows:
On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American Air), an air carrier offering
passenger and air cargo transportation in the Philippines, and Orient Air Services and Hotel Representatives
(hereinafter referred to as Orient Air), entered into a General Sales Agency Agreement (hereinafter referred to
as the Agreement), whereby the former authorized the latter to act as its exclusive general sales agent within
the Philippines for the sale of air passenger transportation. Pertinent provisions of the agreement are
reproduced, to wit:
WITNESSETH
In consideration of the mutual convenants herein contained, the parties hereto agree as follows:
1. Representation of American by Orient Air Services
Orient Air Services will act on American's behalf as its exclusive General Sales Agent within the
Philippines, including any United States military installation therein which are not serviced by an Air
Carrier Representation Office (ACRO), for the sale of air passenger transportation. The services to
be performed by Orient Air Services shall include:
(a) soliciting and promoting passenger traffic for the services of American and, if
necessary, employing staff competent and sufficient to do so;
(b) providing and maintaining a suitable area in its place of business to be used
exclusively for the transaction of the business of American;

So Ordered.
G.R. No. 76931

May 29, 1991

ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,

vs.
COURT OF APPEALS and AMERICAN AIR-LINES INCORPORATED, respondents.
G.R. No. 76933

May 29, 1991

AMERICAN AIRLINES, INCORPORATED, petitioner,

vs.
COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES,
INCORPORATED,respondents.
Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and Hotel Representatives, Inc.
Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.

(c) arranging for distribution of American's timetables, tariffs and promotional material
to sales agents and the general public in the assigned territory;
(d) servicing and supervising of sales agents (including such sub-agents as may be
appointed by Orient Air Services with the prior written consent of American) in the
assigned territory including if required by American the control of remittances and
commissions retained; and
(e) holding out a passenger reservation facility to sales agents and the general public
in the assigned territory.
In connection with scheduled or non-scheduled air passenger transportation within the United
States, neither Orient Air Services nor its sub-agents will perform services for any other air carrier
similar to those to be performed hereunder for American without the prior written consent of
American. Subject to periodic instructions and continued consent from American, Orient Air
Services may sell air passenger transportation to be performed within the United States by other
scheduled air carriers provided American does not provide substantially equivalent schedules
between the points involved.
xxx

xxx

xxx

4. Remittances

xxx

Orient Air Services shall remit in United States dollars to American the ticket stock or exchange
orders, less commissions to which Orient Air Services is entitled hereunder, not less frequently
than semi-monthly, on the 15th and last days of each month for sales made during the preceding
half month.
All monies collected by Orient Air Services for transportation sold hereunder on American's ticket
stock or on exchange orders, less applicable commissions to which Orient Air Services is entitled
hereunder, are the property of American and shall be held in trust by Orient Air Services until
satisfactorily accounted for to American.
5. Commissions
American will pay Orient Air Services commission on transportation sold hereunder by Orient Air
Services or its sub-agents as follows:
(a) Sales agency commission
American will pay Orient Air Services a sales agency commission for all sales of transportation by
Orient Air Services or its sub-agents over American's services and any connecting through air
transportation, when made on American's ticket stock, equal to the following percentages of the
tariff fares and charges:
(i) For transportation solely between points within the United States and between such
points and Canada: 7% or such other rate(s) as may be prescribed by the Air Traffic
Conference of America.
(ii) For transportation included in a through ticket covering transportation between
points other than those described above: 8% or such other rate(s) as may be
prescribed by the International Air Transport Association.
(b) Overriding commission
In addition to the above commission American will pay Orient Air Services an overriding
commission of 3% of the tariff fares and charges for all sales of transportation over American's
service by Orient Air Service or its sub-agents.
xxx

xxx

xxx

10. Default
If Orient Air Services shall at any time default in observing or performing any of the provisions of
this Agreement or shall become bankrupt or make any assignment for the benefit of or enter into
any agreement or promise with its creditors or go into liquidation, or suffer any of its goods to be
taken in execution, or if it ceases to be in business, this Agreement may, at the option of American,
be terminated forthwith and American may, without prejudice to any of its rights under this
Agreement, take possession of any ticket forms, exchange orders, traffic material or other property
or funds belonging to American.
11. IATA and ATC Rules
The provisions of this Agreement are subject to any applicable rules or resolutions of the
International Air Transport Association and the Air Traffic Conference of America, and such rules or
resolutions shall control in the event of any conflict with the provisions hereof.

xxx

xxx

13. Termination
American may terminate the Agreement on two days' notice in the event Orient Air Services is
unable to transfer to the United States the funds payable by Orient Air Services to American under
this Agreement. Either party may terminate the Agreement without cause by giving the other 30
days' notice by letter, telegram or cable.
xxx

xxx

x x x3

On 11 May 1981, alleging that Orient Air had reneged on its obligations under the Agreement by failing to
promptly remit the net proceeds of sales for the months of January to March 1981 in the amount of US
$254,400.40, American Air by itself undertook the collection of the proceeds of tickets sold originally by Orient
Air and terminated forthwith the Agreement in accordance with Paragraph 13 thereof (Termination). Four (4)
days later, or on 15 May 1981, American Air instituted suit against Orient Air with the Court of First Instance of
Manila, Branch 24, for Accounting with Preliminary Attachment or Garnishment, Mandatory Injunction and
Restraining Order 4 averring the aforesaid basis for the termination of the Agreement as well as therein
defendant's previous record of failures "to promptly settle past outstanding refunds of which there were
available funds in the possession of the defendant, . . . to the damage and prejudice of plaintiff." 5
In its Answer 6 with counterclaim dated 9 July 1981, defendant Orient Air denied the material allegations of the
complaint with respect to plaintiff's entitlement to alleged unremitted amounts, contending that after application
thereof to the commissions due it under the Agreement, plaintiff in fact still owed Orient Air a balance in unpaid
overriding commissions. Further, the defendant contended that the actions taken by American Air in the course
of terminating the Agreement as well as the termination itself were untenable, Orient Air claiming that
American Air's precipitous conduct had occasioned prejudice to its business interests.
Finding that the record and the evidence substantiated the allegations of the defendant, the trial court ruled in
its favor, rendering a decision dated 16 July 1984, the dispositive portion of which reads:
WHEREFORE, all the foregoing premises considered, judgment is hereby rendered in favor of
defendant and against plaintiff dismissing the complaint and holding the termination made by the
latter as affecting the GSA agreement illegal and improper and order the plaintiff to reinstate
defendant as its general sales agent for passenger tranportation in the Philippines in accordance
with said GSA agreement; plaintiff is ordered to pay defendant the balance of the overriding
commission on total flown revenue covering the period from March 16, 1977 to December 31,
1980 in the amount of US$84,821.31 plus the additional amount of US$8,000.00 by way of proper
3% overriding commission per month commencing from January 1, 1981 until such reinstatement
or said amounts in its Philippine peso equivalent legally prevailing at the time of payment plus legal
interest to commence from the filing of the counterclaim up to the time of payment. Further, plaintiff
is directed to pay defendant the amount of One Million Five Hundred Thousand (Pl,500,000.00)
pesos as and for exemplary damages; and the amount of Three Hundred Thousand (P300,000.00)
pesos as and by way of attorney's fees.
Costs against plaintiff. 7
On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision promulgated on 27 January
1986, affirmed the findings of the court a quo on their material points but with some modifications with respect
to the monetary awards granted. The dispositive portion of the appellate court's decision is as follows:
WHEREFORE, with the following modifications
1) American is ordered to pay Orient the sum of US$53,491.11 representing the balance of the
latter's overriding commission covering the period March 16, 1977 to December 31, 1980, or its
Philippine peso equivalent in accordance with the official rate of exchange legally prevailing on
July 10, 1981, the date the counterclaim was filed;

2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's overriding commission
per month starting January 1, 1981 until date of termination, May 9, 1981 or its Philippine peso
equivalent in accordance with the official rate of exchange legally prevailing on July 10, 1981, the
date the counterclaim was filed
3) American is ordered to pay interest of 12% on said amounts from July 10, 1981 the date the
answer with counterclaim was filed, until full payment;
4) American is ordered to pay Orient exemplary damages of P200,000.00;
5) American is ordered to pay Orient the sum of P25,000.00 as attorney's fees.
the rest of the appealed decision is affirmed.
Costs against American.8
American Air moved for reconsideration of the aforementioned decision, assailing the substance thereof and
arguing for its reversal. The appellate court's decision was also the subject of a Motion for Partial
Reconsideration by Orient Air which prayed for the restoration of the trial court's ruling with respect to the
monetary awards. The Court of Appeals, by resolution promulgated on 17 December 1986, denied American
Air's motion and with respect to that of Orient Air, ruled thus:
Orient's motion for partial reconsideration is denied insofar as it prays for affirmance of the trial
court's award of exemplary damages and attorney's fees, but granted insofar as the rate of
exchange is concerned. The decision of January 27, 1986 is modified in paragraphs (1) and (2) of
the dispositive part so that the payment of the sums mentioned therein shall be at their Philippine
peso equivalent in accordance with the official rate of exchange legally prevailing on the date of
actual payment. 9
Both parties appealed the aforesaid resolution and decision of the respondent court, Orient Air as petitioner in
G.R. No. 76931 and American Air as petitioner in G.R. No. 76933. By resolution 10 of this Court dated 25
March 1987 both petitions were consolidated, hence, the case at bar.
The principal issue for resolution by the Court is the extent of Orient Air's right to the 3% overriding
commission. It is the stand of American Air that such commission is based only on sales of its services actually
negotiated or transacted by Orient Air, otherwise referred to as "ticketed sales." As basis thereof, primary
reliance is placed upon paragraph 5(b) of the Agreement which, in reiteration, is quoted as follows:
5. Commissions
a) . . .
b) Overriding Commission
In addition to the above commission, American will pay Orient Air Services an overriding
commission of 3% of the tariff fees and charges for all sales of transportation over American's
services by Orient Air Servicesor its sub-agents. (Emphasis supplied)
Since Orient Air was allowed to carry only the ticket stocks of American Air, and the former not having opted to
appoint any sub-agents, it is American Air's contention that Orient Air can claim entitlement to the disputed
overriding commission based only on ticketed sales. This is supposed to be the clear meaning of the
underscored portion of the above provision. Thus, to be entitled to the 3% overriding commission, the sale
must be made by Orient Air and the sale must be done with the use of American Air's ticket stocks.

On the other hand, Orient Air contends that the contractual stipulation of a 3% overriding commission covers
the total revenue of American Air and not merely that derived from ticketed sales undertaken by Orient Air. The
latter, in justification of its submission, invokes its designation as the exclusive General Sales Agent of
American Air, with the corresponding obligations arising from such agency, such as, the promotion and
solicitation for the services of its principal. In effect, by virtue of such exclusivity, "all sales of transportation
over American Air's services are necessarily by Orient Air." 11
It is a well settled legal principle that in the interpretation of a contract, the entirety thereof must be taken into
consideration to ascertain the meaning of its provisions. 12 The various stipulations in the contract must be
read together to give effect to all. 13 After a careful examination of the records, the Court finds merit in the
contention of Orient Air that the Agreement, when interpreted in accordance with the foregoing principles,
entitles it to the 3% overriding commission based on total revenue, or as referred to by the parties, "total flown
revenue."
As the designated exclusive General Sales Agent of American Air, Orient Air was responsible for the promotion
and marketing of American Air's services for air passenger transportation, and the solicitation of sales therefor.
In return for such efforts and services, Orient Air was to be paid commissions of two (2) kinds: first, a sales
agency commission, ranging from 7-8% of tariff fares and charges from sales by Orient Air when made on
American Air ticket stock; and second, an overriding commission of 3% of tariff fares and charges for all
sales of passenger transportation over American Air services. It is immediately observed that the precondition
attached to the first type of commission does not obtain for the second type of commissions. The latter type of
commissions would accrue for sales of American Air services made not on its ticket stock but on the ticket
stock of other air carriers sold by such carriers or other authorized ticketing facilities or travel agents. To rule
otherwise, i.e., to limit the basis of such overriding commissions to sales from American Air ticket stock would
erase any distinction between the two (2) types of commissions and would lead to the absurd conclusion that
the parties had entered into a contract with meaningless provisions. Such an interpretation must at all times be
avoided with every effort exerted to harmonize the entire Agreement.
An additional point before finally disposing of this issue. It is clear from the records that American Air was the
party responsible for the preparation of the Agreement. Consequently, any ambiguity in this "contract of
adhesion" is to be taken "contra proferentem", i.e., construed against the party who caused the ambiguity and
could have avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code provides that
the interpretation of obscure words or stipulations in a contract shall not favor the party who caused the
obscurity. 14 To put it differently, when several interpretations of a provision are otherwise equally proper, that
interpretation or construction is to be adopted which is most favorable to the party in whose favor the provision
was made and who did not cause the ambiguity. 15 We therefore agree with the respondent appellate court's
declaration that:
Any ambiguity in a contract, whose terms are susceptible of different interpretations, must be read
against the party who drafted it. 16
We now turn to the propriety of American Air's termination of the Agreement. The respondent appellate court,
on this issue, ruled thus:
It is not denied that Orient withheld remittances but such action finds justification from paragraph 4
of the Agreement, Exh. F, which provides for remittances to American less commissions to which
Orient is entitled, and from paragraph 5(d) which specifically allows Orient to retain the full amount
of its commissions. Since, as stated ante, Orient is entitled to the 3% override. American's
premise, therefore, for the cancellation of the Agreement did not exist. . . ."
We agree with the findings of the respondent appellate court. As earlier established, Orient Air was entitled to
an overriding commission based on total flown revenue. American Air's perception that Orient Air was remiss
or in default of its obligations under the Agreement was, in fact, a situation where the latter acted in
accordance with the Agreementthat of retaining from the sales proceeds its accrued commissions before
remitting the balance to American Air. Since the latter was still obligated to Orient Air by way of such
commissions. Orient Air was clearly justified in retaining and refusing to remit the sums claimed by American
Air. The latter's termination of the Agreement was, therefore, without cause and basis, for which it should be
held liable to Orient Air.

On the matter of damages, the respondent appellate court modified by reduction the trial court's award of
exemplary damages and attorney's fees. This Court sees no error in such modification and, thus, affirms the
same.

Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo B. Litonjua, Jr. of the
Litonjua & Company, Inc. In a Letter dated September 12, 1986, Marquez declared that he was authorized to
sell the properties for P27,000,000.00 and that the terms of the sale were subject to negotiation. 4

It is believed, however, that respondent appellate court erred in affirming the rest of the decision of the trial
court.1wphi1We refer particularly to the lower court's decision ordering American Air to "reinstate defendant
as its general sales agent for passenger transportation in the Philippines in accordance with said GSA
Agreement."

Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to Eduardo Litonjua, Jr., and his
brother Antonio K. Litonjua. The Litonjua siblings offered to buy the property for P20,000,000.00 cash.
Marquez apprised Glanville of the Litonjua siblings offer and relayed the same to Delsaux in Belgium, but the
latter did not respond. On October 28, 1986, Glanville telexed Delsaux in Belgium, inquiring on his position/
counterproposal to the offer of the Litonjua siblings. It was only on February 12, 1987 that Delsaux sent a telex
to Glanville stating that, based on the "Belgian/Swiss decision," the final offer was "US$1,000,000.00
and P2,500,000.00 to cover all existing obligations prior to final liquidation." 5

By affirming this ruling of the trial court, respondent appellate court, in effect, compels American Air to extend
its personality to Orient Air. Such would be violative of the principles and essence of agency, defined by law as
a contract whereby "a person binds himself to render some service or to do something in representation or on
behalf of another, WITH THE CONSENT OR AUTHORITY OF THE LATTER . 17 (emphasis supplied) In an
agent-principal relationship, the personality of the principal is extended through the facility of the agent. In so
doing, the agent, by legal fiction, becomes the principal, authorized to perform all acts which the latter would
have him do. Such a relationship can only be effected with the consent of the principal, which must not, in any
way, be compelled by law or by any court. The Agreement itself between the parties states that "either party
may terminate the Agreement without cause by giving the other 30 days' notice by letter, telegram or cable."
(emphasis supplied) We, therefore, set aside the portion of the ruling of the respondent appellate court
reinstating Orient Air as general sales agent of American Air.
WHEREFORE, with the foregoing modification, the Court AFFIRMS the decision and resolution of the
respondent Court of Appeals, dated 27 January 1986 and 17 December 1986, respectively. Costs against
petitioner American Air.
SO ORDERED.

Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux. Litonjua, Jr. accepted the
counterproposal of Delsaux. Marquez conferred with Glanville, and in a Letter dated February 26, 1987,
confirmed that the Litonjua siblings had accepted the counter-proposal of Delsaux. He also stated that the
Litonjua siblings would confirm full payment within 90 days after execution and preparation of all documents of
sale, together with the necessary governmental clearances. 6
The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security Bank & Trust Company,
Ermita Branch, and drafted an Escrow Agreement to expedite the sale. 7
Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the sale would be
implemented. In a telex dated April 22, 1987, Glanville informed Delsaux that he had met with the buyer, which
had given him the impression that "he is prepared to press for a satisfactory conclusion to the sale." 8 He also
emphasized to Delsaux that the buyers were concerned because they would incur expenses in bank
commitment fees as a consequence of prolonged period of inaction. 9

G.R. No. 144805 June 8, 2006

EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners,
vs.
ETERNIT CORPORATION (now ETERTON MULTI-RESOURCES CORPORATION), ETEROUTREMER,
S.A. and FAR EAST BANK & TRUST COMPANY, Respondents.

Meanwhile, with the assumption of Corazon C. Aquino as President of the Republic of the Philippines, the
political situation in the Philippines had improved. Marquez received a telephone call from Glanville, advising
that the sale would no longer proceed. Glanville followed it up with a Letter dated May 7, 1987, confirming that
he had been instructed by his principal to inform Marquez that "the decision has been taken at a Board
Meeting not to sell the properties on which Eternit Corporation is situated." 10
Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC Regional Office had decided
not to proceed with the sale of the subject land, to wit:

DECISION
CALLEJO, SR., J.:

May 22, 1987

1

On appeal via a Petition for Review on Certiorari is the Decision of the Court of Appeals (CA) in CA-G.R. CV
No. 51022, which affirmed the Decision of the Regional Trial Court (RTC), Pasig City, Branch 165, in Civil
Case No. 54887, as well as the Resolution2 of the CA denying the motion for reconsideration thereof.
The Eternit Corporation (EC) is a corporation duly organized and registered under Philippine laws. Since 1950,
it had been engaged in the manufacture of roofing materials and pipe products. Its manufacturing operations
were conducted on eight parcels of land with a total area of 47,233 square meters. The properties, located in
Mandaluyong City, Metro Manila, were covered by Transfer Certificates of Title Nos. 451117, 451118, 451119,
451120, 451121, 451122, 451124 and 451125 under the name of Far East Bank & Trust Company, as trustee.
Ninety (90%) percent of the shares of stocks of EC were owned by Eteroutremer S.A. Corporation (ESAC), a
corporation organized and registered under the laws of Belgium. 3 Jack Glanville, an Australian citizen, was the
General Manager and President of EC, while Claude Frederick Delsaux was the Regional Director for Asia of
ESAC. Both had their offices in Belgium.
In 1986, the management of ESAC grew concerned about the political situation in the Philippines and wanted
to stop its operations in the country. The Committee for Asia of ESAC instructed Michael Adams, a member of
ECs Board of Directors, to dispose of the eight parcels of land. Adams engaged the services of realtor/broker
Lauro G. Marquez so that the properties could be offered for sale to prospective buyers. Glanville later showed
the properties to Marquez.

Mr. L.G. Marquez

L.G. Marquez, Inc.
334 Makati Stock Exchange Bldg.
6767 Ayala Avenue
Makati, Metro Manila
Philippines
Dear Sir:
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has decided not to proceed with the sale of the land which was
proposed to you.
The Committee for Asia of our Group met recently (meeting every six months) and examined the position as
far as the Philippines are (sic) concerned. Considering [the] new political situation since the departure of MR.
MARCOS and a certain stabilization in the Philippines, the Committee has decided not to stop our operations

in Manila. In fact, production has started again last week, and (sic) to recognize the participation in the
Corporation.
We regret that we could not make a deal with you this time, but in case the policy would change at a later
state, we would consult you again.
xxx

between and not as agent of the corporation; hence, it was not necessary for him to be empowered as such by
any written authority. They further claimed that an agency by estoppel was created when the corporation
clothed Marquez with apparent authority to negotiate for the sale of the properties. However, since it was a
bilateral contract to buy and sell, it was equivalent to a perfected contract of sale, which the corporation was
obliged to consummate.
In reply, EC alleged that Marquez had no written authority from the Board of Directors to bind it; neither were
Glanville and Delsaux authorized by its board of directors to offer the property for sale. Since the sale involved
substantially all of the corporations assets, it would necessarily need the authority from the stockholders.

Yours sincerely,
(Sgd.)
C.F. DELSAUX
cc. To: J. GLANVILLE (Eternit Corp.) 11
When apprised of this development, the Litonjuas, through counsel, wrote EC, demanding payment for
damages they had suffered on account of the aborted sale. EC, however, rejected their demand.
The Litonjuas then filed a complaint for specific performance and damages against EC (now the Eterton MultiResources Corporation) and the Far East Bank & Trust Company, and ESAC in the RTC of Pasig City. An
amended complaint was filed, in which defendant EC was substituted by Eterton Multi-Resources Corporation;
Benito C. Tan, Ruperto V. Tan, Stock Ha T. Tan and Deogracias G. Eufemio were impleaded as additional
defendants on account of their purchase of ESAC shares of stocks and were the controlling stockholders of
EC.
In their answer to the complaint, EC and ESAC alleged that since Eteroutremer was not doing business in the
Philippines, it cannot be subject to the jurisdiction of Philippine courts; the Board and stockholders of EC never
approved any resolution to sell subject properties nor authorized Marquez to sell the same; and the telex
dated October 28, 1986 of Jack Glanville was his own personal making which did not bind EC.
On July 3, 1995, the trial court rendered judgment in favor of defendants and dismissed the amended
complaint.12 The fallo of the decision reads:

On June 16, 2000, the CA rendered judgment affirming the decision of the RTC.
for reconsideration, which was also denied by the appellate court.

16

The Litonjuas filed a motion

The CA ruled that Marquez, who was a real estate broker, was a special agent within the purview of Article
1874 of the New Civil Code. Under Section 23 of the Corporation Code, he needed a special authority from
ECs board of directors to bind such corporation to the sale of its properties. Delsaux, who was merely the
representative of ESAC (the majority stockholder of EC) had no authority to bind the latter. The CA pointed out
that Delsaux was not even a member of the board of directors of EC. Moreover, the Litonjuas failed to prove
that an agency by estoppel had been created between the parties.
In the instant petition for review, petitioners aver that
I
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PERFECTED CONTRACT OF
SALE.
II
THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT MARQUEZ NEEDED
A WRITTEN AUTHORITY FROM RESPONDENT ETERNIT BEFORE THE SALE CAN BE PERFECTED.
III

WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-Resources Corporation and
Eteroutremer, S.A. is dismissed on the ground that there is no valid and binding sale between the plaintiffs and
said defendants.
The complaint as against Far East Bank and Trust Company is likewise dismissed for lack of cause of action.
The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer, S.A. is
also dismissed for lack of merit.13
The trial court declared that since the authority of the agents/realtors was not in writing, the sale is void and
not merely unenforceable, and as such, could not have been ratified by the principal. In any event, such
ratification cannot be given any retroactive effect. Plaintiffs could not assume that defendants had agreed to
sell the property without a clear authorization from the corporation concerned, that is, through resolutions of
the Board of Directors and stockholders. The trial court also pointed out that the supposed sale involves
substantially all the assets of defendant EC which would result in the eventual total cessation of its operation. 14
The Litonjuas appealed the decision to the CA, alleging that "(1) the lower court erred in concluding that the
real estate broker in the instant case needed a written authority from appellee corporation and/or that said
broker had no such written authority; and (2) the lower court committed grave error of law in holding that
appellee corporation is not legally bound for specific performance and/or damages in the absence of an
enabling resolution of the board of directors." 15 They averred that Marquez acted merely as a broker or go-

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND DELSAUX HAVE THE
NECESSARY AUTHORITY TO SELL THE SUBJECT PROPERTIES, OR AT THE VERY LEAST, WERE
KNOWINGLY PERMITTED BY RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN
APPARENT AUTHORITY, AND THUS HELD THEM OUT TO THE PUBLIC AS POSSESSING POWER TO
SELL THE SAID PROPERTIES.17
Petitioners maintain that, based on the facts of the case, there was a perfected contract of sale of the parcels
of land and the improvements thereon for "US$1,000,000.00 plus P2,500,000.00 to cover obligations prior to
final liquidation." Petitioners insist that they had accepted the counter-offer of respondent EC and that before
the counter-offer was withdrawn by respondents, the acceptance was made known to them through real estate
broker Marquez.
Petitioners assert that there was no need for a written authority from the Board of Directors of EC for Marquez
to validly act as broker/middleman/intermediary. As broker, Marquez was not an ordinary agent because his
authority was of a special and limited character in most respects. His only job as a broker was to look for a
buyer and to bring together the parties to the transaction. He was not authorized to sell the properties or to
make a binding contract to respondent EC; hence, petitioners argue, Article 1874 of the New Civil Code does
not apply.

In any event, petitioners aver, what is important and decisive was that Marquez was able to communicate both
the offer and counter-offer and their acceptance of respondent ECs counter-offer, resulting in a perfected
contract of sale.
Petitioners posit that the testimonial and documentary evidence on record amply shows that Glanville, who
was the President and General Manager of respondent EC, and Delsaux, who was the Managing Director for
ESAC Asia, had the necessary authority to sell the subject property or, at least, had been allowed by
respondent EC to hold themselves out in the public as having the power to sell the subject properties.
Petitioners identified such evidence, thus:
1. The testimony of Marquez that he was chosen by Glanville as the then President and General
Manager of Eternit, to sell the properties of said corporation to any interested party, which
authority, as hereinabove discussed, need not be in writing.
2. The fact that the NEGOTIATIONS for the sale of the subject properties spanned SEVERAL
MONTHS, from 1986 to 1987;
3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties to the
Petitioners;
4. The GOOD FAITH of Petitioners in believing Eternits offer to sell the properties as evidenced by
the Petitioners ACCEPTANCE of the counter-offer;
5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with the Security Bank and
that an ESCROW agreement was drafted over the subject properties;
6. Glanvilles telex to Delsaux inquiring "WHEN WE (Respondents) WILL IMPLEMENT ACTION
TO BUY AND SELL";
7. More importantly, Exhibits "G" and "H" of the Respondents, which evidenced the fact that
Petitioners offer was allegedly REJECTED by both Glanville and Delsaux.18
Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-offer to petitioners offer
and thereafter reject such offer unless they were authorized to do so by respondent EC. Petitioners insist that
Delsaux confirmed his authority to sell the properties in his letter to Marquez, to wit:

Yours sincerely,
C.F. DELSAUX19
Petitioners further emphasize that they acted in good faith when Glanville and Delsaux were knowingly
permitted by respondent EC to sell the properties within the scope of an apparent authority. Petitioners insist
that respondents held themselves to the public as possessing power to sell the subject properties.
By way of comment, respondents aver that the issues raised by the petitioners are factual, hence, are
proscribed by Rule 45 of the Rules of Court. On the merits of the petition, respondents EC (now EMC) and
ESAC reiterate their submissions in the CA. They maintain that Glanville, Delsaux and Marquez had no
authority from the stockholders of respondent EC and its Board of Directors to offer the properties for sale to
the petitioners, or to any other person or entity for that matter. They assert that the decision and resolution of
the CA are in accord with law and the evidence on record, and should be affirmed in toto.
Petitioners aver in their subsequent pleadings that respondent EC, through Glanville and Delsaux, conformed
to the written authority of Marquez to sell the properties. The authority of Glanville and Delsaux to bind
respondent EC is evidenced by the fact that Glanville and Delsaux negotiated for the sale of 90% of stocks of
respondent EC to Ruperto Tan on June 1, 1997. Given the significance of their positions and their duties in
respondent EC at the time of the transaction, and the fact that respondent ESAC owns 90% of the shares of
stock of respondent EC, a formal resolution of the Board of Directors would be a mere ceremonial formality.
What is important, petitioners maintain, is that Marquez was able to communicate the offer of respondent EC
and the petitioners acceptance thereof. There was no time that they acted without the knowledge of
respondents. In fact, respondent EC never repudiated the acts of Glanville, Marquez and Delsaux.
The petition has no merit.
Anent the first issue, we agree with the contention of respondents that the issues raised by petitioner in this
case are factual. Whether or not Marquez, Glanville, and Delsaux were authorized by respondent EC to act as
its agents relative to the sale of the properties of respondent EC, and if so, the boundaries of their authority as
agents, is a question of fact. In the absence of express written terms creating the relationship of an agency,
the existence of an agency is a fact question.20 Whether an agency by estoppel was created or whether a
person acted within the bounds of his apparent authority, and whether the principal is estopped to deny the
apparent authority of its agent are, likewise, questions of fact to be resolved on the basis of the evidence on
record.21 The findings of the trial court on such issues, as affirmed by the CA, are conclusive on the Court,
absent evidence that the trial and appellate courts ignored, misconstrued, or misapplied facts and
circumstances of substance which, if considered, would warrant a modification or reversal of the outcome of
the case.22

Dear Sir,
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has decided not to proceed with the sale of the land which was
proposed to you.
The Committee for Asia of our Group met recently (meeting every six months) and examined the position as
far as the Philippines are (sic) concerned. Considering the new political situation since the departure of MR.
MARCOS and a certain stabilization in the Philippines, the Committee has decided not to stop our operations
in Manila[.] [I]n fact production started again last week, and (sic) to reorganize the participation in the
Corporation.
We regret that we could not make a deal with you this time, but in case the policy would change at a later
stage we would consult you again.
In the meantime, I remain

It must be stressed that issues of facts may not be raised in the Court under Rule 45 of the Rules of Court
because the Court is not a trier of facts. It is not to re-examine and assess the evidence on record, whether
testimonial and documentary. There are, however, recognized exceptions where the Court may delve into and
resolve factual issues, namely:
(1) When the conclusion is a finding grounded entirely on speculations, surmises, or conjectures; (2) when the
inference made is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion; (4)
when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6)
when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is
contrary to the admissions of both appellant and appellee; (7) when the findings of the Court of Appeals are
contrary to those of the trial court; (8) when the findings of fact are conclusions without citation of specific
evidence on which they are based; (9) when the Court of Appeals manifestly overlooked certain relevant facts
not disputed by the parties, which, if properly considered, would justify a different conclusion; and (10) when
the findings of fact of the Court of Appeals are premised on the absence of evidence and are contradicted by
the evidence on record.23

We have reviewed the records thoroughly and find that the petitioners failed to establish that the instant case
falls under any of the foregoing exceptions. Indeed, the assailed decision of the Court of Appeals is supported
by the evidence on record and the law.
It was the duty of the petitioners to prove that respondent EC had decided to sell its properties and that it had
empowered Adams, Glanville and Delsaux or Marquez to offer the properties for sale to prospective buyers
and to accept any counter-offer. Petitioners likewise failed to prove that their counter-offer had been accepted
by respondent EC, through Glanville and Delsaux. It must be stressed that when specific performance is
sought of a contract made with an agent, the agency must be established by clear, certain and specific proof. 24
Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the Philippines,
provides:
SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate powers
of all corporations formed under this Code shall be exercised, all business conducted and all property of such
corporations controlled and held by the board of directors or trustees to be elected from among the holders of
stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one
(1) year and until their successors are elected and qualified.
Indeed, a corporation is a juridical person separate and distinct from its members or stockholders and is not
affected by the personal rights,
obligations and transactions of the latter.25 It may act only through its board of directors or, when authorized
either by its by-laws or by its board resolution, through its officers or agents in the normal course of business.
The general principles of agency govern the relation between the corporation and its officers or agents,
subject to the articles of incorporation, by-laws, or relevant provisions of law.26
Under Section 36 of the Corporation Code, a corporation may sell or convey its real properties, subject to the
limitations prescribed by law and the Constitution, as follows:
SEC. 36. Corporate powers and capacity. Every corporation incorporated under this Code has the power
and capacity:
xxxx
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with
such real and personal property, including securities and bonds of other corporations, as the transaction of a
lawful business of the corporation may reasonably and necessarily require, subject to the limitations
prescribed by the law and the Constitution.
The property of a corporation, however, is not the property of the stockholders or members, and as such, may
not be sold without express authority from the board of directors. 27 Physical acts, like the offering of the
properties of the corporation for sale, or the acceptance of a counter-offer of prospective buyers of such
properties and the execution of the deed of sale covering such property, can be performed by the corporation
only by officers or agents duly authorized for the purpose by corporate by-laws or by specific acts of the board
of directors.28 Absent such valid delegation/authorization, the rule is that the declarations of an individual
director relating to the affairs of the corporation, but not in the course of, or connected with, the performance of
authorized duties of such director, are not binding on the corporation. 29
While a corporation may appoint agents to negotiate for the sale of its real properties, the final say will have to
be with the board of directors through its officers and agents as authorized by a board resolution or by its bylaws.30An unauthorized act of an officer of the corporation is not binding on it unless the latter ratifies the same
expressly or impliedly by its board of directors. Any sale of real property of a corporation by a person
purporting to be an agent thereof but without written authority from the corporation is null and void. The
declarations of the agent alone are generally insufficient to establish the fact or extent of his/her authority. 31

By the contract of agency, a person binds himself to render some service or to do something in representation
on behalf of another, with the consent or authority of the latter.32 Consent of both principal and agent is
necessary to create an agency. The principal must intend that the agent shall act for him; the agent must
intend to accept the authority and act on it, and the intention of the parties must find expression either in words
or conduct between them.33
An agency may be expressed or implied from the act of the principal, from his silence or lack of action, or his
failure to repudiate the agency knowing that another person is acting on his behalf without authority.
Acceptance by the agent may be expressed, or implied from his acts which carry out the agency, or from his
silence or inaction according to the circumstances.34 Agency may be oral unless the law requires a specific
form.35However, to create or convey real rights over immovable property, a special power of attorney is
necessary.36Thus, when a sale of a piece of land or any portion thereof is through an agent, the authority of
the latter shall be in writing, otherwise, the sale shall be void. 37
In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution of the Board of
Directors of respondent EC empowering Marquez, Glanville or Delsaux as its agents, to sell, let alone offer for
sale, for and in its behalf, the eight parcels of land owned by respondent EC including the improvements
thereon. The bare fact that Delsaux may have been authorized to sell to Ruperto Tan the shares of stock of
respondent ESAC, on June 1, 1997, cannot be used as basis for petitioners claim that he had likewise been
authorized by respondent EC to sell the parcels of land.
Moreover, the evidence of petitioners shows that Adams and Glanville acted on the authority of Delsaux, who,
in turn, acted on the authority of respondent ESAC, through its Committee for Asia, 38 the Board of Directors of
respondent ESAC,39 and the Belgian/Swiss component of the management of respondent ESAC. 40 As such,
Adams and Glanville engaged the services of Marquez to offer to sell the properties to prospective buyers.
Thus, on September 12, 1986, Marquez wrote the petitioner that he was authorized to offer for sale the
property forP27,000,000.00 and the other terms of the sale subject to negotiations. When petitioners offered to
purchase the property for P20,000,000.00, through Marquez, the latter relayed petitioners offer to Glanville;
Glanville had to send a telex to Delsaux to inquire the position of respondent ESAC to petitioners offer.
However, as admitted by petitioners in their Memorandum, Delsaux was unable to reply immediately to the
telex of Glanville because Delsaux had to wait for confirmation from respondent ESAC. 41 When Delsaux finally
responded to Glanville on February 12, 1987, he made it clear that, based on the "Belgian/Swiss decision" the
final offer of respondent ESAC was US$1,000,000.00 plus P2,500,000.00 to cover all existing obligations prior
to final liquidation.42 The offer of Delsaux emanated only from the "Belgian/Swiss decision," and not the entire
management or Board of Directors of respondent ESAC. While it is true that petitioners accepted the counteroffer of respondent ESAC, respondent EC was not a party to the transaction between them; hence, EC was
not bound by such acceptance.
While Glanville was the President and General Manager of respondent EC, and Adams and Delsaux were
members of its Board of Directors, the three acted for and in behalf of respondent ESAC, and not as duly
authorized agents of respondent EC; a board resolution evincing the grant of such authority is needed to bind
EC to any agreement regarding the sale of the subject properties. Such board resolution is not a mere
formality but is a condition sine qua non to bind respondent EC. Admittedly, respondent ESAC owned 90% of
the shares of stocks of respondent EC; however, the mere fact that a corporation owns a majority of the
shares of stocks of another, or even all of such shares of stocks, taken alone, will not justify their being treated
as one corporation.43
It bears stressing that in an agent-principal relationship, the personality of the principal is extended through the
facility of the agent. In so doing, the agent, by legal fiction, becomes the principal, authorized to perform all
acts which the latter would have him do. Such a relationship can only be effected with the consent of the
principal, which must not, in any way, be compelled by law or by any court. 44
The petitioners cannot feign ignorance of the absence of any regular and valid authority of respondent EC
empowering Adams, Glanville or Delsaux to offer the properties for sale and to sell the said properties to the
petitioners. A person dealing with a known agent is not authorized, under any circumstances, blindly to trust
the agents; statements as to the extent of his powers; such person must not act negligently but must use
reasonable diligence and prudence to ascertain whether the agent acts within the scope of his authority. 45 The
settled rule is that, persons dealing with an assumed agent are bound at their peril, and if they would hold the
principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case

either is controverted, the burden of proof is upon them to prove it. 46 In this case, the petitioners failed to
discharge their burden; hence, petitioners are not entitled to damages from respondent EC.
It appears that Marquez acted not only as real estate broker for the petitioners but also as their agent. As
gleaned from the letter of Marquez to Glanville, on February 26, 1987, he confirmed, for and in behalf of the
petitioners, that the latter had accepted such offer to sell the land and the improvements thereon. However, we
agree with the ruling of the appellate court that Marquez had no authority to bind respondent EC to sell the
subject properties. A real estate broker is one who negotiates the sale of real properties. His business,
generally speaking, is only to find a purchaser who is willing to buy the land upon terms fixed by the owner. He
has no authority to bind the principal by signing a contract of sale. Indeed, an authority to find a purchaser of
real property does not include an authority to sell.47
Equally barren of merit is petitioners contention that respondent EC is estopped to deny the existence of a
principal-agency relationship between it and Glanville or Delsaux. For an agency by estoppel to exist, the
following must be established: (1) the principal manifested a representation of the agents authority or
knowlingly allowed the agent to assume such authority; (2) the third person, in good faith, relied upon such
representation; (3) relying upon such representation, such third person has changed his position to his
detriment.48 An agency by estoppel, which is similar to the doctrine of apparent authority, requires proof of
reliance upon the representations, and that, in turn, needs proof that the representations predated the action
taken in reliance.49Such proof is lacking in this case. In their communications to the petitioners, Glanville and
Delsaux positively and unequivocally declared that they were acting for and in behalf of respondent ESAC.
Neither may respondent EC be deemed to have ratified the transactions between the petitioners and
respondent ESAC, through Glanville, Delsaux and Marquez. The transactions and the various
communications inter se were never submitted to the Board of Directors of respondent EC for ratification.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioners.
SO ORDERED.
G.R. No. 149353

Corporation (NHMFC) to secure petitioners loan in the sum of P337,050.00 with that entity; that as a condition
for the foregoing sale, respondent shall assume the undue balance of the mortgage and pay the monthly
amortization of P4,748.11 for the remainder of the 25 years which began on September 3, 1994; that the
property was at that time being occupied by a tenant paying a monthly rent of P3,000.00; that upon verification
with the NHMFC, respondent learned that petitioner had incurred arrearages amounting to P26,744.09,
inclusive of penalties and interest; that upon informing the petitioner of her arrears, petitioner denied that she
incurred them and refused to pay the same; that despite repeated demand, petitioner refused to cooperate
with respondent to execute the necessary documents and other formalities required by the NHMFC to effect
the transfer of the title over the property; that petitioner collected rent over the property for the month of
January 1997 and refused to remit the proceeds to respondent; and that respondent suffered damages as a
result and was forced to litigate.
Petitioner, then defendant, while admitting some allegations in the Complaint, denied that she borrowed
money from respondent, and averred that from June to September 1995, she referred her friends to
respondent whom she knew to be engaged in the business of lending money in exchange for personal checks
through her capitalist Arsenio Pua. She alleged that her friends, namely, Zenaida Romulo, Theresa Moratin,
Julia Inocencio, Virginia Jacob, and Elizabeth Tomelden, borrowed money from respondent and issued
personal checks in payment of the loan; that the checks bounced for insufficiency of funds; that despite her
efforts to assist respondent to collect from the borrowers, she could no longer locate them; that, because of
this, respondent became furious and threatened petitioner that if the accounts were not settled, a criminal case
will be filed against her; that she was forced to issue eight checks amounting to P350,000 to answer for the
bounced checks of the borrowers she referred; that prior to the issuance of the checks she informed
respondent that they were not sufficiently funded but the latter nonetheless deposited the checks and for
which reason they were subsequently dishonored; that respondent then threatened to initiate a criminal case
against her for violation of Batas Pambansa Blg. 22; that she was forced by respondent to execute an
"Absolute Deed of Sale" over her property in Bacoor, Cavite, to avoid criminal prosecution; that the said deed
had no valid consideration; that she did not appear before a notary public; that the Community Tax Certificate
number on the deed was not hers and for which respondent may be prosecuted for falsification and perjury;
and that she suffered damages and lost rental as a result.
The RTC identified the issues as follows: first, whether the Deed of Absolute Sale is valid; second; if valid,
whether petitioner is obliged to sign and execute the necessary documents to effect the transfer of her rights
over the property to the respondent; and third, whether petitioner is liable for damages.

June 26, 2006

On July 29, 1998, the RTC rendered a decision the dispositive portion of which states:

JOCELYN B. DOLES, Petitioner,

vs.
MA. AURA TINA ANGELES, Respondent.

WHEREFORE, premises considered, the Court hereby orders the dismissal of the complaint for insufficiency
of evidence. With costs against plaintiff.
DECISION
SO ORDERED.

AUSTRIA-MARTINEZ, J.:
The RTC held that the sale was void for lack of cause or consideration: 5
This refers to the Petition for Review on Certiorari under Rule 45 of the Rules of Court questioning the
Decision1dated April 30, 2001 of the Court of Appeals (CA) in C.A.-G.R. CV No. 66985, which reversed the
Decision dated July 29, 1998 of the Regional Trial Court (RTC), Branch 21, City of Manila; and the CA
Resolution2 dated August 6, 2001 which denied petitioners Motion for Reconsideration.
The antecedents of the case follow:
On April 1, 1997, Ma. Aura Tina Angeles (respondent) filed with the RTC a complaint for Specific Performance
with Damages against Jocelyn B. Doles (petitioner), docketed as Civil Case No. 97-82716. Respondent
alleged that petitioner was indebted to the former in the concept of a personal loan amounting to P405,430.00
representing the principal amount and interest; that on October 5, 1996, by virtue of a "Deed of Absolute
Sale",3petitioner, as seller, ceded to respondent, as buyer, a parcel of land, as well as the improvements
thereon, with an area of 42 square meters, covered by Transfer Certificate of Title No. 382532, 4 and located at
a subdivision project known as Camella Townhomes Sorrente in Bacoor, Cavite, in order to satisfy her
personal loan with respondent; that this property was mortgaged to National Home Mortgage Finance

Plaintiff Angeles admission that the borrowers are the friends of defendant Doles and further admission that
the checks issued by these borrowers in payment of the loan obligation negates [sic] the cause or
consideration of the contract of sale executed by and between plaintiff and defendant. Moreover, the property
is not solely owned by defendant as appearing in Entry No. 9055 of Transfer Certificate of Title No. 382532
(Annex A, Complaint), thus:
"Entry No. 9055. Special Power of Attorney in favor of Jocelyn Doles covering the share of Teodorico Doles on
the parcel of land described in this certificate of title by virtue of the special power of attorney to mortgage,
executed before the notary public, etc."
The rule under the Civil Code is that contracts without a cause or consideration produce no effect whatsoever.
(Art. 1352, Civil Code).

Respondent appealed to the CA. In her appeal brief, respondent interposed her sole assignment of error:
THE TRIAL COURT ERRED IN DISMISSING THE CASE AT BAR ON THE GROUND OF [sic] THE DEED OF
SALE BETWEEN THE PARTIES HAS NO CONSIDERATION OR INSUFFICIENCY OF EVIDENCE. 6

WHETHER OR NOT AN AGENT WHO WAS NOT AUTHORIZED BY THE PRINCIPAL TO

COLLECT DEBT IN HIS BEHALF COULD DIRECTLY COLLECT PAYMENT FROM THE
DEBTOR.
III.

On April 30, 2001, the CA promulgated its Decision, the dispositive portion of which reads:
WHETHER OR NOT THE CONTRACT OF SALE WAS EXECUTED FOR A CAUSE.14
WHEREFORE, IN VIEW OF THE FOREGOING, this appeal is hereby GRANTED. The Decision of the lower
court dated July 29, 1998 is REVERSED and SET ASIDE. A new one is entered ordering defendant-appellee
to execute all necessary documents to effect transfer of subject property to plaintiff-appellant with the
arrearages of the formers loan with the NHMFC, at the latters expense. No costs.
SO ORDERED.
The CA concluded that petitioner was the borrower and, in turn, would "re-lend" the amount borrowed from the
respondent to her friends. Hence, the Deed of Absolute Sale was supported by a valid consideration, which is
the sum of money petitioner owed respondent amounting to P405,430.00, representing both principal and
interest.

Although, as a rule, it is not the business of this Court to review the findings of fact made by the lower courts,
jurisprudence has recognized several exceptions, at least three of which are present in the instant case,
namely: when the judgment is based on a misapprehension of facts; when the findings of facts of the courts a
quo are conflicting; and when the CA manifestly overlooked certain relevant facts not disputed by the parties,
which, if properly considered, could justify a different conclusion. 15 To arrive at a proper judgment, therefore,
the Court finds it necessary to re-examine the evidence presented by the contending parties during the trial of
the case.
The Petition is meritorious.
The principal issue is whether the Deed of Absolute Sale is supported by a valid consideration.

The CA took into account the following circumstances in their entirety: the supposed friends of petitioner never
presented themselves to respondent and that all transactions were made by and between petitioner and
respondent;7 that the money borrowed was deposited with the bank account of the petitioner, while payments
made for the loan were deposited by the latter to respondents bank account; 8 that petitioner herself admitted
in open court that she was "re-lending" the money loaned from respondent to other individuals for profit; 9 and
that the documentary evidence shows that the actual borrowers, the friends of petitioner, consider her as their
creditor and not the respondent.10
Furthermore, the CA held that the alleged threat or intimidation by respondent did not vitiate consent, since the
same is considered just or legal if made to enforce ones claim through competent authority under Article
133511of the Civil Code;12 that with respect to the arrearages of petitioner on her monthly amortization with the
NHMFC in the sum of P26,744.09, the same shall be deemed part of the balance of petitioners loan with the
NHMFC which respondent agreed to assume; and that the amount of P3,000.00 representing the rental for
January 1997 supposedly collected by petitioner, as well as the claim for damages and attorneys fees, is
denied for insufficiency of evidence. 13
On May 29, 2001, petitioner filed her Motion for Reconsideration with the CA, arguing that respondent
categorically admitted in open court that she acted only as agent or representative of Arsenio Pua, the
principal financier and, hence, she had no legal capacity to sue petitioner; and that the CA failed to consider
the fact that petitioners father, who co-owned the subject property, was not impleaded as a defendant nor was
he indebted to the respondent and, hence, she cannot be made to sign the documents to effect the transfer of
ownership over the entire property.
On August 6, 2001, the CA issued its Resolution denying the motion on the ground that the foregoing matters
had already been passed upon.

1. Petitioner argues that since she is merely the agent or representative of the alleged debtors, then she is not
a party to the loan; and that the Deed of Sale executed between her and the respondent in their own names,
which was predicated on that pre-existing debt, is void for lack of consideration.
Indeed, the Deed of Absolute Sale purports to be supported by a consideration in the form of a price certain in
money16 and that this sum indisputably pertains to the debt in issue. This Court has consistently held that a
contract of sale is null and void and produces no effect whatsoever where the same is without cause or
consideration.17 The question that has to be resolved for the moment is whether this debt can be considered
as a valid cause or consideration for the sale.
To restate, the CA cited four instances in the record to support its holding that petitioner "re-lends" the amount
borrowed from respondent to her friends: first, the friends of petitioner never presented themselves to
respondent and that all transactions were made by and between petitioner and respondent; 18 second; the
money passed through the bank accounts of petitioner and respondent; 19 third, petitioner herself admitted that
she was "re-lending" the money loaned to other individuals for profit; 20 and fourth, the documentary evidence
shows that the actual borrowers, the friends of petitioner, consider her as their creditor and not the
respondent.21
On the first, third, and fourth points, the CA cites the testimony of the petitioner, then defendant, during her
cross-examination:22
Atty. Diza:
q. You also mentioned that you were not the one indebted to the plaintiff?

On August 13, 2001, petitioner received a copy of the CA Resolution. On August 28, 2001, petitioner filed the
present Petition and raised the following issues:
I.
WHETHER OR NOT THE PETITIONER CAN BE CONSIDERED AS A DEBTOR OF THE
RESPONDENT.
II.

witness:
a. Yes, sir.
Atty. Diza:
q. And you mentioned the persons[,] namely, Elizabeth Tomelden, Teresa Moraquin, Maria Luisa
Inocencio, Zenaida Romulo, they are your friends?

witness:

Atty. Diza:

a. Inocencio and Moraquin are my friends while [as to] Jacob and Tomelden[,] they were just
referred.

q. Did the plaintiff knew [sic] that you will lend the money to your friends specifically the one you
mentioned [a] while ago?

Atty. Diza:

witness:

q. And you have transact[ed] with the plaintiff?

a. Yes, she knows the money will go to those persons.

witness:

Atty. Diza:

a. Yes, sir.

q. You are re-lending the money?

Atty. Diza:

witness:

q. What is that transaction?

a. Yes, sir.

witness:

Atty. Diza:

a. To refer those persons to Aura and to refer again to Arsenio Pua, sir.

q. What profit do you have, do you have commission?

Atty. Diza:

witness:

q. Did the plaintiff personally see the transactions with your friends?

a. Yes, sir.

witness:

Atty. Diza:

a. No, sir.

q. How much?

Atty. Diza:

witness:

q. Your friends and the plaintiff did not meet personally?

a. Two percent to Tomelden, one percent to Jacob and then Inocencio and my friends none, sir.

witness:

Based on the foregoing, the CA concluded that petitioner is the real borrower, while the
respondent, the real lender.

a. Yes, sir.
Atty. Diza:
q. You are intermediaries?
witness:
a. We are both intermediaries. As evidenced by the checks of the debtors they were deposited to
the name of Arsenio Pua because the money came from Arsenio Pua.

But as correctly noted by the RTC, respondent, then plaintiff, made the following admission during
her cross examination:23
Atty. Villacorta:
q. Who is this Arsenio Pua?
witness:
a. Principal financier, sir.

xxxx
Atty. Villacorta:

q. So the money came from Arsenio Pua?

witness:

witness:

a. They go direct to Jocelyn because I dont know them.

a. Yes, because I am only representing him, sir.

xxxx

Other portions of the testimony of respondent must likewise be considered: 24

Atty. Villacorta:

Atty. Villacorta:

q. And is it not also a fact Madam witness that everytime that the defendant borrowed money from
you her friends who [are] in need of money issued check[s] to you? There were checks issued to
you?

q. So it is not actually your money but the money of Arsenio Pua?

witness:
a. Yes, sir.
Court:
q. It is not your money?
witness:
a. Yes, Your Honor.
Atty. Villacorta:
q. Is it not a fact Ms. Witness that the defendant borrowed from you to accommodate somebody,
are you aware of that?
witness:
a. I am aware of that.
Atty. Villacorta:
q. More or less she [accommodated] several friends of the defendant?
witness:
a. Yes, sir, I am aware of that.
xxxx
Atty. Villacorta:
q. And these friends of the defendant borrowed money from you with the assurance of the
defendant?

witness:
a. Yes, there were checks issued.
Atty. Villacorta:
q. By the friends of the defendant, am I correct?
witness:
a. Yes, sir.
Atty. Villacorta:
q. And because of your assistance, the friends of the defendant who are in need of money were
able to obtain loan to [sic] Arsenio Pua through your assistance?
witness:
a. Yes, sir.
Atty. Villacorta:
q. So that occasion lasted for more than a year?
witness:
a. Yes, sir.
Atty. Villacorta:
q. And some of the checks that were issued by the friends of the defendant bounced, am I correct?
witness:
a. Yes, sir.

Atty. Villacorta:
q. And because of that Arsenio Pua got mad with you?
witness:

suffice it to say that in the normal course of commercial dealings and for reasons of convenience and practical
utility it can be reasonably expected that the facilities of the agent, such as a bank account, may be employed,
and that a sub-agent be appointed, such as the bank itself, to carry out the task, especially where there is no
stipulation to the contrary.32
In view of the two agency relationships, petitioner and respondent are not privy to the contract of loan between
their principals. Since the sale is predicated on that loan, then the sale is void for lack of consideration.

a. Yes, sir.
Respondent is estopped to deny that she herself acted as agent of a certain Arsenio Pua, her disclosed
principal. She is also estopped to deny that petitioner acted as agent for the alleged debtors, the friends whom
she (petitioner) referred.
This Court has affirmed that, under Article 1868 of the Civil Code, the basis of agency is representation. 25 The
question of whether an agency has been created is ordinarily a question which may be established in the
same way as any other fact, either by direct or circumstantial evidence. The question is ultimately one of
intention.26Agency may even be implied from the words and conduct of the parties and the circumstances of
the particular case.27 Though the fact or extent of authority of the agents may not, as a general rule, be
established from the declarations of the agents alone, if one professes to act as agent for another, she may be
estopped to deny her agency both as against the asserted principal and the third persons interested in the
transaction in which he or she is engaged.28
In this case, petitioner knew that the financier of respondent is Pua; and respondent knew that the borrowers
are friends of petitioner.
The CA is incorrect when it considered the fact that the "supposed friends of [petitioner], the actual borrowers,
did not present themselves to [respondent]" as evidence that negates the agency relationshipit is sufficient
that petitioner disclosed to respondent that the former was acting in behalf of her principals, her friends whom
she referred to respondent. For an agency to arise, it is not necessary that the principal personally encounter
the third person with whom the agent interacts. The law in fact contemplates, and to a great degree,
impersonal dealings where the principal need not personally know or meet the third person with whom her
agent transacts: precisely, the purpose of agency is to extend the personality of the principal through the
facility of the agent.29
In the case at bar, both petitioner and respondent have undeniably disclosed to each other that they are
representing someone else, and so both of them are estopped to deny the same. It is evident from the record
that petitioner merely refers actual borrowers and then collects and disburses the amounts of the loan upon
which she received a commission; and that respondent transacts on behalf of her "principal financier", a
certain Arsenio Pua. If their respective principals do not actually and personally know each other, such
ignorance does not affect their juridical standing as agents, especially since the very purpose of agency is to
extend the personality of the principal through the facility of the agent.
With respect to the admission of petitioner that she is "re-lending" the money loaned from respondent to other
individuals for profit, it must be stressed that the manner in which the parties designate the relationship is not
controlling. If an act done by one person in behalf of another is in its essential nature one of agency, the
former is the agent of the latter notwithstanding he or she is not so called. 30 The question is to be determined
by the fact that one represents and is acting for another, and if relations exist which will constitute an
agency, it will be an agency whether the parties understood the exact nature of the relation or not. 31
That both parties acted as mere agents is shown by the undisputed fact that the friends of petitioner issued
checks in payment of the loan in the name of Pua. If it is true that petitioner was "re-lending", then the checks
should have been drawn in her name and not directly paid to Pua.

2. A further scrutiny of the record shows, however, that the sale might have been backed up by another
consideration that is separate and distinct from the debt: respondent averred in her complaint and testified that
the parties had agreed that as a condition for the conveyance of the property the respondent shall assume the
balance of the mortgage loan which petitioner allegedly owed to the NHMFC. 33 This Court in the recent past
has declared that an assumption of a mortgage debt may constitute a valid consideration for a sale. 34
Although the record shows that petitioner admitted at the time of trial that she owned the property described in
the TCT,35 the Court must stress that the Transfer Certificate of Title No. 382532 36 on its face shows that the
owner of the property which admittedly forms the subject matter of the Deed of Absolute Sale refers neither to
the petitioner nor to her father, Teodorico Doles, the alleged co-owner. Rather, it states that the property is
registered in the name of "Household Development Corporation." Although there is an entry to the effect that
the petitioner had been granted a special power of attorney "covering the shares of Teodorico Doles on the
parcel of land described in this certificate," 37 it cannot be inferred from this bare notation, nor from any other
evidence on the record, that the petitioner or her father held any direct interest on the property in question so
as to validly constitute a mortgage thereon38 and, with more reason, to effect the delivery of the object of the
sale at the consummation stage.39 What is worse, there is a notation that the TCT itself has been "cancelled." 40
In view of these anomalies, the Court cannot entertain the
possibility that respondent agreed to assume the balance of the mortgage loan which petitioner allegedly owed
to the NHMFC, especially since the record is bereft of any factual finding that petitioner was, in the first place,
endowed with any ownership rights to validly mortgage and convey the property. As the complainant who
initiated the case, respondent bears the burden of proving the basis of her complaint. Having failed to
discharge such burden, the Court has no choice but to declare the sale void for lack of cause. And since the
sale is void, the Court finds it unnecessary to dwell on the issue of whether duress or intimidation had been
foisted upon petitioner upon the execution of the sale.
Moreover, even assuming the mortgage validly exists, the Court notes respondents allegation that the
mortgage with the NHMFC was for 25 years which began September 3, 1994. Respondent filed her Complaint
for Specific Performance in 1997. Since the 25 years had not lapsed, the prayer of respondent to compel
petitioner to execute necessary documents to effect the transfer of title is premature.
WHEREFORE, the petition is granted. The Decision and Resolution of the Court of Appeals
are REVERSED andSET ASIDE. The complaint of respondent in Civil Case No. 97-82716 is DISMISSED.
SO ORDERED.
G.R. No. 167552

April 23, 2007

EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner,

vs.
EDWIN CUIZON and ERWIN CUIZON, Respondents.
DECISION

With respect to the second point, particularly, the finding of the CA that the disbursements and payments for
the loan were made through the bank accounts of petitioner and respondent,

CHICO-NAZARIO, J.:

Before Us is a petition for review by certiorari assailing the Decision 1 of the Court of Appeals dated 10 August
2004 and its Resolution2 dated 17 March 2005 in CA-G.R. SP No. 71397 entitled, "Eurotech Industrial
Technologies, Inc. v. Hon. Antonio T. Echavez." The assailed Decision and Resolution affirmed the
Order3 dated 29 January 2002 rendered by Judge Antonio T. Echavez ordering the dropping of respondent
EDWIN Cuizon (EDWIN) as a party defendant in Civil Case No. CEB-19672.
The generative facts of the case are as follows:
Petitioner is engaged in the business of importation and distribution of various European industrial equipment
for customers here in the Philippines. It has as one of its customers Impact Systems Sales ("Impact Systems")
which is a sole proprietorship owned by respondent ERWIN Cuizon (ERWIN). Respondent EDWIN is the sales
manager of Impact Systems and was impleaded in the court a quo in said capacity.
From January to April 1995, petitioner sold to Impact Systems various products allegedly amounting to ninetyone thousand three hundred thirty-eight (P91,338.00) pesos. Subsequently, respondents sought to buy from
petitioner one unit of sludge pump valued at P250,000.00 with respondents making a down payment of fifty
thousand pesos (P50,000.00).4 When the sludge pump arrived from the United Kingdom, petitioner refused to
deliver the same to respondents without their having fully settled their indebtedness to petitioner. Thus, on 28
June 1995, respondent EDWIN and Alberto de Jesus, general manager of petitioner, executed a Deed of
Assignment of receivables in favor of petitioner, the pertinent part of which states:
1.) That ASSIGNOR5 has an outstanding receivables from Toledo Power Corporation in the
amount of THREE HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS as payment for
the purchase of one unit of Selwood Spate 100D Sludge Pump;
2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and CONVEY unto the
ASSIGNEE6 the said receivables from Toledo Power Corporation in the amount of THREE
HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS which receivables the ASSIGNOR is
the lawful recipient;
3.) That the ASSIGNEE does hereby accept this assignment. 7
Following the execution of the Deed of Assignment, petitioner delivered to respondents the sludge pump as
shown by Invoice No. 12034 dated 30 June 1995. 8
Allegedly unbeknownst to petitioner, respondents, despite the existence of the Deed of Assignment,
proceeded to collect from Toledo Power Company the amount of P365,135.29 as evidenced by Check
Voucher No. 09339prepared by said power company and an official receipt dated 15 August 1995 issued by
Impact Systems.10Alarmed by this development, petitioner made several demands upon respondents to pay
their obligations. As a result, respondents were able to make partial payments to petitioner. On 7 October
1996, petitioners counsel sent respondents a final demand letter wherein it was stated that as of 11 June
1996, respondents total obligations stood at P295,000.00 excluding interests and attorneys fees. 11 Because
of respondents failure to abide by said final demand letter, petitioner instituted a complaint for sum of money,
damages, with application for preliminary attachment against herein respondents before the Regional Trial
Court of Cebu City.12
On 8 January 1997, the trial court granted petitioners prayer for the issuance of writ of preliminary
attachment.13
On 25 June 1997, respondent EDWIN filed his Answer 14 wherein he admitted petitioners allegations with
respect to the sale transactions entered into by Impact Systems and petitioner between January and April
1995.15 He, however, disputed the total amount of Impact Systems indebtedness to petitioner which,
according to him, amounted to only P220,000.00.16

By way of special and affirmative defenses, respondent EDWIN alleged that he is not a real party in interest in
this case. According to him, he was acting as mere agent of his principal, which was the Impact Systems, in
his transaction with petitioner and the latter was very much aware of this fact. In support of this argument,
petitioner points to paragraphs 1.2 and 1.3 of petitioners Complaint stating
1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of Cebu City. He is the
proprietor of a single proprietorship business known as Impact Systems Sales ("Impact Systems"
for brevity), with office located at 46-A del Rosario Street, Cebu City, where he may be served
summons and other processes of the Honorable Court.
1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a resident of Cebu City. He is the
Sales Manager of Impact Systems and is sued in this action in such capacity.17
On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default with Motion for Summary
Judgment. The trial court granted petitioners motion to declare respondent ERWIN in default "for his failure to
answer within the prescribed period despite the opportunity granted" 18 but it denied petitioners motion for
summary judgment in its Order of 31 August 2001 and scheduled the pre-trial of the case on 16 October
2001.19However, the conduct of the pre-trial conference was deferred pending the resolution by the trial court
of the special and affirmative defenses raised by respondent EDWIN. 20
After the filing of respondent EDWINs Memorandum 21 in support of his special and affirmative defenses and
petitioners opposition22 thereto, the trial court rendered its assailed Order dated 29 January 2002 dropping
respondent EDWIN as a party defendant in this case. According to the trial court
A study of Annex "G" to the complaint shows that in the Deed of Assignment, defendant Edwin B. Cuizon
acted in behalf of or represented [Impact] Systems Sales; that [Impact] Systems Sale is a single proprietorship
entity and the complaint shows that defendant Erwin H. Cuizon is the proprietor; that plaintiff corporation is
represented by its general manager Alberto de Jesus in the contract which is dated June 28, 1995. A study of
Annex "H" to the complaint reveals that [Impact] Systems Sales which is owned solely by defendant Erwin H.
Cuizon, made a down payment of P50,000.00 that Annex "H" is dated June 30, 1995 or two days after the
execution of Annex "G", thereby showing that [Impact] Systems Sales ratified the act of Edwin B. Cuizon; the
records further show that plaintiff knew that [Impact] Systems Sales, the principal, ratified the act of Edwin B.
Cuizon, the agent, when it accepted the down payment of P50,000.00. Plaintiff, therefore, cannot say that it
was deceived by defendant Edwin B. Cuizon, since in the instant case the principal has ratified the act of its
agent and plaintiff knew about said ratification. Plaintiff could not say that the subject contract was entered into
by Edwin B. Cuizon in excess of his powers since [Impact] Systems Sales made a down payment
of P50,000.00 two days later.
In view of the Foregoing, the Court directs that defendant Edwin B. Cuizon be dropped as party defendant. 23
Aggrieved by the adverse ruling of the trial court, petitioner brought the matter to the Court of Appeals which,
however, affirmed the 29 January 2002 Order of the court a quo. The dispositive portion of the now assailed
Decision of the Court of Appeals states:
WHEREFORE, finding no viable legal ground to reverse or modify the conclusions reached by the public
respondent in his Order dated January 29, 2002, it is hereby AFFIRMED. 24
Petitioners motion for reconsideration was denied by the appellate court in its Resolution promulgated on 17
March 2005. Hence, the present petition raising, as sole ground for its allowance, the following:
THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT RESPONDENT
EDWIN CUIZON, AS AGENT OF IMPACT SYSTEMS SALES/ERWIN CUIZON, IS NOT PERSONALLY
LIABLE, BECAUSE HE HAS NEITHER ACTED BEYOND THE SCOPE OF HIS AGENCY NOR DID HE
PARTICIPATE IN THE PERPETUATION OF A FRAUD.25

To support its argument, petitioner points to Article 1897 of the New Civil Code which states:
Art. 1897. The agent who acts as such is not personally liable to the party with whom he contracts, unless he
expressly binds himself or exceeds the limits of his authority without giving such party sufficient notice of his
powers.
Petitioner contends that the Court of Appeals failed to appreciate the effect of ERWINs act of collecting the
receivables from the Toledo Power Corporation notwithstanding the existence of the Deed of Assignment
signed by EDWIN on behalf of Impact Systems. While said collection did not revoke the agency relations of
respondents, petitioner insists that ERWINs action repudiated EDWINs power to sign the Deed of
Assignment. As EDWIN did not sufficiently notify it of the extent of his powers as an agent, petitioner claims
that he should be made personally liable for the obligations of his principal. 26
Petitioner also contends that it fell victim to the fraudulent scheme of respondents who induced it into selling
the one unit of sludge pump to Impact Systems and signing the Deed of Assignment. Petitioner directs the
attention of this Court to the fact that respondents are bound not only by their principal and agent relationship
but are in fact full-blooded brothers whose successive contravening acts bore the obvious signs of conspiracy
to defraud petitioner.27
In his Comment,28 respondent EDWIN again posits the argument that he is not a real party in interest in this
case and it was proper for the trial court to have him dropped as a defendant. He insists that he was a mere
agent of Impact Systems which is owned by ERWIN and that his status as such is known even to petitioner as
it is alleged in the Complaint that he is being sued in his capacity as the sales manager of the said business
venture. Likewise, respondent EDWIN points to the Deed of Assignment which clearly states that he was
acting as a representative of Impact Systems in said transaction.
We do not find merit in the petition.
In a contract of agency, a person binds himself to render some service or to do something in representation or
on behalf of another with the latters consent.29 The underlying principle of the contract of agency is to
accomplish results by using the services of others to do a great variety of things like selling, buying,
manufacturing, and transporting.30 Its purpose is to extend the personality of the principal or the party for
whom another acts and from whom he or she derives the authority to act. 31 It is said that the basis of agency is
representation, that is, the agent acts for and on behalf of the principal on matters within the scope of his
authority and said acts have the same legal effect as if they were personally executed by the principal. 32 By
this legal fiction, the actual or real absence of the principal is converted into his legal or juridical presence qui
facit per alium facit per se.33
The elements of the contract of agency are: (1) consent, express or implied, of the parties to establish the
relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts as a
representative and not for himself; (4) the agent acts within the scope of his authority.34
In this case, the parties do not dispute the existence of the agency relationship between respondents ERWIN
as principal and EDWIN as agent. The only cause of the present dispute is whether respondent EDWIN
exceeded his authority when he signed the Deed of Assignment thereby binding himself personally to pay the
obligations to petitioner. Petitioner firmly believes that respondent EDWIN acted beyond the authority granted
by his principal and he should therefore bear the effect of his deed pursuant to Article 1897 of the New Civil
Code.

the third party sufficient notice of his powers. We hold that respondent EDWIN does not fall within any of the
exceptions contained in this provision.
The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales manager of
Impact Systems. As discussed elsewhere, the position of manager is unique in that it presupposes the grant of
broad powers with which to conduct the business of the principal, thus:
The powers of an agent are particularly broad in the case of one acting as a general agent or manager; such a
position presupposes a degree of confidence reposed and investiture with liberal powers for the exercise of
judgment and discretion in transactions and concerns which are incidental or appurtenant to the business
entrusted to his care and management. In the absence of an agreement to the contrary, a managing agent
may enter into any contracts that he deems reasonably necessary or requisite for the protection of the
interests of his principal entrusted to his management. x x x. 35
Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within his authority when he
signed the Deed of Assignment. To recall, petitioner refused to deliver the one unit of sludge pump unless it
received, in full, the payment for Impact Systems indebtedness. 36 We may very well assume that Impact
Systems desperately needed the sludge pump for its business since after it paid the amount of fifty thousand
pesos (P50,000.00) as down payment on 3 March 1995,37 it still persisted in negotiating with petitioner which
culminated in the execution of the Deed of Assignment of its receivables from Toledo Power Company on 28
June 1995.38The significant amount of time spent on the negotiation for the sale of the sludge pump
underscores Impact Systems perseverance to get hold of the said equipment. There is, therefore, no doubt in
our mind that respondent EDWINs participation in the Deed of Assignment was "reasonably necessary" or
was required in order for him to protect the business of his principal. Had he not acted in the way he did, the
business of his principal would have been adversely affected and he would have violated his fiduciary relation
with his principal.
We likewise take note of the fact that in this case, petitioner is seeking to recover both from respondents
ERWIN, the principal, and EDWIN, the agent. It is well to state here that Article 1897 of the New Civil Code
upon which petitioner anchors its claim against respondent EDWIN "does not hold that in case of excess of
authority, both the agent and the principal are liable to the other contracting party." 39 To reiterate, the first part
of Article 1897 declares that the principal is liable in cases when the agent acted within the bounds of his
authority. Under this, the agent is completely absolved of any liability. The second part of the said provision
presents the situations when the agent himself becomes liable to a third party when he expressly binds himself
or he exceeds the limits of his authority without giving notice of his powers to the third person. However, it
must be pointed out that in case of excess of authority by the agent, like what petitioner claims exists here, the
law does not say that a third person can recover from both the principal and the agent. 40
As we declare that respondent EDWIN acted within his authority as an agent, who did not acquire any right
nor incur any liability arising from the Deed of Assignment, it follows that he is not a real party in interest who
should be impleaded in this case. A real party in interest is one who "stands to be benefited or injured by the
judgment in the suit, or the party entitled to the avails of the suit." 41 In this respect, we sustain his exclusion as
a defendant in the suit before the court a quo.
WHEREFORE, premises considered, the present petition is DENIED and the Decision dated 10 August 2004
and Resolution dated 17 March 2005 of the Court of Appeals in CA-G.R. SP No. 71397, affirming the Order
dated 29 January 2002 of the Regional Trial Court, Branch 8, Cebu City, is AFFIRMED.
Let the records of this case be remanded to the Regional Trial Court, Branch 8, Cebu City, for the continuation
of the proceedings against respondent Erwin Cuizon.

We disagree.
SO ORDERED.
Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not personally liable to the
party with whom he contracts. The same provision, however, presents two instances when an agent becomes
personally liable to a third person. The first is when he expressly binds himself to the obligation and the
second is when he exceeds his authority. In the last instance, the agent can be held liable if he does not give

G.R. No. 148187

April 16, 2008

PHILEX MINING CORPORATION, petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.

12. The compensation of the MANAGER shall be fifty per cent (50%) of the net profit of the Sto.
Nino PROJECT before income tax. It is understood that the MANAGERS shall pay income tax on
their compensation, while the PRINCIPAL shall pay income tax on the net profit of the Sto. Nino
PROJECT after deduction therefrom of the MANAGERS compensation.

DECISION
xxxx
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the June 30, 2000 Decision 1 of the Court of Appeals in CA-G.R. SP
No. 49385, which affirmed the Decision2 of the Court of Tax Appeals in C.T.A. Case No. 5200. Also assailed is
the April 3, 2001 Resolution3 denying the motion for reconsideration.
The facts of the case are as follows:
On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining), entered into an agreement 4 with
Baguio Gold Mining Company ("Baguio Gold") for the former to manage and operate the latters mining claim,
known as the Sto. Nino mine, located in Atok and Tublay, Benguet Province. The parties agreement was
denominated as "Power of Attorney" and provided for the following terms:
4. Within three (3) years from date thereof, the PRINCIPAL (Baguio Gold) shall make available to
the MANAGERS (Philex Mining) up to ELEVEN MILLION PESOS (P11,000,000.00), in such
amounts as from time to time may be required by the MANAGERS within the said 3-year period,
for use in the MANAGEMENT of the STO. NINO MINE. The said ELEVEN MILLION PESOS
(P11,000,000.00) shall be deemed, for internal audit purposes, as the owners account in the Sto.
Nino PROJECT. Any part of any income of the PRINCIPAL from the STO. NINO MINE, which is left
with the Sto. Nino PROJECT, shall be added to such owners account.
5. Whenever the MANAGERS shall deem it necessary and convenient in connection with the
MANAGEMENT of the STO. NINO MINE, they may transfer their own funds or property to the Sto.
Nino PROJECT, in accordance with the following arrangements:
(a) The properties shall be appraised and, together with the cash, shall be carried by
the Sto. Nino PROJECT as a special fund to be known as the MANAGERS account.
(b) The total of the MANAGERS account shall not exceed P11,000,000.00, except with
prior approval of the PRINCIPAL; provided, however, that if the compensation of the
MANAGERS as herein provided cannot be paid in cash from the Sto. Nino PROJECT,
the amount not so paid in cash shall be added to the MANAGERS account.
(c) The cash and property shall not thereafter be withdrawn from the Sto. Nino
PROJECT until termination of this Agency.
(d) The MANAGERS account shall not accrue interest. Since it is the desire of the
PRINCIPAL to extend to the MANAGERS the benefit of subsequent appreciation of
property, upon a projected termination of this Agency, the ratio which the MANAGERS
account has to the owners account will be determined, and the corresponding
proportion of the entire assets of the STO. NINO MINE, excluding the claims, shall be
transferred to the MANAGERS, except that such transferred assets shall not include
mine development, roads, buildings, and similar property which will be valueless, or of
slight value, to the MANAGERS. The MANAGERS can, on the other hand, require at
their option that property originally transferred by them to the Sto. Nino PROJECT be
re-transferred to them. Until such assets are transferred to the MANAGERS, this
Agency shall remain subsisting.
xxxx

16. The PRINCIPAL has current pecuniary obligation in favor of the MANAGERS and, in the future,
may incur other obligations in favor of the MANAGERS. This Power of Attorney has been executed
as security for the payment and satisfaction of all such obligations of the PRINCIPAL in favor of the
MANAGERS and as a means to fulfill the same. Therefore, this Agency shall be irrevocable while
any obligation of the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive of the
MANAGERS account. After all obligations of the PRINCIPAL in favor of the MANAGERS have
been paid and satisfied in full, this Agency shall be revocable by the PRINCIPAL upon 36-month
notice to the MANAGERS.
17. Notwithstanding any agreement or understanding between the PRINCIPAL and the
MANAGERS to the contrary, the MANAGERS may withdraw from this Agency by giving 6-month
notice to the PRINCIPAL. The MANAGERS shall not in any manner be held liable to the
PRINCIPAL by reason alone of such withdrawal. Paragraph 5(d) hereof shall be operative in case
of the MANAGERS withdrawal.
x x x x5
In the course of managing and operating the project, Philex Mining made advances of cash and property in
accordance with paragraph 5 of the agreement. However, the mine suffered continuing losses over the years
which resulted to petitioners withdrawal as manager of the mine on January 28, 1982 and in the eventual
cessation of mine operations on February 20, 1982.6
Thereafter, on September 27, 1982, the parties executed a "Compromise with Dation in Payment" 7 wherein
Baguio Gold admitted an indebtedness to petitioner in the amount of P179,394,000.00 and agreed to pay the
same in three segments by first assigning Baguio Golds tangible assets to petitioner, transferring to the latter
Baguio Golds equitable title in its Philodrill assets and finally settling the remaining liability through properties
that Baguio Gold may acquire in the future.
On December 31, 1982, the parties executed an "Amendment to Compromise with Dation in Payment" 8 where
the parties determined that Baguio Golds indebtedness to petitioner actually amounted to P259,137,245.00,
which sum included liabilities of Baguio Gold to other creditors that petitioner had assumed as guarantor.
These liabilities pertained to long-term loans amounting to US$11,000,000.00 contracted by Baguio Gold from
the Bank of America NT & SA and Citibank N.A. This time, Baguio Gold undertook to pay petitioner in two
segments by first assigning its tangible assets for P127,838,051.00 and then transferring its equitable title in
its Philodrill assets for P16,302,426.00. The parties then ascertained that Baguio Gold had a remaining
outstanding indebtedness to petitioner in the amount of P114,996,768.00.
Subsequently, petitioner wrote off in its 1982 books of account the remaining outstanding indebtedness of
Baguio Gold by charging P112,136,000.00 to allowances and reserves that were set up in 1981 and
P2,860,768.00 to the 1982 operations.
In its 1982 annual income tax return, petitioner deducted from its gross income the amount of
P112,136,000.00 as "loss on settlement of receivables from Baguio Gold against reserves and
allowances."9 However, the Bureau of Internal Revenue (BIR) disallowed the amount as deduction for bad
debt and assessed petitioner a deficiency income tax of P62,811,161.39.
Petitioner protested before the BIR arguing that the deduction must be allowed since all requisites for a bad
debt deduction were satisfied, to wit: (a) there was a valid and existing debt; (b) the debt was ascertained to
be worthless; and (c) it was charged off within the taxable year when it was determined to be worthless.

Petitioner emphasized that the debt arose out of a valid management contract it entered into with Baguio Gold.
The bad debt deduction represented advances made by petitioner which, pursuant to the management
contract, formed part of Baguio Golds "pecuniary obligations" to petitioner. It also included payments made by
petitioner as guarantor of Baguio Golds long-term loans which legally entitled petitioner to be subrogated to
the rights of the original creditor.

The Court of Appeals erred in ruling that the 50%-50% sharing in the net profits of the Sto. Nino
Mine indicates that Philex is a partner of Baguio Gold in the development of the Sto. Nino Mine
notwithstanding the clear absence of any intent on the part of Philex and Baguio Gold to form a
partnership.
III.

Petitioner also asserted that due to Baguio Golds irreversible losses, it became evident that it would not be
able to recover the advances and payments it had made in behalf of Baguio Gold. For a debt to be considered
worthless, petitioner claimed that it was neither required to institute a judicial action for collection against the
debtor nor to sell or dispose of collateral assets in satisfaction of the debt. It is enough that a taxpayer exerted
diligent efforts to enforce collection and exhausted all reasonable means to collect.
On October 28, 1994, the BIR denied petitioners protest for lack of legal and factual basis. It held that the
alleged debt was not ascertained to be worthless since Baguio Gold remained existing and had not filed a
petition for bankruptcy; and that the deduction did not consist of a valid and subsisting debt considering that,
under the management contract, petitioner was to be paid fifty percent (50%) of the projects net profit. 10
Petitioner appealed before the Court of Tax Appeals (CTA) which rendered judgment, as follows:
WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby DENIED for lack
of merit. The assessment in question, viz: FAS-1-82-88-003067 for deficiency income tax in the
amount of P62,811,161.39 is hereby AFFIRMED.
ACCORDINGLY, petitioner Philex Mining Corporation is hereby ORDERED to PAY respondent
Commissioner of Internal Revenue the amount of P62,811,161.39, plus, 20% delinquency interest
due computed from February 10, 1995, which is the date after the 20-day grace period given by
the respondent within which petitioner has to pay the deficiency amount x x x up to actual date of
payment.
SO ORDERED.11
The CTA rejected petitioners assertion that the advances it made for the Sto. Nino mine were in the nature of
a loan. It instead characterized the advances as petitioners investment in a partnership with Baguio Gold for
the development and exploitation of the Sto. Nino mine. The CTA held that the "Power of Attorney" executed
by petitioner and Baguio Gold was actually a partnership agreement. Since the advanced amount partook of
the nature of an investment, it could not be deducted as a bad debt from petitioners gross income.
The CTA likewise held that the amount paid by petitioner for the long-term loan obligations of Baguio Gold
could not be allowed as a bad debt deduction. At the time the payments were made, Baguio Gold was not in
default since its loans were not yet due and demandable. What petitioner did was to pre-pay the loans as
evidenced by the notice sent by Bank of America showing that it was merely demanding payment of the
installment and interests due. Moreover, Citibank imposed and collected a "pre-termination penalty" for the
pre-payment.
The Court of Appeals affirmed the decision of the CTA. 12 Hence, upon denial of its motion for
reconsideration,13petitioner took this recourse under Rule 45 of the Rules of Court, alleging that:
I.
The Court of Appeals erred in construing that the advances made by Philex in the management of
the Sto. Nino Mine pursuant to the Power of Attorney partook of the nature of an investment rather
than a loan.
II.

The Court of Appeals erred in relying only on the Power of Attorney and in completely disregarding
the Compromise Agreement and the Amended Compromise Agreement when it construed the
nature of the advances made by Philex.
IV.
The Court of Appeals erred in refusing to delve upon the issue of the propriety of the bad debts
write-off.14
Petitioner insists that in determining the nature of its business relationship with Baguio Gold, we should not
only rely on the "Power of Attorney", but also on the subsequent "Compromise with Dation in Payment" and
"Amended Compromise with Dation in Payment" that the parties executed in 1982. These documents,
allegedly evinced the parties intent to treat the advances and payments as a loan and establish a creditordebtor relationship between them.
The petition lacks merit.
The lower courts correctly held that the "Power of Attorney" is the instrument that is material in determining the
true nature of the business relationship between petitioner and Baguio Gold. Before resort may be had to the
two compromise agreements, the parties contractual intent must first be discovered from the expressed
language of the primary contract under which the parties business relations were founded. It should be noted
that the compromise agreements were mere collateral documents executed by the parties pursuant to the
termination of their business relationship created under the "Power of Attorney". On the other hand, it is the
latter which established the juridical relation of the parties and defined the parameters of their dealings with
one another.
The execution of the two compromise agreements can hardly be considered as a subsequent or
contemporaneous act that is reflective of the parties true intent. The compromise agreements were executed
eleven years after the "Power of Attorney" and merely laid out a plan or procedure by which petitioner could
recover the advances and payments it made under the "Power of Attorney". The parties entered into the
compromise agreements as a consequence of the dissolution of their business relationship. It did not define
that relationship or indicate its real character.
An examination of the "Power of Attorney" reveals that a partnership or joint venture was indeed intended by
the parties. Under a contract of partnership, two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among themselves. 15 While a
corporation, like petitioner, cannot generally enter into a contract of partnership unless authorized by law or its
charter, it has been held that it may enter into a joint venture which is akin to a particular partnership:
The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it
has been generally understood to mean an organization formed for some temporary purpose. x x x
It is in fact hardly distinguishable from the partnership, since their elements are similar
community of interest in the business, sharing of profits and losses, and a mutual right of control. x
x x The main distinction cited by most opinions in common law jurisdictions is that the partnership
contemplates a general business with some degree of continuity, while the joint venture is formed
for the execution of a single transaction, and is thus of a temporary nature. x x x This observation
is not entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be
particular or universal, and a particular partnership may have for its object a specific undertaking. x
x x It would seem therefore that under Philippine law, a joint venture is a form of partnership and

should be governed by the law of partnerships. The Supreme Court has however recognized a
distinction between these two business forms, and has held that although a corporation cannot
enter into a partnership contract, it may however engage in a joint venture with others. x x x
(Citations omitted) 16
Perusal of the agreement denominated as the "Power of Attorney" indicates that the parties had intended to
create a partnership and establish a common fund for the purpose. They also had a joint interest in the profits
of the business as shown by a 50-50 sharing in the income of the mine.
Under the "Power of Attorney", petitioner and Baguio Gold undertook to contribute money, property and
industry to the common fund known as the Sto. Nio mine. 17 In this regard, we note that there is a substantive
equivalence in the respective contributions of the parties to the development and operation of the mine.
Pursuant to paragraphs 4 and 5 of the agreement, petitioner and Baguio Gold were to contribute equally to the
joint venture assets under their respective accounts. Baguio Gold would contribute P11M under its owners
account plus any of its income that is left in the project, in addition to its actual mining claim. Meanwhile,
petitioners contribution would consist of its expertise in the management and operation of mines, as well as
the managers account which is comprised of P11M in funds and property and
petitioners "compensation" as manager that cannot be paid in cash.
However, petitioner asserts that it could not have entered into a partnership agreement with Baguio Gold
because it did not "bind" itself to contribute money or property to the project; that under paragraph 5 of the
agreement, it was only optional for petitioner to transfer funds or property to the Sto. Nio project "(w)henever
the MANAGERS shall deem it necessary and convenient in connection with the MANAGEMENT of the STO.
NIO MINE."18
The wording of the parties agreement as to petitioners contribution to the common fund does not detract from
the fact that petitioner transferred its funds and property to the project as specified in paragraph 5, thus
rendering effective the other stipulations of the contract, particularly paragraph 5(c) which prohibits petitioner
from withdrawing the advances until termination of the parties business relations. As can be seen, petitioner
became bound by its contributions once the transfers were made. The contributions acquired an obligatory
nature as soon as petitioner had chosen to exercise its option under paragraph 5.
There is no merit to petitioners claim that the prohibition in paragraph 5(c) against withdrawal of advances
should not be taken as an indication that it had entered into a partnership with Baguio Gold; that the stipulation
only showed that what the parties entered into was actually a contract of agency coupled with an interest
which is not revocable at will and not a partnership.
In an agency coupled with interest, it is the agency that cannot be revoked or withdrawn by the principal due
to an interest of a third party that depends upon it, or the mutual interest of both principal and agent. 19 In this
case, the non-revocation or non-withdrawal under paragraph 5(c) applies to the advances made by petitioner
who is supposedly the agent and not the principal under the contract. Thus, it cannot be inferred from the
stipulation that the parties relation under the agreement is one of agency coupled with an interest and not a
partnership.
Neither can paragraph 16 of the agreement be taken as an indication that the relationship of the parties was
one of agency and not a partnership. Although the said provision states that "this Agency shall be irrevocable
while any obligation of the PRINCIPAL in favor of the MANAGERS is outstanding, inclusive of the
MANAGERS account," it does not necessarily follow that the parties entered into an agency contract coupled
with an interest that cannot be withdrawn by Baguio Gold.
It should be stressed that the main object of the "Power of Attorney" was not to confer a power in favor of
petitioner to contract with third persons on behalf of Baguio Gold but to create a business relationship between
petitioner and Baguio Gold, in which the former was to manage and operate the latters mine through the
parties mutual contribution of material resources and industry. The essence of an agency, even one that is
coupled with interest, is the agents ability to represent his principal and bring about business relations
between the latter and third persons.20 Where representation for and in behalf of the principal is merely
incidental or necessary for the proper discharge of ones paramount undertaking under a contract, the latter

may not necessarily be a contract of agency, but some other agreement depending on the ultimate
undertaking of the parties.21
In this case, the totality of the circumstances and the stipulations in the parties agreement indubitably lead to
the conclusion that a partnership was formed between petitioner and Baguio Gold.
First, it does not appear that Baguio Gold was unconditionally obligated to return the advances made by
petitioner under the agreement. Paragraph 5 (d) thereof provides that upon termination of the parties business
relations, "the ratio which the MANAGERS account has to the owners account will be determined, and the
corresponding proportion of the entire assets of the STO. NINO MINE, excluding the claims" shall be
transferred to petitioner.22As pointed out by the Court of Tax Appeals, petitioner was merely entitled to a
proportionate return of the mines assets upon dissolution of the parties business relations. There was nothing
in the agreement that would require Baguio Gold to make payments of the advances to petitioner as would be
recognized as an item of obligation or "accounts payable" for Baguio Gold.
Thus, the tax court correctly concluded that the agreement provided for a distribution of assets of the Sto. Nio
mine upon termination, a provision that is more consistent with a partnership than a creditor-debtor
relationship. It should be pointed out that in a contract of loan, a person who receives a loan or money or any
fungible thing acquires ownership thereof and is bound to pay the creditor an equal amount of the same kind
and quality.23 In this case, however, there was no stipulation for Baguio Gold to actually repay petitioner the
cash and property that it had advanced, but only the return of an amount pegged at a ratio which the
managers account had to the owners account.
In this connection, we find no contractual basis for the execution of the two compromise agreements in which
Baguio Gold recognized a debt in favor of petitioner, which supposedly arose from the termination of their
business relations over the Sto. Nino mine. The "Power of Attorney" clearly provides that petitioner would only
be entitled to the return of a proportionate share of the mine assets to be computed at a ratio that the
managers account had to the owners account. Except to provide a basis for claiming the advances as a bad
debt deduction, there is no reason for Baguio Gold to hold itself liable to petitioner under the compromise
agreements, for any amount over and above the proportion agreed upon in the "Power of Attorney".
Next, the tax court correctly observed that it was unlikely for a business corporation to lend hundreds of
millions of pesos to another corporation with neither security, or collateral, nor a specific deed evidencing the
terms and conditions of such loans. The parties also did not provide a specific maturity date for the advances
to become due and demandable, and the manner of payment was unclear. All these point to the inevitable
conclusion that the advances were not loans but capital contributions to a partnership.
The strongest indication that petitioner was a partner in the Sto Nio mine is the fact that it would receive 50%
of the net profits as "compensation" under paragraph 12 of the agreement. The entirety of the parties
contractual stipulations simply leads to no other conclusion than that petitioners "compensation" is actually its
share in the income of the joint venture.
Article 1769 (4) of the Civil Code explicitly provides that the "receipt by a person of a share in the profits of a
business is prima facie evidence that he is a partner in the business." Petitioner asserts, however, that no
such inference can be drawn against it since its share in the profits of the Sto Nio project was in the nature of
compensation or "wages of an employee", under the exception provided in Article 1769 (4) (b). 24
On this score, the tax court correctly noted that petitioner was not an employee of Baguio Gold who will be
paid "wages" pursuant to an employer-employee relationship. To begin with, petitioner was the manager of the
project and had put substantial sums into the venture in order to ensure its viability and profitability. By
pegging its compensation to profits, petitioner also stood not to be remunerated in case the mine had no
income. It is hard to believe that petitioner would take the risk of not being paid at all for its services, if it were
truly just an ordinary employee.
Consequently, we find that petitioners "compensation" under paragraph 12 of the agreement actually
constitutes its share in the net profits of the partnership. Indeed, petitioner would not be entitled to an equal
share in the income of the mine if it were just an employee of Baguio Gold. 25 It is not surprising that petitioner

was to receive a 50% share in the net profits, considering that the "Power of Attorney" also provided for an
almost equal contribution of the parties to the St. Nino mine. The "compensation" agreed upon only serves to
reinforce the notion that the parties relations were indeed of partners and not employer-employee.

calling up Canilao of TWSI, defendant Tagunicar told plaintiffs that their flight is now
confirmed all the way. Thereafter, she attached the confirmation stickers on the plane
tickets (Exhs. A & B).

All told, the lower courts did not err in treating petitioners advances as investments in a partnership known as
the Sto. Nino mine. The advances were not "debts" of Baguio Gold to petitioner inasmuch as the latter was
under no unconditional obligation to return the same to the former under the "Power of Attorney". As for the
amounts that petitioner paid as guarantor to Baguio Golds creditors, we find no reason to depart from the tax
courts factual finding that Baguio Golds debts were not yet due and demandable at the time that petitioner
paid the same. Verily, petitioner pre-paid Baguio Golds outstanding loans to its bank creditors and this
conclusion is supported by the evidence on record. 26

"A few days before the scheduled flight of plaintiffs, their son, Adrian Yu, called the Pan
Am office to verify the status of the flight. According to said Adrian Yu, a personnel of
defendant Pan Am told him over the phone that plaintiffs booking[s] are confirmed.

In sum, petitioner cannot claim the advances as a bad debt deduction from its gross income. Deductions for
income tax purposes partake of the nature of tax exemptions and are strictly construed against the taxpayer,
who must prove by convincing evidence that he is entitled to the deduction claimed. 27 In this case, petitioner
failed to substantiate its assertion that the advances were subsisting debts of Baguio Gold that could be
deducted from its gross income. Consequently, it could not claim the advances as a valid bad debt deduction.
WHEREFORE, the petition is DENIED. The decision of the Court of Appeals in CA-G.R. SP No. 49385 dated
June 30, 2000, which affirmed the decision of the Court of Tax Appeals in C.T.A. Case No. 5200
is AFFIRMED. Petitioner Philex Mining Corporation is ORDERED to PAY the deficiency tax on its 1982
income in the amount of P62,811,161.31, with 20% delinquency interest computed from February 10, 1995,
which is the due date given for the payment of the deficiency income tax, up to the actual date of payment.
SO ORDERED.
[G.R. No. 123560. March 27, 2000]
SPOUSES YU ENG CHO and FRANCISCO TAO YU, petitioners, vs. PAN AMERICAN WORLD AIRWAYS,
INC., TOURIST WORLD SERVICES, INC., JULIETA CANILAO and CLAUDIA TAGUNICAR, respondents.
DECISION
PUNO, J.:
This petition for review seeks a reversal of the 31 August 1995 Decision [1] and 11 January 1998 Resolution[2] of
the Court of Appeals holding private respondent Claudia Tagunicar solely liable for moral and exemplary
damages and attorneys fees, and deleting the trial courts award for actual damages.
The facts as found by the trial court are as follows: Kycalr
"Plaintiff Yu Eng Cho is the owner of Young Hardware Co. and Achilles Marketing. In
connection with [this] business, he travels from time to time to Malaysia, Taipei and
Hongkong. On July 10, 1976, plaintiffs bought plane tickets (Exhs. A & B) from
defendant Claudia Tagunicar who represented herself to be an agent of defendant
Tourist World Services, Inc. (TWSI). The destination[s] are Hongkong, Tokyo, San
Francisco, U.S.A., for the amount of P25,000.00 per computation of said defendant
Claudia Tagunicar (Exhs. C & C-1). The purpose of this trip is to go to Fairfield, New
Jersey, U.S.A. to buy two (2) lines of infrared heating system processing textured
plastic article (Exh. K).
"On said date, only the passage from Manila to Hongkong, then to Tokyo, were
confirmed. [PAA] Flight 002 from Tokyo to San Francisco was on "RQ" status, meaning
"on request". Per instruction of defendant Claudia Tagunicar, plaintiffs returned after a
few days for the confirmation of the Tokyo-San Francisco segment of the trip. After

"On July 23, 1978, plaintiffs left for Hongkong and stayed there for five (5) days. They
left Hongkong for Tokyo on July 28, 1978. Upon their arrival in Tokyo, they called up
Pan-Am office for reconfirmation of their flight to San Francisco. Said office, however,
informed them that their names are not in the manifest. Since plaintiffs were supposed
to leave on the 29th of July, 1978, and could not remain in Japan for more than 72
hours, they were constrained to agree to accept airline tickets for Taipei instead, per
advise of JAL officials. This is the only option left to them because Northwest Airlines
was then on strike, hence, there was no chance for the plaintiffs to obtain airline seats
to the United States within 72 hours. Plaintiffs paid for these tickets.
"Upon reaching Taipei, there were no flight[s] available for plaintiffs, thus, they were
forced to return back to Manila on August 3, 1978, instead of proceeding to the United
States. [Japan] Air Lines (JAL) refunded the plaintiffs the difference of the price for
Tokyo-Taipei [and] Tokyo-San Francisco (Exhs. I & J) in the total amount of P2,602.00.
"In view of their failure to reach Fairfield, New Jersey, Radiant Heat Enterprises, Inc.
cancelled Yu Eng Chos option to buy the two lines of infra-red heating system (Exh. K).
The agreement was for him to inspect the equipment and make final arrangement[s]
with the said company not later than August 7, 1978. From this business transaction,
plaintiff Yu Eng Cho expected to realize a profit of P300,000.00 to P400,000.00."
"[A] scrutiny of defendants respective evidence reveals the following:
"Plaintiffs, who were intending to go to the United States, were referred to defendant
Claudia Tagunicar, an independent travel solicitor, for the purchase of their plane
tickets. As such travel solicitor, she helps in the processing of travel papers like
passport, plane tickets, booking of passengers and some assistance at the airport. She
is known to defendants Pan-Am, TWSI/Julieta Canilao, because she has been dealing
with them in the past years. Defendant Tagunicar advised plaintiffs to take Pan-Am
because Northwest Airlines was then on strike and plaintiffs are passing Hongkong,
Tokyo, then San Francisco and Pan-Am has a flight from Tokyo to San Francisco. After
verifying from defendant TWSI, thru Julieta Canilao, she informed plaintiffs that the fare
would be P25,093.93 giving them a discount of P738.95 (Exhs. C, C-1). Plaintiffs,
however, gave her a check in the amount of P25,000.00 only for the two round trip
tickets. Out of this transaction, Tagunicar received a 7% commission and 1%
commission for defendant TWSI.
Defendant Claudia Tagunicar purchased the two round-trip Pan-Am tickets from
defendant Julieta Canilao with the following schedules:
Origin Destination Airline Date Time/Travel
Manila Hongkong CX900 7-23-78 1135/1325hrs
Hongkong Tokyo CS500 7-28-78 1615/2115hrs
Tokyo San Francisco PA002 7-29-78 1930/1640hrs

The use of another airline, like in this case it is Cathay Pacific out of Manila, is allowed,
although the tickets issued are Pan-Am tickets, as long as it is in connection with a
Pan-Am flight. When the two (2) tickets (Exhs. A & B) were issued to plaintiffs, the letter
"RQ" appears below the printed word "status" for the flights from Tokyo to San
Francisco which means "under request," (Exh. 3-A, 4-A Pan-Am). Before the date of
the scheduled departure, defendant Tagunicar received several calls from the plaintiffs
inquiring about the status of their bookings. Tagunicar in turn called up TWSI/Canilao to
verify; and if Canilao would answer that the bookings are not yet confirmed, she would
relate that to the plaintiffs. Calrky

Only respondents Pan Am and Tagunicar appealed to the Court of Appeals. On 11 August 1995, the appellate
court rendered judgment modifying the amount of damages awarded, holding private respondent Tagunicar
solely liable therefor, and absolving respondents Pan Am and TWSI from any and all liability, thus: Slxs c
"PREMISES CONSIDERED, the decision of the Regional Trial Court is hereby SET
ASIDE and a new one entered declaring appellant Tagunicar solely liable for:
1) Moral damages in the amount of P50,000.00;

"Defendant Tagunicar claims that on July 13, 1978, a few days before the scheduled
flight, plaintiff Yu Eng Cho personally went to her office, pressing her about their flight.
She called up defendant Julieta Canilao, and the latter told her "o sige Claudia, confirm
na." She even noted this in her index card (Exh. L), that it was Julieta who confirmed
the booking (Exh. L-1). It was then that she allegedly attached the confirmation stickers
(Exhs. 2, 2-B TWSI) to the tickets. These stickers came from TWSI.
Defendant Tagunicar alleges that it was only in the first week of August, 1978 that she
learned from Adrian Yu, son of plaintiffs, that the latter were not able to take the flight
from Tokyo to San Francisco, U.S.A. After a few days, said Adrian Yu came over with a
gentleman and a lady, who turned out to be a lawyer and his secretary. Defendant
Tagunicar claims that plaintiffs were asking for her help so that they could file an action
against Pan-Am. Because of plaintiffs promise she will not be involved, she agreed to
sign the affidavit (Exh. M) prepared by the lawyer. Mesm
Defendants TWSI/Canilao denied having confirmed the Tokyo-San Francisco segment
of plaintiffs flight because flights then were really tight because of the on-going strike at
Northwest Airlines. Defendant Claudia Tagunicar is very much aware that [said]
particular segment was not confirmed, because on the very day of plaintiffs departure,
Tagunicar called up TWSI from the airport; defendant Canilao asked her why she
attached stickers on the tickets when in fact that portion of the flight was not yet
confirmed. Neither TWSI nor Pan-Am confirmed the flight and never authorized
defendant Tagunicar to attach the confirmation stickers. In fact, the confirmation
stickers used by defendant Tagunicar are stickers exclusively for use of Pan-Am only.
Furthermore, if it is the travel agency that confirms the booking, the IATA number of
said agency should appear on the validation or confirmation stickers. The IATA number
that appears on the stickers attached to plaintiffs tickets (Exhs. A & B) is 2-82-0770
(Exhs. 1, 1-A TWSI), when in fact TWSIs IATA number is 2-83-0770 (Exhs. 5, 5-A
TWSI)."[3]

2) Exemplary damages in the amount of P25,000.00; and

3) Attorneys fees in the amount of P10,000.00 plus costs of suit.
The award of actual damages is hereby DELETED.
SO ORDERED."
In so ruling, respondent court found that Tagunicar is an independent travel solicitor and is not a duly
authorized agent or representative of either Pan Am or TWSI. It held that their business transactions are not
sufficient to consider Pan Am as the principal, and Tagunicar and TWSI as its agent and sub-agent,
respectively. It further held that Tagunicar was not authorized to confirm the bookings of, nor issue validation
stickers to, herein petitioners and hence, Pan Am and TWSI cannot be held responsible for her actions.
Finally, it deleted the award for actual damages for lack of proof.
Hence this petition based on the following assignment of errors: slx mis
1. the Court of Appeals, in reversing the decision of the trial court, misapplied the ruling
in Nicos Industrial Corporation vs. Court of Appeals, et. al. [206 SCRA 127]; and
2. the findings of the Court of Appeals that petitioners ticket reservations in question
were not confirmed and that there is no agency relationship among PAN-AM, TWSI
and Tagunicar are contrary to the judicial admissions of PAN-AM, TWSI and Tagunicar
and likewise contrary to the findings of fact of the trial court.
We affirm.

A complaint for damages was filed by petitioners against private respondents Pan American World Airways,
Inc.(Pan Am), Tourist World Services, Inc. (TWSI), Julieta Canilao (Canilao), and Claudia Tagunicar
(Tagunicar) for expenses allegedly incurred such as costs of tickets and hotel accommodations when
petitioners were compelled to stay in Hongkong and then in Tokyo by reason of the non-confirmation of their
booking with Pan-Am. In a Decision dated November 14, 1991, the Regional Trial Court of Manila, Branch 3,
held the defendants jointly and severally liable, except defendant Julieta Canilao, thus: Scslx
"WHEREFORE, judgment is hereby rendered for the plaintiffs and ordering defendants
Pan American World Airways, Inc., Tourist World Services, Inc. and Claudia Tagunicar,
jointly and severally, to pay plaintiffs the sum of P200,000.00 as actual damages,
minus P2,602.00 already refunded to the plaintiffs; P200,000.00 as moral damages;
P100,000.00 as exemplary damages; an amount equivalent to 20% of the award for
and as attorneys fees, plus the sum of P30,000.00 as litigation expenses.
Defendants counterclaims are hereby dismissed for lack of merit.
SO ORDERED."

I. The first issue deserves scant consideration. Petitioners contend that contrary to the ruling of the Court of
Appeals, the decision of the trial court conforms to the standards of an ideal decision set in Nicos Industrial
Corporation, et. al. vs. Court of Appeals, et. al.,[4] as "that which, with welcome economy of words, arrives at
the factual findings, reaches the legal conclusions, renders its ruling and, having done so, ends." It is averred
that the trial courts decision contains a detailed statement of the relevant facts and evidence adduced by the
parties which thereafter became the bases for the courts conclusions.
A careful scrutiny of the decision rendered by the trial court will show that after narrating the evidence of the
parties, it proceeded to dispose of the case with a one-paragraph generalization, to wit: Missdaa
"On the basis of the foregoing facts, the Court is constrained to conclude that
defendant Pan-Am is the principal, and defendants TWSI and Tagunicar, its authorized
agent and sub-agent, respectively. Consequently, defendants Pan-Am, TWSI and
Claudia Tagunicar should be held jointly and severally liable to plaintiffs for damages.
Defendant Julieta Canilao, who acted in her official capacity as Office Manager of
defendant TWSI should not be held personally liable." [5]

The trial courts finding of facts is but a summary of the testimonies of the witnesses and the documentary
evidence presented by the parties. It did not distinctly and clearly set forth, nor substantiate, the factual and
legal bases for holding respondents TWSI, Pan Am and Tagunicar jointly and severally liable. In Del Mundo
vs. CA, et al.[6] where the trial court, after summarizing the conflicting asseverations of the parties, disposed of
the kernel issue in just two (2) paragraphs, we held: Sda adsc
"It is understandable that courts, with their heavy dockets and time constraints, often
find themselves with little to spare in the preparation of decisions to the extent most
desirable. We have thus pointed out that judges might learn to synthesize and to
simplify their pronouncements. Nevertheless, concisely written such as they may be,
decisions must still distinctly and clearly express, at least in minimum essence, its
factual and legal bases."
For failing to explain clearly and well the factual and legal bases of its award of moral damages, we set it aside
in said case. Once more, we stress that nothing less than Section 14 of Article VIII of the Constitution requires
that "no decision shall be rendered by any court without expressing therein clearly and distinctly the facts and
the law on which it is based." This is demanded by the due process clause of the Constitution. In the case at
bar, the decision of the trial court leaves much to be desired both in form and substance. Even while said
decision infringes the Constitution, we will not belabor this infirmity and rather examine the sufficiency of the
evidence submitted by the petitioners. Rtc spped
II. Petitioners assert that Tagunicar is a sub-agent of TWSI while TWSI is a duly authorized ticketing agent of
Pan Am. Proceeding from this premise, they contend that TWSI and Pan Am should be held liable as
principals for the acts of Tagunicar. Petitioners stubbornly insist that the existence of the agency relationship
has been established by the judicial admissions allegedly made by respondents herein, to wit: (1) the
admission made by Pan Am in its Answer that TWSI is its authorized ticket agent; (2) the affidavit executed by
Tagunicar where she admitted that she is a duly authorized agent of TWSI; and (3) the admission made by
Canilao that TWSI received commissions from ticket sales made by Tagunicar. Korte
We do not agree. By the contract of agency, a person binds himself to render some service or to do something
in representation or on behalf of another, with the consent or authority of the latter.[7] The elements of agency
are: (1) consent, express or implied, of the parties to establish the relationship; (2) the object is the execution
of a juridical act in relation to a third person; (3) the agent acts as a representative and not for himself; (4) the
agent acts within the scope of his authority.[8] It is a settled rule that persons dealing with an assumed agent
are bound at their peril, if they would hold the principal liable, to ascertain not only the fact of agency but also
the nature and extent of authority, and in case either is controverted, the burden of proof is upon them to
establish it.[9]
In the case at bar, petitioners rely on the affidavit of respondent Tagunicar where she stated that she is an
authorized agent of TWSI. This affidavit, however, has weak probative value in light of respondent Tagunicars
testimony in court to the contrary. Affidavits, being taken ex parte, are almost always incomplete and often
inaccurate, sometimes from partial suggestion, or for want of suggestion and inquiries. Their infirmity as a
species of evidence is a matter of judicial experience and are thus considered inferior to the testimony given in
court.[10] Further, affidavits are not complete reproductions of what the declarant has in mind because they are
generally prepared by the administering officer and the affiant simply signs them after the same have been
read to her.[11] Respondent Tagunicar testified that her affidavit was prepared and typewritten by the secretary
of petitioners lawyer, Atty. Acebedo, who both came with Adrian Yu, son of petitioners, when the latter went to
see her at her office. This was confirmed by Adrian Yu who testified that Atty. Acebedo brought his notarial seal
and notarized the affidavit of the same day.[12] The circumstances under which said affidavit was prepared put
in doubt petitioners claim that it was executed voluntarily by respondent Tagunicar. It appears that the affidavit
was prepared and was based on the answers which respondent Tagunicar gave to the questions propounded
to her by Atty. Acebedo.[13] They never told her that the affidavit would be used in a case to be filed against her.
[14]
They even assured her that she would not be included as defendant if she agreed to execute the affidavit.
[15]
Respondent Tagunicar was prevailed upon by petitioners son and their lawyer to sign the affidavit despite
her objection to the statement therein that she was an agent of TWSI. They assured her that "it is
immaterial"[16] and that "if we file a suit against you we cannot get anything from you." [17] This purported
admission of respondent Tagunicar cannot be used by petitioners to prove their agency relationship. At any
rate, even if such affidavit is to be given any probative value, the existence of the agency relationship cannot
be established on its sole basis. The declarations of the agent alone are generally insufficient to establish the

fact or extent of his authority.[18] In addition, as between the negative allegation of respondents Canilao and
Tagunicar that neither is an agent nor principal of the other, and the affirmative allegation of petitioners that an
agency relationship exists, it is the latter who have the burden of evidence to prove their allegation, [19]failing in
which, their claim must necessarily fail. Sclaw
We stress that respondent Tagunicar categorically denied in open court that she is a duly authorized agent of
TWSI, and declared that she is an independent travel agent. [20] We have consistently ruled that in case of
conflict between statements in the affidavit and testimonial declarations, the latter command greater weight. [21]
As further proofs of agency, petitioners call our attention to TWSIs Exhibits "7", "7-A", and "8" which show that
Tagunicar and TWSI received sales commissions from Pan Am. Exhibit "7" [22]is the Ticket Sales Report
submitted by TWSI to Pan Am reflecting the commissions received by TWSI as an agent of Pan Am. Exhibit
"7-A"[23] is a listing of the routes taken by passengers who were audited to TWSIs sales report. Exhibit "8" [24] is
a receipt issued by TWSI covering the payment made by Tagunicar for the tickets she bought from TWSI.
These documents cannot justify the deduction that Tagunicar was paid a commission either by TWSI or Pan
Am. On the contrary, Tagunicar testified that when she pays TWSI, she already deducts in advance her
commission and merely gives the net amount to TWSI.[25] From all sides of the legal prism, the transaction is
simply a contract of sale wherein Tagunicar buys airline tickets from TWSI and then sells it at a premium to her
clients. Sc lex
III. Petitioners included respondent Pan Am in the complaint on the supposition that since TWSI is its duly
authorized agent, and respondent Tagunicar is an agent of TWSI, then Pan Am should also be held
responsible for the acts of respondent Tagunicar. Our disquisitions above show that this contention lacks
factual and legal bases. Indeed, there is nothing in the records to show that respondent Tagunicar has been
employed by Pan Am as its agent, except the bare allegation of petitioners. The real motive of petitioners in
suing Pan Am appears in its Amended Complaint that "[d]efendants TWSI, Canilao and Tagunicar may not be
financially capable of paying plaintiffs the amounts herein sought to be recovered, and in such event,
defendant Pan Am, being their ultimate principal, is primarily and/or subsidiarily liable to pay said amounts to
plaintiffs."[26] This lends credence to respondent Tagunicars testimony that she was persuaded to execute an
affidavit implicating respondents because petitioners knew they would not be able to get anything of value
from her. In the past, we have warned that this Court will not tolerate an abuse of the judicial process by
passengers in order to pry on international airlines for damage awards, like "trophies in a safari." [27]
This meritless suit against Pan Am becomes more glaring with petitioners inaction after they were bumped off
in Tokyo. If petitioners were of the honest belief that Pan Am was responsible for the misfortune which beset
them, there is no evidence to show that they lodged a protest with Pan Ams Tokyo office immediately after
they were refused passage for the flight to San Francisco, or even upon their arrival in Manila. The testimony
of petitioner Yu Eng Cho in this regard is of little value, viz.:
"Atty. Jalandoni: x x x
q Upon arrival at the Tokyo airport, what did you do if any in connection with your
schedule[d] trip?
a I went to the Hotel, Holiday Inn and from there I immediately called up Pan Am office
in Tokyo to reconfirm my flight, but they told me that our names were not listed in the
manifest, so next morning, very early in the morning I went to the airport, Pan Am office
in the airport to verify and they told me the same and we were not allowed to leave.
q You were scheduled to be in Tokyo for how long Mr. Yu?
a We have to leave the next day 29th.
q In other words, what was your status as a passenger?

a Transient passengers. We cannot stay there for more than 72 hours.

xxxxxxxxx
q As a consequence of the fact that you claimed that the Pan Am office in Tokyo told
you that your names were not in the manifest, what did you do, if any?
a I ask[ed] them if I can go anywhere in the States? They told me I can go to LA via
Japan Airlines and I accepted it.
q Do you have the tickets with you that they issued for Los Angeles?
a It was taken by the Japanese Airlines instead they issue[d] me a ticket to Taipei.
xxxxxxxxx
q Were you able to take the trip to Los Angeles via Pan Am tickets that was issued to
you in lieu of the tickets to San Francisco?
a No, sir.

We hasten to add that it is not sufficient to prove that Pan Am did not allow petitioners to board to justify
petitioners claim for damages. Mere refusal to accede to the passengers wishes does not necessarily translate
into damages in the absence of bad faith.[30] The settled rule is that the law presumes good faith such that any
person who seeks to be awarded damages due to acts of another has the burden of proving that the latter
acted in bad faith or with ill motive.[31] In the case at bar, we find the evidence presented by petitioners
insufficient to overcome the presumption of good faith. They have failed to show any wanton, malevolent or
reckless misconduct imputable to respondent Pan Am in its refusal to accommodate petitioners in its TokyoSan Francisco flight. Pan Am could not have acted in bad faith because petitioners did not have confirmed
tickets and more importantly, they were not in the passenger manifest. Sc
In not a few cases, this Court did not hesitable to hold an airline liable for damages for having acted in bad
faith in refusing to accommodate a passenger who had a confirmed ticket and whose name appeared in the
passenger manifest. In Ortigas Jr. v. Lufthansa German Airlines Inc.[32] we ruled that there was a valid and
binding contract between the airline and its passenger after finding that validating sticker on the passengers
ticket had the letters "O.K." appearing in the Res. Status box which means "space confirmed" and that the
ticket is confirmed or validated. In Pan American World Airways Inc. v. IAC, et al. [33] where a would-bepassenger had the necessary ticket, baggage claim and clearance from immigration all clearly showing that
she was a confirmed passenger and included in the passenger manifest and yet was denied accommodation
in said flight, we awarded damages. In Armovit, et al. v. CA, et al.,[34] we upheld the award of damages made
against an airline for gross negligence committed in the issuance of tickets with erroneous entries as to the
time of flight. In Alitalia Airways v. CA, et al.,[35] we held that when airline issues a ticket to a passenger
confirmed on a particular flight, on a certain date, a contract of carriage arises, and the passenger has every
right to expect that he would fly on that flight and on that date. If he does not, then the carrier opens itself to a
suit for breach of contract of carriage. And finally, an award of damages was held proper in the case
of Zalamea, et al. v. CA, et al.,[36] where a confirmed passenger included in the manifest was denied
accommodation in such flight. Scmis

q Why not?
a The Japanese Airlines said that there were no more available seats.
q And as a consequence of that, what did you do, if any?
a I am so much scared and worried, so the Japanese Airlines advised us to go to
Taipei and I accepted it.
xxxxxxxxx
q Why did you accept the Japan Airlines offer for you to go to Taipei?
a Because there is no chance for us to go to the United States within 72 hours because
during that time Northwest Airlines [was] on strike so the seats are very scarce. So they
advised me better left (sic) before the 72 hours otherwise you will have trouble with the
Japanese immigration.
q As a consequence of that you were force[d] to take the trip to Taipei?
a Yes, sir."[28] (emphasis supplied)
It grinds against the grain of human experience that petitioners did not insist that they be allowed to board,
considering that it was then doubly difficult to get seats because of the ongoing Northwest Airlines strike. It is
also perplexing that petitioners readily accepted whatever the Tokyo office had to offer as an alternative.
Inexplicably too, no demand letter was sent to respondents TWSI and Canilao. [29] Nor was a demand letter
sent to respondent Pan Am. To say the least, the motive of petitioners in suing Pan Am is suspect. x law

On the other hand, the respondent airline in Sarreal, Sr. v. Japan Airlines Co., Ltd.,[37] was held not liable for
damages where the passenger was not allowed to board the plane because his ticket had not been confirmed.
We ruled that "[t]he stub that the lady employee put on the petitioners ticket showed among other coded items,
under the column "status" the letters "RQ" which was understood to mean "Request." Clearly, this does not
mean a confirmation but only a request. JAL Traffic Supervisor explained that it would have been different if
what was written on the stub were the letter "ok" in which case the petitioner would have been assured of a
seat on said flight. But in this case, the petitioner was more of a wait-listed passenger than a regularly booked
passenger." Mis sc
In the case at bar, petitioners ticket were on "RQ" status. They were not confirmed passengers and their
names were not listed in the passenger manifest. In other words, this is not a case where Pan Am bound itself
to transport petitioners and thereafter reneged on its obligation. Hence, respondent airline cannot be held
liable for damages. Mis spped
IV. We hold that respondent Court of Appeals correctly ruled that the tickets were never confirmed for good
reasons: (1) The persistent calls made by respondent Tagunicar to Canilao, and those made by petitioners at
the Manila, Hongkong and Tokyo offices of Pan Am, are eloquent indications that petitioners knew that their
tickets have not been confirmed. For, as correctly observed by Pan Am, why would one continually try to have
ones ticket confirmed if it had already been confirmed? (2) The validation stickers which respondent Tagunicar
attached to petitioners tickets were those intended for the exclusive use of airline companies. She had no
authority to use them. Hence, said validation stickers, wherein the word "OK" appears in the status box, are
not valid and binding. (3) The names of petitioners do not appear in the passenger manifest. (4) Respondent
Tagunicars "Exhibit 1"[38] shows that the status of the San Francisco-New York segment was "Ok", meaning it
was confirmed, but that the status of the Tokyo-San Francisco segment was still "on request". (5) Respondent
Canilao testified that on the day that petitioners were to depart for Hongkong, respondent Tagunicar called her
from the airport asking for confirmation of the Tokyo-San Francisco flight, and that when she told respondent
Tagunicar that she should not have allowed petitioners to leave because their tickets have not been confirmed,
respondent Tagunicar merely said "Bahala na." [39] This was never controverted nor refuted by respondent
Tagunicar. (6) To prove that it really did not confirm the bookings of petitioners, respondent Canilao pointed out
that the validation stickers which respondent Tagunicar attached to the tickets of petitioners had IATA No. 282-0770 stamped on it, whereas the IATA number of TWSI is 28-30770. [40]

Undoubtedly, respondent Tagunicar should be liable for having acted in bad faith in misrepresenting to
petitioners that their tickets have been confirmed. Her culpability, however, was properly mitigated. Petitioner
Yu Eng Cho testified that he repeatedly tried to follow up on the confirmation of their tickets with Pan Am
because he doubted the confirmation made by respondent Tagunicar.[41] This is clear proof that petitioners
knew that they might be bumped off at Tokyo when they decided to proceed with the trip. Aware of this risk,
petitioners exerted efforts to confirm their tickets in Manila, then in Hongkong, and finally in Tokyo. Resultantly,
we find the modification as to the amount of damages awarded just and equitable under the
circumstances. Spped
WHEREFORE, the decision appealed from is hereby AFFIRMED. Cost against petitioners. Jo spped

The monthly installment will start April 6, 1985; the amount of P1,800.00 and the difference will be issued as
discounted to conform to the previous price as previously agreed upon. --- P95,000.00
Prepared by:
(Signed)
(MRS.) FLORENCIA C. BALUYOT
Agency Manager

SO ORDERED.
[G.R. No. 151319. November 22, 2004]

Holy Cross Memorial Park

4/18/85

MANILA MEMORIAL PARK CEMETERY, INC., petitioner, vs. PEDRO L. LINSANGAN, respondent.
DECISION
TINGA, J.:
For resolution in this case is a classic and interesting texbook question in the law on agency.
This is a petition for review assailing the Decision[1] of the Court of Appeals dated 22 June 2001, and
its Resolution[2] dated 12 December 2001 in CA G.R. CV No. 49802 entitledPedro L. Linsangan v. Manila
Memorial Cemetery, Inc. et al., finding Manila Memorial Park Cemetery, Inc. (MMPCI) jointly and severally
liable with Florencia C. Baluyot to respondent Atty. Pedro L. Linsangan.
The facts of the case are as follows:
Sometime in 1984, Florencia Baluyot offered Atty. Pedro L. Linsangan a lot called Garden State at the
Holy Cross Memorial Park owned by petitioner (MMPCI). According to Baluyot, a former owner of a memorial
lot under Contract No. 25012 was no longer interested in acquiring the lot and had opted to sell his rights
subject to reimbursement of the amounts he already paid. The contract was for P95,000.00. Baluyot reassured
Atty. Linsangan that once reimbursement is made to the former buyer, the contract would be transferred to
him. Atty. Linsangan agreed and gave Baluyot P35,295.00 representing the amount to be reimbursed to the
original buyer and to complete the down payment to MMPCI. [3] Baluyot issued handwritten and typewritten
receipts for these payments.[4]
Sometime in March 1985, Baluyot informed Atty. Linsangan that he would be issued Contract No.
28660, a new contract covering the subject lot in the name of the latter instead of old Contract No. 25012. Atty.
Linsangan protested, but Baluyot assured him that he would still be paying the old price of P95,000.00
with P19,838.00 credited as full down payment leaving a balance of about P75,000.00.[5]
Subsequently, on 8 April 1985, Baluyot brought an Offer to Purchase Lot No. A11 (15), Block 83,
Garden Estate I denominated as Contract No. 28660 and the Official Receipt No. 118912 dated 6 April 1985
for the amount of P19,838.00. Contract No. 28660 has a listed price of P132,250.00. Atty. Linsangan objected
to the new contract price, as the same was not the amount previously agreed upon. To convince Atty.
Linsangan, Baluyot executed a document [6] confirming that while the contract price is P132,250.00, Atty.
Linsangan would pay only the original price of P95,000.00.

Dear Atty. Linsangan:

This will confirm our agreement that while the offer to purchase under Contract No. 28660 states that the total
price of P132,250.00 your undertaking is to pay only the total sum of P95,000.00 under the old price. Further
the total sum of P19,838.00 already paid by you under O.R. # 118912 dated April 6, 1985 has been credited in
the total purchase price thereby leaving a balance of P75,162.00 on a monthly installment of P1,800.00
including interests (sic) charges for a period of five (5) years.
(Signed)
FLORENCIA C. BALUYOT
By virtue of this letter, Atty. Linsangan signed Contract No. 28660 and accepted Official Receipt No.
118912. As requested by Baluyot, Atty. Linsangan issued twelve (12) postdated checks of P1,800.00 each in
favor of MMPCI. The next year, or on 29 April 1986, Atty. Linsangan again issued twelve (12) postdated
checks in favor of MMPCI.
On 25 May 1987, Baluyot verbally advised Atty. Linsangan that Contract No. 28660 was cancelled for
reasons the latter could not explain, and presented to him another proposal for the purchase of an equivalent
property. He refused the new proposal and insisted that Baluyot and MMPCI honor their undertaking.
For the alleged failure of MMPCI and Baluyot to conform to their agreement, Atty. Linsangan filed
a Complaint[7] for Breach of Contract and Damages against the former.
Baluyot did not present any evidence. For its part, MMPCI alleged that Contract No. 28660 was
cancelled conformably with the terms of the contract [8] because of non-payment of arrearages. [9] MMPCI stated
that Baluyot was not an agent but an independent contractor, and as such was not authorized to represent
MMPCI or to use its name except as to the extent expressly stated in the Agency Manager Agreement.
[10]
Moreover, MMPCI was not aware of the arrangements entered into by Atty. Linsangan and Baluyot, as it in
fact received a down payment and monthly installments as indicated in the contract. [11] Official receipts
showing the application of payment were turned over to Baluyot whom Atty. Linsangan had from the beginning
allowed to receive the same in his behalf. Furthermore, whatever misimpression that Atty. Linsangan may
have had must have been rectified by the Account Updating Arrangement signed by Atty. Linsangan which
states that he expressly admits that Contract No. 28660 on account of serious delinquencyis now due for
cancellation under its terms and conditions.[12]

The document reads in part:

The trial court held MMPCI and Baluyot jointly and severally liable. [13] It found that Baluyot was an agent
of MMPCI and that the latter was estopped from denying this agency, having received and enchased the

checks issued by Atty. Linsangan and given to it by Baluyot. While MMPCI insisted that Baluyot was
authorized to receive only the down payment, it allowed her to continue to receive postdated checks from Atty.
Linsangan, which it in turn consistently encashed.[14]
The dispositive portion of the decision reads:
WHEREFORE, judgment by preponderance of evidence is hereby rendered in favor of plaintiff declaring
Contract No. 28660 as valid and subsisting and ordering defendants to perform their undertakings thereof
which covers burial lot No. A11 (15), Block 83, Section Garden I, Holy Cross Memorial Park located at
Novaliches, Quezon City. All payments made by plaintiff to defendants should be credited for his accounts. NO
DAMAGES, NO ATTORNEYS FEES but with costs against the defendants.
The cross claim of defendant Manila Memorial Cemetery Incorporated as against defendant Baluyot is
GRANTED up to the extent of the costs.
SO ORDERED.[15]
MMPCI appealed the trial courts decision to the Court of Appeals. [16] It claimed that Atty. Linsangan is
bound by the written contract with MMPCI, the terms of which were clearly set forth therein and read,
understood, and signed by the former.[17] It also alleged that Atty. Linsangan, a practicing lawyer for over
thirteen (13) years at the time he entered into the contract, is presumed to know his contractual obligations
and is fully aware that he cannot belatedly and unilaterally change the terms of the contract without the
consent, much less the knowledge of the other contracting party, which was MMPCI. And in this case, MMPCI
did not agree to a change in the contract and in fact implemented the same pursuant to its clear terms. In view
thereof, because of Atty. Linsangans delinquency, MMPCI validly cancelled the contract.
MMPCI further alleged that it cannot be held jointly and solidarily liable with Baluyot as the latter
exceeded the terms of her agency, neither did MMPCI ratify Baluyots acts. It added that it cannot be charged
with making any misrepresentation, nor of having allowed Baluyot to act as though she had full powers as the
written contract expressly stated the terms and conditions which Atty. Linsangan accepted and understood. In
canceling the contract, MMPCI merely enforced the terms and conditions imposed therein. [18]
Imputing negligence on the part of Atty. Linsangan, MMPCI claimed that it was the formers obligation,
as a party knowingly dealing with an alleged agent, to determine the limitations of such agents authority,
particularly when such alleged agents actions were patently questionable. According to MMPCI, Atty.
Linsangan did not even bother to verify Baluyots authority or ask copies of official receipts for his payments. [19]
The Court of Appeals affirmed the decision of the trial court. It upheld the trial courts finding that Baluyot
was an agent of MMPCI at the time the disputed contract was entered into, having represented MMPCIs
interest and acting on its behalf in the dealings with clients and customers. Hence, MMPCI is considered
estopped when it allowed Baluyot to act and represent MMPCI even beyond her authority. [20] The appellate
court likewise found that the acts of Baluyot bound MMPCI when the latter allowed the former to act for and in
its behalf and stead. While Baluyots authority may not have been expressly conferred upon her, the same may
have been derived impliedly by habit or custom, which may have been an accepted practice in the company
for a long period of time. [21] Thus, the Court of Appeals noted, innocent third persons such as Atty. Linsangan
should not be prejudiced where the principal failed to adopt the needed measures to prevent
misrepresentation. Furthermore, if an agent misrepresents to a purchaser and the principal accepts the
benefits of such misrepresentation, he cannot at the same time deny responsibility for such misrepresentation.
[22]
Finally, the Court of Appeals declared:
There being absolutely nothing on the record that would show that the court a quo overlooked, disregarded, or
misinterpreted facts of weight and significance, its factual findings and conclusions must be given great weight
and should not be disturbed by this Court on appeal.

WHEREFORE, in view of the foregoing, the appeal is hereby DENIED and the appealed decision in Civil Case
No. 88-1253 of the Regional Trial Court, National Capital Judicial Region, Branch 57 of Makati, is
hereby AFFIRMED in toto.
SO ORDERED.[23]
MMPCI filed its Motion for Reconsideration,[24] but the same was denied for lack of merit.[25]
In the instant Petition for Review, MMPCI claims that the Court of Appeals seriously erred in
disregarding the plain terms of the written contract and Atty. Linsangans failure to abide by the terms thereof,
which justified its cancellation. In addition, even assuming that Baluyot was an agent of MMPCI, she clearly
exceeded her authority and Atty. Linsangan knew or should have known about this considering his status as a
long-practicing lawyer. MMPCI likewise claims that the Court of Appeals erred in failing to consider that the
facts and the applicable law do not support a judgment against Baluyot only up to the extent of costs. [26]
Atty. Linsangan argues that he did not violate the terms and conditions of the contract, and in fact
faithfully performed his contractual obligations and complied with them in good faith for at least two years.
[27]
He claims that contrary to MMPCIs position, his profession as a lawyer is immaterial to the validity of the
subject contract and the case at bar.[28] According to him, MMPCI had practically admitted in its Petition that
Baluyot was its agent, and thus, the only issue left to be resolved is whether MMPCI allowed Baluyot to act as
though she had full powers to be held solidarily liable with the latter.[29]
We find for the petitioner MMPCI.
The jurisdiction of the Supreme Court in a petition for review under Rule 45 of the Rules of Court is
limited to reviewing only errors of law, not fact, unless the factual findings complained of are devoid of support
by the evidence on record or the assailed judgment is based on misapprehension of facts. [30] In BPI
Investment Corporation v. D.G. Carreon Commercial Corporation,[31] this Court ruled:
There are instances when the findings of fact of the trial court and/or Court of Appeals may be reviewed by the
Supreme Court, such as (1) when the conclusion is a finding grounded entirely on speculation, surmises and
conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) where there is a
grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the
findings of fact are conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues of
the case and the same is contrary to the admissions of both appellant and appellee; (7) when the findings are
contrary to those of the trial court; (8) when the findings of fact are conclusions without citation of specific
evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioners main
and reply briefs are not disputed by the respondents; and (10) the findings of fact of the Court of Appeals are
premised on the supposed absence of evidence and contradicted by the evidence on record. [32]
In the case at bar, the Court of Appeals committed several errors in the apprehension of the facts of the
case, as well as made conclusions devoid of evidentiary support, hence we review its findings of fact.
By the contract of agency, a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter. [33]Thus, the elements of
agency are (i) consent, express or implied, of the parties to establish the relationship; (ii) the object is the
execution of a juridical act in relation to a third person; (iii) the agent acts as a representative and not for
himself; and (iv) the agent acts within the scope of his authority.[34]

In an attempt to prove that Baluyot was not its agent, MMPCI pointed out that under its Agency
Manager Agreement; an agency manager such as Baluyot is considered an independent contractor and not an
agent.[35] However, in the same contract, Baluyot as agency manager was authorized to solicit and remit to
MMPCI offers to purchase interment spaces belonging to and sold by the latter. [36] Notwithstanding the claim of
MMPCI that Baluyot was an independent contractor, the fact remains that she was authorized to solicit solely
for and in behalf of MMPCI. As properly found both by the trial court and the Court of Appeals, Baluyot was an
agent of MMPCI, having represented the interest of the latter, and having been allowed by MMPCI to
represent it in her dealings with its clients/prospective buyers.
Nevertheless, contrary to the findings of the Court of Appeals, MMPCI cannot be bound by the contract
procured by Atty. Linsangan and solicited by Baluyot.
Baluyot was authorized to solicit and remit to MMPCI offers to purchase interment spaces obtained on
forms provided by MMPCI. The terms of the offer to purchase, therefore, are contained in such forms and,
when signed by the buyer and an authorized officer of MMPCI, becomes binding on both parties.
The Offer to Purchase duly signed by Atty. Linsangan, and accepted and validated by MMPCI showed
a total list price of P132,250.00. Likewise, it was clearly stated therein that Purchaser agrees that he has read
or has had read to him this agreement, that he understands its terms and conditions, and that there are
no covenants, conditions, warranties or representations other than those contained herein .[37] By
signing the Offer to Purchase, Atty. Linsangan signified that he understood its contents. That he and Baluyot
had an agreement different from that contained in the Offer to Purchase is of no moment, and should not affect
MMPCI, as it was obviously made outside Baluyots authority. To repeat, Baluyots authority was limited only to
soliciting purchasers. She had no authority to alter the terms of the written contract provided by MMPCI. The
document/letter confirming the agreement that Atty. Linsangan would have to pay the old price was executed
by Baluyot alone. Nowhere is there any indication that the same came from MMPCI or any of its officers.
It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold the
principal liable, to ascertain not only the fact of agency but also the nature and extent of authority, and in case
either is controverted, the burden of proof is upon them to establish it. [38] The basis for agency is
representation and a person dealing with an agent is put upon inquiry and must discover upon his peril the
authority of the agent.[39] If he does not make such an inquiry, he is chargeable with knowledge of the agents
authority and his ignorance of that authority will not be any excuse. [40]
As noted by one author, the ignorance of a person dealing with an agent as to the scope of the latters
authority is no excuse to such person and the fault cannot be thrown upon the principal. [41] A person dealing
with an agent assumes the risk of lack of authority in the agent. He cannot charge the principal by relying upon
the agents assumption of authority that proves to be unfounded. The principal, on the other hand, may act on
the presumption that third persons dealing with his agent will not be negligent in failing to ascertain the extent
of his authority as well as the existence of his agency.[42]
In the instant case, it has not been established that Atty. Linsangan even bothered to inquire whether
Baluyot was authorized to agree to terms contrary to those indicated in the written contract, much less bind
MMPCI by her commitment with respect to such agreements. Even if Baluyot was Atty. Linsangans friend and
known to be an agent of MMPCI, her declarations and actions alone are not sufficient to establish the fact or
extent of her authority.[43] Atty. Linsangan as a practicing lawyer for a relatively long period of time when he
signed the contract should have been put on guard when their agreement was not reflected in the contract.
More importantly, Atty. Linsangan should have been alerted by the fact that Baluyot failed to effect the transfer
of rights earlier promised, and was unable to make good her written commitment, nor convince MMPCI to
assent thereto, as evidenced by several attempts to induce him to enter into other contracts for a higher
consideration. As properly pointed out by MMPCI, as a lawyer, a greater degree of caution should be expected
of Atty. Linsangan especially in dealings involving legal documents. He did not even bother to ask for official
receipts of his payments, nor inquire from MMPCI directly to ascertain the real status of the contract, blindly
relying on the representations of Baluyot. A lawyer by profession, he knew what he was doing when he signed
the written contract, knew the meaning and value of every word or phrase used in the contract, and more
importantly, knew the legal effects which said document produced. He is bound to accept responsibility for his
negligence.

The trial and appellate courts found MMPCI liable based on ratification and estoppel. For the trial court,
MMPCIs acts of accepting and encashing the checks issued by Atty. Linsangan as well as allowing Baluyot to
receive checks drawn in the name of MMPCI confirm and ratify the contract of agency. On the other hand, the
Court of Appeals faulted MMPCI in failing to adopt measures to prevent misrepresentation, and declared that
in view of MMPCIs acceptance of the benefits of Baluyots misrepresentation, it can no longer deny
responsibility therefor.
The Court does not agree. Pertinent to this case are the following provisions of the Civil Code:
Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his authority, and the
principal does not ratify the contract, it shall be void if the party with whom the agent contracted is aware of the
limits of the powers granted by the principal. In this case, however, the agent is liable if he undertook to secure
the principals ratification.
Art. 1910. The principal must comply with all the obligations that the agent may have contracted within the
scope of his authority.
As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he
ratifies it expressly or tacitly.
Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the
former allowed the latter to act as though he had full powers.
Thus, the acts of an agent beyond the scope of his authority do not bind the principal, unless he ratifies
them, expressly or impliedly. Only the principal can ratify; the agent cannot ratify his own unauthorized acts.
Moreover, the principal must have knowledge of the acts he is to ratify.[44]
Ratification in agency is the adoption or confirmation by one person of an act performed on his behalf
by another without authority. The substance of the doctrine is confirmation after conduct, amounting to a
substitute for a prior authority. Ordinarily, the principal must have full knowledge at the time of ratification of all
the material facts and circumstances relating to the unauthorized act of the person who assumed to act as
agent. Thus, if material facts were suppressed or unknown, there can be no valid ratification and this
regardless of the purpose or lack thereof in concealing such facts and regardless of the parties between whom
the question of ratification may arise. [45] Nevertheless, this principle does not apply if the principals ignorance
of the material facts and circumstances was willful, or that the principal chooses to act in ignorance of the
facts.[46] However, in the absence of circumstances putting a reasonably prudent man on inquiry, ratification
cannot be implied as against the principal who is ignorant of the facts. [47]
No ratification can be implied in the instant case.
A perusal of Baluyots Answer[48] reveals that the real arrangement between her and Atty. Linsangan
was for the latter to pay a monthly installment of P1,800.00 whereas Baluyot was to shoulder the counterpart
amount of P1,455.00 to meet the P3,255.00 monthly installments as indicated in the contract. Thus, every time
an installment falls due, payment was to be made through a check from Atty. Linsangan for P1,800.00 and a
cash component of P1,455.00 from Baluyot.[49] However, it appears that while Atty. Linsangan issued the postdated checks, Baluyot failed to come up with her part of the bargain. This was supported by Baluyots
statements in her letter[50] to Mr. Clyde Williams, Jr., Sales Manager of MMPCI, two days after she received the
copy of the Complaint. In the letter, she admitted that she was remiss in her duties when she consented to
Atty. Linsangans proposal that he will pay the old price while the difference will be shouldered by her. She
likewise admitted that the contract suffered arrearages because while Atty. Linsangan issued the agreed
checks, she was unable to give her share of P1,455.00 due to her own financial difficulties. Baluyot even
asked for compassion from MMPCI for the error she committed.
Atty. Linsangan failed to show that MMPCI had knowledge of the arrangement. As far as MMPCI is
concerned, the contract price was P132,250.00, as stated in the Offer to Purchase signed by Atty. Linsangan
and MMPCIs authorized officer. The down payment of P19,838.00 given by Atty. Linsangan was in accordance

with the contract as well. Payments of P3,235.00 for at least two installments were likewise in accord with the
contract, albeit made through a check and partly in cash. In view of Baluyots failure to give her share in the
payment, MMPCI received only P1,800.00 checks, which were clearly insufficient payment. In fact, Atty.
Linsangan would have incurred arrearages that could have caused the earlier cancellation of the contract, if
not for MMPCIs application of some of the checks to his account. However, the checks alone were not
sufficient to cover his obligations.
If MMPCI was aware of the arrangement, it would have refused the latters check payments for being
insufficient. It would not have applied to his account the P1,800.00 checks. Moreover, the fact that Baluyot had
to practically explain to MMPCIs Sales Manager the details of her arrangement with Atty. Linsangan and admit
to having made an error in entering such arrangement confirm that MMCPI had no knowledge of the said
agreement. It was only when Baluyot filed her Answer that she claimed that MMCPI was fully aware of the
agreement.
Neither is there estoppel in the instant case. The essential elements of estoppel are (i) conduct of a
party 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; (ii) intent, or at least expectation, that this conduct shall be acted upon by, or at least
influence, the other party; and (iii) knowledge, actual or constructive, of the real facts. [51]
While there is no more question as to the agency relationship between Baluyot and MMPCI, there is no
indication that MMPCI let the public, or specifically, Atty. Linsangan to believe that Baluyot had the authority to
alter the standard contracts of the company. Neither is there any showing that prior to signing Contract No.
28660, MMPCI had any knowledge of Baluyots commitment to Atty. Linsangan. One who claims the benefit of
an estoppel on the ground that he has been misled by the representations of another must not have been
misled through his own want of reasonable care and circumspection. [52] Even assuming that Atty. Linsangan
was misled by MMPCIs actuations, he still cannot invoke the principle of estoppel, as he was clearly negligent
in his dealings with Baluyot, and could have easily determined, had he only been cautious and prudent,
whether said agent was clothed with the authority to change the terms of the principals written contract.
Estoppel must be intentional and unequivocal, for when misapplied, it can easily become a most convenient
and effective means of injustice. [53] In view of the lack of sufficient proof showing estoppel, we refuse to hold
MMPCI liable on this score.
Likewise, this Court does not find favor in the Court of Appeals findings that the authority of defendant
Baluyot may not have been expressly conferred upon her; however, the same may have been derived
impliedly by habit or custom which may have been an accepted practice in their company in a long period of
time. A perusal of the records of the case fails to show any indication that there was such a habit or custom in
MMPCI that allows its agents to enter into agreements for lower prices of its interment spaces, nor to assume
a portion of the purchase price of the interment spaces sold at such lower price. No evidence was ever
presented to this effect.
As the Court sees it, there are two obligations in the instant case. One is the Contract No. 28660
between MMPCI and by Atty. Linsangan for the purchase of an interment space in the formers cemetery. The
other is the agreement between Baluyot and Atty. Linsangan for the former to shoulder the amount P1,455.00,
or the difference between P95,000.00, the original price, and P132,250.00, the actual contract price.
To repeat, the acts of the agent beyond the scope of his authority do not bind the principal unless the
latter ratifies the same. It also bears emphasis that when the third person knows that the agent was acting
beyond his power or authority, the principal cannot be held liable for the acts of the agent. If the said third
person was aware of such limits of authority, he is to blame and is not entitled to recover damages from the
agent, unless the latter undertook to secure the principals ratification. [54]
This Court finds that Contract No. 28660 was validly entered into both by MMPCI and Atty. Linsangan.
By affixing his signature in the contract, Atty. Linsangan assented to the terms and conditions thereof. When
Atty. Linsangan incurred delinquencies in payment, MMCPI merely enforced its rights under the said contract
by canceling the same.

Being aware of the limits of Baluyots authority, Atty. Linsangan cannot insist on what he claims to be the
terms of Contract No. 28660. The agreement, insofar as the P95,000.00 contract price is concerned, is void
and cannot be enforced as against MMPCI. Neither can he hold Baluyot liable for damages under the same
contract, since there is no evidence showing that Baluyot undertook to secure MMPCIs ratification. At best, the
agreement between Baluyot and Atty. Linsangan bound only the two of them. As far as MMPCI is concerned, it
bound itself to sell its interment space to Atty. Linsangan for P132,250.00 under Contract No. 28660, and had
in fact received several payments in accordance with the same contract. If the contract was cancelled due to
arrearages, Atty. Linsangans recourse should only be against Baluyot who personally undertook to pay the
difference between the true contract price ofP132,250.00 and the original proposed price of P95,000.00. To
surmise that Baluyot was acting on behalf of MMPCI when she promised to shoulder the said difference would
be to conclude that MMPCI undertook to pay itself the difference, a conclusion that is very illogical, if not
antithetical to its business interests.
However, this does not preclude Atty. Linsangan from instituting a separate action to recover damages
from Baluyot, not as an agent of MMPCI, but in view of the latters breach of their separate agreement. To
review, Baluyot obligated herself to pay P1,455.00 in addition to Atty. Linsangans P1,800.00 to complete the
monthly installment payment under the contract, which, by her own admission, she was unable to do due to
personal financial difficulties. It is undisputed that Atty. Linsangan issued the P1,800.00 as agreed upon, and
were it not for Baluyots failure to provide the balance, Contract No. 28660 would not have been cancelled.
Thus, Atty. Linsangan has a cause of action against Baluyot, which he can pursue in another case.
WHEREFORE, the instant petition is GRANTED. The Decision of the Court of Appeals dated 22 June
2001 and its Resolution dated 12 December 2001 in CA- G.R. CV No. 49802, as well as the Decision in Civil
Case No. 88-1253 of the Regional Trial Court, Makati City Branch 57, are hereby REVERSED and SET
ASIDE. The Complaint in Civil Case No. 88-1253 is DISMISSED for lack of cause of action. No
pronouncement as to costs.
SO ORDERED.
[G.R. No. 130148. December 15, 1997]
JOSE BORDADOR and LYDIA BORDADOR, petitioners, vs. BRIGIDA D. LUZ, ERNESTO M. LUZ and
NARCISO DEGANOS, respondents.
DECISION
REGALADO, J.:
In this appeal by certiorari, petitioners assail the judgment of the Court of Appeals in CA-G.R. CV No.
49175 affirming the adjudication of the Regional Trial Court of Malolos, Bulacan which found private
respondent Narciso Deganos liable to petitioners for actual damages, but absolved respondent spouses
Brigida D. Luz and Ernesto M. Luz of liability. Petitioners likewise belabor the subsequent resolution of the
Court of Appeals which denied their motion for reconsideration of its challenged decision.
Petitioners were engaged in the business of purchase and sale of jewelry and respondent Brigida D.
Luz, also known as Aida D. Luz, was their regular customer. On several occasions during the period from April
27, 1987 to September 4, 1987, respondent Narciso Deganos, the brother of Brigida D. Luz, received several
pieces of gold and jewelry from petitioners amounting to P382,816.00. [1] These items and their prices were
indicated in seventeen receipts covering the same. Eleven of the receipts stated that they were received for a
certain Evelyn Aquino, a niece of Deganos, and the remaining six indicated that they were received for Brigida
D. Luz. [2]

Deganos was supposed to sell the items at a profit and thereafter remit the proceeds and return the
unsold items to petitioners. Deganos remitted only the sum of P53,207.00. He neither paid the balance of the
sales proceeds, nor did he return any unsold item to petitioners. By January 1990, the total of his unpaid
account to petitioners, including interest, reached the sum of P725,463.98. [3] Petitioners eventually filed a
complaint in the barangay court against Deganos to recover said amount.
In the barangay proceedings, Brigida D. Luz, who was not impleaded in the case, appeared as a
witness for Deganos and ultimately, she and her husband, together with Deganos, signed a compromise
agreement with petitioners. In that compromise agreement, Deganos obligated himself to pay petitioners, on
installment basis, the balance of his account plus interest thereon. However, he failed to comply with his
aforestated undertakings.
On June 25, 1990, petitioners instituted Civil Case No. 412-M-90 in the Regional Trial Court of Malolos,
Bulacan against Deganos and Brigida D. Luz for recovery of a sum of money and damages, with an
application for preliminary attachment.[4] Ernesto Luz was impleaded therein as the spouse of Brigida.
Four years later, or on March 29, 1994, Deganos and Brigida D. Luz were charged with estafa [5] in the
Regional Trial Court of Malolos, Bulacan, which was docketed as Criminal Case No. 785-M-94. That criminal
case appears to be still pending in said trial court.
During the trial of the civil case, petitioners claimed that Deganos acted as the agent of Brigida D. Luz
when he received the subject items of jewelry and, because he failed to pay for the same, Brigida, as principal,
and her spouse are solidarily liable with him therefor.
On the other hand, while Deganos admitted that he had an unpaid obligation to petitioners, he claimed
that the same was only in the sum of P382,816.00 and not P725,463.98. He further asserted that it was he
alone who was involved in the transaction with the petitioners; that he neither acted as agent for nor was he
authorized to act as an agent by Brigida D. Luz, notwithstanding the fact that six of the receipts indicated that
the items were received by him for the latter. He further claimed that he never delivered any of the items he
received from petitioners to Brigida.
Brigida, on her part, denied that she had anything to do with the transactions between petitioners and
Deganos. She claimed that she never authorized Deganos to receive any item of jewelry in her behalf and, for
that matter, neither did she actually receive any of the articles in question.
After trial, the court below found that only Deganos was liable to petitioners for the amount and
damages claimed. It held that while Brigida D. Luz did have transactions with petitioners in the past, the items
involved were already paid for and all that Brigida owed petitioners was the sum of P21,483.00 representing
interest on the principal account which she had previously paid for.[6]
The trial court also found that it was petitioner Lydia Bordador who indicated in the receipts that the
items were received by Deganos for Evelyn Aquino and Brigida D. Luz. [7] Said court was persuaded that
Brigida D. Luz was behind Deganos, but because there was no memorandum to this effect, the agreement
between the parties was unenforceable under the Statute of Frauds. [8] Absent the required memorandum or
any written document connecting the respondent Luz spouses with the subject receipts, or authorizing
Deganos to act on their behalf, the alleged agreement between petitioners and Brigida D. Luz was
unenforceable.
Deganos was ordered to pay petitioners the amount of P725,463.98, plus legal interest thereon from
June 25, 1990, and attorneys fees. Brigida D. Luz was ordered to pay P21,483.00 representing the interest on
her own personal loan. She and her co-defendant spouse were absolved from any other or further liability. [9]
As stated at the outset, petitioners appealed the judgment of the court a quo to the Court of Appeals
which affirmed said judgment. [10] The motion for reconsideration filed by petitioners was subsequently
dismissed, [11] hence the present recourse to this Court.

The primary issue in the instant petition is whether or not herein respondent spouses are liable to
petitioners for the latters claim for money and damages in the sum of P725,463.98, plus interests and
attorneys fees, despite the fact that the evidence does not show that they signed any of the subject receipts or
authorized Deganos to receive the items of jewelry on their behalf.
Petitioners argue that the Court of Appeals erred in adopting the findings of the court a quo that
respondent spouses are not liable to them, as said conclusion of the trial court is contradicted by the finding of
fact of the appellate court that (Deganos) acted as agent of his sister (Brigida Luz). [12] In support of this
contention, petitioners quoted several letters sent to them by Brigida D. Luz wherein the latter acknowledged
her obligation to petitioners and requested for more time to fulfill the same. They likewise aver that Brigida
testified in the trial court that Deganos took some gold articles from petitioners and delivered the same to her.
Both the Court of Appeals and the trial court, however, found as a fact that the aforementioned letters
concerned the previous obligations of Brigida to petitioners, and had nothing to do with the money sought to
be recovered in the instant case. Such concurrent factual findings are entitled to great weight, hence,
petitioners cannot plausibly claim in this appellate review that the letters were in the nature of
acknowledgments by Brigida that she was the principal of Deganos in the subject transactions.
On the other hand, with regard to the testimony of Brigida admitting delivery of the gold to her, there is
no showing whatsoever that her statement referred to the items which are the subject matter of this case. It
cannot, therefore, be validly said that she admitted her liability regarding the same.
Petitioners insist that Deganos was the agent of Brigida D. Luz as the latter clothed him with apparent
authority as her agent and held him out to the public as such, hence Brigida can not be permitted to deny said
authority to innocent third parties who dealt with Deganos under such belief. [13] Petitioners further represent
that the Court of Appeals recognized in its decision that Deganos was an agent of Brigida. [14]
The evidence does not support the theory of petitioners that Deganos was an agent of Brigida D. Luz
and that the latter should consequently be held solidarily liable with Deganos in his obligation to
petitioners. While the quoted statement in the findings of fact of the assailed appellate decision mentioned that
Deganos ostensibly acted as an agent of Brigida, the actual conclusion and ruling of the Court of Appeals
categorically stated that, (Brigida Luz) never authorized her brother (Deganos) to act for and in her behalf in
any transaction with Petitioners xx x. [15] It is clear, therefore, that even assuming arguendo that Deganos
acted as an agent of Brigida, the latter never authorized him to act on her behalf with regard to the
transactions subject of this case.
The Civil Code provides:
Art. 1868. By the contract of agency a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter.
The basis for agency is representation. Here, there is no showing that Brigida consented to the acts of
Deganos or authorized him to act on her behalf, much less with respect to the particular transactions
involved. Petitioners attempt to foist liability on respondent spouses through the supposed agency relation with
Deganos is groundless and ill-advised.
Besides, it was grossly and inexcusably negligent of petitioners to entrust to Deganos, not once or
twice but on at least six occasions as evidenced by six receipts, several pieces of jewelry of substantial value
without requiring a written authorization from his alleged principal. A person dealing with an agent is put upon
inquiry and must discover upon his peril the authority of the agent. [16]
The records show that neither an express nor an implied agency was proven to have existed between
Deganos and Brigida D. Luz. Evidently, petitioners, who were negligent in their transactions with Deganos,
cannot seek relief from the effects of their negligence by conjuring a supposed agency relation between the
two respondents where no evidence supports such claim.

Petitioners next allege that the Court of Appeals erred in ignoring the fact that the decision of the court
below, which it affirmed, is null and void as it contradicted its ruling in CA-G.R. SP No. 39445 holding that
there is sufficient evidence/proof against Brigida D. Luz and Deganos for estafa in the pending criminal
case. They further aver that said appellate court erred in ruling against them in this civil action since the same
would result in an inevitable conflict of decisions should the trial court convict the accused in the criminal case.
By way of backdrop for this argument of petitioners, herein respondents Brigida D. Luz and Deganos
had filed a demurrer to evidence and a motion for reconsideration in the aforestated criminal case, both of
which were denied by the trial court. They then filed a petition for certiorari in the Court of Appeals to set aside
the denial of their demurrer and motion for reconsideration but, as just stated, their petition therefor was
dismissed.[17]
Petitioners now claim that the aforesaid dismissal by the Court of Appeals of the petition in CA-G.R. SP
No. 39445 with respect to the criminal case is equivalent to a finding that there is sufficient evidence in the
estafa case against Brigida D. Luz and Deganos. Hence, as already stated, petitioners theorize that the
decision and resolution of the Court of Appeals now being impugned in the case at bar would result in a
possible conflict with the prospective decision in the criminal case. Instead of promulgating the present
decision and resolution under review, so they suggest, the Court of Appeals should have awaited the decision
in the criminal case, so as not to render academic or preempt the same or, worse, create two conflicting
rulings. [18]
Petitioners have apparently lost sight of Article 33 of the Civil Code which provides that in cases
involving alleged fraudulent acts, a civil action for damages, entirely separate and distinct from the criminal
action, may be brought by the injured party. Such civil action shall proceed independently of the criminal
prosecution and shall require only a preponderance of evidence.
It is worth noting that this civil case was instituted four years before the criminal case for estafa was
filed, and that although there was a move to consolidate both cases, the same was denied by the trial
court. Consequently, it was the duty of the two branches of the Regional Trial Court concerned to
independently proceed with the civil and criminal cases. It will also be observed that a final judgment rendered
in a civil action absolving the defendant from civil liability is no bar to a criminal action. [19]
It is clear, therefore, that this civil case may proceed independently of the criminal case [20] especially
because while both cases are based on the same facts, the quantum of proof required for holding the parties
liable therein differ. Thus, it is improvident of petitioners to claim that the decision and resolution of the Court of
Appeals in the present case would be preemptive of the outcome of the criminal case. Their fancied fear of
possible conflict between the disposition of this civil case and the outcome of the pending criminal case is
illusory.
Petitioners surprisingly postulate that the Court of Appeals had lost its jurisdiction to issue the denial
resolution dated August 18, 1997, as the same was tainted with irregularities and badges of fraud perpetrated
by its court officers. [21] They charge that said appellate court, through conspiracy and fraud on the part of its
officers, gravely abused its discretion in issuing that resolution denying their motion for reconsideration. They
claim that said resolution was drafted by the ponente, then signed and issued by the members of the Eleventh
Division of said court within one and a half days from the elevation thereof by the division clerk of court to the
office of the ponente.
It is the thesis of petitioners that there was undue haste in issuing the resolution as the same was made
without waiting for the lapse of the ten-day period for respondents to file their comment and for petitioners to
file their reply. It was allegedly impossible for the Court of Appeals to resolve the issue in just one and a half
days, especially because its ponente, the late Justice Maximiano C. Asuncion, was then recuperating from
surgery and, that, additionally, hundreds of more important cases were pending. [22]
These lamentable allegation of irregularities in the Court of Appeals and in the conduct of its officers
strikes us as a desperate attempt of petitioners to induce this Court to give credence to their arguments which,
as already found by both the trial and intermediate appellate courts, are devoid of factual and legal
substance. The regrettably irresponsible attempt to tarnish the image of the intermediate appellate tribunal and

its judicial officers through ad hominem imputations could well be contumacious, but we are inclined to let that
pass with a strict admonition that petitioners refrain from indulging in such conduct in litigations.
On July 9, 1997, the Court of Appeals rendered judgment in this case affirming the trial courts
decision. [23] Petitioners moved for reconsideration and the Court of Appeals ordered respondents to file a
comment. Respondents filed the same on August 5, 1997 [24] and petitioners filed their reply to said comment
on August 15, 1997. [25] The Eleventh Division of said court issued the questioned resolution denying
petitioners motion for reconsideration on August 18, 1997. [26]
It is ironic that while some litigants malign the judiciary for being supposedly slothful in disposing of
cases, petitioners are making a show of calling out for justice because the Court of Appeals issued a
resolution disposing of a case sooner than expected of it. They would even deny the exercise of discretion by
the appellate court to prioritize its action on cases in line with the procedure it has adopted in disposing thereof
and in declogging its dockets. It is definitely not for the parties to determine and dictate when and how a
tribunal should act upon those cases since they are not even aware of the status of the dockets and the
internal rules and policies for acting thereon.
The fact that a resolution was issued by said court within a relatively short period of time after the
records of the case were elevated to the office of the ponente cannot, by itself, be deemed irregular. There is
no showing whatsoever that the resolution was issued without considering the reply filed by petitioners. In fact,
that brief pleading filed by petitioners does not exhibit any esoteric or ponderous argument which could not be
analyzed within an hour. It is a legal presumption, born of wisdom and experience, that official duty has been
regularly performed; [27] that the proceedings of a judicial tribunal are regular and valid, and that judicial acts
and duties have been and will be duly and properly performed. [28] The burden of proving irregularity in official
conduct is on the part of petitioners and they have utterly failed to do so. It is thus reprehensible for them to
cast aspersions on a court of law on the bases of conjectures or surmises, especially since one of the
petitioners appears to be a member of the Philippine Bar.
Lastly, petitioners fault the trial courts holding that whatever contract of agency was established
between Brigida D. Luz and Narciso Deganos is unenforceable under the Statute of Frauds as that aspect of
this case allegedly is not covered thereby. [29] They proceed on the premise that the Statute of Frauds applies
only to executory contracts and not to executed or to partially executed ones. From there, they move on to
claim that the contract involved in this case was an executed contract as the items had already been delivered
by petitioners to Brigida D. Luz, hence, such delivery resulted in the execution of the contract and removed the
same from the coverage of the Statute of Frauds.
Petitioners claim is speciously unmeritorious. It should be emphasized that neither the trial court nor the
appellate court categorically stated that there was such a contractual relation between these two
respondents. The trial court merely said that if there was such an agency existing between them, the same is
unenforceable as the contract would fall under the Statute of Frauds which requires the presentation of a note
or memorandum thereof in order to be enforceable in court. That was merely a preparatory statement of a
principle of law. What was finally proven as a matter of fact is that there was no such contract between Brigida
D. Luz and Narciso Deganos, executed or partially executed, and no delivery of any of the items subject of this
case was ever made to the former.
WHEREFORE, no error having been committed by the Court of Appeals in affirming the judgment of
the court a quo, its challenged decision and resolution are hereby AFFIRMED and the instant petition is
DENIED, with double costs against petitioners
SO ORDERED.
G.R. No. 122544 January 28, 1999
REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BLAZA, ESTER ABAD DIZON and JOSEPH
ANTHONY DIZON, RAYMUND A. DIZON, GERARD A. DIZON, and JOSE A. DIZON, JR., petitioners,
vs.
COURT OF APPEALS and OVERLAND EXPRESS LINES, INC., respondents.

G.R. No. 124741 January 28, 1999

REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA, ESTER ABAD DIZON and JOSEPH
ANTHONY DIZON, RAYMUND A. DIZON, GERARD A. DIZON, and Jose A. DIZON, JR., petitioners,
vs.
COURT OF APPEALS, HON. MAXIMIANO C. ASUNCION, and OVERLAND EXPRESS LINES,
INC.,respondents.

MARTINEZ, J.:
Two consolidated petitions were filed before us seeking to set aside and annul the decisions and resolutions of
respondent Court of Appeals. What seemed to be a simple ejectment suit was juxtaposed with procedural
intricacies which finally found its way to this Court.
G.R. No. 122544:
On May 23, 1974, private respondent Overland Express Lines, Inc. (lessee) entered into a Contract of Lease
with Option to Buy with petitioners 1 (lessors) involving a 1,755.80 square meter parcel of land situated at
corner MacArthur Highway and South "H" Street, Diliman, Quezon City. The term of the lease was for one (1)
year commencing from May 16, 1974 up to May 15, 1975. During this period, private respondent was granted
an option to purchase for the amount of P3,000.00 per square meter. Thereafter, the lease shall be on a per
month basis with a monthly rental of P3,000.00.
For failure of private respondent to pay the increased rental of P8,000.00 per month effective June 1976,
petitioners filed an action for ejectment (Civil Case No. VIII-29155) on November 10, 1976 before the then City
Court (now Metropolitan Trial Court) of Quezon City, Branch VIII. On November 22, 1982, the City Court
rendered judgment 2 ordering private respondent to vacate the leased premises and to pay the sum of
P624,000.00 representing rentals in arrears and/or as damages in the form of reasonable compensation for
the use and occupation of the premises during the period of illegal detainer from June 1976 to November 1982
at the monthly rental of P8,000.00, less payments made, plus 12% interest per annum from November 18,
1976, the date of filing of the complaint, until fully paid, the sum of P8,000.00 a month starting December
1982, until private respondent fully vacates the premises, and to pay P20,000.00 as and by way of attorney's
fees.
Private respondent filed a certiorari petition praying for the issuance of a restraining order enjoining the
enforcement of said judgment and dismissal of the case for lack of jurisdiction of the City Court.
On September 26, 1984, the then Intermidiate Appellate Court 3 (now Court of Appeals) rendered a
decision 4 stating that:
. . ., the alleged question of whether petitioner was granted an extension of the option
to buy the property; whether such option, if any, extended the lease or whether
petitioner actually paid the alleged P300,000.00 to Fidela Dizon, as representative of
private respondents in consideration of the option and, whether petitioner thereafter
offered to pay the balance of the supposed purchase price, are all merely incidental
and do not remove the unlawful detainer case from the jurisdiction or respondent court.
In consonance with the ruling in the case of Teodoro, Jr. vs. Mirasol (supra), the above
matters may be raised and decided in the unlawful detainer suit as, to rule otherwise,
would be a violation of the principle prohibiting multiplicity of suits. (Original Records,
pp. 38-39).

The motion for reconsideration was denied. On review, this Court dismissed the petition in a resolution dated
June 19, 1985 and likewise denied private respondent's subsequent motion for reconsideration in a resolution
dated September 9, 1985. 5
On October 7, 1985, private respondent filed before the Regional Trial Court (RTC) of Quezon City (Civil Case
No. Q-45541) an action for Specific Performance and Fixing of Period for Obligation with prayer for the
issuance of a restraining order pending hearing on the prayer for a writ of preliminary injunction. It sought to
compel the execution of a deed of sale pursuant to the option to purchase and the receipt of the partial
payment, and to fix the period to pay the balance. In an Order dated October 25, 1985, the trial court denied
the issuance of a writ of preliminary injunction on the ground that the decision of the then City Court for the
ejectment of the private respondent, having been affirmed by the then Intermediate Appellate Court and the
Supreme Court, has become final and executory.
Unable to secure an injunction, private respondent also filed before the RTC of Quezon City, Branch 102 (Civil
Case No. Q-46487) on November 15, 1985 a complaint for Annulment of and Relief from Judgment with
injunction and damages. In its decision 6 dated May 12, 1986, the trial court dismissed the complaint for
annulment on the ground of res judicata, and the writ of preliminary injunction previously issued was
dissolved. It also ordered private respondent to pay P3,000.00 as attorney's fees. As a consequence of private
respondent's motion for reconsideration, the preliminary injunction was reinstated, thereby restraining the
execution of the City Court's judgment on the ejectment case.
The two cases were the after consolidated before the RTC of Quezon City, Branch 77. On April 28, 1989, a
decision 7 was rendered dismissing private respondent's complaint in Civil Case No. Q-45541 (specific
performance case) and denying its motion for reconsideration in Civil Case No. 46487 (annulment of the
ejectment case). The motion for reconsideration of said decision was likewise denied.
On appeal, 8 respondent Court of Appeals rendered a decision 9 upholding the jurisdiction of the City Court of
Quezon City in the ejectment case. It also concluded that there was a perfected contract of sale between the
parties on the leased premises and that pursuant to the option to buy agreement, private respondent had
acquired the rights of a vendee in a contract of sale. It opined that the payment by private respondent of
P300,000.00 on June 20, 1975 as partial payment for the leased property, which petitioners accepted (through
Alice A. Dizon) and for which an official receipt was issued, was the operative act that gave rise to a perfected
contract of sale, and that for failure of petitioners to deny receipt thereof, private respondent can therefore
assume that Alice A. Dizon, acting as agent of petitioners, was authorized by them to receive the money in
their behalf. The Court of Appeals went further by stating that in fact, what was entered into was a "conditional
contract of sale" wherein ownership over the leased property shall not pass to the private respondent until it
has fully paid the purchase price. Since private respondent did not consign to the court the balance of the
purchase price and continued to occupy the subject premises, it had the obligation to pay the amount of
P1,700.00 in monthly rentals until full payment of the purchase price. The dispositive portion of said decision
reads:
WHEREFORE, the appealed decision in Case No. 46387 is AFFIRMED. The appealed
decision in Case No. 45541 is, on the other hand, ANNULLED and SET ASIDE. The
defendants-appellees are ordered to execute the deed of absolute sale of the property
in question, free from any lien or encumbrance whatsoever, in favor of the plaintiffappellant, and to deliver to the latter the said deed of sale, as well as the owner's
duplicate of the certificate of title to said property upon payment of the balance of the
purchase price by the plaintiff-appellant. The plaintiff-appellant is ordered to pay
P1,700.00 per month from June 1976, plus 6% interest per annum, until payment of the
balance of the purchase price, as previously agreed upon by the parties.
SO ORDERED.
Upon denial of the motion for partil reconsideration (Civil Case No. Q-45541) by respondent Court of
Appeals, 10petitioners elevated the case via petition for certiorari questioning the authority of Alice A. Dizon as
agent of petitioners in receiving private respondent's partial payment amounting to P300,000.00 pursuant to
the Contract of Lease with Option to Buy. Petitioner also assail the propriety of private respondent's exercise

of the option when it tendered the said amount on June 20, 1975 which purportedly resulted in a perfected
contract of sale.

WHEREFORE, the motion for reconsideration is DENIED for lack of merit.

SO ORDERED. 17

G.R. No. 124741:

Hence, this instant petition.
Petitioners filed with respondent Court of Appeals a motion to remand the records of Civil Case No. 38-29155
(ejectment case) to the Metropolitan Trial Court (MTC), then City Court of Quezon City, Branch 38, for
execution of the judgment 11 dated November 22, 1982 which was granted in a resolution dated June 29,
1992. Private respondent filed a motion to reconsider said resolution which was denied.
Aggrieved, private respondent filed a petition for certiorari, prohibition with preliminary injunction and/or
restraining order with this Court (G.R. Nos. 106750-51) which was dismissed in a resolution dated September
16, 1992 on the ground that the same was a refiled case previously dismissed for lack of merit. On November
26, 1992, entry of judgment was issued by this Court.
On July 14, 1993, petitioners filed an urgent ex-parte motion for execution of the decision in Civil Case No. 3829155 with the MTC of Quezon City, Branch 38. On September 13, 1993, the trial court ordered the issuance
of a third alias writ of execution. In denying private respondent's motion for reconsideration, it ordered the
immediate implementation of the third writ of execution without delay.
On December 22, 1993, private respondent filed with the Regional Trial Court (RTC) of Quezon City, Branch
104 a petition for certiorari and prohibition with preliminary injunction/restraining order (SP. PROC. No. 9318722) challenging the enforceability and validity of the MTC judgment as well as the order for its execution.
On January 11, 1994, RTC of Quezon City, Branch 104 issued an
order 12 granting the issuance of a writ of preliminary injunction upon private respondent's' posting of an
injunction bond of P50,000.00.
Assailing the aforequoted order after denial of their motion for partial reconsideration, petitioners filed a
petition 13for certiorari and prohibition with a prayer for a temporary restraining order and/or preliminary
injunction with the Court of Appeals. In its decision, 14 the Court of Appeals dismissed the petition and ruled
that:
The avowed purpose of this petition is to enjoin the public respondent from restraining
the ejectment of the private respondent. To grant the petition would be to allow the
ejectment of the private respondent. We cannot do that now in view of the decision of
this Court in CA-G.R. CV Nos. 25153-54. Petitioners' alleged right to eject private
respondent has been demonstrated to be without basis in the said civil case. The
petitioners have been shown, after all, to have no right to eject private respondents.
WHEREFORE, the petition is DENIED due course and is accordingly DISMISSED.

We find both petitions impressed with merit.

First. Petitioners have established a right to evict private respondent from the subject premises for nonpayment of rentals. The term of the Contract of Lease with Option to Buy was for a period of one (1) year (May
16, 1974 to May 15, 1975) during which the private respondent was given an option to purchase said property
at P3,000.00 square meter. After the expiration thereof, the lease was for P3,000.00 per month.
Admittedly, no definite period beyond the one-year term of lease was agreed upon by petitioners and private
respondent. However, since the rent was paid on a monthly basis, the period of lease is considered to be from
month to month in accordance with Article 1687 of the New Civil Code. 18 Where the rentals are paid monthly,
the lease, even if verbal may be deemed to be on a monthly basis, expiring at the end of every month
pursuant to Article 1687, in relation to Article 1673 of the Civil Code. 19 In such case, a demand to vacate is not
even necessary for judicial action after the expiration of every month. 20
When private respondent failed to pay the increased rental of P8,000.00 per month in June 1976, the
petitioners had a cause of action to institute an ejectment suit against the former with the then City Court. In
this regard, the City Court (now MTC) had exclusive jurisdiction over the ejectment suit. The filing by private
respondent of a suit with the Regional Trial Court for specific performance to enforce the option to purchase
did not divest the then City Court of its jurisdiction to take cognizance over the ejectment case. Of note is the
fact that the decision of the City Court was affirmed by both the Intermediate Appellate Court and this Court.
Second. Having failed to exercise the option within the stipulated one-year period, private respondent cannot
enforce its option to purchase anymore. Moreover, even assuming arguendo that the right to exercise the
option still subsists at the time private respondent tendered the amount on June 20, 1975, the suit for specific
performance to enforce the option to purchase was filed only on October 7, 1985 or more than ten (10) years
after accrual of the cause of action as provided under Article 1144 of the New Civil Code. 21
In this case, there was a contract of lease for one (1) year with option to purchase. The contract of lease
expired without the private respondent, as lessee, purchasing the property but remained in possession
thereof. Hence, there was an implicit renewal of the contract of lease on a monthly basis. The other terms of
the original contract of lease which are revived in the implied new lease under Article 1670 of the New Civil
Code 22 are only those terms which are germane to the lessee's right of continued enjoyment of the property
leased. 23 Therefore, an implied new lease does not ipso facto carry with it any implied revival of private
respondent's option to purchase (as lessee thereof) the leased premises. The provision entitling the lessee the
option to purchase the leased premises is not deemed incorporated in the impliedly renewed contract because
it is alien to the possession of the lessee. Private respondent's right to exercise the option to purchase expired
with the termination of the original contract of lease for one year. The rationale of this Court is that:

SO ORDERED. 15
Petitioners' motion for reconsideration was denied in a resolution

16

by the Court of Appeals stating that:

This court in its decision in CA-G.R. CV Nos. 25153-54 declared that the plaintiffappellant (private respondent herein) acquired the rights of a vendee in a contract of
sale, in effect, recognizing the right of the private respondent to possess the subject
premises. Considering said decision, we should not allow ejectment; to do so would
disturb the status quo of the parties since the petitioners are not in possession of the
subject property. It would be unfair and unjust to deprive the private respondent of its
possession of the subject property after its rights have been established in a
subsequent ruling.

This is a reasonable construction of the provision, which is based on the presumption

that when the lessor allows the lessee to continue enjoying possession of the property
for fifteen days after the expiration of the contract he is willing that such enjoyment
shall be for the entire period corresponding to the rent which is customarily paid in
this case up to the end of the month because the rent was paid monthly. Necessarily, if
the presumed will of the parties refers to the enjoyment of possession the presumption
covers the other terms of the contract related to such possession, such as the amount
of rental, the date when it must be paid, the care of the property, the responsibility for
repairs, etc. But no such presumption may be indulged in with respect to special
agreements which by nature are foreign to the right of occupancy or enjoyment
inherent in a contract of lease. 24

Third. There was no perfected contract of sale between petitioners and private respondent. Private respondent
argued that it delivered the check of P300,000.00 to Alice A. Dizon who acted as agent of petitioners pursuant
to the supposed authority given by petitioner Fidela Dizon, the payee thereof. Private respondent further
contended that petitioners' filing of the ejectment case against it based on the contract of lease with option to
buy holds petitioners in estoppel to question the authority of petitioner Fidela Dizon. It insisted that the
payment of P300,000.00 as partial payment of the purchase price constituted a valid exercise of the option to
buy.

VICTORIAS MILLING CO., INC., petitioner, vs. COURT OF APPEALS and CONSOLIDATED
SUGAR CORPORATION, respondents.

Under Article 1475 of the New Civil Code, "the contract of sale is perfected at the moment there is a meeting
of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties
may reciprocally demand performance, subject to the provisions of the law governing the form of contracts."
Thus, the elements of a contract of sale are consent, object, and price in money or its equivalent. It bears
stressing that the absence of any of these essential elements negates the existence of a perfected contract of
sale. Sale is a consensual contract and he who alleges it must show its existence by competent proof. 25

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the
decision of the Court of Appeals dated February 24, 1994, in CA-G.R. CV No. 31717, as well as
the respondent court's resolution of September 30, 1994 modifying said decision. Both decision
and resolution amended the judgment dated February 13, 1991, of the Regional Trial Court of
Makati City, Branch 147, in Civil Case No. 90-118.

In an attempt to resurrect the lapsed option, private respondent gave P300,000.00 to petitioners (thru Alice A.
Dizon) on the erroneous presumption that the said amount tendered would constitute a perfected contract of
sale pursuant to the contract of lease with option to buy. There was no valid consent by the petitioners (as coowners of the leased premises) on the supposed sale entered into by Alice A. Dizon, as petitioners' alleged
agent, and private respondent. The basis for agency is representation and a person dealing with an agent is
put upon inquiry and must discover upon his peril the authority of the agent. 26 As provided in Article 1868 of
the New Civil Code, 27there was no showing that petitioners consented to the act of Alice A. Dizon nor
authorized her to act on their behalf with regard to her transaction with private respondent. The most prudent
thing private respondent should have done was to ascertain the extent of the authority of Alice A. Dizon. Being
negligent in this regard, private respondent cannot seek relief on the basis of a supposed agency.
In Bacaltos Coal Mines vs. Court of Appeals, 28 we explained the rule in dealing with an agent:
Every person dealing with an agent is put upon inquiry and must discover upon his
peril the authority of the agent. If he does not make such inquiry, he is chargeable with
knowledge of the agent's authority, and his ignorance of that authority will not be any
excuse. Persons dealing with an assumed agency, whether the assumed agency be a
general or special one, are bound at their peril, if they would hold the principal, to
ascertain not only the fact of the agency but also the nature and extent of the authority,
and in case either is controverted, the burden of proof is upon them to establish it.
For the long years that private respondent was able to thwart the execution of the ejectment suit rendered in
favor of petitioners, we now write finis to this controversy and shun further delay so as to ensure that this case
would really attain finality.
WHEREFORE, in view of the foregoing, both petitions are GRANTED. The decision dated March 29, 1994
and the resolution dated October 19, 1995 in CA-G.R. CV No. 25153-54, as well as the decision dated
December 11, 1995 and the resolution dated April 23, 1997 in CA-G.R. SP No. 33113 of the Court of Appeals
are hereby REVERSED and SET ASIDE.

DECISION
QUISUMBING, J.:

The facts of this case as found by both the trial and appellate courts are as follows:
St. Therese Merchandising (hereafter STM) regularly bought sugar from petitioner Victorias Milling
Co., Inc., (VMC). In the course of their dealings, petitioner issued several Shipping List/Delivery
Receipts (SLDRs) to STM as proof of purchases. Among these was SLDR No. 1214M, which gave
rise to the instant case. Dated October 16, 1989, SLDR No. 1214M covers 25,000 bags of sugar.
Each bag contained 50 kilograms and priced at P638.00 per bag as "per sales order VMC
Marketing No. 042 dated October 16, 1989." [1] The transaction it covered was a "direct sale." [2] The
SLDR also contains an additional note which reads: "subject for (sic) availability of a (sic) stock at
NAWACO (warehouse)."[3]
On October 25, 1989, STM sold to private respondent Consolidated Sugar Corporation (CSC) its
rights in SLDR No. 1214M for P 14,750,000.00. CSC issued one check dated October 25, 1989
and three checks postdated November 13, 1989 in payment. That same day, CSC wrote petitioner
that it had been authorized by STM to withdraw the sugar covered by SLDR No. 1214M. Enclosed
in the letter were a copy of SLDR No. 1214M and a letter of authority from STM authorizing CSC
"to withdraw for and in our behalf the refined sugar covered by Shipping List/Delivery ReceiptRefined Sugar (SDR) No. 1214 dated October 16, 1989 in the total quantity of 25,000 bags." [4]
On October 27, 1989, STM issued 16 checks in the total amount of P31,900,000.00 with petitioner
as payee. The latter, in turn, issued Official Receipt No. 33743 dated October 27, 1989
acknowledging receipt of the said checks in payment of 50,000 bags. Aside from SLDR No.
1214M, said checks also covered SLDR No. 1213.
Private respondent CSC surrendered SLDR No. 1214M to the petitioner's NAWACO warehouse
and was allowed to withdraw sugar. However, after 2,000 bags had been released, petitioner
refused to allow further withdrawals of sugar against SLDR No. 1214M. CSC then sent petitioner a
letter dated January 23, 1990 informing it that SLDR No. 1214M had been "sold and endorsed" to
it but that it had been refused further withdrawals of sugar from petitioner's warehouse despite the
fact that only 2,000 bags had been withdrawn.[5] CSC thus inquired when it would be allowed to
withdraw the remaining 23,000 bags.

Let the records of this case be remanded to the trial court for immediate execution of the judgment dated
November 22, 1982 in Civil Case No. VIII-29155 of the then City Court (now Metropolitan Trial Court) of
Quezon City, Branch VIII as affirmed in the decision dated September 26, 1984 of the then Intermediate
Appellate Court (now Court of Appeals) and in the resolution dated June 19, 1985 of this Court.

On January 31, 1990, petitioner replied that it could not allow any further withdrawals of sugar
against SLDR No. 1214M because STM had already dwithdrawn all the sugar covered by the
cleared checks.[6]

However, petitioners are ordered to REFUND to private respondent the amount of P300,000.00 which they
received through Alice A. Dizon on June 20, 1975.1wphi1.nt

On March 2, 1990, CSC sent petitioner a letter demanding the release of the balance of 23,000
bags.

SO ORDERED.

Seven days later, petitioner reiterated that all the sugar corresponding to the amount of STM's
cleared checks had been fully withdrawn and hence, there would be no more deliveries of the
[G.R. No. 117356. June 19, 2000]

commodity to STM's account. Petitioner also noted that CSC had represented itself to be STM's
agent as it had withdrawn the 2,000 bags against SLDR No. 1214M "for and in behalf" of STM.
On April 27, 1990, CSC filed a complaint for specific performance, docketed as Civil Case No. 901118. Defendants were Teresita Ng Sy (doing business under the name of St. Therese
Merchandising) and herein petitioner. Since the former could not be served with summons, the
case proceeded only against the latter. During the trial, it was discovered that Teresita Ng Go who
testified for CSC was the same Teresita Ng Sy who could not be reached through summons.
[7]
CSC, however, did not bother to pursue its case against her, but instead used her as its witness.
CSC's complaint alleged that STM had fully paid petitioner for the sugar covered by SLDR No.
1214M. Therefore, the latter had no justification for refusing delivery of the sugar. CSC prayed that
petitioner be ordered to deliver the 23,000 bags covered by SLDR No. 1214M and sought the
award of P1,104,000.00 in unrealized profits, P3,000,000.00 as exemplary damages,
P2,200,000.00 as attorney's fees and litigation expenses.
Petitioner's primary defense a quo was that it was an unpaid seller for the 23,000 bags. [8] Since
STM had already drawn in full all the sugar corresponding to the amount of its cleared checks, it
could no longer authorize further delivery of sugar to CSC. Petitioner also contended that it had no
privity of contract with CSC.
Petitioner explained that the SLDRs, which it had issued, were not documents of title, but mere
delivery receipts issued pursuant to a series of transactions entered into between it and STM. The
SLDRs prescribed delivery of the sugar to the party specified therein and did not authorize the
transfer of said party's rights and interests.
Petitioner also alleged that CSC did not pay for the SLDR and was actually STM's co-conspirator
to defraud it through a misrepresentation that CSC was an innocent purchaser for value and in
good faith. Petitioner then prayed that CSC be ordered to pay it the following sums:
P10,000,000.00 as moral damages; P10,000,000.00 as exemplary damages; and P1,500,000.00
as attorney's fees. Petitioner also prayed that cross-defendant STM be ordered to pay it
P10,000,000.00 in exemplary damages, and P1,500,000.00 as attorney's fees.
Since no settlement was reached at pre-trial, the trial court heard the case on the merits.
As earlier stated, the trial court rendered its judgment favoring private respondent CSC, as follows:
"WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of
the plaintiff and against defendant Victorias Milling Company:
"1) Ordering defendant Victorias Milling Company to deliver to the plaintiff 23,000 bags
of refined sugar due under SLDR No. 1214;
"2) Ordering defendant Victorias Milling Company to pay the amount of P920,000.00 as
unrealized profits, the amount of P800,000.00 as exemplary damages and the amount
of P1,357,000.00, which is 10% of the acquisition value of the undelivered bags of
refined sugar in the amount of P13,570,000.00, as attorney's fees, plus the costs.
"SO ORDERED."[9]
It made the following observations:
"[T]he testimony of plaintiff's witness Teresita Ng Go, that she had fully paid the
purchase price of P15,950,000.00 of the 25,000 bags of sugar bought by her covered

by SLDR No. 1214 as well as the purchase price of P15,950,000.00 for the 25,000
bags of sugar bought by her covered by SLDR No. 1213 on the same date, October
16, 1989 (date of the two SLDRs) is duly supported by Exhibits C to C-15 inclusive
which are post-dated checks dated October 27, 1989 issued by St. Therese
Merchandising in favor of Victorias Milling Company at the time it purchased the
50,000 bags of sugar covered by SLDR No. 1213 and 1214. Said checks appear to
have been honored and duly credited to the account of Victorias Milling Company
because on October 27, 1989 Victorias Milling Company issued official receipt no.
34734 in favor of St. Therese Merchandising for the amount of P31,900,000.00
(Exhibits B and B-1). The testimony of Teresita Ng Go is further supported by Exhibit F,
which is a computer printout of defendant Victorias Milling Company showing the
quantity and value of the purchases made by St. Therese Merchandising, the SLDR
no. issued to cover the purchase, the official reciept no. and the status of payment. It is
clear in Exhibit 'F' that with respect to the sugar covered by SLDR No. 1214 the same
has been fully paid as indicated by the word 'cleared' appearing under the column of
'status of payment.'
"On the other hand, the claim of defendant Victorias Milling Company that the purchase
price of the 25,000 bags of sugar purchased by St. Therese Merchandising covered by
SLDR No. 1214 has not been fully paid is supported only by the testimony of Arnulfo
Caintic, witness for defendant Victorias Milling Company. The Court notes that the
testimony of Arnulfo Caintic is merely a sweeping barren assertion that the purchase
price has not been fully paid and is not corroborated by any positive evidence. There is
an insinuation by Arnulfo Caintic in his testimony that the postdated checks issued by
the buyer in payment of the purchased price were dishonored. However, said witness
failed to present in Court any dishonored check or any replacement check. Said
witness likewise failed to present any bank record showing that the checks issued by
the buyer, Teresita Ng Go, in payment of the purchase price of the sugar covered by
SLDR No. 1214 were dishonored." [10]
Petitioner appealed the trial courts decision to the Court of Appeals.
On appeal, petitioner averred that the dealings between it and STM were part of a series of
transactions involving only one account or one general contract of sale. Pursuant to this contract,
STM or any of its authorized agents could withdraw bags of sugar only against cleared checks of
STM. SLDR No. 21214M was only one of 22 SLDRs issued to STM andsince the latter had
already withdrawn its full quota of sugar under the said SLDR, CSC was already precluded from
seeking delivery of the 23,000 bags of sugar.
Private respondent CSC countered that the sugar purchases involving SLDR No. 1214M were
separate and independent transactions and that the details of the series of purchases were
contained in a single statement with a consolidated summary of cleared check payments and
sugar stock withdrawals because this a more convenient system than issuing separate statements
for each purchase.
The appellate court considered the following issues: (a) Whether or not the transaction between
petitioner and STM involving SLDR No. 1214M was a separate, independent, and single
transaction; (b) Whether or not CSC had the capacity to sue on its own on SLDR No. 1214M; and
(c) Whether or not CSC as buyer from STM of the rights to 25,000 bags of sugar covered by SLDR
No. 1214M could compel petitioner to deliver 23,000 bags allegedly unwithdrawn.
On February 24, 1994, the Court of Appeals rendered its decision modifying the trial court's
judgment, to wit:
"WHEREFORE, the Court hereby MODIFIES the assailed judgment and orders
defendant-appellant to:

"1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by SLDR No. 1214M;
" 2) Pay to plaintiff-appellee P792,918.00 which is 10% of the value of the undelivered
bags of refined sugar, as attorneys fees;
"3) Pay the costs of suit.
"SO ORDERED."[11]
Both parties then seasonably filed separate motions for reconsideration.
In its resolution dated September 30, 1994, the appellate court modified its decision to read:
"WHEREFORE, the Court hereby modifies the assailed judgment and orders
defendant-appellant to:
"(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar under SLDR No. 1214M;
"(2) Pay costs of suit.
"SO ORDERED."[12]

Hence, the instant petition, positing the following errors as grounds for review:
"1. The Court of Appeals erred in not holding that STM's and private respondent's
specially informing petitioner that respondent was authorized by buyer STM to
withdraw sugar against SLDR No. 1214M "for and in our (STM) behalf," (emphasis in
the original) private respondent's withdrawing 2,000 bags of sugar for STM, and STM's
empowering other persons as its agents to withdraw sugar against the same SLDR No.
1214M, rendered respondent like the other persons, an agent of STM as held in Rallos
v. Felix Go Chan & Realty Corp., 81 SCRA 252, and precluded it from subsequently
claiming and proving being an assignee of SLDR No. 1214M and from suing by itself
for its enforcement because it was conclusively presumed to be an agent (Sec. 2, Rule
131, Rules of Court) and estopped from doing so. (Art. 1431, Civil Code).
" 2. The Court of Appeals erred in manifestly and arbitrarily ignoring and disregarding
certain relevant and undisputed facts which, had they been considered, would have
shown that petitioner was not liable, except for 69 bags of sugar, and which would
justify review of its conclusion of facts by this Honorable Court.
" 3. The Court of Appeals misapplied the law on compensation under Arts. 1279, 1285
and 1626 of the Civil Code when it ruled that compensation applied only to credits from
one SLDR or contract and not to those from two or more distinct contracts between the
same parties; and erred in denying petitioner's right to setoff all its credits arising prior
to notice of assignment from other sales or SLDRs against private respondent's claim
as assignee under SLDR No. 1214M, so as to extinguish or reduce its liability to 69
bags, because the law on compensation applies precisely to two or more distinct
contracts between the same parties (emphasis in the original).

The appellate court explained the rationale for the modification as follows:
"There is merit in plaintiff-appellee's position.

"4. The Court of Appeals erred in concluding that the settlement or liquidation of
accounts in Exh. F between petitioner and STM, respondent's admission of its balance,
and STM's acquiescence thereto by silence for almost one year did not render Exh. `F'
an account stated and its balance binding.

"Exhibit F' We relied upon in fixing the number of bags of sugar which remained
undelivered as 12,586 cannot be made the basis for such a finding. The rule is explicit
that courts should consider the evidence only for the purpose for which it was
offered. (People v. Abalos, et al, 1 CA Rep 783). The rationale for this is to afford the
party against whom the evidence is presented to object thereto if he deems it
necessary. Plaintiff-appellee is, therefore, correct in its argument that Exhibit F' which
was offered to prove that checks in the total amount of P15,950,000.00 had been
cleared. (Formal Offer of Evidence for Plaintiff, Records p. 58) cannot be used to prove
the proposition that 12,586 bags of sugar remained undelivered.

"5. The Court of Appeals erred in not holding that the conditions of the assigned SLDR
No. 1214, namely, (a) its subject matter being generic, and (b) the sale of sugar being
subject to its availability at the Nawaco warehouse, made the sale conditional and
prevented STM or private respondent from acquiring title to the sugar; and the nonavailability of sugar freed petitioner from further obligation.

"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October 1990, p. 33] and

Marianito L. Santos [TSN, 17 October 1990, pp. 16, 18, and 36]) presented by plaintiffappellee was to the effect that it had withdrawn only 2,000 bags of sugar from SLDR
after which it was not allowed to withdraw anymore. Documentary evidence (Exhibit I,
Id., p. 78, Exhibit K, Id., p. 80) show that plaintiff-appellee had sent demand letters to
defendant-appellant asking the latter to allow it to withdraw the remaining 23,000 bags
of sugar from SLDR 1214M. Defendant-appellant, on the other hand, alleged that
sugar delivery to the STM corresponded only to the value of cleared checks; and that
all sugar corresponded to cleared checks had been withdrawn. Defendant-appellant
did not rebut plaintiff-appellee's assertions. It did not present evidence to show how
many bags of sugar had been withdrawn against SLDR No. 1214M, precisely because
of its theory that all sales in question were a series of one single transaction and
withdrawal of sugar depended on the clearing of checks paid therefor.
"After a second look at the evidence, We see no reason to overturn the findings of the
trial court on this point."[13]

"6. The Court of Appeals erred in not holding that the "clean hands" doctrine precluded
respondent from seeking judicial reliefs (sic) from petitioner, its only remedy being
against its assignor."[14]
Simply stated, the issues now to be resolved are:
(1)....Whether or not the Court of Appeals erred in not ruling that CSC was an agent of
STM and hence, estopped to sue upon SLDR No. 1214M as an assignee.
(2)....Whether or not the Court of Appeals erred in applying the law on compensation to
the transaction under SLDR No. 1214M so as to preclude petitioner from offsetting its
credits on the other SLDRs.
(3)....Whether or not the Court of Appeals erred in not ruling that the sale of sugar
under SLDR No. 1214M was a conditional sale or a contract to sell and hence freed
petitioner from further obligations.

(4)....Whether or not the Court of Appeals committed an error of law in not applying the
"clean hands doctrine" to preclude CSC from seeking judicial relief.
The issues will be discussed in seriatim.
Anent the first issue, we find from the records that petitioner raised this issue for the first time on
appeal. It is settled that an issue which was not raised during the trial in the court below could not
be raised for the first time on appeal as to do so would be offensive to the basic rules of fair play,
justice, and due process.[15] Nonetheless, the Court of Appeals opted to address this issue, hence,
now a matter for our consideration.
Petitioner heavily relies upon STM's letter of authority allowing CSC to withdraw sugar against
SLDR No. 1214M to show that the latter was STM's agent. The pertinent portion of said letter
reads:
"This is to authorize Consolidated Sugar Corporation or its representative to
withdraw for and in our behalf (stress supplied) the refined sugar covered by Shipping
List/Delivery Receipt = Refined Sugar (SDR) No. 1214 dated October 16, 1989 in the
total quantity of 25, 000 bags."[16]

question of whether a contract is one of sale or agency depends on the intention of the parties as
gathered from the whole scope and effect of the language employed. [25]That the authorization
given to CSC contained the phrase "for and in our (STM's) behalf" did not establish an agency.
Ultimately, what is decisive is the intention of the parties. [26]That no agency was meant to be
established by the CSC and STM is clearly shown by CSC's communication to petitioner that
SLDR No. 1214M had been "sold and endorsed" to it. [27] The use of the words "sold and endorsed"
means that STM and CSC intended a contract of sale, and not an agency. Hence, on this score, no
error was committed by the respondent appellate court when it held that CSC was not STM's agent
and could independently sue petitioner.
On the second issue, proceeding from the theory that the transactions entered into between
petitioner and STM are but serial parts of one account, petitioner insists that its debt has been
offset by its claim for STM's unpaid purchases, pursuant to Article 1279 of the Civil Code.
[28]
However, the trial court found, and the Court of Appeals concurred, that the purchase of sugar
covered by SLDR No. 1214M was a separate and independent transaction; it was not a serial part
of a single transaction or of one account contrary to petitioner's insistence. Evidence on record
shows, without being rebutted, that petitioner had been paid for the sugar purchased under SLDR
No. 1214M. Petitioner clearly had the obligation to deliver said commodity to STM or its assignee.
Since said sugar had been fully paid for, petitioner and CSC, as assignee of STM, were not
mutually creditors and debtors of each other. No reversible error could thereby be imputed to
respondent appellate court when, it refused to apply Article 1279 of the Civil Code to the present
case.

The Civil Code defines a contract of agency as follows:

"Art. 1868. By the contract of agency a person binds himself to render some service or
to do something in representation or on behalf of another, with the consent or authority
of the latter."
[17]

It is clear from Article 1868 that the basis of agency is representation. On the part of the
principal, there must be an actual intention to appoint [18] or an intention naturally inferable from his
words or actions;[19] and on the part of the agent, there must be an intention to accept the
appointment and act on it,[20] and in the absence of such intent, there is generally no agency.
[21]
One factor which most clearly distinguishes agency from other legal concepts is control; one
person - the agent - agrees to act under the control or direction of another - the principal. Indeed,
the very word "agency" has come to connote control by the principal. [22] The control factor, more
than any other, has caused the courts to put contracts between principal and agent in a separate
category.[23] The Court of Appeals, in finding that CSC, was not an agent of STM, opined:
"This Court has ruled that where the relation of agency is dependent upon the acts of
the parties, the law makes no presumption of agency, and it is always a fact to be
proved, with the burden of proof resting upon the persons alleging the agency, to show
not only the fact of its existence, but also its nature and extent (Antonio vs.
Enriquez[CA], 51 O.G. 3536]. Here, defendant-appellant failed to sufficiently establish
the existence of an agency relation between plaintiff-appellee and STM. The fact alone
that it (STM) had authorized withdrawal of sugar by plaintiff-appellee "for and in our
(STM's) behalf" should not be eyed as pointing to the existence of an agency
relation ...It should be viewed in the context of all the circumstances obtaining.
Although it would seem STM represented plaintiff-appellee as being its agent by the
use of the phrase "for and in our (STM's) behalf" the matter was cleared when on 23
January 1990, plaintiff-appellee informed defendant-appellant that SLDFR No. 1214M
had been "sold and endorsed" to it by STM (Exhibit I, Records, p. 78). Further, plaintiffappellee has shown that the 25, 000 bags of sugar covered by the SLDR No. 1214M
were sold and transferred by STM to it ...A conclusion that there was a valid sale and
transfer to plaintiff-appellee may, therefore, be made thus capacitating plaintiff-appellee
to sue in its own name, without need of joining its imputed principal STM as coplaintiff."[24]
In the instant case, it appears plain to us that private respondent CSC was a buyer of the SLDFR
form, and not an agent of STM. Private respondent CSC was not subject to STM's control. The

Regarding the third issue, petitioner contends that the sale of sugar under SLDR No. 1214M is a
conditional sale or a contract to sell, with title to the sugar still remaining with the vendor.
Noteworthy, SLDR No. 1214M contains the following terms and conditions:
"It is understood and agreed that by payment by buyer/trader of refined sugar and/or
receipt of this document by the buyer/trader personally or through a
representative, title to refined sugar is transferred to buyer/trader and delivery to him/it
is deemed effected and completed (stress supplied) and buyer/trader assumes full
responsibility therefore"[29]
The aforequoted terms and conditions clearly show that petitioner transferred title to the sugar to
the buyer or his assignee upon payment of the purchase price. Said terms clearly establish a
contract of sale, not a contract to sell. Petitioner is now estopped from alleging the contrary. The
contract is the law between the contracting parties. [30] And where the terms and conditions so
stipulated are not contrary to law, morals, good customs, public policy or public order, the contract
is valid and must be upheld.[31] Having transferred title to the sugar in question, petitioner is now
obliged to deliver it to the purchaser or its assignee.
As to the fourth issue, petitioner submits that STM and private respondent CSC have entered into
a conspiracy to defraud it of its sugar. This conspiracy is allegedly evidenced by: (a) the fact that
STM's selling price to CSC was below its purchasing price; (b) CSC's refusal to pursue its case
against Teresita Ng Go; and (c) the authority given by the latter to other persons to withdraw sugar
against SLDR No. 1214M after she had sold her rights under said SLDR to CSC. Petitioner prays
that the doctrine of "clean hands" should be applied to preclude CSC from seeking judicial relief.
However, despite careful scrutiny, we find here the records bare of convincing evidence
whatsoever to support the petitioner's allegations of fraud. We are now constrained to deem this
matter purely speculative, bereft of concrete proof.
WHEREFORE, the instant petition is DENIED for lack of merit. Costs against petitioner.
SO ORDERED.
[G. R. No. 129919. February 6, 2002]

DOMINION

INSURANCE CORPORATION, petitioner, vs. COURT

GUEVARRA, and FERNANDO AUSTRIA, respondents.

OF

APPEALS,

RODOLFO

S.

DECISION

Finding the verbal motion of plaintiffs counsel to be meritorious and considering that the pre-trial conference
has been repeatedly postponed on motion of the defendant Corporation, the defendant Dominion Insurance
Corporation is hereby declared (as) in default and plaintiff is allowed to present his evidence on June 16, 1992
at 9:00 oclock in the morning.
The plaintiff and his counsel are notified of this order in open court.

PARDO, J.:
The Case
This is an appeal via certiorari[1] from the decision of the Court of Appeals [2] affirming the decision[3] of
the Regional Trial Court, Branch 44, San Fernando, Pampanga, which ordered petitioner Dominion Insurance
Corporation (Dominion) to pay Rodolfo S. Guevarra (Guevarra) the sum of P156,473.90 representing the total
amount advanced by Guevarra in the payment of the claims of Dominions clients.
The Facts

SO ORDERED.
Plaintiff presented his evidence on June 16, 1992. This was followed by a written offer of documentary exhibits
on July 8 and a supplemental offer of additional exhibits on July 13, 1992. The exhibits were admitted in
evidence in an order dated July 17, 1992.
On August 7, 1992 defendant corporation filed a MOTION TO LIFT ORDER OF DEFAULT. It alleged therein
that the failure of counsel to attend the pre-trial conference was due to an unavoidable circumstance and that
counsel had sent his representative on that date to inform the trial court of his inability to appear. The Motion
was vehemently opposed by plaintiff.

The facts, as found by the Court of Appeals, are as follows:

On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case No. 8855 for sum of money against
defendant Dominion Insurance Corporation. Plaintiff sought to recover thereunder the sum of P156,473.90
which he claimed to have advanced in his capacity as manager of defendant to satisfy certain claims filed by
defendants clients.
In its traverse, defendant denied any liability to plaintiff and asserted a counterclaim for P249,672.53,
representing premiums that plaintiff allegedly failed to remit.

On August 25, 1992 the trial court denied defendants motion for reasons, among others, that it was neither
verified nor supported by an affidavit of merit and that it further failed to allege or specify the facts constituting
his meritorious defense.
On September 28, 1992 defendant moved for reconsideration of the aforesaid order. For the first time counsel
revealed to the trial court that the reason for his nonappearance at the pre-trial conference was his illness. An
Affidavit of Merit executed by its Executive Vice-President purporting to explain its meritorious defense was
attached to the said Motion. Just the same, in an Order dated November 13, 1992, the trial court denied said
Motion.

On August 8, 1991, defendant filed a third-party complaint against Fernando Austria, who, at the time relevant
to the case, was its Regional Manager for Central Luzon area.

On November 18, 1992, the court a quo rendered judgment as follows:

In due time, third-party defendant Austria filed his answer.

WHEREFORE, premises considered, judgment is hereby rendered ordering:

Thereafter the pre-trial conference was set on the following dates: October 18, 1991, November 12, 1991,
March 29, 1991, December 12, 1991, January 17, 1992, January 29, 1992, February 28, 1992, March 17,
1992 and April 6, 1992, in all of which dates no pre-trial conference was held. The record shows that except
for the settings on October 18, 1991, January 17, 1992 and March 17, 1992 which were cancelled at the
instance of defendant, third-party defendant and plaintiff, respectively, the rest were postponed upon joint
request of the parties.

1. The defendant Dominion Insurance Corporation to pay plaintiff the sum of P156,473.90 representing the
total amount advanced by plaintiff in the payment of the claims of defendants clients;
2. The defendant to pay plaintiff P10,000.00 as and by way of attorneys fees;
3. The dismissal of the counter-claim of the defendant and the third-party complaint;

On May 22, 1992 the case was again called for pre-trial conference. Only plaintiff and counsel were present.
Despite due notice, defendant and counsel did not appear, although a messenger, Roy Gamboa, submitted to
the trial court a handwritten note sent to him by defendants counsel which instructed him to request for
postponement. Plaintiffs counsel objected to the desired postponement and moved to have defendant
declared as in default. This was granted by the trial court in the following order:
ORDER
When this case was called for pre-trial this afternoon only plaintiff and his counsel Atty.
Romeo Maglalang appeared. When shown a note dated May 21, 1992 addressed to a certain Roy who was
requested to ask for postponement, Atty. Maglalang vigorously objected to any postponement on the ground
that the note is but a mere scrap of paper and moved that the defendant corporation be declared as in default
for its failure to appear in court despite due notice.

4. The defendant to pay the costs of suit. [4]

On December 14, 1992, Dominion appealed the decision to the Court of Appeals. [5]
On July 19, 1996, the Court of Appeals promulgated a decision affirming that of the trial court.
On September 3, 1996, Dominion filed with the Court of Appeals a motion for reconsideration. [7] On July 16,
1997, the Court of Appeals denied the motion.[8]
[6]

Hence, this appeal.[9]

The Issues

The issues raised are: (1) whether respondent Guevarra acted within his authority as agent for
petitioner, and (2) whether respondent Guevarra is entitled to reimbursement of amounts he paid out of his
personal money in settling the claims of several insured.
The Court's Ruling
The petition is without merit.
By the contract of agency, a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter. [10] The basis for agency is
representation.[11] On the part of the principal, there must be an actual intention to appoint [12] or an intention
naturally inferrable from his words or actions; [13] and on the part of the agent, there must be an intention to
accept the appointment and act on it, [14] and in the absence of such intent, there is generally no agency.[15]
A perusal of the Special Power of Attorney [16] would show that petitioner (represented by third-party
defendant Austria) and respondent Guevarra intended to enter into a principal-agent relationship. Despite the
word special in the title of the document, the contents reveal that what was constituted was actually a general
agency. The terms of the agreement read:
That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC.,[17] a corporation duly organized and existing
under and by virtue of the laws of the Republic of the Philippines, xxx represented by the undersigned as
Regional Manager, xxx do hereby appoint RSG Guevarra Insurance Services represented by Mr.
Rodolfo Guevarra xxx to be our Agency Manager in San Fdo., for our place and stead, to do and perform the
following acts and things:

(1) To make such payments as are not usually considered as acts of administration;
xxx xxx xxx
(15) Any other act of strict dominion.
The payment of claims is not an act of administration. The settlement of claims is not included among
the acts enumerated in the Special Power of Attorney, neither is it of a character similar to the acts
enumerated therein. A special power of attorney is required before respondent Guevarra could settle the
insurance claims of the insured.
Respondent Guevarras authority to settle claims is embodied in the Memorandum of Management
Agreement[23] dated February 18, 1987 which enumerates the scope of respondentGuevarras duties and
responsibilities as agency manager for San Fernando, Pampanga, as follows:
xxx xxx xxx
1. You are hereby given authority to settle and dispose of all motor car claims in the amount of P5,000.00 with
prior approval of the Regional Office.
2. Full authority is given you on TPPI claims settlement.
xxx xxx xxx[24]

1. To conduct, sign, manager (sic), carry on and transact Bonding and Insurance business as
usually pertain to a Agency Office, or FIRE, MARINE, MOTOR CAR, PERSONAL
ACCIDENT, and BONDING with the right, upon our prior written consent, to appoint agents
and sub-agents.

In settling the claims mentioned above, respondent Guevarras authority is further limited by the written
standard authority to pay,[25] which states that the payment shall come from respondent Guevarras revolving
fund or collection. The authority to pay is worded as follows:

2. To accept, underwrite and subscribed (sic) cover notes or Policies of Insurance and Bonds for
and on our behalf.

This is to authorize you to withdraw from your revolving fund/collection the amount of PESOS
__________________ (P ) representing the payment on the _________________ claim of assured
_______________ under Policy No. ______ in that accident of ___________ at ____________.

3. To demand, sue, for (sic) collect, deposit, enforce payment, deliver and transfer for and
receive and give effectual receipts and discharge for all money to which the FIRST
CONTINENTAL ASSURANCE COMPANY, INC.,[18] may hereafter become due, owing
payable or transferable to said Corporation by reason of or in connection with the abovementioned appointment.
4. To receive notices, summons, and legal processes for and in behalf of the FIRST
CONTINENTAL ASSURANCE COMPANY, INC., in connection with actions and all legal
proceedings against the said Corporation. [19] [Emphasis supplied]

It is further expected, release papers will be signed and authorized by the concerned and attached to the
corresponding claim folder after effecting payment of the claim.
(sgd.) FERNANDO C. AUSTRIA
Regional Manager[26]
[Emphasis supplied]

The agency comprises all the business of the principal, [20] but, couched in general terms, it is limited
only to acts of administration.[21]
A general power permits the agent to do all acts for which the law does not require a special power.
Thus, the acts enumerated in or similar to those enumerated in the Special Power of Attorney do not
require a special power of attorney.

The instruction of petitioner as the principal could not be any clearer. Respondent Guevarra was
authorized to pay the claim of the insured, but the payment shall come from the revolving fund or collection in
his possession.

[22]

Article 1878, Civil Code, enumerates the instances when a special power of attorney is required. The
pertinent portion that applies to this case provides that:

Having deviated from the instructions of the principal, the expenses that respondent Guevarra incurred
in the settlement of the claims of the insured may not be reimbursed from petitioner Dominion. This conclusion
is in accord with Article 1918, Civil Code, which states that:
The principal is not liable for the expenses incurred by the agent in the following cases:

Article 1878. Special powers of attorney are necessary in the following cases:

(1) If the agent acted in contravention of the principals instructions, unless the latter should wish to avail
himself of the benefits derived from the contract;

This action is brought to recover the sum of P29,600 on two cause against the administrator of the estate of
the deceased Mariano Larena.chanroblesvirtualawlibrarychanrobles virtual law library

xxx xxx xxx

However, while the law on agency prohibits respondent Guevarra from obtaining reimbursement, his
right to recover may still be justified under the general law on obligations and contracts.
Article 1236, second paragraph, Civil Code, provides:
Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the
knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to
the debtor.
In this case, when the risk insured against occurred, petitioners liability as insurer arose. This obligation
was extinguished when respondent Guevarra paid the claims and obtained Release of Claim Loss and
Subrogation Receipts from the insured who were paid.
Thus, to the extent that the obligation of the petitioner has been extinguished,
respondent Guevarra may demand for reimbursement from his principal. To rule otherwise would result in
unjust enrichment of petitioner.
The extent to which petitioner was benefited by the settlement of the insurance claims could best be
proven by the Release of Claim Loss and Subrogation Receipts [27] which were attached to the original
complaint as Annexes C-2, D-1, E-1, F-1, G-1, H-1, I-1 and J-l, in the total amount of P116,276.95.
However, the amount of the revolving fund/collection that was then in the possession of
respondent Guevarra as reflected in the statement of account dated July 11, 1990 would be deducted from the
above amount.
The outstanding balance and the production/remittance for the period corresponding to the claims was
P3,604.84. Deducting this from P116,276.95, we get P112,672.11. This is the amount that may be reimbursed
to respondent Guevarra.
The Fallo
IN VIEW WHEREOF, we DENY the Petition. However, we MODIFY the decision of the Court of
Appeals[28] and that of the Regional Trial Court, Branch 44, San Fernando, Pampanga,[29] in that petitioner is
ordered to pay respondent Guevarra the amount of P112,672.11 representing the total amount advanced by
the latter in the payment of the claims of petitioners clients.
No costs in this instance.
SO ORDERED.
G.R. No. L-37207

Upon his first cause of action, the plaintiff claims the sum of P9,600, the alleged value of the services rendered
by him to said deceased as his agent in charge of the deceased's houses situated in Manila. Under the
second cause of action the plaintiff alleges that one of the buildings belonging to the deceased and described
in his complaint was built by him with the consent of the deceased, and for that reason he is entitled to recover
the sum disbursed by him in its construction, amounting to P20,000.chanroblesvirtualawlibrary chanrobles
virtual law library
From the evidence it appears undisputed that from February, 1922, to February, 1930, the plaintiff rendered
services to the deceased, consisting in the collection of the rents due from the tenants occupying the
deceased's houses in Manila and attending to the repair of said houses when necessary. He also took any
such steps as were necessary to enforce the payment of rents and all that was required to protect the interests
of the deceased in connection with said houses. The evidence also shows that during the time the plaintiff
rendered his services, he did not receive any compensation. It is, however, a fact admitted that during said
period the plaintiff occupied a house belonging to the deceased without paying any rent at
all.chanroblesvirtualawlibrary chanrobles virtual law library
As to the building whose value is claimed by the plaintiff, the record shows that said building was really
erected on a parcel of land belonging to the deceased on Calle Victoria, Manila, and that the expenses for
materials and labor in the construction thereof were paid by the appellant, the construction having begun in
1926 and terminated in 1928, but the ownership of the money interested in the building is in
question.chanroblesvirtualawlibrary chanrobles virtual law library
Upon the first cause the plaintiff-appellant insists that, the services having been rendered, an obligation to
compensate them must necessarily arise. The trial court held that the compensation for the services of the
plaintiff was the gratuitous use and occupation of some of the houses of the deceased by the plaintiff and his
family. This conclusion is correct. if it were true that the plaintiff and the deceased had an understanding to the
effect that the plaintiff was to receive compensation aside from the use and occupation of the houses of the
deceased, it cannot be explained how the plaintiff could have rendered services as he did for eight years
without receiving and claiming any compensation from the deceased.chanroblesvirtualawlibrary chanrobles
virtual law library
As to the second cause, the evidence presented by the plaintiff is his own testimony, that of his witnesses, and
several documents, consisting of municipal permit, checks, vouchers, and invoices. The testimony of the
plaintiff's witnesses, the persons who sold the materials and furnished the labor, proves a few unimportant
facts, and as to the ownership of the money thus invested, there is only the testimony of the plaintiff-appellant,
who said that it all belonged to him and that his understanding with the deceased was that the latter would get
the rents of the house, and, upon his death, he would bequeath it to the plaintiff, but unfortunately, he died
intestate. This testimony, however, was objected to on the ground that it is prohibited by section 383,
paragraph 7, of the Code of Civil Procedure, which provides that the party to an action against an executor or
administrator cannot testify on any fact that took place before the death of the person against whose estate
the claim is presented. The lower court admitted this testimony but did not believe it. And certainly it cannot be
believed, even assuming it to be admissible, in view of the circumstances appearing undisputed in the record,
namely, the fact that the plaintiff-appellant did not have any source of income that could produce him such a
large sum of money as that invested in the construction of the house; and the fact that the deceased had more
than the necessary amount to build the house.chanroblesvirtualawlibrary chanrobles virtual law library

December 6, 1932

JULIAN T. AGUNA, Plaintiff-Appellant, vs. ANTONIO LARENA, judicial administrator of the intestate
estate of the deceased Mariano Larena, Defendant-Appellee.
Ramirez & Ortigas for appellant.
Cardenas & Casal for appellee.

OSTRAND, J.:

But above all, the facts appearing from Exhibit 40 are conclusive against the claim of the plaintiff-appellant.
Exhibit 40 is a book of accounts containing several items purporting to have been advanced by the deceased
to the plaintiff-appellant for the construction of the house. The plaintiff admitted that the first two lines
constituting the heading of the account on the first page were written by himself. Said two lines say: "Dinero
Tomado a Don Mariano Larena para la nueva casa." Appellant further admits that the first entry in Exhibit 40
was made by him and that the sum of P3,200 mentioned in the third entry was received by him. It is to be
noted that the first entry is dated February 1, 1926, and the last is under the date of December 31, 1927. The

other entries are admitted by the plaintiff-appellant to have been made by the deceased. Finally the appellant
admitted in cross-examination that this book, Exhibit 40, was his and that whenever he received money from
the deceased, he handed it to the deceased in order that the latter might enter what he had received. The total
of the items contained in this book is P17, 834.72, which is almost the amount invested in the construction of
the building. Furthermore, the items entered in Exhibit 40, appear in Exhibit 41 as withdrawn by the deceased
from his account with the Monte de Piedad, and a corresponding entry appears in Exhibit 43 showing a
deposit made by the plaintiff in his current account with the Philippine National Bank. From all of this it is clear
that the money invested in the construction of the building in question did not belong to the
plaintiff.chanroblesvirtualawlibrary chanrobles virtual law library
The appealed judgment is affirmed, with the costs against the appellant. So ordered.
[G.R. No. 115838. July 18, 2002]
CONSTANTE AMOR DE CASTRO and CORAZON AMOR DE CASTRO, petitioners, vs. COURT OF
APPEALS and FRANCISCO ARTIGO, respondents.
DECISION
CARPIO, J.:
The Case
Before us is a Petition for Review on Certiorari [1] seeking to annul the Decision of the Court of
Appeals[2] dated May 4, 1994 in CA-G.R. CV No. 37996, which affirmed in toto the decision[3] of the Regional
Trial Court of Quezon City, Branch 80, in Civil Case No. Q-89-2631. The trial court disposed as follows:
WHEREFORE, the Court finds defendants Constante and Corazon Amor de Castro jointly and solidarily liable
to plaintiff the sum of:
a) P303,606.24 representing unpaid commission;

desired to buy two (2) lots only, specifically lots 14 and 15. Eventually, sometime in May of 1985, the sale of
lots 14 and 15 was consummated. Appellee received from appellants P48,893.76 as commission.
It was then that the rift between the contending parties soon emerged. Appellee apparently felt short changed
because according to him, his total commission should be P352,500.00 which is five percent (5%) of the
agreed price of P7,050,000.00 paid by Times Transit Corporation to appellants for the two (2) lots, and that it
was he who introduced the buyer to appellants and unceasingly facilitated the negotiation which ultimately led
to the consummation of the sale. Hence, he sued below to collect the balance of P303,606.24 after having
received P48,893.76 in advance.
On the other hand, appellants completely traverse appellees claims and essentially argue that appellee is
selfishly asking for more than what he truly deserved as commission to the prejudice of other agents who were
more instrumental in the consummation of the sale. Although appellants readily concede that it was appellee
who first introduced Times Transit Corp. to them, appellee was not designated by them as their exclusive real
estate agent but that in fact there were more or less eighteen (18) others whose collective efforts in the long
run dwarfed those of appellees, considering that the first negotiation for the sale where appellee took active
participation failed and it was these other agents who successfully brokered in the second negotiation. But
despite this and out of appellants pure liberality, beneficence and magnanimity, appellee nevertheless was
given the largest cut in the commission (P48,893.76), although on the principle of quantum meruit he would
have certainly been entitled to less. So appellee should not have been heard to complain of getting only a
pittance when he actually got the lions share of the commission and worse, he should not have been allowed
to get the entire commission. Furthermore, the purchase price for the two lots was only P3.6 million as
appearing in the deed of sale and not P7.05 million as alleged by appellee. Thus, even assuming that appellee
is entitled to the entire commission, he would only be getting 5% of the P3.6 million, or P180,000.00.
Ruling of the Court of Appeals
The Court of Appeals affirmed in toto the decision of the trial court.
First. The Court of Appeals found that Constante authorized Artigo to act as agent in the sale of two lots
in Cubao, Quezon City. The handwritten authorization letter signed by Constante clearly established a contract
of agency between Constante and Artigo. Thus, Artigo sought prospective buyers and found Times Transit
Corporation (Times Transit for brevity).Artigo facilitated the negotiations which eventually led to the sale of the
two lots. Therefore, the Court of Appeals decided that Artigo is entitled to the 5% commission on the purchase
price as provided in the contract of agency.

b) P25,000.00 for and by way of moral damages;

c) P45,000.00 for and by way of attorneys fees;
d) To pay the cost of this suit.
Quezon City, Metro Manila, December 20, 1991.
The Antecedent Facts
On May 29, 1989, private respondent Francisco Artigo (Artigo for brevity) sued petitioners Constante A.
De Castro (Constante for brevity) and Corazon A. De Castro (Corazon for brevity) to collect the unpaid
balance of his brokers commission from the De Castros. [4] The Court of Appeals summarized the facts in this
wise:

Second. The Court of Appeals ruled that Artigos complaint is not dismissible for failure to implead as
indispensable parties the other co-owners of the two lots. The Court of Appeals explained that it is not
necessary to implead the other co-owners since the action is exclusively based on a contract of agency
between Artigo and Constante.
Third. The Court of Appeals likewise declared that the trial court did not err in admitting parol evidence
to prove the true amount paid by Times Transit to the De Castros for the two lots.The Court of Appeals ruled
that evidence aliunde could be presented to prove that the actual purchase price was P7.05 million and not
P3.6 million as appearing in the deed of sale.Evidence aliunde is admissible considering that Artigo is not a
party, but a mere witness in the deed of sale between the De Castros and Times Transit. The Court of Appeals
explained that, the rule that oral evidence is inadmissible to vary the terms of written instruments is generally
applied only in suits between parties to the instrument and strangers to the contract are not bound by it.
Besides, Artigo was not suing under the deed of sale, but solely under the contract of agency. Thus, the Court
of Appeals upheld the trial courts finding that the purchase price was P7.05 million and not P3.6 million.
Hence, the instant petition.

x x x. Appellants[5] were co-owners of four (4) lots located at EDSA corner New York and Denver Streets in
Cubao, Quezon City. In a letter dated January 24, 1984 (Exhibit A-1, p. 144, Records), appellee [6] was
authorized by appellants to act as real estate broker in the sale of these properties for the amount
of P23,000,000.00, five percent (5%) of which will be given to the agent as commission. It was appellee who
first found Times Transit Corporation, represented by its president Mr. Rondaris, as prospective buyer which

The Issues
According to petitioners, the Court of Appeals erred in -

I. NOT ORDERING THE DISMISSAL OF THE COMPLAINT FOR FAILURE TO IMPLEAD

INDISPENSABLE PARTIES-IN-INTEREST;

5% commission as agents fee.

C.C. de Castro

II. NOT ORDERING THE DISMISSAL OF THE COMPLAINT ON THE GROUND THAT
ARTIGOS CLAIM HAS BEEN EXTINGUISHED BY FULL PAYMENT, WAIVER, OR
ABANDONMENT;

owner & representing

III. CONSIDERING INCOMPETENT EVIDENCE;

co-owners

IV. GIVING CREDENCE TO PATENTLY PERJURED TESTIMONY;

This authority is on a first-come

V. SANCTIONING AN AWARD OF MORAL DAMAGES AND ATTORNEYS FEES;

First serve basis CAC

VI. NOT AWARDING THE DE CASTROS MORAL AND EXEMPLARY DAMAGES, AND
ATTORNEYS FEES.
The Courts Ruling

Constante signed the note as owner and as representative of the other co-owners. Under this note, a
contract of agency was clearly constituted between Constante and Artigo. Whether Constante appointed Artigo
as agent, in Constantes individual or representative capacity, or both, the De Castros cannot seek the
dismissal of the case for failure to implead the other co-owners as indispensable parties. The De Castros
admit that the other co-owners are solidarily liable under the contract of agency ,[10] citing Article 1915 of
the Civil Code, which reads:

The petition is bereft of merit.

First Issue: whether the complaint merits dismissal for failure to implead other co-owners as
indispensable parties
The De Castros argue that Artigos complaint should have been dismissed for failure to implead all the
co-owners of the two lots. The De Castros claim that Artigo always knew that the two lots were co-owned by
Constante and Corazon with their other siblings Jose and Carmela whom Constante merely represented. The
De Castros contend that failure to implead such indispensable parties is fatal to the complaint since Artigo, as
agent of all the four co-owners, would be paid with funds co-owned by the four co-owners.
The De Castros contentions are devoid of legal basis.
An indispensable party is one whose interest will be affected by the courts action in the litigation, and
without whom no final determination of the case can be had. [7] The joinder of indispensable parties is
mandatory and courts cannot proceed without their presence. [8] Whenever it appears to the court in the course
of a proceeding that an indispensable party has not been joined, it is the duty of the court to stop the trial and
order the inclusion of such party.[9]
However, the rule on mandatory joinder of indispensable parties is not applicable to the instant case.
There is no dispute that Constante appointed Artigo in a handwritten note dated January 24, 1984 to
sell the properties of the De Castros for P23 million at a 5 percent commission. The authority was on a first
come, first serve basis. The authority reads in full:
24 Jan. 84
To Whom It May Concern:
This is to state that Mr. Francisco Artigo is authorized as our real estate broker in connection with the sale of
our property located at Edsa Corner New York & Denver, Cubao, Quezon City.
Asking price P23,000,000.00 with

Art. 1915. If two or more persons have appointed an agent for a common transaction or undertaking, they
shall be solidarily liable to the agent for all the consequences of the agency.
The solidary liability of the four co-owners, however, militates against the De Castros theory that the other coowners should be impleaded as indispensable parties. A noted commentator explained Article 1915 thus
The rule in this article applies even when the appointments were made by the principals in separate acts,
provided that they are for the same transaction. The solidarity arises from the common interest of the
principals, and not from the act of constituting the agency. By virtue of this solidarity, the agent can
recover from any principal the whole compensation and indemnity owing to him by the others. The
parties, however, may, by express agreement, negate this solidary responsibility. The solidarity does not
disappear by the mere partition effected by the principals after the accomplishment of the agency.
If the undertaking is one in which several are interested, but only some create the agency, only the latter are
solidarily liable, without prejudice to the effects of negotiorum gestio with respect to the others. And if the
power granted includes various transactions some of which are common and others are not, only those
interested in each transaction shall be liable for it.[11]
When the law expressly provides for solidarity of the obligation, as in the liability of co-principals in a
contract of agency, each obligor may be compelled to pay the entire obligation. [12]The agent may recover the
whole compensation from any one of the co-principals, as in this case.
Indeed, Article 1216 of the Civil Code provides that a creditor may sue any of the solidary debtors. This
article reads:
Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them
simultaneously. The demand made against one of them shall not be an obstacle to those which may
subsequently be directed against the others, so long as the debt has not been fully collected.
Thus, the Court has ruled in Operators Incorporated vs. American Biscuit Co., Inc. [13] that
x x x solidarity does not make a solidary obligor an indispensable party in a suit filed by the
creditor. Article 1216 of the Civil Code says that the creditor `may proceed against anyone of the solidary
debtors or some or all of them simultaneously. (Emphasis supplied)

Second Issue: whether Artigos claim has been extinguished by full payment, waiver or abandonment
The De Castros claim that Artigo was fully paid on June 14, 1985, that is, Artigo was given his
proportionate share and no longer entitled to any balance. According to them, Artigo was just one of the
agents involved in the sale and entitled to a proportionate share in the commission. They assert that Artigo did
absolutely nothing during the second negotiation but to sign as a witness in the deed of sale. He did not even
prepare the documents for the transaction as an active real estate broker usually does.
The De Castros arguments are flimsy.

equivalent to the required acceptance of performance as would extinguish the whole obligation.
[16]
(Emphasis supplied)
There is thus a clear distinction between acceptance and mere receipt. In this case, it is evident that
Artigo merely received the partial payment without waiving the balance. Thus, there is no estoppel to speak of.
The De Castros further argue that laches should apply because Artigo did not file his complaint in court
until May 29, 1989, or almost four years later. Hence, Artigos claim for the balance of his commission is barred
by laches.

A contract of agency which is not contrary to law, public order, public policy, morals or good custom is a
valid contract, and constitutes the law between the parties. [14] The contract of agency entered into by
Constante with Artigo is the law between them and both are bound to comply with its terms and conditions in
good faith.

Laches means the failure or neglect, for an unreasonable and unexplained length of time, to do that
which by exercising due diligence could or should have been done earlier. It is negligence or omission to
assert a right within a reasonable time, warranting a presumption that the party entitled to assert it either has
abandoned it or declined to assert it.[17]

The mere fact that other agents intervened in the consummation of the sale and were paid their
respective commissions cannot vary the terms of the contract of agency granting Artigo a 5 percent
commission based on the selling price. These other agents turned out to be employees of Times Transit, the
buyer Artigo introduced to the De Castros. This prompted the trial court to observe:

Artigo disputes the claim that he neglected to assert his rights. He was appointed as agent on January
24, 1984. The two lots were finally sold in June 1985. As found by the trial court, Artigo demanded in April and
July of 1985 the payment of his commission by Constante on the basis of the selling price of P7.05 million but
there was no response from Constante. [18] After it became clear that his demands for payment have fallen on
deaf ears, Artigo decided to sue on May 29, 1989.

The alleged `second group of agents came into the picture only during the so-called `second negotiation and it
is amusing to note that these (sic) second group, prominent among whom are Atty. Del Castillo and Ms.
Prudencio, happened to be employees of Times Transit, the buyer of the properties. And their efforts were
limited to convincing Constante to part away with the properties because the redemption period of the
foreclosed properties is around the corner, so to speak. (tsn. June 6, 1991).
xxx
To accept Constantes version of the story is to open the floodgates of fraud and deceit. A seller could always
pretend rejection of the offer and wait for sometime for others to renew it who are much willing to accept a
commission far less than the original broker. The immorality in the instant case easily presents itself if
one has to consider that the alleged `second group are the employees of the buyer, Times Transit and
they have not bettered the offer secured by Mr. Artigo for P7 million.
It is to be noted also that while Constante was too particular about the unrenewed real estate brokers license
of Mr. Artigo, he did not bother at all to inquire as to the licenses of Prudencio and Castillo. (tsn, April 11, 1991,
pp. 39-40).[15] (Emphasis supplied)
In any event, we find that the 5 percent real estate brokers commission is reasonable and within the standard
practice in the real estate industry for transactions of this nature.
The De Castros also contend that Artigos inaction as well as failure to protest estops him from
recovering more than what was actually paid him. The De Castros cite Article 1235 of the Civil Code which
reads:
Art. 1235. When the obligee accepts the performance, knowing its incompleteness and irregularity, and
without expressing any protest or objection, the obligation is deemed fully complied with.
The De Castros reliance on Article 1235 of the Civil Code is misplaced. Artigos acceptance of partial payment
of his commission neither amounts to a waiver of the balance nor puts him in estoppel. This is the import of
Article 1235 which was explained in this wise:
The word accept, as used in Article 1235 of the Civil Code, means to take as satisfactory or sufficient, or
agree to an incomplete or irregular performance. Hence, the mere receipt of a partial payment is not

Actions upon a written contract, such as a contract of agency, must be brought within ten years from
the time the right of action accrues. [19] The right of action accrues from the moment the breach of right or duty
occurs. From this moment, the creditor can institute the action even as the ten-year prescriptive period begins
to run.[20]
The De Castros admit that Artigos claim was filed within the ten-year prescriptive period. The De
Castros, however, still maintain that Artigos cause of action is barred by laches. Laches does not apply
because only four years had lapsed from the time of the sale in June 1985. Artigo made a demand in July
1985 and filed the action in court on May 29, 1989, well within the ten-year prescriptive period. This does not
constitute an unreasonable delay in asserting ones right. The Court has ruled, a delay within the
prescriptive period is sanctioned by law and is not considered to be a delay that would bar relief. [21] In
explaining that laches applies only in the absence of a statutory prescriptive period, the Court has stated Laches is recourse in equity. Equity, however, is applied only in the absence, never in contravention, of
statutory law. Thus, laches, cannot, as a rule, be used to abate a collection suit filed within the
prescriptive period mandated by the Civil Code. [22]
Clearly, the De Castros defense of laches finds no support in law, equity or jurisprudence.
Third issue: whether the determination of the purchase price was made in violation of the Rules on
Evidence
The De Castros want the Court to re-examine the probative value of the evidence adduced in the trial
court to determine whether the actual selling price of the two lots was P7.05 million and not P3.6 million. The
De Castros contend that it is erroneous to base the 5 percent commission on a purchase price of P7.05 million
as ordered by the trial court and the appellate court. The De Castros insist that the purchase price is P3.6
million as expressly stated in the deed of sale, the due execution and authenticity of which was admitted
during the trial.

The De Castros believe that the trial and appellate courts committed a mistake in considering
incompetent evidence and disregarding the best evidence and parole evidence rules. They claim that the
Court of Appeals erroneously affirmed sub silentio the trial courts reliance on the various correspondences
between Constante and Times Transit which were mere photocopies that do not satisfy the best evidence
rule. Further, these letters covered only the first negotiations between Constante and Times Transit which
failed; hence, these are immaterial in determining the final purchase price.

give his due commission deserve censure. This warrants the award of P25,000.00 in moral damages
and P45,000.00 in attorneys fees. The amounts are, in our view, fair and reasonable. Having found a buyer for
the two lots, Artigo had already performed his part of the bargain under the contract of agency. The De
Castros should have exercised fairness and good judgment in dealing with Artigo by fulfilling their own part of
the bargain - paying Artigo his 5 percent brokers commission based on the actual purchase price of the two
lots.

The De Castros further argue that if there was an undervaluation, Artigo who signed as witness
benefited therefrom, and being equally guilty, should be left where he presently stands.They likewise claim
that the Court of Appeals erred in relying on evidence which were not offered for the purpose considered by
the trial court. Specifically, Exhibits B, C, D and E were not offered to prove that the purchase price was P7.05
Million. Finally, they argue that the courts a quo erred in giving credence to the perjured testimony of
Artigo. They want the entire testimony of Artigo rejected as a falsehood because he was lying when he
claimed at the outset that he was a licensed real estate broker when he was not.

WHEREFORE, the petition is denied for lack of merit. The Decision of the Court of Appeals dated May
4, 1994 in CA-G.R. CV No. 37996 is AFFIRMED in toto.

Whether the actual purchase price was P7.05 Million as found by the trial court and affirmed by the
Court of Appeals, or P3.6 Million as claimed by the De Castros, is a question of fact and not of law. Inevitably,
this calls for an inquiry into the facts and evidence on record. This we can not do.

INLAND REALTY INVESTMENT SERVICE, INC. and ROMAN M. DE LOS REYES, petitioners, vs. HON.
COURT
OF
APPEALS,
GREGORIO
ARANETA,
INC.
and
J.
ARMANDO
EDUQUE, respondents.

It is not the function of this Court to re-examine the evidence submitted by the parties, or analyze or
weigh the evidence again.[23] This Court is not the proper venue to consider a factual issue as it is not a trier of
facts. In petitions for review on certiorari as a mode of appeal under Rule 45, a petitioner can only raise
questions of law. Our pronouncement in the case ofCormero vs. Court of Appeals[24] bears reiteration:

DECISION

At the outset, it is evident from the errors assigned that the petition is anchored on a plea to review the factual
conclusion reached by the respondent court. Such task however is foreclosed by the rule that in petitions for
certiorari as a mode of appeal, like this one, only questions of law distinctly set forth may be raised. These
questions have been defined as those that do not call for any examination of the probative value of the
evidence presented by the parties. (Uniland Resources vs. Development Bank of the Philippines, 200 SCRA
751 [1991] citing Goduco vs. Court of appeals, et al., 119 Phil. 531; Hernandez vs. Court of Appeals, 149
SCRA 67). And when this court is asked to go over the proof presented by the parties, and analyze, assess
and weigh them to ascertain if the trial court and the appellate court were correct in according superior credit
to this or that piece of evidence and eventually, to the totality of the evidence of one party or the other, the
court cannot and will not do the same. (Elayda vs. Court of Appeals, 199 SCRA 349 [1991]). Thus, in the
absence of any showing that the findings complained of are totally devoid of support in the record, or that they
are so glaringly erroneous as to constitute serious abuse of discretion, such findings must stand, for this court
is not expected or required to examine or contrast the oral and documentary evidence submitted by the
parties. (Morales vs. Court of Appeals, 197 SCRA 391 [1991] citing Santa Ana vs. Hernandez, 18 SCRA 973
[1966]).
We find no reason to depart from this principle. The trial and appellate courts are in a much better
position to evaluate properly the evidence. Hence, we find no other recourse but to affirm their finding on the
actual purchase price.
Fourth Issue: whether award of moral damages and attorneys fees is proper
The De Castros claim that Artigo failed to prove that he is entitled to moral damages and attorneys
fees. The De Castros, however, cite no concrete reason except to say that they are the ones entitled to
damages since the case was filed to harass and extort money from them.

SO ORDERED.
[G.R. No. 76969. June 9, 1997]

HERMOSISIMA, JR., J.:

Herein petitioners Inland Realty Investment Service, Inc. (hereafter, "Inland Realty") and Roman M. de
los Reyes seek the reversal of the Decision [1] of the Intermediate Appellate Court (now Court of Appeals)
[2]
which affirmed the trial court's dismissal [3] of petitioners' claim for unpaid agent's commission for brokering
the sales transaction involving 9,800 shares of stock in Architects' Bldg., Inc. (hereafter, "Architects'") between
private respondent Gregorio Araneta, Inc. (hereafter, "Araneta, Inc.") as seller and Stanford Microsystems, Inc.
(hereafter, "Stanford") as buyer.
Petitioners come to us with a two-fold agenda: (1) to obtain from us a declaration that the trial court and
the respondent appellate court gravely erred when appreciating the facts of the case by disregarding Exhibits
"L," a Letter dated October 28, 1976 signed by Gregorio Araneta II, renewing petitioners' authority to act as
sales agent for a period of thirty (30) days from same date, and Exhibit "M," a Letter dated November 16, 1976
signed by petitioner de los Reyes, naming four (4) other prospective buyers, respectively; and (2) to obtain
from us a categorical ruling that a broker is automatically entitled to the stipulated commission merely upon
securing for, and introducing to, the seller the particular buyer who ultimately purchases from the former the
object of the sale, regardless of the expiration of the broker's contract of agency and authority to sell.
Before we proceed to address petitioners' objectives, there is a need to unfold the facts of the case. For
that purpose, we quote hereunder the findings of fact of the Court of Appeals with which petitioners agree,
except as to the respondent appellate court's non-inclusion of the aforementioned Exhibits "L" and "M":
"From the evidence, the following facts appear undisputed: On September 16, 1975, defendant corporation
thru its co-defendant Assistant General Manager J. Armando Eduque, granted to plaintiffs a 30-day authority
to sell its x x x 9,800 shares of stock in Architects' Bldg., Inc. as follows:
'Septe
mber 16, 1975

Law and jurisprudence support the award of moral damages and attorneys fees in favor of Artigo. The
award of damages and attorneys fees is left to the sound discretion of the court, and if such discretion is well
exercised, as in this case, it will not be disturbed on appeal. [25] Moral damages may be awarded when in a
breach of contract the defendant acted in bad faith, or in wanton disregard of his contractual obligation.[26] On
the other hand, attorneys fees are awarded in instances where the defendant acted in gross and evident bad
faith in refusing to satisfy the plaintiffs plainly valid, just and demandable claim. [27] There is no reason to disturb
the trial courts finding that the defendants lack of good faith and unkind treatment of the plaintiff in refusing to

TO WHOM IT MAY CONCERN:

This is to authorize Mr. R.M. de los Reyes, representing Inland Realty, to sell on a first come first served basis
the total holdings of Gregorio Araneta, Inc. in Architects' [Bldg.], Inc. equivalent to 98% or 9,800 shares of
stock at the price of P1,500.00 per share for a period of 30 days.

(SGD.) J.
ARMANDO EDUQUE
A
sst. General Manager'
Plaintiff Inland Realty Investment Service, Inc. (Inland Realty for short) is a corporation engaged [in], among
others x x x the real estate business [and] brokerages, duly licensed by the Bureau of Domestic Trade x x
x. [Inland Realty] planned their sales campaign, sending proposal letters to prospective buyers. One such
prospective buyer to whom a proposal letter was sent to was Stanford Microsystems, Inc. x x x [that] counterproposed to buy 9,800 shares offered at P1,000.00 per share or for a total of P9,800,000.00, P4,900,000.00
payable in five years at 12% per annum interest until fully paid.
Upon plaintiffs' receipt of the said counter-proposal, it immediately [sic] wrote defendant a letter to register
Stanford Microsystems, Inc. as one of its prospective buyers x x x. Defendant Araneta, Inc., thru its Assistant
General Manager J. Armando Eduque, replied that the price offered by Stanford was too low and suggested
that plaintiffs see if the price and terms of payment can be improved upon by Stanford x x x. Other prospective
buyers were submitted to defendants among whom were Atty. Maximo F. Belmonte and Mr. Joselito
Hernandez. The authority to sell given to plaintiffs by defendants was extended several times: the first being
on October 2, 1975, for 30 days from said date (Exh. 'J'), the second on October 28, 1975 for 30 days from
said date (Exh. 'L') and on December 2, 1975 for 30 days from said date (Exh. 'K').
Plaintiff Roman de los Reyes, manager of Inland Realty's brokerage division, who by contract with Inland
Realty would be entitled to 1/2 of the claim asserted herein, testified that when his company was initially
granted the authority to sell, he asked for an exclusive authority and for a longer period but Armando Eduque
would not give, but according to this witness, the life of the authority could always be extended for the purpose
of negotiation that would be continuing.
On July 8, 1977, plaintiffs finally sold the 9,800 shares of stock [in] Architects' [Bldg.], Inc. to Stanford
Microsystems, Inc. for P13,500,000.00 x x x.
On September 6, 1977, plaintiffs demanded formally [from] defendants, through a letter of demand, for
payment of their 5% broker['s] commission at P13,500,000.00 or a total amount of P675,000.00 x x x which
was declined by [defendants] on the ground that the claim has no factual or legal basis." [4]
Ascribing merit to private respondents' defense that, after their authority to sell expired thirty (30) days
from December 2, 1975, or on January 1, 1976, petitioners abandoned the sales transaction and were no
longer privy to the consummation and documentation thereof, the trial court dismissed petitioners' complaint
for collection of unpaid broker's commission.
Petitioners appealed, but the Court of Appeals was unswayed in the face of evidence of the expiration
of petitioners' agency contract and authority to sell on January 1, 1976 and the consummation of the sale to
Stanford on July 8, 1977 or more than one (1) year and five (5) months after petitioners' agency contract and
authority to sell expired. Respondent appellate court dismissed petitioners' appeal in this wise:
" x x x The resolution would seem to hinge on the question of whether plaintiff was instrumental in the final
consummation of the sale to Stanford which was the same name of the company submitted to defendants as a
prospective buyer although their price was considered by defendant to be too low and defendants wrote to
plaintiff if the price may be improved upon by Stanford x x x. This was on October 13, 1975. After that, there
was an extension for 30 days from October 28, 1975 of the authority (Exh. 'L') and another on December 2,
1975 for another 30 days from the said date x x x. x x x There is nothing in the record or in the testimonial
evidence that the authority extended 30 days from the last date of extension was ever reserved nor extended,
nor has there been any communication made to defendants that the plaintiff was actually negotiating with
Stanford a better price than what was previously offered by it x x x.

In fact there was no longer any agency after the last extension. Certainly, the length of time which had
transpired from the date of last extension of authority to the final consummation of the sale with Stanford of
about one (1) year and five (5) months without any communication at all from plaintiffs to defendants with
respect to the suggestion of defendants that Stanford's offer was too low and suggested if plaintiffs may make
it better. We have a case of proposal and counter-proposal which would not constitute a definite closing of the
transaction just because it was plaintiff who solely suggested to defendants the name of Stanford as buyer x x
x."[5]
Unable to accept the dismissal of its claim for unpaid broker's commission, petitioners filed the instant
petition for review asking us (1) to pass upon the factual issue of the alleged extension of their agency contract
and authority to sell and (2) to rule in favor of a broker's automatic entitlement to the stipulated commission
merely upon securing for, and introducing to, the seller, the particular buyer who ultimately purchases from the
former the object of the sale, regardless of the expiration of the broker's contract of agency and authority to
sell.
We find for private respondents.
I
Petitioners take exception to the finding of the respondent Court of Appeals that their contract of
agency and authority to sell expired thirty (30) days from its last renewal on December 2, 1975. They insist
that, in the Letter dated October 28, 1976, Gregorio Araneta III, in behalf of Araneta, Inc., renewed petitioner
Inland Realty's authority to act as agent to sell the former's 9,800 shares in Architects' for another thirty (30)
days from same date. This Letter dated October 28, 1976, petitioners claim, was marked as Exhibit "L" during
the trial proceedings before the trial court.
This claim is a blatant lie. In the first place, petitioners have conspicuously failed to attach a certified
copy of this Letter dated October 28, 1976. They have, in fact, not attached even a machine copy thereof. All
they gave this court is their word that said Letter dated October 28, 1976 does exist, and on that basis, they
expect us to accordingly rule in their favor.
Such naivety, this court will not tolerate. We will not treat lightly petitioners' attempt to mislead this court
by claiming that the Letter dated October 28, 1976 was marked as Exhibit "L" by the trial court, when the truth
is that the trial court marked as Exhibit "L", and the respondent Court of Appeals considered as Exhibit "L,"
private respondent Araneta, Inc.'s Letter dated October 28, 1975, not 1976. Needless to say, this blatant
attempt to mislead this court, is contemptuous conduct that we sternly condemn.
II
The Letter dated November 16, 1976, claimed by petitioners to have been marked as Exhibit "M", has
no probative value, considering that its very existence remains under a heavy cloud of doubt and that
hypothetically assuming its existence, its alleged content, namely, a listing of four (4) other prospective buyers,
does not at all prove that the agency contract and authority to sell in favor of petitioners was renewed or
revived after it expired on January 1, 1976. As in the case of the Letter dated October 28, 1976, petitioners
have miserably failed to attach any copy of the Letter dated November 16, 1976. A copy thereof would not
help petitioners' failing cause, anyway, especially considering that said letter was signed by petitioner De los
Reyes and would therefore take on the nature of a self-serving document that has no evidentiary value insofar
as petitioners are concerned.
III
Finally, petitioners asseverate that, regardless of whether or not their agency contract and authority to
sell had expired, they are automatically entitled to their broker's commission merely upon securing for and
introducing to private respondent Araneta, Inc. the buyer in the person of Stanford which ultimately acquired
ownership over Araneta, Inc.'s 9,800 shares in Architects'.

Petitioners' asseverations are devoid of merit.

It is understandable, though, why petitioners have resorted to a campaign for an automatic and blanket
entitlement to brokerage commission upon doing nothing but submitting to private respondent Araneta, Inc.,
the name of Stanford as prospective buyer of the latter's shares in Architects'. Of course petitioners would
advocate as such because precisely petitioners did nothing but submit Stanford's name as prospective
buyer. Petitioners did not succeed in outrightly selling said shares under the predetermined terms and
conditions set out by Araneta, Inc., e.g., that the price per share is P1,500.00. They admit that they could not
dissuade Stanford from haggling for the price of P1,000.00 per share with the balance of 50% of the total
purchase price payable in five (5) years at 12% interest per annum. From September 16, 1975 to January 1,
1976, when petitioners' authority to sell was subsisting, if at all, petitioners had nothing to show that they
actively served their principal's interests, pursued to sell the shares in accordance with their principal's terms
and conditions, and performed substantial acts that proximately and causatively led to the consummation of
the sale to Stanford of Araneta, Inc.'s 9,800 shares in Architects'.
The Court of Appeals cannot be faulted for emphasizing the lapse of more than one (1) year and five
(5) months between the expiration of petitioners' authority to sell and the consummation of the sale to
Stanford, to be a significant index of petitioners' non-participation in the really critical events leading to the
consummation of said sale, i.e., the negotiations to convince Stanford to sell at Araneta, Inc.'s asking price,
the finalization of the terms and conditions of the sale, the drafting of the deed of sale, the processing of
pertinent documents, and the delivery of the shares of stock to Stanford. Certainly, when the lapse of the
period of more than one (1) year and five (5) months between the expiration of petitioners' authority to sell and
the consummation of the sale, is viewed in the context of the utter lack of evidence of petitioners' involvement
in the negotiations between Araneta, Inc. and Stanford during that period and in the subsequent processing of
the documents pertinent to said sale, it becomes undeniable that the respondent Court of Appeals did not at all
err in affirming the trial court's dismissal of petitioners' claim for unpaid brokerage commission.
Petitioners were not the efficient procuring cause [6] in bringing about the sale in question on July 8,
1977 and are, therefore, not entitled to the stipulated broker's commission of "5% on the total price."
WHEREFORE, the instant petition is HEREBY DISMISSED.
Costs against petitioners.
SO ORDERED.
G.R. No. 94753. April 7, 1993.
MANOTOK BROTHERS, INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, THE HONORABLE JUDGE OF THE REGIONAL TRIAL COURT
OF MANILA (Branch VI), and SALVADOR SALIGUMBA, respondents.
Antonio C. Ravelo for petitioner.
Remigio M. Trinidad for private respondent.

had already expired, it is to be noted that the ordinance was approved on April 26, 1968 when private
respondent's authorization was still in force. Moreover, the approval by the City Mayor came only three days
after the expiration of private respondent's authority. It is also worth emphasizing that from the records, the
only party given a written authority by petitioner to negotiate the sale from July 5, 1966 to May 14, 1968 was
private respondent.
DECISION
CAMPOS, JR., J p:
Petitioner Manotok Brothers., Inc., by way of the instant Petition docketed as G.R. No. 94753 sought relief
from this Court's Resolution dated May 3, 1989, which reads:
"G.R. No. 78898 (Manotok Brothers, Inc. vs. Salvador Saligumba and Court of Appeals). Considering the
manifestation of compliance by counsel for petitioner dated April 14, 1989 with the resolution of March 13,
1989 which required the petitioner to locate private respondent and to inform this Court of the present address
of said private respondent, the Court Resolved to DISMISS this case, as the issues cannot be joined as
private respondent's and counsel's addresses cannot be furnished by the petitioner to this court." 1
In addition, petitioner prayed for the issuance of a preliminary injunction to prevent irreparable injury to itself
pending resolution by this Court of its cause. Petitioner likewise urged this Court to hold in contempt private
respondent for allegedly adopting sinister ploy to deprive petitioner of its constitutional right to due process.
Acting on said Petition, this Court in a Resolution 2 dated October 1, 1990 set aside the entry of judgment
made on May 3, 1989 in case G.R. No. 78898; admitted the amended petition; and issued a temporary
restraining order to restrain the execution of the judgment appealed from.
The amended petition 3 admitted, by this Court sought relief from this Court's Resolution abovequoted. In the
alternative, petitioner begged leave of court to re-file its Petition for Certiorari 4 (G.R. No. 78898) grounded on
the allegation that petitioner was deprived of its opportunity to be heard.
The facts as found by the appellate court, revealed that petitioner herein (then defendant-appellant) is the
owner of a certain parcel of land and building which were formerly leased by the City of Manila and used by
the Claro M. Recto High School, at M.F. Jhocson Street, Sampaloc Manila.
By means of a letter 5 dated July 5, 1966, petitioner authorized herein private respondent Salvador Saligumba
to negotiate with the City of Manila the sale of the aforementioned property for not less than P425,000.00. In
the same writing, petitioner agreed to pay private respondent a five percent (5%) commission in the event the
sale is finally consummated and paid.
Petitioner, on March 4, 1967, executed another letter 6 extending the authority of private respondent for 120
days. Thereafter, another extension was granted to him for 120 more days, as evidenced by another letter 7
dated June 26, 1967.
Finally, through another letter 8 dated November 16, 1967, the corporation with Rufino Manotok, its President,
as signatory, authorized private respondent to finalize and consummate the sale of the property to the City of
Manila for not less than P410,000.00. With this letter came another extension of 180 days.

SYLLABUS
1. CIVIL LAW; AGENCY; AGENT'S COMMISSION; WHEN ENTITLED' RULE; APPLICATION IN CASE AT
BAR. In an earlier case, this Court ruled that when there is a close, proximate and causal connection
between the agent's efforts and labor and the principal's sale of his property, the agent is entitled to a
commission. We agree with respondent Court that the City of Manila ultimately became the purchaser of
petitioner's property mainly through the efforts of private respondent. Without discounting the fact that when
Municipal Ordinance No. 6603 was signed by the City Mayor on May 17, 1968, private respondent's authority

The Municipal Board of the City of Manila eventually, on April 26, 1968, passed Ordinance No. 6603,
appropriating the sum of P410,816.00 for the purchase of the property which private respondent was
authorized to sell. Said ordinance however, was signed by the City Mayor only on May 17, 1968, one hundred
eighty three (183) days after the last letter of authorization.

On January 14, 1969, the parties signed the deed of sale of the subject property. The initial payment of
P200,000.00 having been made, the purchase price was fully satisfied with a second payment on April 8, 1969
by a check in the amount of P210,816.00.
Notwithstanding the realization of the sale, private respondent never received any commission, which should
have amounted to P20,554.50. This was due to the refusal of petitioner to pay private respondent said amount
as the former does not recognize the latter's role as agent in the transaction.
Consequently, on June 29, 1969, private respondent filed a complaint against petitioner, alleging that he had
successfully negotiated the sale of the property. He claimed that it was because of his efforts that the
Municipal Board of Manila passed Ordinance No. 6603 which appropriated the sum for the payment of the
property subject of the sale.
Petitioner claimed otherwise. It denied the claim of private respondent on the following grounds: (1) private
respondent would be entitled to a commission only if the sale was consummated and the price paid within the
period given in the respective letters of authority; and (2) private respondent was not the person responsible
for the negotiation and consummation of the sale, instead it was Filomeno E. Huelgas, the PTA president for
1967-1968 of the Claro M. Recto High School. As a counterclaim, petitioner (then defendant-appellant)
demanded the sum of P4,000.00 as attorney's fees and for moral damages.
Thereafter, trial ensued. Private respondent, then plaintiff, testified as to the efforts undertaken by him to
ensure the consummation of the sale. He recounted that it first began at a meeting with Rufino Manotok at the
office of Fructuoso Ancheta, principal of C.M. Recto High School. Atty. Dominador Bisbal, then president of the
PTA, was also present. The meeting was set precisely to ask private respondent to negotiate the sale of the
school lot and building to the City of Manila. Private respondent then went to Councilor Mariano Magsalin, the
author of the Ordinance which appropriated the money for the purchase of said property, to present the
project. He also went to the Assessor's Office for appraisal of the value of the property. While these transpired
and his letters of authority expired, Rufino Manotok always renewed the former's authorization until the last
was given, which was to remain in force until May 14, 1968. After securing the report of the appraisal
committee, he went to the City Mayor's Office, which indorsed the matter to the Superintendent of City Schools
of Manila. The latter office approved the report and so private respondent went back to the City Mayor's Office,
which thereafter indorsed the same to the Municipal Board for appropriation. Subsequently, on April 26, 1968,
Ordinance No. 6603 was passed by the Municipal Board for the appropriation of the sum corresponding to the
purchase price. Petitioner received the full payment of the purchase price, but private respondent did not
receive a single centavo as commission.
Fructuoso Ancheta and Atty. Dominador Bisbal both testified acknowledging the authority of private
respondent regarding the transaction.
Petitioner presented as its witnesses Filomeno Huelgas and the petitioner's President, Rufino Manotok.
Huelgas testified to the effect that after being inducted as PTA president in August, 1967 he followed up the
sale from the start with Councilor Magsalin until after it was approved by the Mayor on May 17, 1968. He. also
said that he came to know Rufino Manotok only in August, 1968, at which meeting the latter told him that he
would be given a "gratification" in the amount of P20,000.00 if the sale was expedited.
Rufino Manotok confirmed that he knew Huelgas and that there was an agreement between the two of them
regarding the "gratification".
On rebuttal, Atty. Bisbal said that Huelgas was present in the PTA meetings from 1965 to 1967 but he never
offered to help in the acquisition of said property. Moreover, he testified that Huelgas was aware of the fact
that it was private respondent who was negotiating the sale of the subject property.
Thereafter, the then Court of First Instance (now, Regional Trial Court) rendered judgment sentencing
petitioner and/or Rufino Manotok to pay unto private respondent the sum of P20,540.00 by way of his
commission fees with legal interest thereon from the date of the filing of the complaint until payment. The

lower court also ordered petitioner to pay private respondent the amount of P4,000.00 as and for attorney's
fees. 9
Petitioner appealed said decision, but to no avail. Respondent Court of Appeals affirmed the said ruling of the
trial court. 10
Its Motion for Reconsideration having been denied by respondent appellate court in a Resolution dated June
22, 1987, petitioner seasonably elevated its case on Petition for Review on Certiorari on August 10, 1987
before this Court, docketed as G.R. No. 78898.
Acting on said Petition, this Court issued a Minute Resolution 11 dated August 31, 1987 ordering private
respondent to comment on said Petition.
It appearing that the abovementioned Resolution was returned unserved with the postmaster's notation
"unclaimed", this Court in another Resolution 12 dated March 13, 1989, required petitioner to locate private
respondent and to inform this Court of the present address of private respondent within ten (10) days from
notice. As petitioner was unsuccessful in its efforts to locate private respondent, it opted to manifest that
private respondent's last address was the same as that address to which this. Court's Resolution was
forwarded.
Subsequently, this Court issued a Resolution dated May 3, 1989 dismissing petitioner's case on the ground
that the issues raised in the case at bar cannot be joined. Thus, the above-entitled case became final and
executory by the entry of judgment on May 3, 1989.
Thereafter, on January 9, 1990 private respondent filed a Motion to Execute the said judgment before the
court of origin. Upon discovery of said development, petitioner verified with the court of origin the
circumstances by which private respondent obtained knowledge of the resolution of this Court. Sensing a
fraudulent scheme employed by private respondent, petitioner then instituted this instant Petition for Relief, on
August 30, 1990. On September 13, 1990, said petition was amended to include, in the alternative, its petition
to re-file its Petition for Certiorari (G.R. No. 78898).
The sole issue to be addressed in this petition is whether or not private respondent is entitled to the five
percent (5%) agent's commission.
It is petitioner's contention that as a broker, private respondent's job is to bring together the parties to a
transaction. Accordingly, if the broker does not succeed in bringing the minds of the purchaser and the vendor
to an agreement with respect to the sale, he is not entitled to a commission.
Private respondent, on the other hand, opposes petitioner's position maintaining that it was because of his
efforts that a purchase actually materialized between the parties.
We rule in favor of private respondent.
At first sight, it would seem that private respondent is not entitled to any commission as he was not successful
in consummating the sale between the parties, for the sole reason that when the Deed of Sale was finally
executed, his extended authority had already expired. By this alone, one might be misled to believe that this
case squarely falls within the ambit of the established principle that a broker or agent is not entitled to any
commission until he has successfully done the job given to him. 13
Going deeper however into the case would reveal that it is within the coverage of the exception rather than of
the general rule, the exception being that enunciated in the case of Prats vs. Court of Appeals. 14 In the said
case, this Court ruled in favor of claimant-agent, despite the expiration of his authority, when a sale was finally
consummated.

In its decision in the abovecited case, this Court said, that while it was respondent court's (referring to the
Court of Appeals) factual findings that petitioner Prats (claimant-agent) was not the efficient procuring cause in
bringing about the sale (prescinding from the fact of expiration of his exclusive authority), still petitioner was
awarded compensation for his services. And We quote:

WHEREFORE, in the light of the foregoing and finding no reversible error committed by respondent Court, the
decision of the Court of Appeals is hereby AFFIRMED. The temporary restraining order issued by this Court in
its Resolution dated October 1, 1990 is hereby lifted.
SO ORDERED.

"In equity, however, the Court notes that petitioner had diligently taken steps to bring back together respondent
Doronila and the SSS,.
xxx xxx xxx
The court has noted on the other hand that Doronila finally sold the property to the Social Security System at
P3.25 per square meter which was the very same price counter-offered by the Social Security System and
accepted by him in July, 1967 when he alone was dealing exclusively with the said buyer long before Prats
came into the picture but that on the other hand Prats' efforts somehow were instrumental in bringing them
together again and finally consummating the transaction at the same price of P3.25 per square meter,
although such finalization was after the expiration of Prats' extended exclusive authority.
xxx xxx xxx
Under the circumstances, the Court grants in equity the sum of One hundred Thousand Pesos (P100,000.00)
by way of compensation for his efforts and assistance in the transaction, which however was finalized and
consummated after the expiration of his exclusive authority . . ." 15 (Emphasis supplied.).
From the foregoing, it follows then that private respondent herein, with more reason, should be paid his
commission, While in Prats vs. Court of Appeals, the agent was not even the efficient procuring cause in
bringing about the sale, unlike in the case at bar, it was still held therein that the agent was entitled to
compensation. In the case at bar, private respondent is the efficient procuring cause for without his efforts, the
municipality would not have anything to pass and the Mayor would not have anything to approve.
In an earlier case, 16 this Court ruled that when there is a close, proximate and causal connection between
the agent's efforts and labor and the principal's sale of his property, the agent is entitled to a commission.
We agree with respondent Court that the City of Manila ultimately became the purchaser of petitioner's
property mainly through the efforts of private respondent. Without discounting the fact that when Municipal
Ordinance No. 6603 was signed by the City Mayor on May 17, 1968, private respondent's authority had
already expired, it is to be noted that the ordinance was approved on April 26, 1968 when private respondent's
authorization was still in force. Moreover, the approval by the City Mayor came only three days after the
expiration of private respondent's authority. It is also worth emphasizing that from the records, the only party
given a written authority by petitioner to negotiate the sale from July 5, 1966 to May 14, 1968 was private
respondent.
Contrary to what petitioner advances, the case of Danon vs. Brimo, 17 on which it heavily anchors its
justification for the denial of private respondent's claim, does not apply squarely to the instant petition.
Claimant-agent in said case fully comprehended the possibility that he may not realize the agent's commission
as he was informed that another agent was also negotiating the sale and thus, compensation will pertain to the
one who finds a purchaser and eventually effects the sale. Such is not the case herein. On the contrary,
private respondent pursued with his goal of seeing that the parties reach an agreement, on the belief that he
alone was transacting the business with the City Government as this was what petitioner made it to appear.
While it may be true that Filomeno Huelgas followed up the matter with Councilor Magsalin, the author of
Municipal Ordinance No. 6603 and Mayor Villegas, his intervention regarding the purchase came only after the
ordinance had already been passed when the buyer has already agreed to the purchase and to the price
for which said property is to be paid. Without the efforts of private respondent then, Mayor Villegas would have
nothing to approve in the first place. It was actually private respondent's labor that had set in motion the
intervention of the third party that produced the sale, hence he should be amply compensated.

G.R. No. L-39822 January 31, 1978

ANTONIO E. PRATS, doing business under the name of Philippine Real Estate Exchange, petitioner,
vs.
HON. COURT OF APPEALS, ALFONSO DORONILA and PHILIPPINE NATIONAL BANK, respondents.

FERNANDEZ, J.:
This is a petition for certiorari to review the decision of the Court of Appeals in CA-G.R. No. 45974-R
entitled"Antonio E. Prats, doing business under the name of Philippine Real Estate Exchange, vs. Alfonso
Doronila and the Philippine National Bank", the dispositive part of which reads:
In view of all the foregoing, it is our considered opinion and so hold that the decision of
the lower court be, as it is hereby reversed, and the complaint, dismissed. On
appellant's counterclaim, judgment is hereby rendered directing appellee to pay
attorney's fees in the sum of P10,000 to appellant, no moral damages as therein
claimed being awarded for lack of evidence to justify the same. The injunction issued
by the lower court on the P2,000,000.00 cash deposit of the appellant is hereby lifted.
No special pronouncement as to costs.
SO ORDERED. 1
On September 23, 1968 Antonio E. Prats, doing business under the name of "Philippine Real Estate
Exchange" instituted against Alfonso Doronila and Philippine National Bank Civil Case No. Q-12412 in the
Court of First Instance of Rizal at Quezon City to recover a sum of money and damages.
The complaint stated that defendant Alfonso Doronila was the registered owner of 300 hectares of land
situated in Montalban, Rizal, covered by Transfer Certificates of Title Nos. 77011, 77013, 216747 and 216750;
that defendant Doronila had for sometime tried to sell his aforesaid 300 hectares of land and for that purpose
had designated several agents; that at one time, he had offered the same property to the Social Security
System but failed to consummate any sale; that his offer to sell to the Social Security System having failed,
defendant Doronila on February 14, 1968 gave the plaintiff an exclusive option and authority in writing to
negotiate the sale of his aforementioned property, which exclusive option and authority the plaintiff caused to
be published in the Manila Times on February 22, 1968; that it was the agreement between plaintiff and
defendant Doronila that the basic price shall be P3.00 per square meter, that plaintiff shall be entitled to a
commission of 10% based on P2.10 per square meter or at any price finally agreed upon and if the property
be sold over and above P3.00 per square meter, the excess shall be created and paid to the plaintiff in
addition to his 10% commission based on P2.10 per square meter; that as a result of the grant of the exclusive
option and authority to negotiate the sale of his 300 hectares of land situated in Montalban, Rizal in favor of
the plaintiff, the defendant Doronila, on February 20, 1968, wrote a letter to the Social Security System
withdrawing his previous offer to sell the same land and requesting the return to him of all papers concerning
his offered property that the Social Security System, complying with said request of defendant Doronila,
returned all the papers thereon and defendant Doronila, in turn gave them to the plaintiff as his duly authorized
real estate broker; that by virtue of the exclusive written option and authority granted him and relying upon the
announced policy of the President of the Philippines to promote low housing program the plaintiff immediately
worked to negotiate the sale of defendant Doronila's 300 hectares of land to the Social Security System,
making the necessary contacts and representations to bring the parties together, namely, the owner and the
buyer, and bring about the ultimate sale of the land by defendant Doronila to the Social Security System; that

on February 27, 1968, after plaintiff had already contacted the Social Security System, its Deputy
Administrator, Reynaldo J. Gregorio, wrote a letter to defendant Doronila inviting the latter to a conference
regarding the property in question with Administrator Teodoro, Chairman Gaviola and said Reynaldo J.
Gregorio on March 4, 1968 at 10:00 o'clock in the morning, stating that the SSS would like to take up the offer
of the lot; that having granted plaintiff the exclusive written option and authority to negotiate the sale of his 300
hectares of land, defendant Doronila in a letter dated February 28, 1968 declined the invitation extended by
the Social Security System to meet with its Administrator and Chairman and requested them instead "to deal
directly" with the plaintiff, that on March 16, 1968, at the suggestion of defendant Doronila, the plaintiff wrote a
letter to the Social Security System to the effect that plaintiff would be glad to sit with the officials of the Social
Security System to discuss the sale of the property of the defendant Doronila; that on March 18, 1968, the
Social Security System sent a telegram to defendant Doronila to submit certain documents regarding the
property offered; that on May 6, 1968, a written offer to sell the 300 hectares of land belonging to defendant
Doronila was formally made by the plaintiff to the Social Security System and accordingly, on May 7, 1968, the
Social Security System Administrator dispatched the following telegram to defendant Doronila: "SSS
considering purchase your property for its housing project Administrator Teodoro"; that a few days thereafter,
the plaintiff accompanied the defendant Doronila to the China Banking Corporation to arrange the matter of
clearing payment by chock and delivery of the titles over the property to the Society Security System; that
having been brought together by the plaintiff, the defendant Doronila and the offices of the Society Security
System, on May 29, 1968 and on June 4, 1968, met at the office of the SSS Administrator wherein the price
for the purchase of the defendant Doronila's 300 hectares of land was, among others, taken up; that on June
20, 1968, the Social Security Commission passed Resolution No. 636 making a counter-offer of P3.25 per
square meter subject to an appraise report; that on June 27, 1968, Resolution No. 662 was adopted by the
Social Security Commission authorizing the Toples & Harding (Far East) Inc. to conduct an appraisal of the
property and to submit a report thereon; that pursuant thereto, the said company submitted its appraisal report
specifying that the present value of the property is P3.34 per square meter and that a housing program
development would represent the highest and best use thereof, that on July 18, 1968, the Social Security
Commission, at its regular meeting, taking note of the favorable appraisal report of the Toples'& Harding (Far
East) Inc., passed Resolution No. 738, approving the purchase of defendant Doronila's 300 hectares of land in
Montalban, Rizal at a price of P3.25 per square meter or for a total purchase price of Nine Million Seven
Hundred Fifty Thousand Pesos (P9,750,000.00), appropriating the said amount for the purpose and
authorizing the SSS Administrator to sign the necessary documents to implement the said resolution; that on
July 30, 1968, defendant Doronila and the Social Security System executed the corresponding deed of
absolute sale over the 300 hectares of land in Montalban, Rizal covered by Transfer Certificate of Title Nos.
77011, 77013, 216747 and 216750 under the terms of which the total price of P9,750,000.00 shall be payable
as follows: (a) 60% of the agreed purchase price, or Five Million Eight Hundred Fifty Thousand Pesos
(P5,860,000.00) immediately after signing the deed of sale. and (b) the balance of 40% of the agreed price, or
Three Million Nine Hundred Thousand Pesos (P3,900,000.00) thirty days after the signing of the deed of
absolute sale; that on August 21, 1968, after payment of the purchase price, the deed absolute sale executed
by defendant Doronila in favor of the Social Security System was presented for registration in the Office of the
Register of Deeds of Rizal, and Transfer Certificates of Title Nos. 926574, 226575, 226576 and 226577 in the
name of the Social Security System were issued; that defendant Doronila has received the full purchase price
for his 300 hectares of land in the total amount of P9,750,000.00, which amount he deposited in his bank
Account No. 0012-443 with the defendant Philippine National Bank; that on September 17, 1968, the plaintiff
presented his statement to, and demanded of defendant Doronila the payment of his processional fee as real
estate broker as computed under the agreement of February 14, 1968 in the total amount of P1,380,000.00;
that notwithstanding such demand, the defendant Doronila, in gross and evident bad faith after having availed
of the services of plaintiff as real estate broker, refused to pay the professional fees due him; that as a result of
defendant Doronila's gross and evident bad faith and unjustified refusal to pay plaintiff the professional fees
due him under the agreement, the latter has suffered and continues to suffer mental anguish, serious anxiety,
and social humiliation for which defendant Doronila shall be held liable to pay moral damages; and, that by
reason likewise of the aforesaid act of defendant Doronila, the plaintiff has been compelled to file this action
and to engage the services of counsel at a stipulated professional fee of P250,000.00.
In his answer filed on November 18, 1968, the defendant Doronila alleged that when the plaintiff offered the
answering defendant's property to the Social Security System on May 6, 1968, said defendant had already
offered his property to, and had a closed transaction or contract of sale of, said property with the Social
Security System; that the letter agreement had become null and void because defendant Doronila had not
received any written offer from any prospective buyers of the plaintiff during the agreed period of 60 days until
the last day of the authorization which was April 13, 1968 counting from February 14, 1968; that it is not true
that plaintiff brought together defendant Doronila and the officials of the Social Security System to take up the
purchase price of defendant Doronila's property for the simple reason that the plaintiff's offer was P6.00 per
square meter and later on reduced to P4.50 per square meter because the SSS Chairman had already a

closed transaction with the defendant Doronila at the price of P3.25 per square meter and that the offer of the
plaintiff was refused by the officials of the Social Security System; and that defendant Doronila did not answer
the statement of collection of the plaintiff because the latter had not right to demand the payment for services
not rendered according to the agreement of the parties. The answering defendant interposed a counterclaim
for damages and attorney's fees.
On January 18, 1969, the plaintiff and defendant Alfonso Doronila submitted the following stipulation of facts:
STIPULATION OF FACTS
COME NOW the plaintiff and defendant DORONILA, through their respective
undersigned counsel, and to this Honorable Court by way of abbreviating the
proceeding i the case at bar, without prejudice to presentation of explanatory evidence,
respectfully submit the following STIPULATION OF FACTS.
1.
The defendant Doronila was the registered owner of 300 hectares of land, situated in
Montalban, Rizal, covered by Transfer Certificates of Title Nos. 77011, 77013, 216747
(formerly TCT No. 116631) and 216750 (formerly TCT No. 77012).
2.
That on July 3, 1967, defendant DORONILA under his letter (marked Annex "1" of the
answer) addressed to the SSS Chairman, offered his said property to the Social
Security System (SSS) at P4.00 per square meter.
That on July 17, 1967 (Annex "2" of the Answer) the SSS Chairman, Mr. Ramon C.
Gaviola, Jr., replied to defendant DORONILA, as follows:
This will acknowledge your letter of July 3rd, 1967 relative to
your offer for sale of your real estate property.
In this regard, may I please be informed as to how many
hectares, out of the total 300 hectares offered, are located in
Quezon City and how many hectares are located in Montalban,
Rizal. Likewise, as regards your offer of P4.00 per square
meter, would there be any possibility that the same be reduced
to P3.25 per square meter Finally and before I submit your
proposal for process it is requested that the NAWASA certify to
the effect that they have no objection to having this parcel of
land subdivided for residential house purposes.
Thank you for your offer and may I hear from you at the earliest
possible time.
2-a
That on July 19, 1967, defendant DORONILA wrote a letter (a xerox copy, attached
hereto marked as Annex "2-a" for DORONILA) to NAWASA, and that in reply thereto,
on July 25, 1967, the NAWASA wrote the following letter (Xerox copy attached hereto
to be marked as Annex "2-b" for DORONILA) to defendant DORONILA.

In connection with your proposed subdivision plan of your

properties adjacent to our Novaliches Watershed, this Office
would like to impose the following conditions:

That on October 30, 1967, Mr. Pastor B. Sajorda, 'By authority of Atty. Alfonso Doronila,
property owner', wrote the following request (Xerox copy attached hereto and marked
as Annex '2-d' for DORONILA) addressed to Realtor Vicente L. Narciso for a
certification regarding the actual prices of DORONILA's property, quoted as follows:

1. Since your property is an immediate boundary of our

Novaliches Watershed, a 20-meter road should be constructed
along our common boundary.

May I have the honor to request for your certification as a

member of the Board of Realtor regarding the actual prices of
my real estate raw-land properties described as Lots 3-B-7,
26B, 6 and 4-C-3 all adjacent to each other, containing a total
area of 3,000,000 square meters, all registered in the name of
Alfonso Doronila, covered by T.C.T. Nos. 116631, 77013,
77011, and 77012, located at Montalban, Rizal, all adjacent to
the Northern portion of the NAWASA properties in Quezon City
including those other surrounding adjacent properties and even
those properties located before reaching my own properties
coming from Manila.

2. That no waste or drainage water from the subdivision should

flow towards the watershed.
3. That the liquid from the septic tanks or similar waste water
should be treated before it is drained to the Alat River above
our Alat Dam.
The above conditions are all safeguards to the drinking water of
the people of Manila and Suburbs. It is therefore expected that
we all cooperate to make our drinking water safer from any
pollution.

This request is purposely made for my references in case I

decided to sell my said properties mentioned above.
3-c

3.
That on July 19, 1967, defendant DORONILA wrote another letter (marked as Annex '3'
on his Answer) addressed to the SSS Chairman, Mr. Ramon Gaviola Jr., stating,
among others, the following:
In this connection, I have your counter-offer of P3.25 per square
meter against my offer of P4.00 per square meter, although
your counter-offer is lower comparing to the prices of adjacent
properties, I have to consider the difference as my privilege and
opportunity to contribute or support the Presidential policy to
promote low cost housing in this country particularly to the SSS
members by accepting gladly your counter-offer of P3.25 per
square meter with the condition that it should be paid in cash
and such payment shall be made within a period of 30 days
from the above stated date (2nd paragraph of letter dated July
18, 1967, Annex "3" of the Answer).
3.a

As per your request dated October 30, 1967, regarding prices

of raw land, it is my finding that the fair market value of raw land
in the vicinity of the NAWASA properties at Quezon City and
Montalban, Rizal. including the properties of Atty. Alfonso
Doronila. more particularly known as lots 3-B-7, 26-B, and 4-C3 containing approximately 3,000,000 square meters is P3.00 to
P3.50 per square meter.
Current prices before reaching Doronila's property range from
P6.00 to P7.00 per square meter.
4.
That on February 14, 1968, defendant DORONILA granted plaintiff an exclusive option
and authority (Annex 'A' of the complaint), under the following terms and conditions:

That on August 10, 1967, the SSS Chairman, Mr. Ramon Gaviola Jr., wrote the
following (Xerox copy attached hereto and marked as Annex '2-c' for DORONILA:
addressed to defendant DORONILA:
With reference to your letter, dated July 1967, please be
informed that the same is now with the Administrator for study
and comment. The Commission will act on receipt of
information re such studies.
With the assurance that you will be periodically informed of
developments, we remain.
3-b

That on November 3, 1967, Realtor Vicente Narciso wrote the following reply (Xerox
copy attached hereto and marked as Annex 2 for DORONILA) to Mr. Pastor B. Sajorda:

1. The price of the property is THREE (P3.00) PESOS per

square meter.
2. A commission of TEN (10%) PERCENT will be paid to us
based on P2.10 per square meter, or at any price that you
DORONILA finally agree upon, and all expenses shall be for our
account, including preparation of the corresponding deed of
conveyance, documentary stamps and registration fee, whether
the sale is causes directly or indirectly by us within the time of
this option. If the property is sold over and above P3.00 per
square meter, the excess amount shall be credited and paid to
the herein workers. In addition to the 10% commission based
on P2.10 per square meter, provided the brokers shall pay the
corresponding taxes to the owner of the excess amount over

P3.00 per square meter, unless paid by check which would then
be deductible as additional expenses.

Date: February 14, 1968

5.

3. This exclusive option and authority is good for a period of

sixty (60) days from the date of your conformity; provided,
however, that should negotiations have been started with a
buyer, said period is automatically extended until said
negotiations is terminated, but not more than fifteen (15) days;

That on February 19, 1968, plaintiff wrote the following letter to defendant DORONILA
(Annex "4" of the Answer), quoted as follows:
Febru
ary
19,
1968

4. The written offers must be made by the prospective buyers,

unless they prefer to have us take the offer for and in their
behalf some buyers do not want to be known in the early stages
of the negotiations:
Don Alfonso Doronila
5. If no written offer is made to you until the last day of this
authorization, this option and authority shall expire and become
null and void;

Plaza Ferguzon

6. It is clearly understood that prospective buyers and all parties

interested in this property shall be referred to us, and that you
will not even quote a price directly to any agent or buyer. You
agree to refer all agents or brokers to us DURING the time this
option is in force; and
7. There are some squatters occupying small portions of the
property, which fact will be reported to the prospective buyers,
and said squatters will be removed at our expense. (Annex "A"
of the complaint)

Ermita, Manila
Dear Don Alfonso:
In view of the exclusive option extended to us for the sale of your property consisting
300 hectares located at Montalban, Rizal, we earnestly request that you take
immediate steps to withdraw any and all papers pertaining to this property offered to
the SOCIAL SECURITY SYSTEM
Very
truly
yours,

Very
truly
yours,

PHILI
PPIN
E
REAL

PHILI
PPIN
E
REAL
ESTA
TE
EXCH
ANCE
(Sgd)
ANTO
NIO
E.
PRAT
S
General manager

ESTA
TE
EXCH
ANGE
(Sgd) ANTONIO E. PRATS
General Manager
AEP/acc
RECEIVED ORIGINAL

CONFORME:

By: (Sgd.) ROGELIO DAPITAN

(Sgt.) ALFONSO DORONILA

6.

That on February 20, 1968, pursuant to the letter dated February 19, 1968 of plaintiff,
defendant DORONILA wrote a letter (Annex 'B' of the complaint) to the SSS
Administrator stating:

meet with the Administrator and Chairman Gaviola to take up

the former offer to sell his property to the SSS.
In his letter to the Administrator dated February 20, 1968 (which
has been received by the SSS on the same day), Mr. Doronila
advised you that as of February 20,1968, he gave the
PHILIPPINE REAL ESTATE EXCHANGE (PHILREX) the
exclusive option and authority to negotiate the sale of his 300
hectare land in Montalban, and that he is no longer at liberty to
negotiate its sale personally, and that, if you are still interested
in the property, the SSS should communicate directly with the
PHILIPPINE REAL ESTATE EXCHANGE.

In as much as the SSS has not acted on my offer to sell a 300

hectare lot located in Montalban, Rizal, for the last five (5)
months I respectfully requested for the return of all my papers
concerning this offered property.
7.
That on February 27, 1968, defendant DORONILA received the following letter (Annex
"C" of the complaint) from the SSS Deputy Administrator, Mr. Reynaldo J. Gregorio, to
wit:

It is by virtue of this arrangement that Mr. Doronila now refers to

us invitation and his reply to the SSS and has requested us to
get in touch with you.

May I take this opportunity of inviting you in behalf of Administrator Teodoro, to meet
with him, Chairman Gaviola and myself on Friday, March 4, 10:00 A.M. lot offer.

While, at present we have several prospective buyers

interested in this property, we shall, in compliance with the
request of Mr. Doronila, be happy to sit down with you and
Chairman Ramon Gaviola, Jr.

Thanks and regards.

8.
That on February 28, 1968, defendant DORONILA wrote the following letter (Annex "D"
of the complaint) to the SSS Deputy Administrator:
Thank you for your invitation to meet Administrator Teodoro,
Chairman Gaviola and your goodself, to take up my former offer
to sell my property to the Social Security System.
Since the SSS had not acted on my offer dated July 19, 1967,
more than seven (7) months ago, I have asked for the return of
my papers, as per my letter of February 20, 1968, and which
you have kindly returned to me.
As of February 20, 1968, I gave the Philippine Real Estate
Exchange an exclusive option and authority to negotiate the
sale of this 300 hectare land, and I am no longer at liberty to
negotiate its sale personally; I shall therefore request you
communicate directly with the Philippine Real Estate Exchange,
P. O. Box 84, Quezon City, and deal with them directly if you
are still interested in my property.

Please let us know when it will be convenient to hold the

conference.
10.
That on April 18, 1968, defendant DORONILA extended the plaintiff exclusive option
and authority to expire May 18, 1968.(annex 'B' Reply letter of Doronila to SSS
Deputy Administrator dated May 8, 1968).
11.
That on May 6,1968, plaintiff made a formal written offer to the Social Security System
to sell the 300 hectares land of defendant DORONILA at the price of P6.00 per square
meter, Xerox copy of which bearing the stamp or receipt of Social Security System is
attached hereof as Annex "D" plaintiff.
12.
That on May 16, 1968 the defendant DORONILA received the following telegram
(Annex 'E' of the complaint) form the SSS Administrative, reading:

With my kind personal regards, I am

SSS CONSIDERING PURCHASE YOUR PROPERTY FOR ITS
HOUSING PROJECT

9.
That on March 16, 1968, plaintiff, acting upon the letter of defendant DORONILA dated
February 28, 1968 (Annex 'D' for plaintiff), wrote the following letter to SSS
Administrator:
Don Alfonso Doronila, owner of the 300 hectare land located at
Montalban, Rizal, adjoining the Quezon City boundary, has
informed us that the Administrator of the SOCIAL SECURITY'
SYSTEM, through Mr. Reynaldo J. Gregorio, has invited him to

13.
That on May 18, 1968, after plaintiff exclusive option and authority had been extended,
plaintiff wrote the following letter (Annex "A" Reply' of plaintiff's REPLY TO
ANSWER) to defendant DORONILA, to wit:
CONFIDENTIAL

In our conference last Monday, May 13, 1968, you have been
definitely advised by responsible parties that the SOCIAL
SECURITY SYSTEM is acquiring your 300-hectare land at
Montalban, Rizal, adjoining the Quezon City Boundary and
that said property will be acquired in accordance with the
exclusive option and authority you gave the PHILIPPINE REAL
ESTATE EXCHANCE. You were assured in that conference that
the property will be acquired definitely, but, as it has been
mentioned during the conference, it may take from 30 to 60
days to have all the papers prepared and to effect the
corresponding payment. The telegram from the SSS confirming
these negotiations has already been received by you, a copy of
which you yourself have kindly furnished us.

transaction be coursed through, for your own security and

protection.
15.
That on May 30, 1968, plaintiff wrote the following letter (Xerox copy attached hereto,
and marked as Annex 'I' for plaintiff) to defendant DORONILA, quoted as follows:
This is to advise you that the SOCIAL SECURITY SYSTEM
agreed to purchase your 300-hectare land located at
Montalban, Rizal, which purchase can be conformed by the
Chairman of the SOCIAL SECURITY COMMISSION. The
details will have to be taken up between you and the Chairman,
and we suggest that you communicate with the Chairman at
your earliest convenience.

Pursuant to paragraph 3 of the terms of the option that you have kindly extended, we
still have fifteen days more from today, May 18, 1968, within which to finish the
negotiations for the sale of your property to the SSS. For your convenience, we quote
the pertinent portion of paragraph 3 of the option:

This negotiation was made by virtue of the exclusive option and

authority you have granted the PHILIPPINE REAL ESTATE
EXCHANGE, which option is in full force and effect, and covers
the transaction referred above.

... provided, however, that should negotiation have been started

with a buyer, said period is automatically extended until said
negotiation is terminated, but no more than fifteen (15) days.
Please be assured that we will do our very best to complete
these negotiations for the sale of your property within this
fifteen-day period. In the meantime' we hope you will also
observe the provisions of paragraph 6 of the exclusive option
you have extended to us.
14.
That on May 18, 1968, plaintiff wrote the following letter (Xerox copy attached and
marked hereof as Annex 'H' for plaintiff) addressed defendant DORONILA, to wit:
By virtue of the exclusive option and authority you have granted
the PHILIPPINE REAL ESTATE EXCHANGE to negotiate the
sale of your 300-hectare land located at Montalban, Rizal,
adjoining the Quezon City boundary, which properties are
covered by Transfer Certificate of Titles Nos. 116631, 77011,
77012 and 77013, of the Registry of Deeds for the Province of
Rizal, we hereby make a firm offer, for and in behalf of our
buyer, to purchase said property at the price of FOUR PESOS
AND FIFTY CENTAVOS (P4.50) per square meter, or the total
amount of THIRTEEN MILLION FIVE HUNDRED THOUSAND
(P13,500,000.00) PESOS, Philippine Currency, payable in
Cash and D.B.P. Progress Bonds, on a ratio to be decided
between you and our principal.
To expedite the negotiations, we suggest that we sit down
sometime early next week with our principal to take up the final
arrangement and other details in connection with the purchase
of the subject property.
To give you further assurance of the validity of this offer, we
refer you to the CHINA BANKING CORPORATION (Trust
Department) who has already been apprised of these
negotiations, to which ]sank we strongly recommend that this

16.
That on June 6,1968, defendant DORONILA wrote the following letter (Annex" 7" for
DORONILA), to the plaintiff, to wit:
I have to inform you officially, that I have not received any
written offer from the SSS or others, to purchase my Montalban
property of which you were given an option and exclusive
authority as appearing in your letter- contract dated February
14, 1968, during the 60 days of your exclusive authority which
expired on April 14, 1968, nor during the extension which was
properly a new exclusive authority of 30 days from April 18,
which expired on May 18, 1968, nor during the provided 15
days grace, in case that you have closed any transaction to
terminate it during that period, which also expired on June 3,
1968.
As stated in said letter, we have the following condition:
5. If no written offer is made to you until the last day of this
authorization, this option and authority shall expire and
becomes null and void.
As I have informed you, that on April 16, 1968 or two days after
your option expired I have signed an agreement to sell my
property to a group of buyers to whom I asked later that the
effectivity of said agreement will be after your new authority has
expired will be on June 2, 1968, and they have accepted; As
your option has expired, and they know that there was no
written offer made by the SSS for any price of my property,
aside of their previous letter announcing me that they are ready
to pay, I was notified on June 4, 1968 by their representative,
calling my attention but our agreement; that is why I am writing
you, that having expired your option and exclusive authority to

offer for sale my said property, I notified only this afternoon said
to comply our agreement.

19.
That on June 25, 1968, the SSS Administrator, Mr. Gilberto Teodoro, wrote the
following reply letter (Annex '6' of the Answer) to defendant DORONILA, to wit:

Hoping for your consideration on the matter, as we have to be

guided by contracts that we have to comply, I hereby express to
you my sincere sentiments.

This has reference to your letter dated

June 19, 1966 renewing your offer to
sell your property located at Montalban,
Rizal containing an area of 300 hectares
at P4.00 per square meter. Please be
informed that the said letter was
submitted for the consideration of the
Social Security Commission at its last
meeting on June 20, 1968 and pursuant
to its Resolution No. 636, current series,
it decided that the System reiterate its
counter-offer for P3.25 per square meter
subject to a favorable appraisal report
by a reputable appraisal entity as
regards particularly to price and housing
project feasibility. Should this counteroffer be acceptable to you, kindly so
indicate by signing hereunder your
conformity thereon.

17.
That on June 19, 1968, defendant DORONILA wrote the following letter (Annex "5" of
the Answer) to the SSS Administrator, renewing his offer to sell his 300 hectare land to
the SSS at P4.00 per square meter, to wit:
This is to renew my offer to sell my properties located at
Montalban, Rizal Identified as Lot Nos. 3-B-7, 26-8, 6, and 4-C3 registered in my name in the office of the Registry of Deeds of
Rizal under T.C.T. Nos. 116631, 77013, 77011 and 216750,
containing a total area of 300 hectares or 3,000,000 square
meters.
You will recall that last year, I offered to the Social Security
System the same properties at the price of Four (P4.00) pesos
per square meter. After 3 ocular inspection of Chairman Gaviola
one of said inspections accompanied by Commissioner Arroyo
and after receiving the written apprisal report of Manila realtor
Vicente L. Narciso, the System then made a counter-offer of
Three pesos and twenty-five (P3.25) per square meter which I
accepted under the condition that the total amount be paid
within a period of thirty (30) days from the date of my
acceptance (July 19, 1967). My acceptance was motivated by
the fact that within said period of time I had hoped to purchase
my sugarcane hacienda in Iloilo with the proceeds I expected
from the sale. No action was however taken by the System
thereon.

Trusting that the foregoing sufficiently advises you on the

matter, I remain
Very truly yours,
GILBERTO TEODORO
Administrator
CONFORME: With condition that the sale will be consummated
within Twenty (20) days from this date.

Recently the same properties were offered by Antonio E. Prats

of the Philippine Real Estate Exchange to the Presidential
Assistant on Housing, at the price of six pesos (p6.00) per
square meter, who referred it to the System, but against no
action had been taken by the System.
Considering the lapse of time since our original offer during
which prices of real estate have increased considerably, on the
one hand and in cooperation with the System's implementation
of our government's policy to provide low cost houses to its
members, on the other hand, I am renewing my offer to sell my
properties to the system only at the same price of P4.00 per
square meter, or for a total amount of twelve million pesos
(P12,000,000.00), provided the total amount is paid in cash
within a period of fifteen (15) days from this date.

ALFONSO DORONILA
Returned and received the original June 25/68
Admtr's Office
20.
That on June 27, 1968, the Social Security Commission passed Resolution No. 662
authorizing the Toples & Harding (Far East) to conduct an appraisal of the property of
defendant DORONILA and to submit a report thereon. (See Annex 'F' of the complaint)

18.
21.
That on June 20, 1968, the Social Security Commission passed Resolution No. 636 by
which the SSS formalized its counter-offer of P3.25 per square meter. (See Annex 'F' of
the complaint)

That on July 17, 1968, the Social Security Commission taking note of the report of
Toples & Harding (Far East), passed Resolution No. 736, approving the purchase of
the 300 hectare land of defendant DORONILA, at the price of P3.25 per square meter,

for a total purchase price of NINE MILLION SEVEN HUNDRED FIFTY THOUSAND
PESOS (P9,750,000.00), and appropriating the said amount of money for the purpose.
(See Annex 'F' of the complaint).
22.
That on July 30, 1968, defendant DORONILA executed the deed of absolute sale
(Annex "C" of the complaint) over his 300-hectare land, situated in Montalban, Rizal,
covered by TCT Nos. 77011, 77013, 216747 (formerly TCT No. 116631) and 216750
(formerly TCT No. 77012), in favor of the Social Security System, for the total purchase
price of NINE MILLION SEVEN HUNDRED FIFTY THOUSAND PESOS
(P9,750,000.00), Philippine currency, which deed of sale was presented for registration
in the Office of the Register of Deeds of Fiscal on August 21, 1968.
23.
That defendant DORONILA had received the full purchase price of NINE MILLION
SEVEN HUNDRED FIFTY THOUSAND PESOS (P9,750,000.00), Philippine Currency,
in two installments.

Quezon City
ALFONSO DORONILA
Counsel for the defendant
428 Plaza de Ferguson
Ermita, Manila 2
The trial court rendered its decision dated December 12, 1969, the initiative part of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff, ordering defendant
Alfonso Doronila, under the first cause of action, to pay to plaintiff the sum of
P1,380,000.00 with interest thereon at the rate of 6% per annum from September 23,
1968 until fully paid; and under the second Cause of Action, to pay plaintiff the sum of
P200,000.00 as moral damages; the sum of P100,000.00 as exemplary damages; the
sum of P150,000.00 as attorney's fees, including the expenses of. litigation and costs
of this suit.

24.
That on September 17, 1968, plaintiff presented his STATEMENT OF ACCOUNT,
dated September 16, 1968 (Xerox copy of which is attached hereto and marked as
Annex plaintiff' to defendant DORONILA for the payment of his professional services as
real estate broker in the amount of P1,380,000.00, as computed on the basis of the
letter-agreement, Annex "A" of the complaint, which defendant failed to pay. Manila, for
Quezon City, January 18,1968.
Respectfully submitted:
CRISPIN D. BAIZAS & ASSOCIATES

The writ of preliminary injunction issued in this case is hereby made permanent; and
the defendant Philippine National Bank is hereby ordered to pay to the plaintiff the
amount of P1,380,000.00 and interest on the P1,380,000.00 to be computed
separately out of the P2,000,000.00 which it presently holds under a fixed time deposit.
SO ORDERED.
December 12, 1969, Quezon City, Philippines.
(SGD.) LOURDES P. SAN DIEGO
Judge3

and A.N. BOLINAO, JR.

By: (Sgd.)

In a decision promulgated on September 19, 1974, the Court of Appeals reversed the derision of the trial court
and dismissed the complaint because:

Counsel for the plaintiff

Suite 305, ShurdutBldg.
Intramuros, Manila
(Sgd.) E. V. Obon
Atty. EUGENIO V. OBON
Counsel for the defendant
9 West Point Street

The defendant appealed to the Court of Appeals where the appeal was docketed as CA-G.R. No. 45974-R.

In any event, since it has been found that the authority of appellee expired on June 2,
1968, rather than June 12, 1968 as the lower court opined, the inquiry would be
whether up to that time, a written offer was made by appellee in behalf of the SSS. The
stipulation is clear on this point. There should be a written offer by the prospective
buyer or by appellee for or in their behalf, and that if no such written offer is made until
the last day of the authorization, the option and authority shall expire and become null
and void. Note that the emphasis is placed on the need of a written offer to save the
authority from an automatic termination on the last day of the authorization. We note
such emphasis with special significance in receive of the condition relative to automatic
extension of not more than 15 days if negotiations have been started. The question
then is when are negotiations deemed started In the light of the provisions just cited, it
should be when a response is given by the prospective buyer showing fits interest to
buy the property when an offer is made by the seller or broker and make an offer of the
price. Strictly, therefore, prior to May 29, 1968, there were no negotiations yet started
within contemplation of the letter-agreement of brokerage (Exh. A). Nevertheless
appellant extended appellee's exclusive authority to on May 18, 1968 (par. 10,

Stipulation of Facts; R.A. p. 89), which was automatically extended by 15 days under
their agreement, to expire on June 2, 1968, if the period extended up to May 18, 1968
a necessary authority. For, it may even be considered as taking the of the 15-days
automatic extension, since appellee's pretension is that negotiations have been started
within the original period of 60 days. Appellant in fixing the expiry date on June 2, 1968,
has thus made a liberal concession in favor of appellee, when he chose not to the
extension up to May 18, 1968 as the automatic extension which ougth to have been no
more than 15 days, but which he stretched twice as long. 4

1968, and that he was specifically requested by Mr. Teodoro not

to be present at the meeting, as he, Teodoro, wanted to deal
directly with the defendant-appellant alone. (Tsn., pp. 4446,
March 1, 1969). Finding nothing wrong with such a request, as
the sale could be caused directly or indirectly (Exh. 'A'), and
believing that as a broker all that he needed to do to be entitled
to his commission was to bring about a meeting between the
buyer and the seller as to ripen into a sale, plaintiff-appellee
readily acceded to the request.

The petitioner assigned the following errors:

I
THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT
PETITIONER WAS NOT THE EFFICIENT PROCURING CAUSE IN BRING ABOUT
THE SALE OF PRIVATE RESPONDENT DORONILA'S LAND TO THE SSS.
II
THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT THERE
WAS FAILURE ON THE PART OF HEREIN PETITIONER TO COMPLY WITH THE
TERMS AND CONDITIONS OF HIS CONTRACT WITH PRIVATE RESPONDENT.

appellee is not categorical that it was through his efforts that the meeting took place on
inlay 29, 1968. He refers to a telephone call he made "a few days before May 29,
1968," but in the conversation he had with Mr. Teodoro, the latter requested him not to
be present in the meeting. From these facts, it is manifest that the SSS officials never
wanted to be in any way guided by, or otherwise subject to, the mediation or
intervention of, appellee relative to the negotiation for the purchase of the property. It is
thus more reasonable to conclude that if a meeting was held on May 29, 1968, it was
done independently, and not by virtue of, appellee's wish or efforts to hold such
meeting. 6
xxx xxx xxx
... It is even doubtful if he tried to make any arrangement for meeting at all, because on
May 18, 1968, he told appellant:

III

... we hereby make a firm offer, for and in behalf of our buyer, to
purchase said property at the price of Four Pesos and Fifty
Centavos (P4.50) per square meter ....

THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT

PETITIONER IS NOT ENTITLED TO HIS COMMISSION.
IV
THE RESPONDENT COURT OF APPEALS ERRED IN AWARDING ATTORNEY'S
FEES TO PRIVATE RESPONDENT DORONILA INSTEAD OF AFFIRMING THE
AWARD OF MORAL AND EXEMPLARY DAMAGES AS WELL As ATTORNEY FEES
TO PETITIONER. 5
The Court in its Resolution of May 23, 1975 originally denied the petition for lack of merit but upon petitioner's
motion for reconsideration and supplemental petition invoking equity, resolved in its Resolution of August 20,
1975 to give due course thereto.
From the stipulation of facts and the evidence of record, it is clear that the offer of defendant Doronila to sell
the 300 hectares of land in question to the Social Security System was formally accepted by the System only
on June 20, 1968 after the exclusive authority, Exhibit A, in favor of the plaintiff, petitioner herein, had expired.
The respondent court's factual findings that petitioner was not the efficient procuring cause in bringing about
the sale proceeding from the fact of expiration of his exclusive authority) which are admittedly final for
purposes of the present petition, provide no basis law to grant relief to petitioner. The following pertinent
excerpts from respondent court's extensive decision amply demonstrate this:
It is noted, however, that even in his brief, when he said
According to the testimony of the plaintiff-appellee a few days
before May 29, 1968, he arranged with Mr. Gilberto Teodoro,
SSS Administrator, a meeting with the defendant Manila. He
talked with Mr. Teodoro over the telephone and fixed the date of
the meeting with defendant-appellant Doronila for May 29,

As this offer is evidently made in behalf of buyer other than the SSS which had never
offered the price of P4.50 per square meter, appellee could not have at the same time
arranged a meeting between the SSS officials and appellant with a view to
consummating the sale in favor of the SSS which had made an offer of only PS.25 per
sq. m. and thus lose the much bigger profit he would realize with a higher price of
P4.50 per sq. meter. This 'firm offer' of P4.50 per sq. m. made by appellee betrayed his
lack of any efficient intervention in the negotiations with the SSS for the purchase by it
of appellant's property ... 7
xxx xxx xxx
... This becomes more evident when it is considered that on May 6, 1968 he was
making his first offer to sell the property at P6.00 per sq. m. to the SSS to which offer
he received no answer. It is this cold indifference of the SSS to him that must have
prompted him to look for other buyers, resulting in his making the firm offer of 714.50
per sq. m. on May 18, 1968, a fact which only goes to show that for being ignored by
the SSS, he gave up all effort to deal with the SSS. ... 8
xxx xxx xxx
... For him to claim that it was he who aroused the interest of the SSS in buying
appellant's property is to ignore the fact that as early as June, (July) 1967, the SSS
had directly dealt with appellant to such an extent that the price of P3.25 as offered by
the SSS was accepted by appellant, the latter imposing only the condition that the price
should be paid in cash, and within 30 days from the date of the acceptance. It can truly
be said then that the interest of SSS to acquire the property had been sufficiently
aroused for there to be any need for appellee to stimulate it further. Appellee should
know this fact for according to him, the 10-day grace period was agreed upon to give

the SSS a chance to pay the price of the land at P3.25 per sq. m., as a "compromise"
to appellant's insistence that the SSS be excluded from appellee's option or authority to
sell the land. 9
... There should be a written offer by the prospective buyer or by appellee for or in their
behalf, and that if no such written offer is made until the last day of the authorization,
the option and authority shall expired and become null and void. ... Yet, no such written
offer was made. ... 10
In equity, however, the Court notes that petitioner had Monthly taken steps to bring back together respondent
Doronila and the SSS, among which may be mentioned the following:
In July, 1967, prior to February 14, 1968, respondent Doronila had offered to sell the land in question to the
Social Security System Direct negotiations were made by Doronila with the SSS. The SSS did not then accept
the offer of Doronila. Thereafter, Doronila executed the exclusive authority in favor of petitioner Prats on
February 14, 1968.
Prats communicated with the Office of the Presidential Housing Commission on February 23, 1968 offering the
Doronila property. Prats wrote a follow-up letter on April is, 1968 which was answered by the Commission with
the suggestion that the property be offered directly to the SSS. Prats wrote the SSS on March 16, 1968,
inviting Chairman Ramon Gaviola, Jr. to discuss the offer of the sale of the property in question to the SSS. On
May 6, 1968, Prats made a formal written offer to the Social Security System to self the 300 hectare land of
Doronila at the price of P6.00 per square meter. Doronila received on May 17, 1968 from the SSS
Administrator a telegram that the SSS was considering the purchase of Doronilas property for its housing
project. Prats and his witness Raagas testified that Prats had several dinner and lunch meetings with Doronila
and/or his nephew, Atty. Manuel D. Asencio, regarding the progress of the negotiations with the SSS.
Atty. Asencio had declared that he and his uncle, Alfonso Doronila, were invited several times by Prats,
sometimes to luncheons and sometimes to dinner. On a Sunday, June 2, 1968, Prats and Raagas had
luncheon in Sulu Hotel in Quezon City and they were joined later by Chairman Gaviola of the SSS.
The Court has noted on the other hand that Doronila finally sold the property to the Social Security System at
P3.25 per square meter which was the very same price counter-offered by the Social Security System and
accepted by him in July, 1967 when he alone was dealing exclusively with the said buyer long before Prats
came into the picture but that on the other hand Prats' efforts somehow were instrumental in bringing them
together again and finally consummating the transaction at the same price of P3.25 square meter, although
such finalization was after the expiration of Prats' extended exclusive authority. Still such price was higher than
that stipulated in the exclusive authority granted by Doronila to Prats.
Under the circumstances, the Court grants in equity the sum of One Hundred Thousand Pesos (P100,000.00)
by way of compensation for his efforts and assistance in the transaction, which however was finalized and
consummated after the expiration of his exclusive authority and sets aside the P10,000.00 attorneys' fees
award adjudged against him by respondent court.
WHEREFORE, the derision appealed from is hereby affirmed, with the modification that private respondent
Alfonso Doronila in equity is ordered to pay petitioner or his heirs the amount of One Hundred Thousand
Pesos (P100,000.00) and that the portion of the said decision sell petitioner Prats to pay respondent Doronila
attorneys' fees in the sum of P10,000.00 is set aside.
The lifting of the injunction issued by the lower court on the P2,000,000.00 cash deposit of respondent
Doronila as ordered by respondent court is hereby with the exception of the sum of One Hundred Thousand
Pesos (P100,000.00) which is ordered segregated therefrom to satisfy the award herein given to petitioner, the
lifting of said injunction, as herein ordered, is immediately executory upon promulgation hereof.
No pronouncement as to costs.

AMON TRADING CORPORATION and JULIANA MARKETING,

P e t i t i o n e r s,

G.R. No. 158585

Present:
PUNO,
Chairman,
AUSTRIA-MARTINEZ,
CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.

- versus -

HON. COURT OF APPEALS andTRI-REALTY DEVELOPMENT AND

CONSTRUCTION CORPORATION,
R e s p o n d e n t s.

Promulgated:

December 13, 2005

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DECISION

CHICO-NAZARIO, J.:

This is an appeal by certiorari from the Decision[1] dated 28 November 2002 of the Court of
Appeals in CA-G.R. CV No. 60031, reversing the Decision of the Regional Trial Court of Quezon City, Branch
104, and holding petitioners Amon Trading Corporation and Juliana Marketing to be solidarily liable with Lines
& Spaces Interiors Center (Lines & Spaces) in refunding private respondent Tri-Realty Development and
Construction Corporation (Tri-Realty) the amount corresponding to the value of undelivered bags of cement.
The undisputed facts:
Private respondent Tri-Realty is a developer and contractor with projects in Bulacan and Quezon
City. Sometime in February 1992, private respondent had difficulty in purchasing cement needed for its
projects. Lines & Spaces, represented by Eleanor Bahia Sanchez, informed private respondent that it could
obtain cement to its satisfaction from petitioners, Amon Trading Corporation and its sister company, Juliana
Marketing. On the strength of such representation, private respondent proceeded to order from Sanchez Six
Thousand Fifty (6,050) bags of cement from petitioner Amon Trading Corporation, and from Juliana Marketing,
Six Thousand (6,000) bags at P98.00/bag.
Private respondent, through Mrs. Sanchez of Lines & Spaces, paid in advance the amount
of P592,900.00 through Solidbank Managers Check No. 0011565 payable to Amon Trading Corporation, and
the amount of P588,000.00 payable to Juliana Marketing, through Solidbank Managers Check No. 0011566. A
certain Weng Chua signed the check vouchers for Lines & Spaces while Mrs. Sanchez issued receipts for the
two managers checks. Private respondent likewise paid to Lines & Spaces an advance fee for the 12,050
cement bags at the rate of P7.00/bag, or a total of P84,350.00, in consideration of the facilitation of the orders
and certainty of delivery of the same to the private respondent. Solidbank Managers Check Nos. 0011565 and
0011566 were paid by Sanchez to petitioners.
There were deliveries to private respondent from Amon Trading Corporation and Juliana Marketing of 3,850
bags and 3,000 bags, respectively, during the period from April to June 1992. However, the balance of 2,200
bags from Amon Trading Corporation and 3,000 bags from Juliana Marketing, or a total of 5,200 bags, was not
delivered. Private respondent, thus, sent petitioners written demands but in reply, petitioners stated that they
have already refunded the amount of undelivered bags of cement to Lines and Spaces per written instructions
of Eleanor Sanchez.
Left high and dry, with news reaching it that Eleanor Sanchez had already fled abroad, private respondent filed
this case for sum of money against petitioners and Lines & Spaces.
Petitioners plead in defense lack of right or cause of action, alleging that private respondent had
no privity of contract with them as it was Lines & Spaces/Tri-Realty, through Mrs. Sanchez, that ordered or
purchased several bags of cement and paid the price thereof without informing them of any special
arrangement nor disclosing to them that Lines & Spaces and respondent corporation are distinct and separate

entities. They added that there were purchases or orders made by Lines & Spaces/Tri-Realty which they were
about to deliver, but were cancelled by Mrs. Sanchez and the consideration of the cancelled purchases or
orders was later reimbursed to Lines & Spaces. The refund was in the form of a check payable to Lines &
Spaces.
Lines & Spaces denied in its Answer that it is represented by Eleanor B. Sanchez and pleads in
defense lack of cause of action and in the alternative, it raised the defense that it was only an intermediary
between the private respondent and petitioners. [2] Soon after, though, counsel for Lines & Spaces moved to
withdraw from the case for the reason that its client was beyond contact.
On 29 January 1998, the Regional Trial Court of Quezon City, Branch 104, found Lines & Spaces
solely liable to private respondent and absolved petitioners of any liability. The dispositive portion of the trial
courts Decision reads:
Wherefore, judgment is hereby rendered ordering defendant Lines
and Spaces Interiors Center as follows: to pay plaintiff on the complaint the
amount of P47,950.00 as refund of the fee for the undelivered 5,200 bags of
cement at the rate of P7.00 per bag; the amount of P509,600.00 for the refund of
the price of the 5,200 undelivered bags of cement at P98.00 per bag; the amount
of P2,000,000.00 for compensatory damages; as well as the amount of
P639,387.50 as attorneys fees; and to pay Amon Trading and Juliana Marketing,
Inc. on the crossclaim the sum of P200,000.00 as attorneys fees. [3]

Private Respondent Tri-Realty partially appealed from the trial courts decision absolving Amon
Trading Corporation and Juliana Marketing of any liability to Tri-Realty. In the presently assailed Decision, the
Court of Appeals reversed the decision of the trial court and held petitioners Amon Trading Corporation and
Juliana Marketing to be jointly and severally liable with Lines & Spaces for the undelivered bags of cement.
The Court of Appeals disposedWHEREFORE, premises considered, the decision of the court a quo is hereby
REVERSED AND SET ASIDE, and another one is entered ordering the following:

At the focus of scrutiny is the issue of whether or not the Court of Appeals committed reversible
error in ruling that petitioners are solidarily liable with Lines & Spaces. The key to unlocking this issue is to
determine whether or not Lines & Spaces is the private respondents agent and whether or not there is privity
of contract between petitioners and private respondent.
We shall consider these issues concurrently as they are interrelated.
Petitioners, in their brief, zealously make a case that there was no contract of agency between
Lines & Spaces and private respondent. [6] Petitioners strongly assert that they did not have a hint that Lines &
Spaces and Tri-Realty are two different and distinct entities inasmuch as Eleanor Sanchez whom they have
dealt with just represented herself to be from Lines & Spaces/Tri-Realty when she placed her order for the
delivery of the bags of cement. Hence, no privity of contract can be said to exist between petitioners and
private respondent.[7]
Private respondent, on the other hand, goes over the top in arguing that contrary to their claim of
innocence, petitioners had knowledge that Lines & Spaces, as represented by Eleanor Sanchez, was a
separate and distinct entity from Tri-Realty.[8] Then, too, private respondent stirs up support for its contention
that contrary to petitioners' claim, there was privity of contract between private respondent and petitioners. [9]
Primarily, there was no written contract entered into between petitioners and private respondent for
the delivery of the bags of cement. As gleaned from the records, and as private respondent itself admitted in
its Complaint, private respondent agreed with Eleanor Sanchez of Lines & Spaces for the latter to source the
cement needs of the former in consideration of P7.00 per bag of cement. It is worthy to note that the payment
in managers checks was made to Eleanor Sanchez of Lines & Spaces and was not directly paid to
petitioners. While the managers check issued by respondent company was eventually paid to petitioners for
the delivery of the bags of cement, there is obviously nothing from the face of said managers check to hint that
private respondent was the one making the payments. There was likewise no intimation from Sanchez that the
purchase order placed by her was for private respondents benefit. The meeting of minds, therefore, was
between private respondent and Eleanor Sanchez of Lines & Spaces. This contract is distinct and separate
from the contract of sale between petitioners and Eleanor Sanchez who represented herself to be from Lines
& Spaces/Tri-Realty, which, per her representation, was a single account or entity.

Defendant-appellee Amon Trading Corporation is held liable jointly and severally with
defendant-appellee Lines and Spaces Interiors Center in the amount of P215,600.00
for the refund of the price of 2,200 undelivered bags of cement.

The records bear out, too, Annex A showing a check voucher payable to Amon Trading
Corporation for the 6,050 bags of cement received by a certain Weng Chua for Mrs. Eleanor Sanchez of Lines
& Spaces, and Annex B which is a check voucher bearing the name of Juliana Marketing as payee, but was
received again by said Weng Chua.Nowhere from the face of the check vouchers is it shown that petitioners or
any of their authorized representatives received the payments from respondent company.

Defendant-appellee Juliana Marketing is held liable jointly and severally with

defendant-appellee Lines and Spaces Interiors Center in the amount of P294,000.00
for the refund of the price of 3,000 undelivered bags of cement.

Also on record are the receipts issued by Lines & Spaces, signed by Eleanor Bahia Sanchez,
covering the said managers checks. As Engr. Guido Ganhinhin of respondent Tri-Realty testified, it was Lines
& Spaces, not petitioners, which issued to them a receipt for the two (2) managers checks. Thus-

The defendant-appellee Lines and Spaces Interiors Center is held solely in the amount
of P47,950.00 as refund of the fee for the 5,200 undelivered bags of cement to the
plaintiff-appellant Tri-Realty Development and Construction Corporation.

Q: And what is your proof that Amon and Juliana were paid of the
purchases through managers checks?

The awards of compensatory damages and attorneys fees are DELETED.

The cross claim of defendants-appellees Amon Trading Corporation and Juliana
Marketing is DISMISSED for lack of merit.
No pronouncement as to costs.

A: Lines & Spaces who represented Amon Trading and Juliana Marketing
issued us receipts for the two (2) managers checks we paid to Amon Trading and
Juliana Marketing Corporation.
Q: I am showing to you check no. 074 issued by Lines & Spaces Interiors
Center, what relation has this check to that check you mentioned earlier?

[4]

A: Official Receipt No. 074 issued by Lines & Spaces Interiors Center was
for the P592,900.00 we paid to Amon Trading Corporation for 6,050 bags of cement.
Pained by the ruling, petitioners elevated the case to this Court via the present petition for review
to challenge the Decision and Resolution of the Court of Appeals on the following issues:
I.

WHETHER OR NOT THERE WAS A CONTRACT OF AGENCY

BETWEEN LINES AND SPACES INTERIOR CENTER AND
RESPONDENT;

Q: Now there appears a signature in that receipt above the printed words
authorized signature, whose signature is that?
A: The signature of Mrs. Eleanor Bahia Sanchez, the representative of
Lines and Spaces.
Q: Why do you know that that is her signature?

II. WHETHER OR NOT PETITIONERS AND RESPONDENT HAS PRIVITY OF

CONTRACT.[5]

A: She is quite familiar with me and I saw her affix her signature upon
issuance of the receipt.[10] (Emphasis supplied.)

Without doubt, no vinculum could be said to exist between petitioners and private respondent.
There is likewise nothing meaty about the assertion of private respondent that inasmuch as the
delivery receipts as well as the purchase order were for the account of Lines & Spaces/Tri-Realty, then
petitioners should have been placed on guard that it was private respondent which is the principal of Sanchez.
In China Banking Corp. v. Members of the Board of Trustees, Home Development Mutual Fund [11] and the later
case of Romulo, Mabanta, Buenaventura, Sayoc and De los Angeles v. Home Development Mutual Fund,
[12]
the term and/or was held to mean that effect shall be given to both the conjunctive and and the disjunctive
or; or that one word or the other may be taken accordingly as one or the other will best effectuate the intended
purpose. It was accordingly ordinarily held that in using the term "and/or" the word "and" and the word "or" are
to be used interchangeably.
By analogy, the words Lines & Spaces/Tri-Realty mean that effect shall be given to both Lines &
Spaces and Tri-Realty or that Lines & Spaces and Tri-Realty may be used interchangeably. Hence, petitioners
were not remiss when they believed Eleanor Sanchezs representation that Lines & Spaces/Tri-Realty refers to
just one entity. There was, therefore, no error attributable to petitioners when they refunded the value of the
undelivered bags of cement to Lines & Spaces only.
There is likewise a dearth of evidence to show that the case at bar is an open-and-shut case of
agency between private respondent and Lines & Spaces. Neither Eleanor Sanchez nor Lines & Spaces was
an agent for private respondent, but rather a supplier for the latters cement needs. The Civil Code defines a
contract of agency as follows:
Art. 1868. By the contract of agency a person binds himself to render some
service or to do something in representation or on behalf of another, with the consent
or authority of the latter.

[13]

In a bevy of cases such as the avuncular case of Victorias Milling Co., Inc. v. Court of Appeals,
the Court decreed from Article 1868 that the basis of agency is representation.
. . . On the part of the principal, there must be an actual intention to appoint
or an intention naturally inferable from his words or actions and on the part of the
agent, there must be an intention to accept the appointment and act on it, and in the
absence of such intent, there is generally no agency. One factor which most clearly
distinguishes agency from other legal concepts is control; one person - the agent agrees to act under the control or direction of another - the principal. Indeed, the very
word "agency" has come to connote control by the principal. The control factor, more
than any other, has caused the courts to put contracts between principal and agent in a
separate category.

the value of the undelivered bags of cement to Lines & Spaces. Moreover, the check refund was payable to
Lines & Spaces, not to Sanchez, so there was indeed no cause to suspect the scheme.
The fact that the deliveries were made at the construction sites of private respondent does not by
itself raise suspicion that petitioners were delivering for private respondent. There was no sufficient showing
that petitioners knew that the delivery sites were that of private respondent and for another thing, the deliveries
were made by petitioners men who have no business nosing around their clients affairs.
Parenthetically, Eleanor Sanchez has absconded to the United States of America and the story of
what happened to the check refund may be forever locked with her. Lines & Spaces, in its Answer to the
Complaint, washed its hands of the apparent ruse perpetuated by Sanchez, but argues that if at all, it was
merely an intermediary between petitioners and private respondent. With no other way out, Lines & Spaces
was a no-show at the trial proceedings so that eventually, its counsel had to withdraw his appearance because
of his clients vanishing act. Left with an empty bag, so to speak, private respondent now puts the blame on
petitioners. But this Court finds plausible the stance of petitioners that they had no inkling of the deception that
was forthcoming. Indeed, without any contract or any hard evidence to show any privity of contract between it
and petitioners, private respondents claim against petitioners lacks legal foothold.
Considering the vagaries of the case, private respondent brought the wrong upon itself. As adeptly
surmised by the trial court, between petitioners and private respondent, it is the latter who had made possible
the wrong that was perpetuated by Eleanor Sanchez against it so it must bear its own loss. It is in this sense
that we must apply the equitable maxim that as between two innocent parties, the one who made it possible
for the wrong to be done should be the one to bear the resulting loss. [15] First, private respondent was the one
who had reposed too much trust on Eleanor Sanchez for the latter to source its cement needs. Second, it
failed to employ safety nets to steer clear of the rip-off. For such huge sums of money involved in this case, it
is surprising that a corporation such as private respondent would pay its construction materials in
advance instead of in credit thus opening a window of opportunity for Eleanor Sanchez or Lines & Spaces to
pocket the remaining balance of the amount paid corresponding to the undelivered materials. Private
respondent likewise paid in advance the commission of Eleanor Sanchez for the materials that have yet to be
delivered so it really had no means of control over her. Finally, there is no paper trail linking private respondent
to petitioners thereby leaving the latter clueless that private respondent was their true client. Private
respondent should have, at the very least, required petitioners to sign the check vouchers or to issue receipts
for the advance payments so that it could have a hold on petitioners. In this case, it was the representative of
Lines & Spaces who signed the check vouchers. For its failure to establish any of these deterrent measures,
private respondent incurred the risk of not being able to recoup the value of the materials it had paid good
money for.
WHEREFORE, the present petition is hereby GRANTED. Accordingly, the Decision and the
Resolution dated 28 November 2002 and 10 June 2003, of the Court of Appeals in CA-G.R CV No. 60031, are
hereby REVERSED and SET ASIDE. The Decision dated 29 January 1998 of the Regional Trial Court of
Quezon City, Branch 104, in Civil Case Q-92-14235 is hereby REINSTATED. No costs.
January 16, 1923

Here, the intention of private respondent, as the Executive Officer of respondent corporation
testified on, was merely for Lines & Spaces, through Eleanor Sanchez, to supply them with the needed bags
of cement.
Q: Do you know the defendant Lines & Spaces in this case?

G.R. No. 18058

FABIOLA SEVERINO, plaintiff-appellee,
vs.
GUILLERMO SEVERINO, defendant-appellant.
FELICITAS VILLANUEVA, intervenor-appellee.

A: Yes, sir.
Q: How come you know this defendant?
A: Lines & Spaces represented by Eleanor Bahia Sanchez offered to
supply us cement when there was scarcity of cement experienced in our projects .
[14]
(Emphasis supplied)
We cannot go along the Court of Appeals disquisition that Amon Trading Corporation and Juliana
Marketing should have required a special power of attorney form when they refunded Eleanor B. Sanchez the
cost of the undelivered bags of cement. All the quibbling about whether Lines & Spaces acted as agent of
private respondent is inane because as illustrated earlier, petitioners took orders from Eleanor Sanchez who,
after all, was the one who paid them the managers checks for the purchase of cement. Sanchez represented
herself to be from Lines & Spaces/Tri-Realty, purportedly a single entity. Inasmuch as they have never directly
dealt with private respondent and there is no paper trail on record to guide them that the private respondent, in
fact, is the beneficiary, petitioners had no reason to doubt the request of Eleanor Sanchez later on to refund

Serafin P. Hilado and A. P. Seva for appellant.

Jose Ma. Arroyo, Jose Lopez Vito, and Fisher and DeWitt for appellees.
OSTRAND, J.:
This is an action brought by the plaintiff as the alleged natural daughter and sole heir of one Melecio Severino,
deceased, to compel the defendant Guillermo Severino to convey to her four parcels of land described in the
complaint, or in default thereof to pay her the sum of P800,000 in damages for wrongfully causing said land to
be registered in his own name. Felicitas Villanueva, in her capacity as administratrix of the estate of Melecio
Severino, has filed a complaint in intervention claiming in the same relief as the original plaintiff, except in so
far as she prays that the conveyance be made, or damages paid, to the estate instead of to the plaintiff
Fabiola Severino. The defendant answered both complaints with a general denial.
The lower court rendered a judgment recognizing the plaintiff Fabiola Severino as the acknowledged natural
child of the said Melecio Severino and ordering the defendant to convey 428 hectares of the land in question
to the intervenor as administratrix of the estate of the said Melecio Severino, to deliver to her the proceeds in

his possession of a certain mortgage placed thereon by him and to pay the costs. From this judgment only the
defendant appeals.
The land described in the complaint forms one continuous tract and consists of lots Nos. 827, 828, 834, and
874 of the cadaster of Silay, Province of Occidental Negros, which measure, respectively, 61 hectares, 74
ares, and 79 centiares; 76 hectares, 34 ares, and 79 centiares; 52 hectares, 86 ares, and 60 centiares and
608 hectares, 77 ares and 28 centiares, or a total of 799 hectares, 75 ares, and 46 centiares.
The evidence shows that Melecio Severino died on the 25th day of May, 1915; that some 428 hectares of the
land were recorded in the Mortgage Law Register in his name in the year 1901 by virtue of possessory
information proceedings instituted on the 9th day of May of that year by his brother Agapito Severino in his
behalf; that during the lifetime of Melecio Severino the land was worked by the defendant, Guillermo Severino,
his brother, as administrator for and on behalf of the said Melecio Severino; that after Melecio's death, the
defendant Guillermo Severino continued to occupy the land; that in 1916 a parcel survey was made of the
lands in the municipality of Silay, including the land here in question, and cadastral proceedings were instituted
for the registration of the lands titles within the surveyed area; that in the cadastral proceedings the land here
in question was described as four separate lots numbered as above stated; that Roque Hofilea, as lawyer for
Guillermo Severino, filed answers in behalf of the latter in said proceedings claiming the lots mentioned as the
property of his client; that no opposition was presented in the proceedings to the claims of Guillermo Severino
and the court therefore decreed the title in his favor, in pursuance of which decree certificates of title were
issued to him in the month of March, 1917.
It may be further observed that at the time of the cadastral proceedings the plaintiff Fabiola Severino was a
minor; that Guillermo Severino did not appear personally in the proceedings and did not there testify; that the
only testimony in support of his claims was that of his attorney Hofilea, who swore that he knew the land and
that he also knew that Guillermo Severino inherited the land from his father and that he, by himself, and
through his predecessors in interest, had possessed the land for thirty years.
The appellant presents the following nine assignments of error:
1. The trial court erred in admitting the evidence that was offered by plaintiff in order to establish the fact that
said plaintiff was the legally acknowledged natural child of the deceased Melecio Severino.
2. The trial court erred in finding that, under the evidence presented, plaintiff was the legally acknowledged
natural child of Melecio Severino.
3. The trial court erred in rejecting the evidence offered by defendant to establish the absence of fraud on his
part in securing title to the lands in Nacayao.
4. The trial court erred in concluding that the evidence adduced by plaintiff and intervenor established that
defendant was guilty of fraud in procuring title to the lands in question in his name.
5. The trial court erred in declaring that the land that was formerly placed in the name of Melecio Severino had
an extent of either 434 or 428 hectares at the time of his death.
6. The trial court erred in declaring that the value of the land in litigation is P500 per hectare.
7. The trial court erred in granting the petition of the plaintiff for an attachment without first giving the defendant
an opportunity to be heard.
8. The trial court erred in ordering the conveyance of 428 hectares of land by defendant to the administratrix.
9. The trial court erred in failing or refusing to make any finding as to the defendant's contention that the
petition for attachment was utterly devoid of any reasonable ground.
In regard to the first two assignments of error, we agree with the appellant that the trial court erred in making a
declaration in the present case as to the recognition of Fabiola Severino as the natural child of Melecio
Severino. We have held in the case of Briz vs. Briz and Remigio (43 Phil., 763), that "The legitimate heirs or
kin of a deceased person who would be prejudiced by a declaration that another person is entitled to
recognition as the natural child of such decedent, are necessary and indispensable parties to any action in
which a judgment declaring the right to recognition is sought." In the present action only the widow, the alleged
natural child, and one of the brothers of the deceased are parties; the other potential heirs have not been
included. But, inasmuch as the judgment appealed from is in favor of the intervenor and not of the plaintiff,
except to the extent of holding that the latter is a recognized natural child of the deceased, this question is,
from the view we take of the case, of no importance in its final disposition. We may say, however, in this
connection, that the point urged in appellant's brief that it does not appear affirmatively from the evidence that,
at the time of the conception of Fabiola, her mother was a single woman, may be sufficiently disposed of by a

reference to article 130 of the Civil Code and subsection 1 of section 334 of the Code of Civil Procedure which
create the presumption that a child born out of wedlock is natural rather than illegitimate. The question of the
status of the plaintiff Fabiola Severino and her right to share in the inheritance may, upon notice to all the
interested parties, be determined in the probate proceedings for the settlement of the estate of the deceased.
The fifth assignment of error relates to the finding of the trial court that the land belonging to Melecio Severino
had an area of 428 hectares. The appellant contends that the court should have found that there were only
324 hectares inasmuch as one hundred hectares of the original area were given to Melecio's brother Donato
during the lifetime of the father Ramon Severino. As it appears that Ramon Severino died in 1896 and that the
possessory information proceedings, upon which the finding of the trial court as to the area of the land is
principally based, were not instituted until the year 1901, we are not disposed to disturb the conclusions of the
trial court on this point. Moreover, in the year 1913, the defendant Guillermo Severino testified under oath, in
the case of Montelibano vs. Severino, that the area of the land owned by Melecio Severino and of which he
(Guillermo) was the administrator, embraced an area of 424 hectares. The fact that Melecio Severino, in
declaring the land for taxation in 1906, stated that the area was only 324 hectares and 60 ares while entitled to
some weight is not conclusive and is not sufficient to overcome the positive statement of the defendant and
the recitals in the record of the possessory information proceedings.
The sixth assignment of error is also of minor importance in view of the fact that in the dispositive part of the
decision of the trial court, the only relief given is an order requiring the appellant to convey to the administratrix
the land in question, together with such parts of the proceeds of the mortgage thereon as remain in his hands.
We may say further that the court's estimate of the value of the land does not appear unreasonable and that,
upon the evidence before us, it will not be disturbed.
The seventh and within assignments of error relate to the ex parte granting by the trial court of a preliminary
attachment in the case and the refusal of the court to dissolve the same. We find no merit whatever in these
assignments and a detailed discussion of them is unnecessary.
The third, fourth, and eight assignments of error involve the vital points in the case, are inter-related and may
be conveniently considered together.
The defendant argues that the gist of the instant action is the alleged fraud on his part in causing the land in
question to be registered in his name; that the trial court therefore erred in rejecting his offer of evidence to the
effect that the land was owned in common by all the heirs of Ramon Severino and did not belong to Melecio
Severino exclusively; that such evidence, if admitted, would have shown that he did not act with fraudulent
intent in taking title to the land; that the trial court erred in holding him estopped from denying Melecio's title;
that more than a year having elapsed since the entry of the final decree adjudicating the land to the defendant,
said decree cannot now be reopened; that the ordering of the defendant to convey the decreed land to the
administratrix is, for all practical purposes, equivalent to the reopening of the decree of registration; that under
section 38 of the Land Registration Act the defendant has an indefeasible title to the land; and that the
question of ownership of the land being thus judicially settled, the question as to the previous relations
between the parties cannot now be inquired into.
Upon no point can the defendant's contentions be sustained. It may first be observed that this is not an action
under section 38 of the Land Registration Act to reopen or set aside a decree; it is an action in
personam against an agent to compel him to return, or retransfer, to the heirs or the estate of its principal, the
property committed to his custody as such agent, to execute the necessary documents of conveyance to effect
such retransfer or, in default thereof, to pay damages.
That the defendant came into the possession of the property here in question as the agent of the deceased
Melecio Severino in the administration of the property, cannot be successfully disputed. His testimony in the
case of Montelibano vs. Severino (civil case No. 902 of the Court of First Instance of Occidental Negros and
which forms a part of the evidence in the present case) is, in fact, conclusive in this respect. He there stated
under oath that from the year 1902 up to the time the testimony was given, in the year 1913, he had been
continuously in charge and occupation of the land as the encargado or administrator of Melecio Severino; that
he had always known the land as the property of Melecio Severino; and that the possession of the latter had
been peaceful, continuous, and exclusive. In his answer filed in the same case, the same defendant, through
his attorney, disclaimed all personal interest in the land and averred that it was wholly the property of his
brother Melecio.
Neither is it disputed that the possession enjoyed by the defendant at the time of obtaining his decree was of
the same character as that held during the lifetime of his brother, except in so far as shortly before the trial of
the cadastral case the defendant had secured from his brothers and sisters a relinguishment in his favor of
such rights as they might have in the land.
The relations of an agent to his principal are fiduciary and it is an elementary and very old rule that in regard to
property forming the subject-matter of the agency, he is estopped from acquiring or asserting a title adverse to

that of the principal. His position is analogous to that of a trustee and he cannot consistently, with the
principles of good faith, be allowed to create in himself an interest in opposition to that of his principal or cestui
que trust. Upon this ground, and substantially in harmony with the principles of the Civil Law (see sentence of
the supreme court of Spain of May 1, 1900), the English Chancellors held that in general whatever a trustee
does for the advantage of the trust estate inures to the benefit of the cestui que trust. (Greenlaw vs. King, 5
Jur., 18; Ex parte Burnell, 7 Jur., 116; Ex parte Hughes, 6 Ves., 617; Ex parte James, 8 Ves., 337;
Oliver vs. Court, 8 Price, 127.) The same principle has been consistently adhered to in so many American
cases and is so well established that exhaustive citations of authorities are superfluous and we shall therefore
limit ourselves to quoting a few of the numerous judicial expressions upon the subject. The principle is well
stated in the case of Gilbert vs. Hewetson (79 Minn., 326):
A receiver, trustee, attorney, agent, or any other person occupying fiduciary relations respecting property or
persons, is utterly disabled from acquiring for his own benefit the property committed to his custody for
management. This rule is entirely independent of the fact whether any fraud has intervened. No fraud in fact
need be shown, and no excuse will be heard from the trustee. It is to avoid the necessity of any such inquiry
that the rule takes so general a form. The rule stands on the moral obligation to refrain from placing one's self
in positions which ordinarily excite conflicts between self-interest and integrity. It seeks to remove the
temptation that might arise out of such a relation to serve one's self-interest at the expense of one's integrity
and duty to another, by making it impossible to profit by yielding to temptation. It applies universally to all who
come within its principle.
In the case of Massie vs. Watts (6 Cranch, 148), the United States Supreme Court, speaking through Chief
Justice Marshall, said:
But Massie, the agent of Oneale, has entered and surveyed a portion of that land for himself and obtained a
patent for it in his own name. According to the clearest and best established principles of equity, the agent who
so acts becomes a trustee for his principal. He cannot hold the land under an entry for himself otherwise than
as trustee for his principal.
In the case of Felix vs. Patrick (145 U. S., 317), the United States Supreme Court, after examining the
authorities, said:
The substance of these authorities is that, wherever a person obtains the legal title to land by any artifice or
concealment, or by making use of facilities intended for the benefit of another, a court of equity will impress
upon the land so held by him a trust in favor of the party who is justly entitled to them, and will order the trust
executed by decreeing their conveyance to the party in whose favor the trust was created. (Citing Bank of
Metropolis vs. Guttschlick, 14 Pet., 19, 31; Moses vs. Murgatroyd, 1 Johns. Ch., 119;
Cumberland vs. Codrington, 3 Johns. Ch., 229, 261; Neilson vs. Blight, 1 Johns. Cas., 205; Weston vs. Barker,
12 Johns., 276.)
The same doctrine has also been adopted in the Philippines. In the case of Uy Aloc vs. Cho Jan Ling (19 Phil.,
202), the facts are stated by the court as follows:
From the facts proven at the trial it appears that a number of Chinese merchants raised a fund by voluntary
subscription with which they purchased a valuable tract of land and erected a large building to be used as a
sort of club house for the mutual benefit of the subscribers to the fund. The subscribers organized themselves
into an irregular association, which had no regular articles of association, and was not incorporated or
registered in the commercial registry or elsewhere. The association not having any existence as a legal entity,
it was agreed to have the title to the property placed in the name of one of the members, the defendant, Cho
Jan Ling, who on his part accepted the trust, and agreed to hold the property as the agent of the members of
the association. After the club building was completed with the funds of the members of the association, Cho
Jan Ling collected some P25,000 in rents for which he failed and refused to account, and upon proceedings
being instituted to compel him to do so, he set up title in himself to the club property as well as to the rents
accruing therefrom, falsely alleging that he had bought the real estate and constructed the building with his
own funds, and denying the claims of the members of the association that it was their funds which had been
used for that purpose.
The decree of the court provided, among other things, for the conveyance of the club house and the land on
which it stood from the defendant, Cho Jan Ling, in whose name it was registered, to the members of the
association. In affirming the decree, this court said:
In the case at bar the legal title of the holder of the registered title is not questioned; it is admitted that the
members of the association voluntarily obtained the inscription in the name of Cho Jan Ling, and that they had
no right to have that inscription cancelled; they do not seek such cancellation, and on the contrary they allege
and prove that the duly registered legal title to the property is in Cho Jan Ling, but they maintain, and we think
that they rightly maintain, that he holds it under an obligation, both express and implied, to deal with it
exclusively for the benefit of the members of the association, and subject to their will.

In the case of Camacho vs. Municipality of Baliuag (28 Phil., 466), the plaintiff, Camacho, took title to the land
in his own name, while acting as agent for the municipality. The court said:
There have been a number of cases before this court in which a title to real property was acquired by a person
in his own name, while acting under a fiduciary capacity, and who afterwards sought to take advantage of the
confidence reposed in him by claiming the ownership of the property for himself. This court has invariably held
such evidence competent as between the fiduciary and the cestui que trust.
xxx

xxx

xxx

What judgment ought to be entered in this case? The court below simply absolved the defendant from the
complaint. The defendant municipality does not ask for a cancellation of the deed. On the contrary, the deed is
relied upon the supplement the oral evidence showing that the title to the land is in the defendant. As we have
indicated in Consunji vs. Tison, 15 Phil., 81, and Uy Aloc vs. Cho Jan Ling, 19 Phil., 202, the proper procedure
in such a case, so long as the rights of innocent third persons have not intervened, is to compel a conveyance
to the rightful owner. This ought and can be done under the issues raised and the proof presented in the case
at bar.
The case of Sy-Juco and Viardo vs. Sy-Juco (40 Phil., 634) is also in point.
As will be seen from the authorities quoted, and agent is not only estopped from denying his principal's title to
the property, but he is also disable from acquiring interests therein adverse to those of his principal during the
term of the agency. But the defendant argues that his title has become res adjudicata through the decree of
registration and cannot now be disturbed.
This contention may, at first sight, appear to possess some force, but on closer examination it proves
untenable. The decree of registration determined the legal title to the land as the date of the decree; as to that
there is no question. That, under section 38 of the Land Registration Act, this decree became conclusive after
one year from the date of the entry is not disputed and no one attempts to disturb the decree or the
proceedings upon which it is based; the plaintiff in intervention merely contends that in equity the legal title so
acquired inured to the benefit of the estate of Melecio Severino, the defendant's principal and cestui que
trust and asks that this superior equitable right be made effective by compelling the defendant, as the holder of
the legal title, to transfer it to the estate.
We have already shown that before the issuance of the decree of registration it was the undoubted duty of the
defendant to restore the property committed to his custody to his principal, or to the latter's estate, and that the
principal had a right of action in personam to enforce the performance of this duty and to compel the
defendant to execute the necessary conveyance to that effect. The only question remaining for consideration
is, therefore, whether the decree of registration extinguishing this personal right of action.
In Australia and New Zealand, under statutes in this respect similar to ours, courts of equity exercise general
jurisdiction in matters of fraud and error with reference to Torrens registered lands, and giving attention to the
special provisions of the Torrens acts, will issue such orders and direction to all the parties to the proceedings
as may seem just and proper under the circumstances. They may order parties to make deeds of conveyance
and if the order is disobeyed, they may cause proper conveyances to be made by a Master in Chancery or
Commissioner in accordance with the practice in equity (Hogg, Australian Torrens System, p. 847).
In the Untied States courts have even gone so far in the exercise of their equity jurisdiction as to set aside final
decrees after the expiration of the statutory period of limitation for the reopening of such decrees
(Baart vs. Martin, 99 Minn., 197). But, considering that equity follows the law and that our statutes expressly
prohibit the reopening of a decree after one year from the date of its entry, this practice would probably be out
of question here, especially so as the ends of justice may be attained by other equally effective, and less
objectionable means.
Turning to our own Land Registration Act, we find no indication there of an intention to cut off, through the
issuance of a decree of registration, equitable rights or remedies such as those here in question. On the
contrary, section 70 of the Act provides:
Registered lands and ownership therein, shall in all respects be subject to the same burdens and incidents
attached by law to unregistered land. Nothing contained in this Act shall in any way be construed to relieve
registered land or the owners thereof from any rights incident to the relation of husband and wife, or from
liability to attachment on mesne process or levy on execution, or from liability to any lien of any description
established by law on land and the buildings thereon, or the interest of the owner in such land or buildings, or
to change the laws of descent, or the rights of partition between coparceners, joint tenants and other
cotenants, or the right to take the same by eminent domain, or to relieve such land from liability to be
appropriated in any lawful manner for the payment of debts, or to change or affect in any other way any other

rights or liabilities created by law and applicable to unregistered land, except as otherwise expressly provided
in this Act or in the amendments hereof.

vs.
HERMOGENES S. PINEDA, defendant-appellant.

Section 102 of the Act, after providing for actions for damages in which the Insular Treasurer, as the Custodian
of the Assurance Fund is a party, contains the following proviso:

Matias E. Vergara and Perkins, Ponce Enrile, Contreras and Gomez for plaintiff-appellant.
Laurel, Sabido, Almario and Laurel for defendant-appellant.

Provided, however, That nothing in this Act shall be construed to deprive the plaintiff of any action which he
may have against any person for such loss or damage or deprivation of land or of any estate or interest therein
without joining the Treasurer of the Philippine Archipelago as a defendant therein.

TUASON, J.:

That an action such as the present one is covered by this proviso can hardly admit of doubt. Such was also
the view taken by this court in the case of Medina Ong-Quingco vs. Imaz and Warner, Barnes & Co. (27 Phil.,
314), in which the plaintiff was seeking to take advantage of his possession of a certificate of title to deprive
the defendant of land included in that certificate and sold to him by the former owner before the land was
registered. The court decided adversely to plaintiff and in so doing said:
As between them no question as to the indefeasibility of a Torrens title could arise. Such an action could have
been maintained at any time while the property remained in the hands of the purchaser. The peculiar force of a
Torrens title would have been brought into play only when the purchaser had sold to an innocent third person
for value the lands described in his conveyance. . . . Generally speaking, as between the vendor and the
purchaser the same rights and remedies exist with reference to land registered under Act No. 496, as exist in
relation to land not so registered.
In Cabanos vs. Register of Deeds of Laguna and Obiana (40 Phil., 620), it was held that, while a purchaser
of land under a pacto de retro cannot institute a real action for the recovery thereof where the vendor under
said sale has caused such lands to be registered in his name without said vendee's consent, yet he may have
his personal action based on the contract of sale to compel the execution of an unconditional deed for the said
lands when the period for repurchase has passed.
Torrens titles being on judicial decrees there is, of course, a strong presumption in favor of their regularity or
validity, and in order to maintain an action such as the present the proof as to the fiduciary relation of the
parties and of the breach of trust must be clear and convincing. Such proof is, as we have seen, not lacking in
this case.
But once the relation and the breach of trust on the part of the fiduciary in thus established, there is no reason,
neither practical nor legal, why he should not be compelled to make such reparation as may lie within his
power for the injury caused by his wrong, and as long as the land stands registered in the name of the party
who is guilty of the breach of trust and no rights of innocent third parties are adversely affected, there can be
no reason why such reparation should not, in the proper case, take the form of a conveyance or transfer of the
title to the cestui que trust. No reasons of public policy demand that a person guilty of fraud or breach of trust
be permitted to use his certificate of title as a shield against the consequences of his own wrong.
The judgment of the trial court is in accordance with the facts and the law. In order to prevent unnecessary
delay and further litigation it may, however, be well to attach some additional directions to its dipositive
clauses. It will be observed that lots Nos. 827, 828, and 834 of a total area of approximately 191 hectares, lie
wholly within the area to be conveyed to the plaintiff in intervention and these lots may, therefore, be so
conveyed without subdivision. The remaining 237 hectares to be conveyed lie within the western part of lot No.
874 and before a conveyance of this portion can be effected a subdivision of that lot must be made and a
technical description of the portion to be conveyed, as well as of the remaining portion of the lot, must be
prepared. The subdivision shall be made by an authorized surveyor and in accordance with the provisions of
Circular No. 31 of the General Land Registration Office, and the subdivision and technical descriptions shall
be submitted to the Chief of that office for his approval. Within thirty days after being notified of the approval of
said subdivision and technical descriptions, the defendant Guillermo Severino shall execute good and
sufficient deed or deeds of conveyance in favor of the administratrix of the estate of the deceased Melecio
Severino for said lots Nos. 827, 828, 834, and the 237 hectares segregated from the western part of lot No.
874 and shall deliver to the register of deeds his duplicate certificates of title for all of the four lots in order that
said certificates may be cancelled and new certificates issued. The cost of the subdivision and the fees of the
register of deeds will be paid by the plaintiff in intervention. It is so ordered
With these additional directions the judgment appealed from is affirmed, with the costs against the appellant.
The right of the plaintiff Fabiola Severino to establish in the probate proceedings of the estate of Melecio
Severino her status as his recognized natural child is reserved.
June 28, 1951
G.R. No. L-2411
DAVID (DAVE) THOMAS, plaintiff-appellant,

For a first cause of action the plaintiff sought to compel an accounting of the defendant's operation of a saloon
and restaurant of which the plaintiff claims to have been the sole owner. For a second cause of action the
court was asked to enjoin the defendant from using the name of that business, Silver Dollar Cafe. The court
below found for the defendant on the suit for accounting and for the plaintiff on the suit for injunction.
On the first cause of action it is alleged that the defendant managed the business as plaintiff's employee or
trustee during the Japanese occupation of the City of Manila and on a share of the profits basis after liberation.
Grounded on different relationships between the parties before and after the occupation, this cause of action
evolves two different acts of evidence, which it may be well to take up separately for the sake of clarity. We will
set out the material facts in so far as they are uncontroverted, leaving for later discussion those about which
the parties are in disagreement.
It appears that in 1931, the plaintiff bought the bar and restaurant known as Silver Dollar Cafe located at Plaza
Santa Cruz, Manila, from one Dell Clark, paying P20,000 for its physical assets and good will. Thereafter he
employed the defendant, Clark's former employee, as a bartender with a salary of P60. In the course of time,
the defendant became successively cashier and manager of the business. The outbreak of war found him
holding the latter position with a monthly compensation of P250.
To prevent the business and its property from falling into enemy hands, the plaintiff being a citizen of the
United States, David Thomas on or about December 28, 1941, made a fictitious sale thereof to the defendant;
and to clothe the sale with a semblance of reality, the bill of sale was antedated November 29, 1941.
Though this document was said to have been destroyed and no copy thereof was available, the fictitiousness
and lack of consideration of the conveyance was expressly admitted in the answer. Besides this admission, it
is agreed that simultaneously with or soon after the execution of the simulated sale, the plaintiff and the
defendant signed a private or secret document, identified as Exhibit "F", which was kept by the plaintiff.
Because of its important bearing on the case, it is convenient to copy this instrument in full.
PRIVATE AGREEMENT
KNOW ALL MEN BY THESE PRESENTS THAT:
On November 29, 1941, a document which purported to be a deed of sale of the bar and restaurant business
known as the SILVER DOLLAR CAFE entered into by and between David (Dave) Thomas and Hermogenes
Pineda and acknowledged before Julian Lim, a notary public for and in the City of Manila and entered in his
notarial register as Document No. 127, Page No. 27, Book I and Series of 1941, witnessed by the Misses
Florence Thomas and Esther Thomas.
The said document was prepared and executed only for the purpose of avoiding the seizure of the said
establishment if and when the enemy forces entered the City of Manila.
Upon the restoration of peace and order and the absence of the danger abovementioned, the said document
automatically becomes null and void and of no effect, the consideration of Ten Thousand Pesos (P10,000),
Philippine Currency, mentioned therein, being fictitious and not paid to the Vendor.
In witness whereof, we have hereunto set our hands in the City of Manila, Philippines, this 29th day of
November, 1941.
(Sgd.) DAVID THOMAS
Vendor

(Sgd.) H. PINEDA
Vendee

In the presence of:

(Sgd.) ESTHER THOMAS

(Sgd.) FLORENCE THOMAS

Thomas was interred at Santo Tomas during the greater part of the war, and his business was operated by the
defendant exclusively throughout that period in accordance with the aforequoted stipulation. On February 3,
1945, the building was destroyed by fire but the defendant had been able to remove some of its furniture, the
cash register, the piano, the safe, and a considerable quantity of stocks to a place of safety. According to the
defendant, all of these goods were accounted for and turned over to the plaintiff after the City of Manila had
been retaken by the American Forces.
On May 8, 1945, a bar was opened on Calle Bambang, district of Sta. Cruz, under the old name of Silver
Dollar Cafe. Housed in a makeshift structure, which was erected on a lot belonging to the defendant, the
Bambang shop was conducted for about four months, i.e., until September of the same year, when it was
transferred to the original location of the Silver Dollar Cafe at No. 15 Plaza Sta. Cruz.
It is asserted and denied that the plaintiff as well as the defendant took a more or less active part in the
management of the post-liberation business until about the middle of September of the following year, when, it
is also alleged, the plaintiff brought a certified public accountant to the establishment in Sta. Cruz for the
purpose of examining the books of the business and the defendant threatened the plaintiff and his companion
with a gun if they persisted in their purpose. As a result of that incident, the plaintiff forthwith filed the present
action, and set up a separate business under the same trade-name, Silver Dollar Cafe, on Echague Street.
The defendant remained with the Silver Dollar Cafe at Plaza Sta. Cruz, which was burn down on December
15, 1946. In the face of Exhibit "F" before transcribed, there is no denying that throughout the Japanese
military regime the Silver Dollar Cafe belonged exclusively to the plaintiff and that the defendant had charge of
it merely as plaintiff's employee, trustee, or manager. There is no pretense that the defendant invested in the
business within that period any capital of his own in the form of cash or merchandise.
The controversy lies in nature and scope of the defendant's obligation toward the plaintiff in relation to the
business. It will be noticed that Exhibit "F" is silent on this point. The defendant endeavored to prove that there
was a third, verbal, agreement, the import of which was that he was to operate the business with no liability
other than to turn it over to the plaintiff as the plaintiff would find it after the war.
Little or no weight can be attached to this assertion if by it the defendant means, as he apparently does, that
he was relieved of any duty to make an accounting. Such understanding as the defendant says existed would
be at war with the care and precaution which the plaintiff took to insure his rights in the business and its
assets, which had an inventory value of P60,000, according to the plaintiff. As the property consisted mostly of
perishable and expendable goods to be constantly disposed of and replenished as long as the business
lasted, the plaintiff could not, by any stretch of the imagination, have agreed to be content with what the
defendant would deign to give him when normalcy was restored. For that was what the defendant's version of
the alleged verbal agreement would amount to and what the court below found. As sole manager with full
power to do as his fancies dictated, the defendant could strip the business naked of all its stocks, leaving the
plaintiff holding the bag, as it were, when the defendant's management was terminated. Unless Thomas was
willing to give away his property and its profits, no man in his right senses would have given his manager an
outright license such as the defendant claims to have gotten from his employer. Not only did the plaintiff see to
the execution of a counter agreement but he stated that his elder daughter "had it (Exhibit "F") kept in her
possession;" that "there were many efforts by Mr. Pineda to get hold of this document during the first two
weeks of the Japanese occupation," and he was "surprised;" that he "did not know what was in the future" and
he "wanted my children to have something more than an empty possession." Referring to the defendant's
attempts to take Exhibit "F" away from him, Thomas said that the defendant sent to the hospital where he
(plaintiff) was confined, defendant's friend, an attorney by the name of Swartzcoff of whom he had heard
"things", "to recover that document", and he, plaintiff, became more determined not to part with it; that as
Swartzcoff kept on coming, he gave the document to his children to keep up to the end of the war. This
testimony has all the stamps of veracity and vehemence and refutes the defendant's allegation. The
conclusion thus seems clear that the defendant owes the plaintiff an accounting of his management of the
plaintiff's business during the occupation. The exact legal character of the defendant's relation to the plaintiff
matters not a bit. It was enough to show, and it had been shown, that he had been entrusted with the
possession and management of the plaintiff's business and property for the owner's benefit and had not made
an accounting.
Neither did the defendant's sweeping statement at the trial that all the proceeds from the business had
been used to support the plaintiff and his daughters an to entertain or bribe Japanese officers and civilians
dispense with defendant's duty to account. It was a clear error for the court below to declare at this stage of
the proceeding, on the basis of defendant's incomplete and indefinite evidence, that there were no surplus
profits, and to call matters even. Under the pleadings and the evidence the court's inquiry ought to have been
confined to the determination of the plaintiff's right to secure an accounting; and that right having been
established, the appropriate judgment should have been a preliminary or interlocutory one that the
defendant do account. The court was not called upon to decide, and should not have decided, anything
beyond that.

Monies and foodstuffs which the defendant said he had supplied the plaintiff and his daughters during the war
are appropriate items to be considered on taking account. Receipts and expenses involving thousands of
pesos, covering a great length of time, and consisting of complicated items are, on their face, so complex and
in as to necessitate being threshed out in an appropriations by the defendants substantiated. By the
defendant's admission, the business made good profits during the war, and there are charges that he
amassed a fortune out of the trusteeship. True or false, those allegations and many others which it was the
plaintiff's right to prove, if he could, should not have been dismissed summarily. Not technicalities but
substantial rights, equity, and justice clearly demanded adherence to the normal course of practice and
procedure. The employment of auditors might be necessary.
The defendant denied that the plaintiff had any proprietary interest in the saloon in Bambang and at Plaza Sta.
Cruz after liberation. Thomas' evidence on this phase of the litigation is to the effect that, upon his release
from the internment camp, he immediately took steps to rehabilitate his business. He declared that he
borrowed P2.000 from a friend by the name of Bill Drummond, and with that amount he constructed a
temporary building in Bambang and with the stocks saved by the defendant opened the business there. He
said that, as before, the defendant now worked as manager, with the difference that under the new
arrangement he was to get one-half the net profits.
The defendant, on the other hand, undertook to show that he himself put up the Bambang business, furnishing
the construction materials, paying for the labor, and purchasing the needed merchandise. And when the
business was to be moved to Plaza Sta. Cruz, he said, he called on Mrs. Angela Butte, was able to rent the
Plaza Sta. Cruz premises from her for Pl,200, and told the lessor when he handed her the rent, "This is my
money." He went on to say that Thomas told him to do whatever he pleased with the premises, only requesting
him to negotiate the sale of or a loan on plaintiff's mining shares so that the plaintiff could join him as partner
or "buy him out" by December. But, according to the defendant, the plaintiff was not able to raise funds, so his
desire to acquire interest in or buy the business did not materialize. The plaintiff did not invest a centavo in the
new business because he had no money to invest, the defendant concluded. Leaving aside the evidence
which depends entirely on the credibility of the Witnesses, the following undisputed or well-established
circumstances are, in our judgment, decisive:
1. The defendant corroborated the plaintiff when he practically declared that upon the plaintiff's release from
the internment camp, Thomas lost no time in looking a site to open a saloon. That the plaintiff then had the
means to do that, was a fact brought out by the defendant's own evidence as well as by the plaintiff's
testimony. There were several cases of whiskey, rum, gin and other kinds of liquor which the defendant
admitted he had carted away and delivered to the plaintiff after liberation. What the latter did or could have
done with those goods, if not to start a business with, there was no plausible explanation. Granting that ten
cases of the liquor were confiscated by the MP the plaintiff said they were soon returned the confiscation
could not have stopped the plaintiff from continuing with the business, which was riding in the crest of a boom.
Significantly, the defendant said that the day following the alleged confiscation he handed the plaintiff P2,000
in cash. If he had nothing else, this was an amount which ought to have been enough to enable the plaintiff to
keep the business going, which needed no large capital. That this payment was "in full and complete
liquidation of the Silver Dollar Cafe," as the defendant asserted, was, under the circumstances, highly
improbable, to put it mildly.
2. It is also an admitted fact that the bar in Bambang was called Silver Dollar Cafe, Branch No. 1. The use of
the old name suggested that the business was in fact an extension and continuation of the Silver Dollar Cafe
which the defendant had operated for the plaintiff during the enemy occupation, and precluded any thought of
the business having been established by the defendants as his own. It should be remembered that the
defendant had not yet appropriated the trade-name Silver Dollar Cafe for himself. This the subject of the
second cause of action he did on September 27, 1945.
3. Despite statements to the contrary, it was the plaintiff who, in September, 1945, before the reopening of the
bar at Plaza Sta. Cruz, entered into a written contract of lease (Exhibit A) with Mrs. Angela Butte for the Sta.
Cruz location; Thomas was named in the contract as the lessee. The contract also reveals that it was the
plaintiff who personally paid Mrs. Butte the advanced rent (P1,200) for the period August 31-September 30,
1945, the first month of the lease. And thereafter, all the rental receipts were made out in Thomas' name,
except those for the months of October, November and December, which were put in the name of the
defendant. A propose of this temporary substitution, Jose V. Ramirez, owner of the land and administrator of
the building, testified that the Bureau of Internal Revenue had licensed and taxed the business in the name of
Hermogenes Pineda and so thought it necessary that for those three months the defendant's name should be
put in the receipts. Ramirez added that Mrs. Butte agreed to the Internal Revenue Bureau's requirement on
the assurance that beginning January, 1946, the receipts would be issued again in favor of Thomas. Mrs.
Butte testified to the same effect.
At any rate, the issuance of three of the receipts in defendant's name was far from implying that he was the
proprietor or part owner of the Silver Dollar Cafe. Appropriately, as manager he could make disbursement and
get receipts therefor in his name. What would have been strange was the issuance of receipts, let alone the

execution of the lease contract, in the name of David Thomas if Thomas had nothing to do with the business,
as the defendant would have the court believe.

On the second cause of action, which relates to the ownership of the Silver Dollar Cafe trade-name, it appears
that the defendant on September 27, 1945, registered the business and its name as his own.

The defendant testified, and the lower court believed, that he consented to the issuance of the three receipts
and the execution of the contract of lease in the plaintiff's name because it was expected that the plaintiff
would buy the business or "chip in" as partner. How the mere possibility, by no means certain, of the plaintiff
becoming the owner of the saloon or defendant's partner on some future date could have induced the
defendant to let the plaintiff figure unqualifiedly as owner of the business in receipts and leases that had
nothing to do with the contemplated deal, and why the plaintiff would want to pose as owner while he was yet
a complete stranger to the enterprise, is utterly beyond comprehension.

The defendant contends that in 1940, the plaintiff's right to use this trade-name expired and by abandonment
or non-use the plaintiff ceased to have any title thereto. The alleged abandonment or non-use is predicated on
the testimony that the plaintiff expressly allowed the defendant to appropriate the trade-name in dispute.

For the rest, the plaintiff's testimony is as convincing and as well supported by the natural course of things as
the defendant's explanation is unreasonable. It can not be disputed that Thomas had accumulated money
from the business in Bambang which, it has also been proved to the point of certainty, he operated with the
goods retrieved by the defendant from the pre-war Silver Dollar Cafe. Conducting saloons having been the
plaintiffs only means of support before the war, and the calling in which he had acquired plenty of experience,
it is inconceivable that he would have remained idle at a time when the trade was most lucrative and he had
been impoverished by the war. That the plaintiff, established a bar behind the Great Eastern Hotel on Echague
Street, a hidden place, immediately or very soon after he and the defendant had a falling out, is mute
testimony to his eagerness to take advantage of the current boom.
4. That the defendant was only a manager is also made evident by two sets of business cards of the Silver
Dollar Cafe which he himself caused to be printed. On the first set, of which 500 prints were made, David
Thomas was held out as the proprietor and Hermogenes Pineda, the defendant, as manager. On the second
set, which were ordered later, the defendant was not even mentioned as manager, but one Bill Magner, while
David Thomas' name was retained as the proprietor.
Customers of the place testified that copies of these cards were handed to them for distribution to their friends
by the defendant himself. The defendant swore that he put away the cards in a small drawer under some
books and denied they had been distributed. He gave to understand that he was at a loss to know how the
plaintiff and his witnesses got hold of some of said cards, though, he said, he suspected that Thomas went
upstairs and grabbed some copies while the witnesses found other copies scattered after the fire which
burned the establishment for the second time in 1946.
However the case may be, whether the defendant distributed the cards or not, the important point is why he, in
the first place, ordered the cards in the form in which they were printed. He did not give cogent reasons. His
explanation was that Hugo Santiago, the printer's agent, "gave me a hint that Mr. Thomas was going to open
the Silver Dollar Cafe in Plaza Sta. Cruz." This explanation fails to forge any sensible link between the printing
of Thomas' name in the cards and Thomas' plan to join him in the business. Incidentally, the defendant did not
tell the truth when he declared that the cards were ordered when the shop was still in Bambang; the cards
gave the location of the Silver Dollar Cafe as No. 15 Plaza Sta. Cruz, and, besides, Santiago, who testified for
both sides, was positive that the cards were delivered to the defendant in September, 1945.
5. At different times from May 8 to December 15, 1945, the defendant handed the plaintiff averse amounts
totalling P24,100 without so much as asking Thomas to sign a receipts for any of them.
The defendant testified that these amounts were simple loans secured by plaintiff's mining shares of stock.
The plaintiff countered that they were advances chargeable to his share of the net profits. While he admitted
that he owned some Baguio Consolidated and Baguio Gold shares, he denied that he had given them to the
defendant as collateral or in any other concept. He swore that he kept those securities in his own safe and
removed them in plain sight of Pineda when he became suspicious of the latter.
It is difficult to understand how the payment of the amounts in question to the plaintiff could have been for any
purpose other than that affirmed by him. The lack of any receipt is incompatible with the hypothesis of loans.
The defendant's possession of the plaintiff's mining shares, granting that the defendant held them, was no
reason for dispensing with the necessity of getting from the plaintiff some form of acknowledgment that the
said amounts were personal debts, if that was the case. Without such acknowledgment, which could have
been made in a matter of minutes and required no expert to make, the shares of stock did not afford the
creditor much if any protection, as an experienced and intelligent man that the defendant is must have
realized.
These amounts were the subject of a counterclaim and the court sustained the defendant's theory and gave
him judgment for them. In the light of the what has just been said and of the evidence previously discussed,
there is no escaping the conclusion that the plaintiff was the sole owner of the post-war Silver Dollar bar and
restaurant, that the defendant was only an industrial partner, and that the said amounts were withdrawals on
account of the profits, which appear from portions of the defendant's entries in the books to have been
considerable.

The parties' actions negative all motions of abandonment by the plaintiff. In the fictitious bill of sale executed
on December 29, 1941, the plaintiff asserted and the defendant acknowledged Thomas' ownership of the
business. It is manifest from Exhibit "C" and "D, samples of the business cards which were printed at the
instance of the defendant himself, that the plaintiff continued to display the name Silver Dollar Cafe after
liberation. And when the plaintiff set up a new saloon on Echague Street after he broke with the defendant, he
gave the establishment the same appellation Silver Dollar Cafe.
The most that can be said in favor of the defendant, which is the view taken by the trial Judge, is that the
plaintiff instructed Pineda to renew the registration of the trade-name and the defendant understood the
instruction as permission to make the registration in his favor. It is to be doubted to whether even honest
mistakes were possible under the circumstance of the case. It is an understatement to say that indications
pointed to bad faith in the registration. The application for registration contained brazen untruths.
The plaintiff non-use of his trade name in 1945, granting that to have been the case, did not work as a
forfeiture of his exclusive right to the name, name which he and the man from whom he bought the business
had used for over forty years without interruption. Under the provision of Commerce Administrative Order No.
1, issued on January 11, 1946, by the Secretary of Commerce and Agriculture, the rights registrant of business
names, the records of which had been destroyed or lost during the war, were expressly protected. This
administrative Order No. 1-1, dated October 29, 1946, but the amendment referred only to the procedure for
authentication of the documents to be submitted. On the other hand, the amendatory order extended the filing
of application for reconstitution up to as late as December 31, 1946, that is ninety days after plaintiff
commenced the present action.
As legal proposition and in good conscience, the defendants registration of the trade name Silver Dollar Cafe
must be deemed to have been affected for the benefit of its owner of whom he was a mere trustee or
employee. "The relations of an agent to his principal are fiduciary and it is an elementary and very old rule that
in regard to property forming the subject matter of the agency, he is estopped from acquiring or asserting a
title adverse to that of principal. His position is analogous to that of a trustee and he cannot consistently, with
the principles of good faith, be allowed to create in himself an interest in opposition to that of his principal
or cestui que trust. A receiver, trustee, attorney, agent or any other person occupying fiduciary relations
respecting property or persons utterly disabled from acquiring for his own benefit the property committed to his
custody for management. This rule is entirely independent of the fact whether any fraud has intervened. No
fraud in fact need be shown, and no excuse will be heard from any such inquiry that the rule takes so general
form. The rule stands on the moral obligation to refrain from placing one's self in position which ordinarily
excite conflicts between self-interest at the expense of one's integrity and duty to another, by making it
possible to profit by yielding to temptation". (Barreto vs.Tuason, 50 Phil. 888; Severino vs. Severino, 44 Phil.,
343.)
To recapitulate, we find from what we believed is conclusive evidence, both direct and circumstance, that the
plaintiff was the owner of the Silver Dollar Cafe at Plaza Sta. Cruz during the enemy occupation and is of right
entitled to have an accounting of its administration by the defendant. Exhibit "F" does not state the
remuneration the defendant was to be paid for managing the plaintiff's business. The natural presumption
under normal circumstances would be that his prewar compensation was to continue. But conditions during
the occupation being different from what they were before the war, the defendants remuneration may and
should be increased if so warranted by the changed circumstances. This matter should be left for
consideration in the accounting, having in mind the nature and extent of the services rendered, the volumes of
business transacted, the profits obtained and the losses incurred, the personal risk run by the defendant, and
other factors related to the success or failure of the defendant's management.
We have it from the plaintiff that he promised to give the defendant one-half of the net profits of the business
established in Bambang and later at Plaza Sta. Cruz after liberation. This offer was reasonable, even liberal,
and no unforeseen circumstances having supervened to warrants its alteration, the same will not be disturbed
and will serve as basis of liquidation. The other basis of liquidation of the post-war business are that the
plaintiff was the exclusive owner of its stocks and other assets from May 8, 1945, when it was reestablished in
Bambang, to December 15 1946, when the business was levelled to the ground at Plaza Sta. Cruz.
For the reasons hereinbefore stated, the various sums of money aggregating P24,100 and received or taken
by the plaintiff were, and they hereby are declared to be, accounting from the defendants share of said profits
if there be any.

We also find that the trade-name Silver Dollar Cafe belongs to the plaintiff and that the defendant should be
and he is perpetually enjoined from using it or any essential part thereof.
In all other respects, especially in connection with the demand for accounting, this case is remanded to the
court of origin for further proceedings in accordance with law and the tenor of this decision and for a final
judgment on the balance that may be found due from either party.

administration, provided that the principal gives his consent thereto. While, the new Code came into effect only
on August 30, 1950, however, since this is a right that is declared for the first time, the same may be given
retroactive effect if no vested or acquired right is impaired (Article 2253, new Civil Code). In the present case,
during the lifetime of the vendor, particularly on the date of the execution of the sale in question, the appellants
could not claim any vested or acquired right in the properties sold, as heirs, the most they had was a mere
expectancy. Therefore, the practical and liberal provision of the new Civil Code even if the sale had taken
place before its effectivity may be invoked.

The defendant will pay the costs of this appeal.

Feria, Pablo, Bengzon, Padilla, Montemayor, Reyes, Jugo and Bautista Angelo, JJ., concur.
Separate Opinions
PARAS, C. J. concurring and dissenting:
I concur in the majority opinion except in so far as it requires the defendant to render an accounting of the
business Silver Dollar Cafe during the Japanese occupation. The proof shows that the defendant was told the
enterprise and pretend to be its owner during the war in order to save it for being surely seized by the
Japanese as American property, and that the defendant not only succeeded in doing so but, with all honesty,
used the proceeds of the business for the support of the defendant and his daughters. The arrangement
cannot be said to have been a regular business proposition undertaken by the parties under normal conditions
in virtue of which the defendant was made a mere manager; and even if the defendant had in fact derived
personal advantages, its justification necessarily follows from the accomplishment of the mission entrusted by
the plaintiff. Moreover, the business during the occupation was carried on in Japanese currency which is now
worthless.

3. ID.; ID.; PROPERTIES ACQUIRED DURING MARRIAGE; PRESUMPTION THAT PROPERTIES ARE
CONJUGAL, REBUTTABLE. While properties acquired during marriage presumed to be conjugal
properties (Art. 1407, old Civil Code) however, the presumption is rebuttable. In the case at bar, there is
conclusive and strong evidence, testimonial as well as documentary, that the lots in question have always
been considered not only by the vendor, but this children and other relatives, as his exclusive property, the
same having been donated to him by his uncle and aunt to the exclusion of his wife; consequently, the
contention that, in disposing of said property, the vendor has appropriated what belongs to his co-heirs, has
completely no foundation in the evidence.

DECISION

BAUTISTA ANGELO, J.:

[G.R. No. L-7041. February 21, 1957.]

JESUS MA. CUI, ET AL., Plaintiff-Appellant, v. ANTONIO MA. CUI, ET AL., Defendants-Appellees.
Claro M. Recto, Jose P. Laurel and Vicente Jayme for Appellants.
Pimentel & Pimentel and Amador E. Gomez for Appellees.

SYLLABUS

1. SALES; ANNULMENT OF; OLD AGE AND WEAKNESS OF MIND AS GROUNDS FOR AVOIDING
CONTRACT. Weakness of mind alone, not caused by insanity, is not a ground for avoiding a contract, for it
is still necessary to show that the person at the time of doing the act "is not capable of understanding with
reasonable clearness the nature and effect of the transaction in which he is engaging" (Page on Contracts,
Vol. III, p. 2810). Or, as well stated in the case of Allore v. Jewell, 24 Law Ed., 263-264, it is only when there is
"great weakness of mind in a person executing a conveyance of land, arising from age, sickness, or any other
cause", can a person ask a court of equity to interfere in order to set aside the conveyance. In the case at bar,
although at the time of the sale the vendor was already of advanced age, yet he was still physically fit and his
mind was keen and clear as shown by the several letters and documents signed and executed by him many
month after the execution of the deed of sale in question.
2. ID.; ID.; PROHIBITION; AGAINST AGENT OR ADMINISTRATOR TO BUY PROPERTY OF PRINCIPAL.
The prohibition of the law against an agent or administrator from purchasing property in his hands for sale or
management contained in Article 1459 of the old Civil Code has already been removed. Under the provisions
of article 1491, of the New Civil Code, an agent may now buy property placed in his hands for sale or

On May 25, 1948, Jesus Ma. Cui and Jorge Ma. Cui brought an action in the Court of First Instance of Cebu
against Antonio Ma. Cui and Mercedes Cui de Ramas seeking the annulment of the sale of three parcels of
land against Antonio Ma. Cui and mercedes Cui de Ramas of the latter and the partition of the same among
the heirs who should inherit them including the plaintiffs. The Rehabilitation Finance Corporation was included
as party defendant because the lands above- mentioned were mortgaged to it to secure a loan of P130,000,
the object being to have the mortgage declared null and void.
On March 19, 1949, Rosario Cui, daughter of Don Mariano Cui, filed in the same court a petition for the
appointment of a guardian of the person and properties of her father on the ground of incompetency and,
accordingly, he was declared incompetent on March 31, 1949 and one Victorino Reynes was appointed as his
guardian.
On July 13, 1949, the complaint was amended by including as party plaintiffs the guardian Victorino Reynes
and the other children and relatives of Don Mariano, namely, Jose Ma. Cui, Serafin Ma. Cui, Rosario Cui, her
husband Irineo Encarnacion, Lourdes C. Velez, Priscilla Velez and Federico Tamayo.
Defendants in their answer set up the defense that the sale mentioned in the complaint is valid because it was
executed when Don Mariano Cui was still in possession of his mental faculties and that, while the sale was at
first executed in favor of the defendants and their sister Rosario Cui, the latter however resold her share to
Don Mariano for reason stated in the deed of resale executed to that effect. They prayed that the complaint be
dismissed.
On May 22, 1951, after due hearing and the presentation of voluminous evidence on the part of both parties,
the court rendered its decision dismissing the complaint and sentencing the plaintiffs to pay the costs of action,
from which plaintiffs appealed in due time, and because the value of the property involved exceeds the
amount of P50,000, the case was certified to us for decision by the Court of Appeals under section 1 of
Republic Act No. 296.
Plaintiffs and defendants, with the exception of the Rehabilitation Finance Corporation, are the legitimate
children of Don Mariano Cui and Doa Antonia Perales who died intestate in the City of Cebu on March 20,
1939. Plaintiffs in their complaint allege that during the marriage of Don Mariano Cui and Doa Antonia
Perales, the spouses acquired certain properties in the City of Cebu, namely, Lots Nos. 2312, 2313 and 2319,
with an approximate area of 2,658 square meters, having an assessed value of P159,480, and a market value

of 120 per square meter; that upon the death of Doa Antonia Perales, the conjugal partnership did not leave
any indebtedness and the conjugal properties were placed under the administration of Don Mariano Cui; that
while the latter was 84 years of age and under the influence of defendants, the latter, by means of deceit,
secured the transfer to themselves of the aforementioned lots without any pecuniary consideration; that in the
deed of sale executed on March 8, 1946, Rosario Cui appeared as one of the vendees, but on learning of this
fact she subsequently renounced her rights under the sale and returned her portion to Don Mariano Cui by
executing a deed of resale in his favor on October 11, 1946; that defendants, fraudulently and with the desire
of enriching themselves unjustly at the expense of their father, Don Mariano Cui, and of their brothers and coheirs, secured a loan of P130,000 from the Rehabilitation Finance Corporation by encumbering the
aforementioned properties, and with the loan thus obtained, defendants constructed thereon an apartment
building of strong materials consisting of 14 doors, valued at approximately P130,000, and another building on
the same parcels of land, which buildings were leased to some Chinese commercial firms a monthly rental of
P7,600, which defendants have collected and will continue to collect to the prejudice of the plaintiffs; and
because of this fraudulent and illegal transaction, plaintiffs prayed that the sale and mortgage executed on the
properties in question, in so far as the shares of the plaintiffs are concerned, be declared null and void and the
defendants be ordered to pay the plaintiffs their shares in the rentals of the properties at the rate of P7,600 a
month from November 1, 1947 up to the time of their full payment, together with whatever interest may be due
thereon and the expenses of litigation.
Defendants, on the other hand, aver that while the properties in question were acquired during the marriage of
Don Mariano Cui and Doa Antonia Perales, however, they were entirely the exclusive property of Don
Mariano Cui up to the time of their transfer to defendants under the deed of Sale Exhibit A, having been
acquired by him as a donation from his uncle Don Pedro Cui and his aunt Doa Benigna Cui; that this fact was
known to the plaintiffs and to the guardian of Don Mariano, Victorino Reynes, because in the extra-judicial
partition executed between plaintiffs and defendants on December 6, 1946 of the properties of the deceased
Antonia Perales, the three lots in question did not form part of the conjugal properties of the spouses Don
Mariano Cui and Doa Antonia Perales; that Don Cariano Cui, for a consideration, voluntarily and without
deceit, pressure or influence on the part of defendants, executed and signed the deed of sale Exhibit A; and
that Don Mariano Cui was at that time in full enjoyment of his mental faculties and only suffered loss of
memory several years later when he was declared by the court incompetent to manage his properties.
Defendants denied that the building constructed on the three lots in question consisted of 14 doors and
alleged that it consisted of only 12 doors. They also denied that they received the sum of P7,600 as monthly
rental of said building because what they have been receiving was only a monthly rental of P4,800. As a
special defense, they aver that they are the owners of the naked ownership of 2/3 of the three lots in question
subject to the usufruct over the rents or products thereof in favor of Don Mariano Cui during his lifetime, with
the exception of the rents from the building constructed on the 2/3 portion belonging to them; that the 2/3 of
the lots in question did not produce any rent at the time of their acquisition by the defendants, for they
produced rentals only after the defendants had constructed the 12-door apartment now standing thereon; that
subsequently and by verbal agreement between Don Mariano Cui and the defendants, the usufruct of the
former over said 2/3 portion was fixed at P400 monthly, and this sum Don Mariano has been receiving since
then up to the present time. Defendants also aver that they are the exclusive owner of the 12-door apartment
constructed on the 2/3 portion of the lots in question, having been constructed at their expense and by virtue
of the authorization given to them in the deed of sale Exhibit A; that the loan of P130,000 obtained from the
Rehabilitation Finance Corporation was solicited personally by defendants Antonio Ma. Cui and Mercedes Cui
de Ramas for their exclusive benefit and for the purpose of investing it in the construction of said building; that
since the property is undivided, Don Mariano Cui, as one of the co-owners, consented to the execution of a
mortgage thereon in favor of said corporation to guarantee the payment of the loan jointly with his co-owners,
the aforesaid defendants, for the sole purpose of accommodating the latter and to enable them to obtain the
loan; that the plaintiffs are in estoppel to claim that the lots in question belong to the conjugal partnership of
their parents Don Mariano Cui and Doa Antonia Perales, and that plaintiffs instituted the present action
because they do not like the manner in which their father had disposed of said lots, especially Jesus Ma. Cui
who was unsuccessful in his request that the 1/3 of said lots be sold to him. They prayed that the action be
dismissed.
In this appeal, appellants now contended that the lower court erred: (1) "in not declaring the deed of sale,
Exhibit A, void or inexistent for lack of valid consent and consideration" ; (2) "in not declaring illegal the sale,
evidenced by Exhibit A, on the ground that it was a transaction between principal and agent, which is
prohibited by paragraph (2), Article 1459 of the old Civil Code" ; (3) "in not finding that the three lots conveyed
by means of the deed of sale, Exhibit A, belong to the unliquidated conjugal partnership of Don Mariano Cui
and his deceased wife Doa Antonia Perales, and that consequently Don Mariano Cui could not validly sell the
entire property" ; and (4) "in not finding that the plaintiffs are entitled to seven-eights (7/8) of the property in

question and of the rentals thereof beginning November 1, 1947." We will discuss these issues separately.
In support of their contention that Don Mariano Cui did not and could not have validly consented to the deed of
sale in question, appellants submitted the following propositions: (a) Don Mariano was incapacitated to give
his consent by reason of his age and ailment; (b) Don Mariano acted under a mistake, and his signature was
secured by means of deceit; and (c) the sale Exhibit A is vitiated by undue influence.
In support of the first proposition, it is argued that Don Mariano, at the time he signed the deed of sale Exhibit
A on March 8, 1946, was already 83 years old, was sickly and infirm, and frequently complained of ill health. It
is also contended that six days before the sale, or on March 2, 1946, he had executed a general power of
attorney in favor of defendant Antonio Cui, which act could only signify that Don Mariano himself realized that
he was no longer capacitated to administer his properties and found it necessary to relieve himself of the task
of dealing with other persons in connection therewith. It is also pointed out that his children, Jorge, Jesus and
Rosario Cui testified that he was ill, he was forgetful, he could not read nor remember well what he read, and
his letters show that he was no longer familiar with the rules of orthography. In his letters he also complained
about his illness and he realized that his afflictions were due to his old age. It is also emphasized that as early
as August, 1944, Jesus Cui noted that his father was "muy debil . . . en cuestiones de negocios" and that "en
cuanto a su capacidad para administrar sus bienes en que tenia que producir o estudiar, el (Don Mariano) no
se acordaba." Although he was not insane when he signed the deed of sale Exhibit A, yet he was admittedly
"incompentente para manejar su dinero." (pp. 85 86, Brief for Plaintiffs and Appellants.)
As regards the second proposition, it is insinuated that if Don Mariano, by reason of his advanced age, his
weak mind and body and feeble will and reason, was not capacitated to give his consent, it would follow as a
corollary that he could not fully understand the contents of the deed of sale. He must have therefore labored
under a mistake as to the true nature of the transaction especially when it was written in a language which he
did not understand. Other insinuations leading to the same result are: Don Mariano must have erroneously
thought that the only way to pay his debt of P3,000 to Ramon Aboitiz was by executing the sale, just as he
gave his consent to the sale of his conjugal property on San Jose St., Cebu City, because he thought it was
the only available way to pay his indebtedness to the Insular Life Assurance Co. Or he must have thought that
the document he was made to sign by Antonio Cui was not a sale but a mere authority to administer the
property for purposes of revenue, or he must have been induced to signing it after he was promised a life
annuity in the form of usufruct over the rents of the properties in question. In other words, the insinuation is
made that Antonio Cui employed deceit in securing the signature of Don Mariano to the sale in question in
order merely to satisfy his selfish ends. There being, therefore, error and deceit, there is no valid consent
which can give validity to the sale on the part of Don Mariano.
And with regard to the third proposition, the following circumstances are pointed out: At the time of the sale,
Don Mariano was already 83 years old, was infirm and was living with the vendees, herein appellees. Antonio
Cui was his lawyer and attorney in fact and there was between them confidential family and spiritual relations.
Don Mariano was then in financial distress as shown by the fact that he was worried about his debt to Ramon
Aboitiz, and way back in 1946 he had to borrow money from his daughter Rosario Cui which remained unpaid
even after the sale in question. The presence of undue influence is further shown, appellants contend, in the
execution by Don Mariano of the mortgage in favor of the Rehabilitation Finance Corporation, the extrajudicial
partition Exhibit 1-a, the partition of the property in question, the alleged oral waiver of usufructuary rights, and
the alleged explanatory statement Exhibit 34. These acts, which were allegedly masterminded by Antonio Cui,
show, appellants contend, that Antonio Cui could get from his father whatever he wanted.
We do not believe the arguments advanced by appellants in an effort to nullify the deed of sale Exhibit A
sufficient in law to invalidate the same on the ground of lack of valid consent on the part of Don Mariano for
the simple reason that they are merely based on surmises or conjectures or circumstances which, though they
may show inferentially that he was sickly or forgetful because of his advanced age, do not however point
unremittingly to the conclusion that at the time he signed said deed of sale he was not in full enjoyment of his
mental faculties as to disqualify him to do so or that he was not aware of the nature of the transaction he was
then undertaking. Although at the time of the sale he was already 83 years old, he was sickly and forgetful, as
contended, yet, according to the authorities, weakness of mind alone, not caused by insanity, is not a ground
for avoiding a contract, for it is still necessary to show that the person at the time of doing the act "is not
capable of understanding with reasonable clearness the nature and effect of the transaction in which he is
engaging" (Page on Contracts, Vol. III, p. 2810). Or, as well stated in the very case cited by counsel for
appellants only when there is "great weakness of mind in a person executing a conveyance of land, arising
from age, sickness, or any other cause", can a person ask a court of equity to interfere in order to set aside
the conveyance (Allore v. Jewell, 24 Law Ed., 263-264). And here the evidence shows that such is not the
case, for the several letters and documents signed and executed by Don Mariano many months after the

execution of the deed of sale Exhibit A clearly indicate that, while he was of an advanced age, he was however
still physically fit and his mind was keen and clear. This we will see in the following discussion of the
evidence.
One of such evidence is the testimony of Rosario Cui, one of the appellants herein. It should be remembered
that it was she who initiated the proceedings for the declaration of incompetency of Don Mariano Cui in order
that he may be placed under guardianship and at the hearing held for that purpose, she was the main witness.
When called upon to testify as to the state of health and mental condition of Don Mariano, she stated that
during the period she had been living with her father in Calapan, Mindoro, which dates as far back as the
Japanese occupation, she had observed that the state of his mind was very good, he was not yet so forgetful
as he is now, and that she discovered his mental weakness which makes him incompetent to manage his own
affairs only sometime in the month of January, 1949 (pp. 5 and 6, Exhibit 9; p. 136, t.s.n.) . And on the strength
of her testimony, Don Mariano was declared incompetent on March 31, 1949. This is an indication that, when
the deed of sale was executed on March 8, 1946, three years before his declaration of incompetency, Don
Mariano was still in the full enjoyment of his mental-faculties. It should be stated that this testimony of Rosario
Cui stands undisputed.
A circumstance which strongly corroborates this testimony of Rosario Cui is the letter Exhibit 26 which Don
Mariano wrote to Don Ramon Aboitiz on May 31, 1946, two months after the execution of the deed of sale
Exhibit A, in relation to the indebtedness he owed him by reason of his having acted as the surety of his son
Jesus Cui which the latter has not been able to settle. This letter, which shows how lucid, keen, clear and
analytical his mind was, is herein reproduced for ready reference:jgc:chanrobles.com.ph
"Cebu, Mayo 31, 1946
Sr. Don RAMON ABOITIZ
CEBU
ESTIMADO AMIGO
La portadora de la presente es mi hija Mercedes, esposa del Dr. Ramas, a quien he dado el encargo de
presentarse a Vd. con este carta y pagarle en mi nombre como fiador de mi hijo Jesus Cui el saldo resultante
de la liquidacion hecha por Vd. el 5 de Diciembre de 1941 de la deuda que este contrajo, de Vd. por cierto
prestamo en metalico que le dio bajo mi garantia consistente en hipoteca.
Como Vd. trata de cobrar intereses sobre el mencionado saldo hasta la fecha en que se pague el mismo a
partir desde el 1.o de Enero de 1944, permitame que le suplique encarecidamente apelando a su buen
corazon y reconocida generosidad, deje Vd. de cobrarme esos intereses. En apoyo de esta suplica someto a
su buen criterio lo siguiente: 1.o, mi buena voluntad, diligencia y prontitud en finiquitar al citado saldo; 2.o el
motivo, como Vd. lo sabe, se tuvo que contraer la citada deuda sin ningun provecho para mi, antes bien me
ha causada molestias y apuros para pagarla completamente, y 3.o durante la ocupacion japonesa en Cebu y
estando yo ya refugiado en Manila le escribia de vez en cuando a mi dicho hijo Jesus y siempre le recordaba
que procurara hacerlo por todos los medios, sabiendo yo que el disponia de bastante dinero; lo cual
demuestra a Vd. que la prealudida deuda me ha tenido en constante preocupacion, realizandose por ultimo
mis temores de que al fin habria yo que pagar casi a la deuda entera.

surety for the payment of a loan of P3,000 which Jesus had contracted from Don Ramon Aboitiz on January
27, 1941 which Jesus failed to pay, all of which made him bitter and resentful against his own son, Don
Mariano turned a deaf ear to the plea of Carmen stating in a language as forceful as it is clear the reasons for
his attitude. These reasons were expressed by Don Mariano in two letters dated November 11, 1945 and
November 22, 1945 which are also herein reproduced for ready reference, omitting the letters of Carmen,
which are referred to therein, for being unnecessary for our purpose. Note that the person named Chong
appearing in the letters is the nickname given to Jesus, son of Don Mariano:red:chanrobles.com.ph
"Calapan, Mindoro
Nbre. 11, 1945
MI ESTIMADA MAMING
Recibi el 9 del actual tu carta, fechada el 21 de Obre. ppdo y me entere de su contenido.
Empiezo dandote las expressivas gracias por su interes y buen deseo por mi salud, que ya no es tan buena
como antes; tengo ya mis achaques a causa de mi vejez que va avanzando cada dia mas; no puedo esperar
ya buena salud.
Me haces una apologia en favor de tu marido Chong, mi hijo, alabandole como un buen hijo; comprendo que
lo hagas, porque la pasion te ciega: pero no me lo digas a mi que conozco muy a-fondo a Chong. Nunca le he
conocido a Chong como buen hijo mio, pues me ha dado el los mayores disgustos que he tenido en mi vida.
Mis mejores amigos que estaban al tanto de la vida de Chong y de sus fracasos en los negocios y con
quienes a veces me desahogaba, me echaban a mi la culpa porque era yo demasiado apasionado por el.
Ahora que llegado a ser pobre, lo comprendo y lo lamento, y me recuerda de lo que que me dijo a mi tia
Benigna, ya difunta (q.e.p.d) un dia, muy formalmente y en serio, que presentia que yo a la vez me quedaria
pobre y me aconsejo que tuviera mucho cuidado en administrar mis bienes con prudencia.
Siento mucho tener que decirte que no me encuentro en condiciones para prestar la fianza que me pides en
favor de Chong; primero, porque no dispongo de bienes inmuebles para constituir la fianza y segundo, porque
si bien es verdad que me quedan solares en la calle Manalili de esa Ciudad, pero el gravamen de hipoteca
sobre estos solares esta sin cancelarse aun en el registro de propiedad, lo cual tendra aun bastante tiempo, y
por otra parte, me reservo los mismos, siempre libres, para poder disponer de ellos cuando fuere necesario,
para atender mia gastos. Dispensame, pues, que no pueda complacerte en lo que me pides. Ahora le escribo
a nene para que te envie esta carta como me lo pides.
En retorno Yre y Nenita te envian sus recuerdos.
Termino deseando a ti y Nene siempre buena salud y enviando a este un carioso beso y a ti.
En sincero afecto de tu suegro
MARIANO CUI"
Calapan, Mindoro

Como Vd. muy pronto se va a marchar de este nuestro pais, concedame Vd. lo que le pido en la precedente
suplica como un recuerdo, imperecedero pera mi, de nuestra buena amistad. Le deseo un feliz viaje, asi como
una feliz estancia en el pais donde establecerse, con buen exito ademas en sus negocios.

Nbre. 22, 1945.

Disponga como gusto de affmo. amigo y servidor.

Recibe el 20 del actual por correo tu carta escrita ya alli en Manila y me apresuro a contestartela.

(Fdo.)"

Ya habras recibido y te habras enterado ya de mi carta, fecha 11 del actual. Contestando la tuya anterior
portador de aquella mi nieto Liling, que se marcho de aqui para alli el sabado pasado. Siento mucho tener que
desirte que insisto en mi negativa de ser fiador de Chong en la forma indirecta que se me propone por los que
negocian en prestar fianzas; yo que he sido juez conozco el alcance de esa fianza indirecta. Me he olvidado
de decirte los solares mios en la Calle Manalili, Cebu, estan aun ravadas por la fianza que yo otorgue a favor
de Don Ramon Aboitiz para garantir el prestamo, que este hizo a Chong, de TRES MIL PESOS, que creo que
estan sin pagar aun y que yo como burro de carga tendre que pagarlos. Debes, pues dejarme ya en paz
porque tengo mala pata en ser fiador de Chong. Estoy pidiendo a Dios que me de medios para poder
ayudarle. Temo, ademas, que Dios me castigue haciendo mal uso de los pocos bienes que me ha dejado

Scarcely four months before the execution of the deed of sale, Don Mariano was residing in Calapan, Mindoro,
in the house of Rosario Cui, and while there he received several letters from his daughter-in- law, Carmen
Gomez, wherein in a very expressive and persuasive manner she asked her father-in-law, Don Mariano, to
extend a helping hand to his son Jesus Cui, who was then confined in the stockade of the military authorities
in Leyte for collaboration, so that he may get his provisional release by putting up a bail bond for him. Because
Jesus Cui, his son, had embarked him into same commercial venture even before the war which resulted in a
disastrous failure and made him suffer a loss of nearly P25,000, aside from the undertaking he assumed as a

ME APRECIABLE MAMING

para mantenerme durante los pocos anos de vida que me va considiendo aun y para no vivir pidiendo
limosna, ya que de mis hijos poco puedo esperar.
Agradezco mucho tu oferta de que cuando os establescias alli en Manila para residir permanentemente me
destinares una habitacion para mi, y me reservo tal oferta para cuando sea conveniente aceptarla.
Sin otra cosa mas, afectuoso recuerdos a Chong y a ti mi aprecio sincero.
Tu suegro,"
Rosario Cui not only testified that Don Mariano was still good and of sound mind when he lived with her for
eighteen months from September, 1944 up to February, 1946, and for another four months from July, 1946 to
October, 1946 in Calapan, Mindoro, but she also sustained correspondence with Don Mariano even as late as
the year 1947. Hereunder we transcribe Don Marianos letter to Rosario on July 14,
1947:jgc:chanrobles.com.ph
"Cebu, Julio 14, 1947
Sra. ROSARIO C. DE ENCARNACION
CALAPAN, MINDOROMI
QUERIDISIMA HIJA
Siento mucho que el no haber tu recibido carta mia desde que he llegado aqui os haya preocupado tanto
artibuyendolo a mi falta de buena salud. Gracias a Dios no fue asi.
A la semana despues de haber llegado he recibido una carta tuya, disculpandote de no haber tu podido
despedirnos abordo del barco en que ibamos con motivo de las fuertes lluvias que entonces cayeron. Te
conteste que habias hecho muy bien, teniendo tu una salud muy delicada para cogerte unas mojaduras de
funestas consecuencias para ti.
A mediados de mayo ultimo calcule que estarias aun en Manila a consequencia aun de la operacion de tu
matriz; pero no sabiendo que direccion poner en mi carta a ti desisti de escribirte.
Cuanta bondad y generosidad en el arreglo de mi cuarto o habitacion. Aunque no lo veo aun, os lo agradezco
ya de todo corazon. Debe de estar ya muy confortable, y sin las goteras que tanto me molestaban. Espero
poder volver aun alli en cuanto se termine estos asuntos.
Te deseo que se te desaparezca pronto la debilidad de tu corazon para que no tengas mas inyecciones de
alcampor.
Envio mis mas afectuosos recuerdos a Yre y chiquillos.
Te da un fuerte abrazo tu padre que entranablemente te quiere."cralaw virtua1aw library
Another interesting circumstance is the discussion which Jesus Ma. Cui had with his father Don Mariano on
April 20, 1946 relative to the sale of the lots in question. It should be noted that when Jesus came to know of
that sale he could not refrain his anger feeling that he had been ignored or the subject of discrimination on the
part of his father and to give vent to his feeling he wrote to him on March 20, 1947 a letter, copy of which was
marked Exhibit M-2, wherein he appealed to him (his father) to give him and his other children an opportunity
to buy the properties in question, to which letter Don Mariano answered with another dated April 22, 1947
wherein he apparently gave in to the demand of Jesus subject to certain condition. As the evidence shows,
Don Mariano came to answer the letter of Jesus in this manner: Don Mariano discussed the matter with his
son Antonio showing to him the letter of Jesus on which occasion Antonio said: "Bueno, papa, si tu crees que
en eso el esta empeado y si queres darle a el y el ha dicho a ti que el va a hacer todos los medios para
conseguir dicho terreno, puedes hacer todo lo que quiera con tal de que me devuelvas mi dinero que yo habia
pagado porque era dinero de mi esposa." To this Don Mariano answered: "Vamos a ver primero, que es lo que
van a contestar a la carta que voy a mandar."cralaw virtua1aw library
The letter thus referred to is the one sent by Don Mariano to Jesus, Exhibit I, wherein the former made known
to Jesus that he was willing to give to all his children equal opportunity to buy the lots in question subject to the

condition that his son or daughter who is not able to pay his debt or obligations or has no money with which to
pay them would be automatically excluded from the sale. The evidence also shows that neither Jesus nor the
other children who wanted to participate in the sale took the trouble of answering the letter nor made known
their desire as to the proposition of their father, and such silence is undoubtedly due to the fact that they were
not in a financial condition to comply with the condition imposed in the letter. In fact, according to Antonio Cui,
such is the predicament in which his brothers were situated as shown by the fact that Jorge at that time was
indebted to his father in the amount of P6,000, Jesus in the amount of P18,000, Jcse in the amount of
P14,000, while his other brothers did not have the necessary means to take part in the sale. The facts
unfolded in connection with this incident constitute a clear indication of the state of mind then enjoyed by Don
Mariano for he took the precaution before answering the letter of Jesus of discussing the matter first with his
son Antonio who was the one mostly affected by the decision he was about to make considering the menacing
attitude and the incessant demand of Jesus regarding the transaction. Only a person of sound mind could
have adopted such precaution and circumspections.
The deed of sale Exhibit A was executed by Don Mariano Cui, Antonio Cui and Mercedes Cui de Ramas on
March 8, 1946 in the city of Cebu, and by Rosario Cui and her husband Dr. Ireneo Encarnacion in the City of
Manila on March 20, 1946. The consideration of the sale was P64,000 plus the reservation of the right in favor
of Don Mariano "to enjoy the fruits and rents of the same" as long as he lives. It appears however that, while in
said deed of sale it is stated that Don Mariano has acknowledged receipt of said consideration of P64,000, the
same is not true with regard to the share of Rosario Cui. So Don Mariano went to Calapan, Mindoro in July,
1946 to collect from Rosario her share of the purchase price amounting to P20,000. Rosario then excused
herself from going ahead with the sale alleging as reason that she needed what money she had to rehabilitate
her electric plant in Calapan and also because Cebu was very far from Mindoro where they had already their
permanent residence. Not being able to pay her share in the consideration of the sale, Don Mariano
demanded from her the resale of her interest. This was done when she went to Manila on October 11, 1946 to
execute the deed of resale in favor of Don Mariano. This attitude of Don Mariano is very significant in so far as
his state of mind is concerned. It shows that he was fully conscious of what was transpiring and of the
transaction he was executing so much so that he went to the extent of demanding from Rosario the resale of
her interest when she failed to pay her share in the consideration of the sale.
There are other letters and documents which Don Mariano had prepared and executed in the neighborhood of
the time the deed of sale in question was executed which also depict the mental condition that he possessed
at the time, and to show this we can do no better than to quote what the lower court said on this
point:jgc:chanrobles.com.ph
"Ademas de lo que ya dejamos expuesto, Don Mariano Cui ejecuto varios actos que tambien impugnan la
contension de que el ya estuvo mentalmente incapacitado al otorgar el Exh. A. Poco antes y tambien despues
de otorgar dicha escritura, el escribio varias cartas a sus hijos y otorgo varios documentos. Entre las cartas
figuran el Exh. 4, que esta dirigida a Jorge, lleva la fecha 24 de marzo de 1945; Exh. 23, dirigida a su hija
Marcedes, fechada 9 de septiembre de 1946; Exh. 26, dirigida a Don Ramon Aboitiz, fechada el 21 de mayo
de 1946; Exhs. 36 y 40 dirigidas a su hijo Autonio, y fechadas 3 de julio p. 13 de agosto de 1945,
respectivamente; Exhs. 41 y 42, contestaciones de las cartas de Carmen, esposa de Jesus, fechadas el 11 y
22 de noviembre de 1945, respectivamente; y Exh. 57, dirigida a su hija Rosario, fechada Julio 14, 1947.
Entre los documentos figuran; Exh. 1-a, escritura de reparticion extraiudicial, otorgada el 6 de diciembre de
1946; Exh. 3-b, un affidavit de fecha 20 de febrero de 1945; Exh. 24, recibo a favor de Gil Ramas, otorgado el
5 de marzo de 1946; Exh. 34, constancia que fue suscrita y jurada ante el Escribano de este Juzgado el 23 de
febrero de 1948; Exh. 34, borredor del exhibit anterior con las correcciones hechas de puno y letra de Don
Mariano Cui; Exh. 44, autorizacion a Mercedes y Antonio para hipotecar su participacion en los lotes en
cuestion, fechada el 7 de enero de 1947; Exh. 45, convenio entre Don Mariano, por una parte, y Mercedes y
Antonio, por otra parte, referente e los terrenos en cuestion, que lleva fecha 30 de septiembre de 1947; Exh.
C. escritura de hipoteca a favor de la RFC de fecha 15 de abril de 1947; y Exh. S, un memorandum que
contiene algunas notas de sus ingresos y gastos que comprende hasta el mes de enero de 1949, poco antes
de haber perdido su memoria.
Una lectura de las cartas arriba mencionadas dos lleva a la necesaria conviccion de que durente el periodo en
que se escribieron las mismas, o sea hasta el mes de Julio de 1947, Don Meriano Cui aun tenia el pleno goce
de sus facultades mentales, pues de otro modo, el no podia expresarse con tanta claridad y precision en los
asuntos que trataba en dichas cartas. Con respecto a los documentos arriba referidos, los mismos, son de tal
naturaleza e importancia, que no se podien haber otorgardo por Don Meriano si el no estaba en su cabal
juicio. El Exh. S fue presentado por los mismos demandantes, y este circunstancia, naturalmente, presupone
que ellos edmiten que Don Mariano Cui estuvo mentelmente sano al anotar los asientos en dicho
memorandum, muchos de los cuales tuvieron lugar ya despues de otorgarse el documento en cuestion Exh.

A."cralaw virtua1aw library

follows:chanrob1es virtual 1aw library

It is obvious from the foregoing discussion that Don Mariano signed and executed the deed of sale Exhibit A
not only at a time when he was still in the full enjoyment of his mental faculties, but also under conditions
which indicate that he knew what he was doing and, as a consequence, it cannot be said that he has entered
into the transaction without his consent or under a misapprehension that the document he was signing was not
the sale of the properties in question but one merely pertaining to their administration.

Sr. PIMENTEL:chanrob1es virtual 1aw library

In connection with the contention that the deed of sale Exhibit A was executed by Don Mariano under
circumstances which point out that he has done so because of undue influence on the part of the defendants,
counsel for appellants mentions the following circumstances: (1) Don Mariano was already 83 years old, he
was the father of the vendees, and at the time of the sale or long before it was consummated, he was living
with the vendees; (2) one of the vendees, Antonio Cui, was his attorney in fact and lawyer; (3) the vendor and
the vendees had had obviously confidential family and spiritual relations; (4) the vendor was suffering from
mental weakness; and (5) the vendor was in financial distress. The presence of undue influence, according to
appellants, is further shown by the execution of the mortgage in favor of the Rehabilitation Finance
Corporation, the extra-judicial partition Exh. 1-a, the partition of the properties in question, the alleged oral
waiver of usufructuary rights, and the explanatory statement Exhibit 34, which acts, it is claimed, in which Don
Mariano was supposed to have taken part and which were all masterminded by Antonio Cui, show that Antonio
Cui could get from his father whatever he wanted.

P. Como llego a su poder este documento?

There is however no concrete proof that may substantiate this claim of undue influence. The only direct
evidence on the matter is the testimony of Jesus Cui which in the main is based on mere conjecture and not
on actual facts. The circumstance that Don Mariano Cui was then living in the house of Mercedes Cui when
the deed of sale was signed does not necessarily imply that he was made to sign it under the insidious
machinations practiced on him by his daughter. On the contrary, the evidence shows that Don Mariano lived
most of the time before the execution of the sale with his other children and not necessarily with herein
defendants. Thus, according to the testimony of Jesus Cui himself, during the Japanese occupation, or from
1942 to 1943, his father lived in the City of Cebu. During the month of September, 1943, he went to Manila
and lived in the house of his daughter Lourdes Cui de Velez, where he stayed up to September, 1944. Then
he went to Calapan, Mindoro to live in the house of his daughter Rosario where he stayed up to February,
1946 when he returned to Cebu. It was only then that he began living in the house of Mercedes Cui. In other
words, he was barely one month in the house of Mercedes Cui when the deed of sale was executed on March
8, 1946. There is therefore no basis for concluding that said deed of sale was executed simply under the
undue influence of Antonio Cui and Mercedes Cui. The fact that about six days before the sale Antonio Cui
was made by Don Mariano Cui his attorney in fact could not mean anything unusual for he was then getting
old and he needed one who could help him administer the properties of his deceased spouse, and the choice
fell on Antonio because he was the only lawyer in the family. And if to all this we add that Don Mariano was
then in full enjoyment of his mental faculties, as we have already pointed out elsewhere, it would be
presumptuous, if not unfair, on our part to affirm, as appellants want us to do, that he allowed himself to do an
act which is not fully in accord with his free and voluntary will.

R. En la casa de mi hermana Mercedes. Cuando lo firmo estabamos los dos, mi marido y yo.

We will not take up the claim that the deed of sale Exhibit A was executed without mediating any consideration
on the part of the vendees. If this were true then said deed would be void or inexistent for it would then be a
fictitious or simulated contract. This claim is merely predicated on the documents Exhibits G and H and the
declarations of Rosario Cui and Jesus Ma. Cui. We will briefly discuss this evidence.

R. No me acorde de eso. (pags. 162-P, 163 y164, transcripcion.)

Exhibit G is an alleged written statement made by Don Mariano Cui on January 24, 1949 which reads as
follows:jgc:chanrobles.com.ph
"A quien corresponde:chanrob1es virtual 1aw library
Habiendome enterado que hoy existe un lio entre mis hijos en el Juzgado sobre mis propiedades y los de mi
difunta esposa, y sobre todo porque el transpaso de las misma a mi hijo Antonio Ma. Cui y a hija Mercedes
Cui de Ramas no se halla aun pagado por los mismos, es mi desao que el pleito entre mis hijos sea
inmediatamente zanjado y todas participen por igual dichos bienes.
Y para que asi consta firmo esta declaracion en la Ciudad de Cebu, hoy a 24 de enero de 1949.
(Fdo.) MARIANO CUI"
Rosario Cui, testifying on the Circumstances surrounding the preparation of said Exhibit G, said as

P. Ayer declaro usted sobre este Exhibit G que, segun usted, esta firmado por su Padres?
R. Si, seor.

R. Esto me dio mi papa; sabe usted cuando estaba tratando con mi hermano, este me insulto y estaba y
llorando, y despues se fueron al cine; y entonces dijo el; Deja Vd. y mande preparar una orden mia de que yo
quiero que se termine ese asunto y que se arregle entre ustedes y no me gusta que haya pleito y yo voy a
firmar y se preparo eso.
P. Usted mando preparar el exhibit G en la localidad?
R. Si, seor, con el Sr. Jayme.
P. Donde lo firmo este exhibit G?

P. Su hermano de usted estaba presente?

R. Estaba en casa mi hermana Mercedes, pero no estaba delante. Mi hermano eataba ausente. Cuando se
hizo este, debia haberse firmado el 24, pero era por suplica de mi papa, y habia mucha gente, y ademas en
aquel dia no queria dar disgustos, y cuando nos marchamos, le dije: "Papa, esta aqui el papel que me ha
entregado, que voy a hacer", y dijo: "voy a firmarlo."cralaw virtua1aw library
P. Eso fue cuando?
R. El enero 25.
P. Sabiendo usted que su padre vivia en la casa de Mercedes por que no llamo usted a Mercedes para ser
mas legal?
R. No me acuerdo de eso.
P. Ni siquiera el esposo de su hermana, el Doctor, llamo usted para que presenciara la firma de este Exhibit
G?

If we would give credit to what document Exhibit G literally says, we would indeed come to the conclusion that
Antonio Ma. Cui and his sister Mercedes, vendees of the property, have not as yet paid the consideration of
the sale to their father Don Mariano, but the testimony of Rosario Cui itself belies that such was the real
intention of Don Mariano when the statement was allegedly made. According to Rosario Cui, when Don
Mariano was informed that a case was brought to court to seek the annulment of the sale of the Manalili
property and she informed him of the attitude of the other children, Don Mariano said: "Deje Vd. y mande
preparar una orden mia de que yo quiero que se termine el asunto y se arregle entre ustedes y no me gusta
que haya pleito, y yo voy a firmar y se preparo eso." Then she caused that statement to be prepared by Atty.
Jayme which was signed by Don Mariano in the house of Mercedes. If we were to believe the testimony of
Rosario Cui, we would find that the only wish of Don Mariano was to have the litigation terminated and
amicably settled and that nothing was said about the alleged non-payment of the consideration. And it is
strange that the statement was signed in the house of Mercedes Cui and the latter never came to know about
it before it was presented in court. It is apparent that the whole thing was a concoction of some of those
interested in winning the case which was already pending in court by inserting something that might serve as
basis for the nullification of the sale; and our suspicion is strengthened when we consider that that statement
was allegedly signed at a time when, according to Rosario Cui herself, her father was already mentally infirm,
so much so that about one month thereafter he was declared incompetent and mentally incapacitated.

The document Exhibit H is an alleged letter of Don Mariano to his son-in-law, Dr. Irineo Encarnacion, husband
of Rosario, dated January 30, 1949, wherein Don Mariano apparently added at the foot the following
statement: "PD. Quizas te podre pagar cuando me paguen ellos Nene los solares de Manalili." If we will give
credit to the above statement, we would also conclude that the vendees have not paid the consideration of the
sale of the Manalili property. Again we can say that such cannot represent the clear will of Don Mariano if we
want to be consistent with our finding that at that time he was no longer in possession of his mental faculties.
Apparently, this is another scheme employed by Rosario Cui and her husband to bolster up their case seeking
the annulment of the sale.
But the most serious attempt to show that the defendants did not pay any consideration for the sale of the lots
in question is the story that is now being brought to bear on the sale of the San Jose property by Don Mariano
to his daughter-in-law, Elisa Quintos, wife of Antonio Cui, on August 31, 1944 which, it is alleged, does not
show on its face the true consideration paid by Elisa to Don Mariano regarding said property. In relating the
story relative to this transaction, the picture which counsel for appellants wants to portray is that the true
consideration paid by Elisa to Don Mariano is the sum of P125,000, and not simply P50,000 as it was made to
appear therein, and, therefore, when the deed of sale was executed on March 8, 1946 no actual consideration
passed from Antonio Cui to Don Mariano because the latter was not then owing any amount either to said
Antonio or to his wife Elisa Quintos.
Before discussing the details concerning the sale of the San Jose property as narrated by counsel for
appellants, let us first take note of the version of Antonio Cui as to how he came to pay the consideration of
P21,333 assigned to him in the transaction. Antonio Cui testified that of the said sum of P21,333 representing
his share in the consideration of the sale, P1,333 was advanced in his favor by his sister Mercedes as shown
by the receipt Exhibit 24 issued by Don Mariano in favor of the latter. The balance of P20,000 represents
settlement of the debt his father then owed to his wife Elisa. This indebtedness, according to Antonio, arose in
the following manner: On June 10, 1935, the conjugal partnership of the spouses Don Mariano Cui and Doa
Antonia Perales contracted an obligation of P80,000 with the Filipinas Life Assurance Co., Ltd. secured by a
mortgage on real estate belonging both to the conjugal partnership and to the estate of Don Mariano. On
March 23, 1942, the company made a demand on Don Mariano for the payment of the obligation which was
then increasing in view of the accumulation of the interests. In order that he may settle this obligation, Don
Mariano asked his son Jesus Cui to look for a buyer of the San Jose property in Cebu City.
Apparently, Jesus made efforts to look for a buyer as shown by several letters and telegrams he sent to his
father regarding the matter so much so that Don Mariano, acknowledging said efforts, sent to him on October
5, 1943 a letter thanking him for the interest he was displaying and stating that he could keep for himself
whatever amount he might secure in excess of the sum of P90,000 which at that time was the totality of the
obligation (Exh. 49). But since two years had passed and nothing concrete came from the efforts exerted by
Jesus, Don Mariano had to turn for help to his son Antonio. Antonio agree to help and said that he would talk
to his wife about it. The best way he and his wife found to raise the money was to sell the property his wife had
in Malate, City of Manila, for the sum of P300,000. Of this amount, they gave to his father the sum of P125,000
to cover his needs and obligations. With this money, Don Mariano paid his debt to the insurance company of
P94,736.93, including interests, deducted the sum of P5,000 representing the amount spent by him for the
wedding of Antonio and Elisa, and applied P50,000 as consideration for the sale to Elisa Quintos of the house
and lot at San Jose street in Cebu City. And in recognition of the help extended to him by Antonio and Elisa,
Don Mariano acknowledged in their favor the sum of P70,000 as a loan. The deed of sale of the San Jose
property to Elisa Quintos was executed by Don Mariano Cui on August 31, 1944 with two of his children,
Lourdes Cui de Velez and Jorge Cui as witnesses. And when the sale of the lots in question came, it was
agreed that the loan of P70,000 be reduced to P20,000, Philippine currency, in deference to the request of
Don Mariano, which amount, in addition to the sum of P1,333 advanced by Mercedes, became the
consideration paid by Antonio Cui for his share in the transaction. This is the explanation given by Antonio of
how he came to pay the consideration of the sale, and apparently this is supported by the same deed of sale
wherein Don Mariano acknowledged having received the total consideration (Exhibit A).
Appellants, however, do not seem to agree to this narration for they do not give faith and credit to the
explanation given by Antonio Cui as to how he came to pay his share in the consideration of the sale, and to
show that Antonio cannot be truthful and that the sale of the San Jose property, as well as that of the lots in
question, are but the product of his insidious scheme and manipulations to serve his own selfish interests, they
brought forth in this case certain documents and telegrams tending to show that Don Mariano could not have
intended to sell the San Jose property for less than the amount of his obligation to the insurance company
more so when he had received offers for the purchase of said property in the amount of not less than
P150,000. Thus, an attempt was made to show that on August 25, 1944, or five days before the sale to Elisa
Quintos was consummated, Paulino Gullas offered to buy the property for P150,000. There was also an

attempt to show that at about the time the sale was being made to Elisa Quintos of that property, Sergio
Osmea, Jr. also made an offer in the same amount of P150,000.
While these facts are true because they are supported by unrefuted evidence, it is however also true that
those offers came when the negotiation between Don Mariano Cui and Elisa Quintos had already been
completed. It should be borne in mind that the authority given by Don Mariano Cui to Jesus Cui to sell the
property was given even as early as 1942 and despite the lapse of two years nothing concrete came out in
spite of the efforts made by Jesus to look for a buyer, and so Elisa Quintos had to sell her property in Manila
just to please and accommodate her father-in-law, Don Mariano. The offer, therefore, of Paulino Gullas or of
Sergio Osmea, Jr., even if for the sum of P150,000, came late, and under the circumstances, Don Mariano
had no other alternative, as any other decent man would have done, than to reject the offers and maintain the
sale he made to Elisa even at the sacrifice of some material advantage in his favor. He wrote to Jesus on
August 7, 1944 (Exhibit 52) and told him that he had already sold the San Jose property to Elisa assuring him
at the same time that although the price paid for it was not high, still he considered the sale to his advantage
as Elisa and Antonio spontaneously reserved in his favor the right to occupy for life any room he may choose
in the same house included in the transaction when he should return to Cebu to live there, a privilege which
Don Mariano knew no other buyer would be in a position to offer. This explains somewhat this apparent
incongruity in the transaction. This consideration may really appear low especially when done in Japanese
currency, but at the same time we cannot overlook the fact that some moral factor has played an important
part in the transaction. At any rate, that is the consideration that appears in the document (Exhibit R), and its
genuineness and due execution is not now disputed. We are, therefore, constrained to consider it on its face
value.
The consideration paid by Mercedes Cui of her share in the sale in question is also disputed by appellants
who claim that she has not paid any amount and that the explanation she has given as to how she came to
pay said consideration is not worthy of credence. Mercedes Cui, on this matter, testified that before her father
Don Mariano left for Manila in the month of July, 1943, he had been taking from her on several occasions
sums of money which reached a total of P14,000; that in February, 1946, her father returned to Cebu and she
again gave him the sum of P2,000, making a total of P16,000, the money taken by her father; that after
receiving the sum of P2,000, her father offered to sell her 1/3 of the interest in the three lots in question, which
she accepted; that days before she signed the deed of sale Exhibit A, she gave her father the sum of P6,666,
of which P1,333 were given for the account of her brother Antonio Cui, and the sum of P5,333 was applied to
cover the balance of her share in the consideration to complete the amount of P16,000 previously taken by her
father; that in acknowledgment of the receipt from her of said amounts, her father executed the receipt Exhibit
24 in his own handwriting, and days after, she was made to sign said deed of sale; and that her father did not
include in the sale her other brothers and sisters because he knew their precarious financial situation.
The weakness which appellants find in this explanation given by Mercedes Cui lies in that she has not been
able to produce any receipt showing the deliveries of money she claimed to have made to her father. This may
be true, but this was explained by her saying that it has never been her habit to ask for receipt from her father
for any money she may have given him, unlike her sister Rosario who has the habit of asking for receipts. On
the other hand, she claims that her payment of the consideration cannot now be disputed for Don Mariano has
expressly acknowledged having received it in a document written in his own handwriting, as evidenced by
Exhibit 24, the genuineness of which is not disputed And there is one circumstance that bolster up this claim,
which also holds true with regard to Antonio Cui, and that is the attitude shown by Don Mariano when Rosario
Cui has not paid her consideration in the sale. It should be recalled that when Don Mariano came to know this
fact, he went to Calapan, Mindoro, where Rosario was residing, to demand payment from her, and when she
failed, he asked her to execute a deed of resale in his favor. If Antonio or Mercedes, as appellants now claim,
has not paid his or her share in the consideration, Don Mariano would have also demanded from any one of
them the resale of the property, in the same way that Rosario was required. The fact that Don Mariano did not
do so shows that both paid their shares to his full satisfaction.
But appellants are not yet satisfied with this reasoning. They insist that Mercedes has not paid any
consideration because, they contend, if it were true that she has given her father the different sums of money
she claims she has given, which amount to P16,000, the receipt of said amounts would have been noted by
Don Mariano in the diary Exhibit KK which was kept by him during the years 1942 to 1945 wherein several
entries appear of different sums of money received and disbursed by him for sundry expenses. When these
alleged sums were not noted down in said diary, they contend, it is because they are not true.
If we were to believe the testimony of Jesus Ma. Cui that his father had the habit of writing down in said diary
all the receipts and expenses he makes daily up to the last centavo, the contention may be correct,
considering that the sums of money delivered by Mercedes do not appear in said diary. But that statement of

Jesus Cui is an exaggeration for, as affirmed by Antonio Cui, not all the entries appearing therein are in the
handwriting of Don Mariano, nor is it true that all the receipts and expenses he makes everyday are noted
down therein, for the truth is that there are many money transactions and expenses made by Don Mariano
during the period of 1942 to 1945 that have not been recorded therein. Thus, the expenses and receipts had
by Don Mariano while he was in Manila, do not appear therein, nor those incurred by him in his travels from
Manila to Calapan, and vice-versa. Nor do they appear therein the expenses incurred by Don Mariano for his
son Jorge and his family when they went to Calapan; neither does it appear the loan of P3,000 made to Miguel
Ortigas. It does not also appear the sum of P18,000 borrowed from him by Jorge while they were in Manila as
testified to by the latter.
In connection with this diary, we may also point out the suspicious circumstances surrounding its presentation
in court as evidence. It appears that this document was presented by Rosario Cui who testified that she
received it from her father after Mercedes had already testified in this case, which was on September 30,
1949. According to her, Don Mariano on that occasion gave her instructions as to where to get said document
and what to do with it. She said that when she talked with her father about the claim of Antonio that the
consideration he paid was P70,000 which were reduced to P20,000 upon his request, her father said:
"despues me dijo mi papa que buscara en sus libros, porque el tenia un libro diario donde apuntaba sus
gastos y tenia varios cuadernos todavia alli pero yo no quise sacar todo; entonces el me dijo que yo lo llevara
y lo utilizara para comprobar los gastos y las entradas durante esos aos." (p. 112, Memorandum for
Appellees). What Rosario has attributed to her father as regards the use of the diary Exhibit KK is hard to
believe considering that by that time, September 30, 1949, Don Mariano could no longer hold such a coherent
conversation and much less give instructions as to the best way they could make use of the diary, considering
that Don Mariano at that time has already been declared mentally incapacitated. The presentation of said diary
can have no other meaning than that it is an eleventh hour attempt to bolster up the claim of appellants that
the deed of sale Exhibit A lacks consideration.
As an additional argument to nullify the deed of sale Exhibit A, even partially, in the supposition that all their
previous arguments would prove of no avail, appellants raise the question that said sale should be invalidated
at least in so far as the portion of the property sold to Antonio Cui is concerned, for the reason that when that
sale was effected, he was then acting as the agent or administrator of the properties of Don Mariano Cui. In
advancing this argument, appellants lay stress on the power of attorney Exhibit L which was executed by Don
Mariano in favor of Antonio Cui on March 2, 1946, wherein the former has constituted the latter as his "true
and lawful attorney" to perform in his name and that of the intestate heirs of Doa Antonia Perales the
following acts:jgc:chanrobles.com.ph
". . . to administer, sell, mortgage, lease, demand, claim, represent me and the intestate heirs, in all meetings
of corporations, associations, of which my or their presence is required, sue for, collect, cash, indorse checks
drawn in my favor or of the intestate heirs against any person or entity or bank, and sign all documents, that I
and or the intestate heirs to which I am the administrator are entitled to; giving and granting unto my said
attorney full power to perform and to make everything necessary to be done or which he believes to be
necessary or beneficial for me and the said heirs as fully and to all intents and purposes as I might or could do
if personally present, with full power of substitution, and revocation, hereby granting ratifying all that he or his
substitutes shall lawfully do or cause to be done by virtue of these presents."cralaw virtua1aw library
While under article 1459 of the old Civil Code an agent or administrator is disqualified from purchasing
property in his hands for sale or management, and, in this case, the property in question was sold to Antonio
Cui while he was already the agent or administrator of the properties of Don Mariano Cui, we however believe
that this question can not now be raised or invoked for the following reasons.
(1) This contention is being raised in this appeal for the first time. It was never raised in the trial court. An
examination of the complaints, both original as well as amended, will show that nowhere therein do they raise
the invalidity of the sale on that ground nor ask as an alternative relief the partial revocation of the sale in so
far as Antonios share is concerned because of the alleged relation of principal and agent between vendor and
vendee. It is undoubtedly for this reason that the trial court has not passed upon this question in its decision.
And considering that under Section 19, Rule 48, of our Rules of Court, an appellant may only include "In his
assignment of error any question of law or of fact that has been raised in the court below and which is within
the issues made by the parties in their pleadings", it follows that appellants are now prevented from raising this
question for the first time in this instance.
(2) The power of attorney in question is couched in so general a language that one cannot tell whether it refers
to the properties of Don Mariano or only to the conjugal properties of the spouses. However, considering that
the appointment was extended to Antonio Cui by Don Mariano so that he may act as agent "for me and for the

intestate heirs of the deceased Antonia Perales", one is led to believe that the power refers to the conjugal
properties wherein he had one-half interest and the heirs of Doa Antonia,the remaining half. Moreover,the
power of attorney was executed on March 2, 1946 while the deed of sale was executed on March 8, 1946.
They were therefore executed practically at the same time, which makes it doubtful as to whether such sale
can be deemed to be within the prohibition of the law.
(3) The prohibition of the law is contained in article 1459 of the old Civil Code, but this prohibition has already
been removed. Under the provisions of article 1491, section 2, of the new Civil Code, an agent may now buy
property placed in his hands for sale or administration, provided that the principal gives his consent thereto.
While the new Code came into effect only on August 30, 1950, however, since this is a right that is declared for
the first time, the same may be given retroactive effect if no vested or acquired right is impaired (Article 2253,
new Civil Code). During the lifetime of Don Mariano, and particularly on March 8, 1946, the herein appellants
could not claim any vested or acquired right in these properties, for, as heirs, the most they had was a mere
expectancy. We may, therefore, invoke now this practical and liberal provision of our new Civil Code even if
the sale had taken place before its effectivity.
The remaining question to be determined refers to the nature of the properties in question which appellants
claim belong to the conjugal partnership of Don Mariano Cui and Doa Antonia Perales while, on the other
hand, appellees contend belong exclusively to Don Mariano.
In support of their contention, appellants rely on the legal presumption that said properties are conjugal
because they were acquired by Don Mariano and his wife during their marriage, and on the testimony of
Jesus, Jorge and Rosario Cui, three of the children of Don Mariano, who testified that said properties are
conjugal because they have always been of the belief or impression that they belong to the conjugal
partnership of their parents. They have not presented any documentary evidence in support of their
contention.
It is true that the properties in question were acquired during the marriage of Don Mariano Cui and Doa
Antonia Perales and that the same were registered in the name of Don Mariano "casado con Doa Antonia
Perales", and as such they are presumed to be conjugal properties (Article 1407, old Civil Code), but this
presumption appears here rebutted by conclusive and strong evidence to the contrary. It should be stated that
these properties originally belonged to Don Pedro Cui and Doa Benigna Cui, uncle and aunt, respectively, of
Don Mariano, which were donated by them to Don Mariano on April 12, 1912 on condition that the latter
renounce any further inheritance he might have in the intestate estate of the donors. And while appellees have
not been able to introduce any copy of the deed of donation because the same has already disappeared, the
fact however remains that it has been clearly established that such donation has been actually made
exclusively to Don Mariano by clear and satisfactory evidence. The following is a brief discussion of such
evidence which consists in the testimony of Marta Cui and Generosa Vda. de Jakosalem, both nieces of the
donors, and in numerous documents the genuineness of which is not disputed.
Marta Cui, a woman 81 years old, testified that since she was 10 years of age, she lived in the company of her
uncle Pedro Cui and aunt Benigna Cui; that during their lifetime these two made donations of their lands to
their nephews and nieces subject to the condition that they should renounce whatever share they might have
in their inheritance and among the donees was Don Mariano Cui; that the donations were made exclusively to
their nephews and nieces, or without including their respective spouses; that the donation made in her favor is
contained in the document Exhibit 21; and that the lots in question were donated to Don Mariano Cui to the
exclusion of his spouse Antonia Perales. Examining said donation Exhibit 21 one would find that it was really
made exclusive in favor of Marta Cui subject to the condition that she should renounce whatever inheritance
she might have from the donors.
Generosa Vda. de Jakosalem,another woman of advanced age who because of unexpected illness was not
able to continue testifying, also affirmed that the lots in question were donated to Don Mariano by her uncle
Pedro Cui and aunt Benigna Cui exclusively, and this she knows personally because on the same date such
donation was made, she also received a donation from the same donors.

Antonio Ma. Cui, testifying on this matter, said: that while he

was acting as private secretary of his father Don Mariano
before the war, he had an opportunity to see a copy of the
deed of donation of the lots in question in his favor (his

father), which copy was furnished by the clerk of court, and

at the foot thereof there appears a note to the effect that the
original of said deed was on file in the record of the cadastral
case covering the property; that said document appears
signed by the donors Pedro Cui and Benigna Cui, by the
donee Mariano Cui and the instrumental witnesses Victor Cui
and Dionisio Jakosalem; that said copy having been lost, he
went to see the clerk of court to inquire about the original
that was on file in the record of the cadastral case but the
clerk of court told him that the record was destroyed during
the last war; that he then went to the office of the Bureau of
Archives to see if he could get a copy of the document but in
said office he only found the notarial register of the notary
public Raymundo Enriquez wherein the deed of donation
appears recorded; that at his request the chief of said office
issued photostatic copies of the pages of the notarial reg
er which contained the annotation relative not only to the
deed of donation in question but also to that which pertains
to the other deeds of donation executed by the donors Pedro
Cui and Benigna Cui (Exhibits 31-a and 31-b); that the entry
No. 310 that appears in the copy marked Exhibit 31-b refers
to the deed of donation of the lots in question in favor of his
father because said entry refers to a property situated in
Plaza Washington, Cebu, where his father did not have any
other property except that donated to him by his relatives,
which was later divided into three lots, and that it is of
common knowledge among members of the Cui family that
all the nephews of Pedro Cui and Benigna Cui received from
them by way of donation several pieces of lands subject to
the condition that they should renounce their right to inherit
from the donors.
Entry No. 310 which appears in photostatic copy Exhibit 31-b
contains under the heading "Nature of Instrument" the
following annotation: "Donacion condicional que hacen Pedro
Cui y Benigna Cui a favor de su sobrino Mariano Cui de un
solar con todas sus mejoras y edificio en la plaza de
Washington, Cebu; y la aceptacion del donatario quien
agradece a los donantes." In the same entry there also
appears that the document was executed on April 12, 1912

by Pedro Cui, Benigna Cui and Mariano Cui, and attested by

Victor Cui and Dionisio Jakosalem.
In the photostatic copy Exhibit 31-a, there appear entries
Nos. 301, 303, 304 and 305 which refer to the deeds of
donation executed by Pedro Cui and Benigna Cui in favor of
their nephews and nieces Mauricio Cui, Marta Cui, Victor Cui,
Angel Cui and Felicidad Cui. Note that these donations were
made exclusively in favor of the nephews and nieces without
including their respective spouses and were all executed on
April 11, 1912, or one day before the execution of the
donation in favor of Don Mariano Cui. The two photostatic
copies Exhibits 31-a and 31-b corroborate the testimony of
Marta Cui and Generosa Vda. de Jakosalem to the effect that
all the donations made by Don Pedro Cui and Benigna Cui in
favor of their nephews and nieces were made to them
exclusively or without including their respective spouses, and
subject to the condition that they should renounce their right
to inherit from the donors.
In addition to the foregoing evidence, there are other documents which strengthen the contention that the lots
in question were donated exclusively to Don Mariano Cui. One of them is the inventory prepared by Don
Mariano of the properties which belonged to him exclusively and those which belonged to the conjugal
partnership, as a result of the death of his wife Antonia Perales in 1939, copies of which were furnished to all
the children of Don Mariano. In this inventory marked Exhibit 8, under the heading "Bienes propios del esposo
superviviente Don Mariano Cui," the following appears: "1. Un solar compuesto de los lotes 2312, 2313 y
2319, del Catastro de Cebu, con sus mejoras consistentes en una casa de piedra y madera con techo de teja
y con una azotea tambien de piedra y madera." In the same inventory under the heading "Bienes gananciales
habidos durante el matrimonio de Don Mariano Cui y Doa Antonia Perales," there also appears the following
statement: "1. Un edificio mixto de concreto y madera con techo de hierro galvanizado . . . construido un una
porcion de terreno, de mil dosientos cincuenta (1,250) metros cuadrados de superficie, mas o menos, la cual
forma parte de un solar de mayor extension, situado entre las Calles Manalili y Calderon de la ciudad de
Cebu, Cebu . . . y pertenece en propiedad exclusiva al esposa superviviente Don Mariano Cui." This property
is the one known as lots Nos. 2312, 2313, and 2319. This inventory was never objected to by the heirs and
shows clearly that while the land belongs exclusively to Don Mariano Cui the building constructed thereon was
considered as conjugal property.
Another important document is the extra-judicial partition of the properties pertaining to the conjugal
partnership of Don Mariano Cui and the deceased wife Antonia Perales, marked Exhibit 1-a, which was signed
by Don Mariano and all his children, with the exception of Jorge Cui, who was then in Manila when the
document was signed on December 6, 1946. In said document mention is made of the inventory which was
prepared by Don Mariano of the conjugal properties belonging to him and his wife, as well as the powers of
attorney executed in favor of Don Mariano by his children authorizing him to administer the properties
belonging to the conjugal partnership. It is interesting to note that in this deed of partition a relation is made of
the conjugal properties as well as of the debts and obligations which were then existing against the
partnership and the disposition made of the properties to pay said debts and obligations. It is also interesting
to note that the three lots in question are not included in this deed of partition. The fact that all the heirs, with
the exception of Jorge, signed this deed of partition without any protest, is a clear proof that they knew right
along that said lots were the exclusive property of their father and did not belong to the conjugal partnership. It
is true that appellants Jesus Ma. Cui and Rosario Cui, while admitting the authenticity and due execution of
the above deed of partition, now contend that they signed the same without being aware of its contents, but
this contention can hardly be given credit, for we can not suppose that, referring as it does to an important
document which concerns precisely a partition of inheritance, they should sign the same without first
ascertaining or satisfying themselves of the nature of the transaction.

Other important documents that may have a bearing on this matter are the inheritance tax return Exhibit 32
and the relation Exhibit 33 of the real properties of Don Mariano Cui for the purposes required by law relative
to the issuance of the Residence Certificate B. The inheritance tax return was filed by Don Mariano Cui in
1939 in connection with the hereditary property left by his wife Antonia Perales and in said return the lots in
question were not included, while the relation Exhibit 33 includes said lots because they were deemed by Don
Mariano as his exclusive property and as such should be included in the assessment to be made in
connection with the issuance of the Residence Certificate B. These two documents, which were prepared by
Don Mariano Cui, clearly indicate that the lots in question were always considered by him as his exclusive
property.

ordering the defendant Miguel Velasco to liquidate his accounts as agent of the plaintiff Federico Valera; (10)
the lower court erred in not awarding plaintiff the P5,000 damages prayed for.

There can therefore be no doubt, in the light of the overwhelming evidence, testimonial as well as
documentary, we have discussed in the preceding paragraphs, that these three lots in question have always
been considered not only by Don Mariano Cui, but by his children and other relatives, as his exclusive
property, the same having been donated to him by his uncle Pedro Cui and aunt Benigna Cui to the exclusion
of his wife Antonia Perales. Consequently, the contention that, in disposing of said property, Don Mariano Cui
has appropriated what belongs to his co-heirs, has completely no foundation in the evidence.

The defendant accepted both powers of attorney, managed plaintiff's property, reported his operations, and
rendered accounts of his administration; and on March 31, 1923 presented exhibit F to plaintiff, which is the
final account of his administration for said month, wherein it appears that there is a balance of P3,058.33 in
favor of the plaintiff.

Having reached the conclusion that the lots in question were the exclusive property of Don Mariano Cui and
that the deed of sale Exhibit A was executed by him freely, intelligently, and with sufficient pecuniary
consideration, we deem it unnecessary to dwell on the other points discussed by both parties in their briefs
and in their respective memoranda. While these points, vehemently advocated by appellants counsel, may
throw cloud on the due execution of the sale, or may cast doubt on the sufficiency of its consideration, we are
however constrained to uphold its validity if we are to be consistent with our conclusion that Don Mariano has
executed it while still in the full enjoyment of his mental faculties, considering that he never lifted a finger to
dispute it, in the same manner he did with regard to Rosario Cui. No other conclusion is plausible and proper,
considering all the circumstances of the case.Wherefore, we hereby affirm the decision appealed from, without
pronouncement as to costs

The pertinent facts necessary for the solution of the questions raised by the above quoted assignments of
error are contained in the decision appealed from and are as follows:
By virtue of the powers of attorney, Exhibits X and Z, executed by the plaintiff on April 11, 1919, and on August
8, 1922, the defendant was appointed attorney-in-fact of the said plaintiff with authority to manage his property
in the Philippines, consisting of the usufruct of a real property located of Echague Street, City of Manila.

The liquidation of accounts revealed that the plaintiff owed the defendant P1,100, and as misunderstanding
arose between them, the defendant brought suit against the plaintiff, civil case No. 23447 of this court.
Judgment was rendered in his favor on March 28, 1923, and after the writ of execution was issued, the sheriff
levied upon the plaintiff's right of usufruct, sold it at public auction and adjudicated it to the defendant in
payment of all of his claim.
Subsequently, on May 11, 1923, the plaintiff sold his right of redemption to one Eduardo Hernandez, for the
sum of P200 (Exhibit A). On September 4, 1923, this purchaser conveyed the same right of redemption, for
the sum of P200, to the plaintiff himself, Federico Valera (Exhibit C).
After the plaintiff had recovered his right of redemption, one Salvador Vallejo, who had an execution upon a
judgment against the plaintiff rendered in a civil case against the latter, levied upon said right of redemption,
which was sold by the sheriff at public auction to Salvador Vallejo for P250 and was definitely adjudicated to
him. Later, he transferred said right of redemption to the defendant Velasco. This is how the title to the right of
usufruct to the aforementioned property later came to vest the said defendant.
As the first two assignments of error are very closely related to each other, we will consider them jointly.
Article 1732 of the Civil Code reads as follows:
Art. 1732. Agency is terminated:

March 13, 1928

G.R. No. 28050
FEDERICO VALERA, plaintiff-appellant,
vs.
MIGUEL VELASCO, defendant-appellee.
Jose Martinez San Agustin for appellant.
Vicente O. Romualdez, Crispulo T. Manubay and Placido P. Reyes for appellee.

1. By revocation;
2. By the withdrawal of the agent;
3. By the death, interdiction, bankruptcy, or insolvency of the principal or of the agent.
And article 1736 of the same Code provides that:

VILLA-REAL, J.:

Art. 1736. An agent may withdraw from the agency by giving notice to the principal. Should the latter suffer any
damage through the withdrawal, the agent must indemnify him therefore, unless the agent's reason for his
withdrawal should be the impossibility of continuing to act as such without serious detriment to himself.

This is an appeal taken by Federico Valera from the judgment of the Court of First Instance of Manila
dismissing his complaint against Miguel Velasco, on the ground that he has not satisfactorily proven his right
of action.

In the case of De la Pea vs. Hidalgo (16 Phil., 450), this court said laid down the following rule:

In support of his appeal, the appellant assigns the following alleged as committed by the trial court in its
judgment, to wit: (1) The lower court erred in holding that one of the ways of terminating an agency is by the
express or tacit renunciation of the agent; (2) the lower court erred in holding that the institution of a civil action
and the execution of the judgment obtained by the agent against his principal is but renunciation of the powers
conferred on the agent; (3) the lower erred in holding that, even if the sale by Eduardo Hernandez to the
plaintiff Federico Valera be declared void, such a declaration could not prevail over the rights of the defendant
Miguel Velasco inasmuch as the right redemption was exercised by neither Eduardo Hernandez nor the
plaintiff Federico Valera; (4) the lower court erred in not finding that the defendant Miguel Velasco was, and at
present is, an authorized representative of the plaintiff Federico Valera; (5) the lower court erred in not
annulling the sale made by the sheriff at public auction to defendant Miguel Velasco, Exhibit K; (6) the lower
court erred in failing to annul the sale executed by Eduardo Hernandez to the plaintiff Federico Valera, Exhibit
C; (7) the lower court erred in not annulling Exhibit L, that is, the sale at public auction of the right to
repurchase the land in question to Salvador Vallejo; (8) the lower court erred in not declaring Exhibit M null
and void, which is the sale by Salvador Vallejo to defendant Miguel Velasco; (9) the lower court erred in not

1. AGENCY; ADMINISTRATION OF PROPERTY; IMPLIED AGENCY. When the agent and administrator of
property informs his principal by letter that for reasons of health and medical treatment he is about to depart
from the place where he is executing his trust and wherein the said property is situated, and abandons the
property, turns it over to a third party, renders accounts of its revenues up to the date on which he ceases to
hold his position and transmits to his principal statement which summarizes and embraces all the balances of
his accounts since he began the administration to the date of the termination of his trust, and, without stating
when he may return to take charge of the administration of the said property, asks his principal to execute a
power of attorney in due form in favor of a transmit the same to another person who took charge of the
administration of the said property, it is but reasonable and just to conclude that the said agent had expressly
and definitely renounced his agency and that such agency duly terminated, in accordance with the provisions
of article 1732 of the Civil Code, and, although the agent in his aforementioned letter did not use the words
"renouncing the agency," yet such words, were undoubtedly so understood and accepted by the principal,
because of the lapse of nearly nine years up to the time of the latter's death, without his having interrogated
either the renouncing agent, disapproving what he had done, or the person who substituted the latter.

The misunderstanding between the plaintiff and the defendant over the payment of the balance of P1,000 due
the latter, as a result of the liquidation of the accounts between them arising from the collections by virtue of
the former's usufructuary right, who was the principal, made by the latter as his agent, and the fact that the
said defendant brought suit against the said principal on March 28, 1928 for the payment of said balance,
more than prove the breach of the juridical relation between them; for, although the agent has not expressly
told his principal that he renounced the agency, yet neither dignity nor decorum permits the latter to continue
representing a person who has adopted such an antagonistic attitude towards him. When the agent filed a
complaint against his principal for recovery of a sum of money arising from the liquidation of the accounts
between them in connection with the agency, Federico Valera could not have understood otherwise than that
Miguel Velasco renounced the agency; because his act was more expressive than words and could not have
caused any doubt. (2 C. J., 543.) In order to terminate their relations by virtue of the agency the defendant, as
agent, rendered his final account on March 31, 1923 to the plaintiff, as principal.

as an Officer of ISAFP and former member of the PSG, petitioners, vs. HON. VICTORINO
EVANGELISTA, in his capacity as Presiding Judge, Regional Trial Court, Branch 223, Quezon City, and
DANTE LEGASPI, represented by his attorney-in-fact, Paul Gutierrez, respondents.

Briefly, then, the fact that an agent institutes an action against his principal for the recovery of the balance in
his favor resulting from the liquidation of the accounts between them arising from the agency, and renders and
final account of his operations, is equivalent to an express renunciation of the agency, and terminates the
juridical relation between them.

The Complaint alleged that private respondent Legaspi is the owner of a land located in Bigte, Norzagaray,
Bulacan. In November 1999, petitioner Calimlim, representing the Republic of the Philippines, and as then
head of the Intelligence Service of the Armed Forces of the Philippines and the Presidential Security Group,
entered into a Memorandum of Agreement (MOA) with one Ciriaco Reyes. The MOA granted Reyes a permit
to hunt for treasure in a land in Bigte, Norzagaray, Bulacan. Petitioner Diciano signed the MOA as a witness.
[2]
It was further alleged that thereafter, Reyes, together with petitioners, started, digging, tunneling and
blasting works on the said land of Legaspi. The complaint also alleged that petitioner Calimlim assigned about
80 military personnel to guard the area and encamp thereon to intimidate Legaspi and other occupants of the
area from going near the subject land.

If, as we have found, the defendant-appellee Miguel Velasco, in adopting a hostile attitude towards his
principal, suing him for the collection of the balance in his favor, resulting from the liquidation of the agency
accounts, ceased ipso facto to be the agent of the plaintiff-appellant, said agent's purchase of the aforesaid
principal's right of usufruct at public auction held by virtue of an execution issued upon the judgment rendered
in favor of the former and against the latter, is valid and legal, and the lower court did not commit the fourth
and fifth assignments of error attributed to it by the plaintiff-appellant.
In regard to the third assignment of error, it is deemed unnecessary to discuss the validity of the sale made by
Federico Valera to Eduardo Hernandez of his right of redemption in the sale of his usufructuary right made by
the sheriff by virtue of the execution of the judgment in favor of Miguel Velasco and against the said Federico
Valera; and the same thing is true as to the validity of the resale of the same right of redemption made by
Eduardo Hernandez to Federico Valera; inasmuch as Miguel Velasco's purchase at public auction held by
virtue of an execution of Federico Valera's usufructuary right is valid and legal, and as neither the latter nor
Eduardo Hernandez exercised his right of redemption within the legal period, the purchaser's title became
absolute.
Moreover, the defendant-appellee, Miguel Velasco, having acquired Federico Valera's right of redemption from
Salvador Vallejo, who had acquired it at public auction by virtue of a writ of execution issued upon the
judgment obtained by the said Vallejo against the said Valera, the latter lost all right to said usufruct.
And even supposing that Eduardo Hernandez had been tricked by Miguel Velasco into selling Federico
Valera's right of repurchase to the latter so that Salvador Vallejo might levy an execution on it, and even
supposing that said resale was null for lack of consideration, yet, inasmuch as Eduardo Hernandez did not
present a third party claim when the right was levied upon for the execution of the judgment obtained by
Vallejo against Federico Vallera, nor did he file a complaint to recover said right before the period of
redemption expired, said Eduardo Hernandez, and much less Federico Valera, cannot now contest the validity
of said resale, for the reason that the one-year period of redemption has already elapsed.
Neither did the trial court err in not ordering Miguel Velasco to render a liquidation of accounts from March 31,
1923, inasmuch as he had acquired the rights of the plaintiff by purchase at the execution sale, and as
purchaser, he was entitled to receive the rents from the date of the sale until the date of the repurchase,
considering them as part of the redemption price; but not having exercised the right repurchase during the
legal period, and the title of the repurchaser having become absolute, the latter did not have to account for
said rents.

DECISION
PUNO, J.:
The case at bar stems from a complaint for damages, with prayer for the issuance of a writ of preliminary
injunction, filed by private respondent Dante Legaspi, through his attorney-in-fact Paul Gutierrez, against
petitioners Gen. Jose M. Calimlim, Ciriaco Reyes and Maj. David Diciano before the Regional Trial Court
(RTC) of Quezon City.[1]

On February 15, 2000, Legaspi executed a special power of attorney (SPA) appointing his nephew, private
respondent Gutierrez, as his attorney-in-fact. Gutierrez was given the power to deal with the treasure hunting
activities on Legaspis land and to file charges against those who may enter it without the latters authority.
[3]
Legaspi agreed to give Gutierrez 40% of the treasure that may be found in the land.
On February 29, 2000, Gutierrez filed a case for damages and injunction against petitioners for illegally
entering Legaspis land. He hired the legal services of Atty. Homobono Adaza. Their contract provided that as
legal fees, Atty. Adaza shall be entitled to 30% of Legaspis share in whatever treasure may be found in the
land. In addition, Gutierrez agreed to pay Atty. Adaza P5,000.00 as appearance fee per court hearing and
defray all expenses for the cost of the litigation. [4] Upon the filing of the complaint, then Executive Judge Perlita
J. Tria Tirona issued a 72-hour temporary restraining order (TRO) against petitioners.
The case[5] was subsequently raffled to the RTC of Quezon City, Branch 223, then presided by public
respondent Judge Victorino P. Evangelista. On March 2, 2000, respondent judge issued another 72-hour TRO
and a summary hearing for its extension was set on March 7, 2000.
On March 14, 2000, petitioners filed a Motion to Dismiss [6] contending: first, there is no real party-in-interest as
the SPA of Gutierrez to bring the suit was already revoked by Legaspi on March 7, 2000, as evidenced by a
Deed of Revocation,[7] and, second, Gutierrez failed to establish that the alleged armed men guarding the area
were acting on orders of petitioners. On March 17, 2000, petitioners also filed a Motion for Inhibition [8] of the
respondent judge on the ground of alleged partiality in favor of private respondent.
On March 23, 2000, the trial court granted private respondents application for a writ of preliminary injunction
on the following grounds: (1) the diggings and blastings appear to have been made on the land of Legaspi,
hence, there is an urgent need to maintain the status quo to prevent serious damage to Legaspis land; and,
(2) the SPA granted to Gutierrez continues to be valid. [9] The trial court ordered thus:

Summarizing, the conclusion is reached that the disagreements between an agent and his principal with
respect to the agency, and the filing of a civil action by the former against the latter for the collection of the
balance in favor of the agent, resulting from a liquidation of the agency accounts, are facts showing a rupture
of relations, and the complaint is equivalent to an express renunciation of the agency, and is more expressive
than if the agent had merely said, "I renounce the agency."

WHEREFORE, in view of all the foregoing, the Court hereby resolves to GRANT plaintiffs application for a writ
of preliminary injunction. Upon plaintiffs filing of an injunction bond in the amount of ONE HUNDRED
THOUSAND PESOS (P100,000.00), let a Writ of Preliminary Injunction issue enjoining the defendants as well
as their associates, agents or representatives from continuing to occupy and encamp on the land of the
plaintiff LEGASPI as well as the vicinity thereof; from digging, tunneling and blasting the said land of plaintiff
LEGASPI; from removing whatever treasure may be found on the said land; from preventing and threatening
the plaintiffs and their representatives from entering the said land and performing acts of ownership; from
threatening the plaintiffs and their representatives as well as plaintiffs lawyer.

By virtue of the foregoing, and finding no error in the judgment appealed from, the same is hereby affirmed in
all its parts, with costs against the appellant. So ordered.

On even date, the trial court issued another Order [10] denying petitioners motion to dismiss and requiring
petitioners to answer the complaint. On April 4, 2000, it likewise denied petitioners motion for inhibition. [11]

[G.R. No. 156015. August 11, 2005]

On appeal, the Court of Appeals affirmed the decision of the trial court. [12]

REPUBLIC OF THE PHILIPPINES, represented by LT. GEN. JOSE M. CALIMLIM, in his capacity as
former Chief of the Intelligence Service, Armed Forces of the Philippines (ISAFP), and former
Commanding General, Presidential Security Group (PSG), and MAJ. DAVID B. DICIANO, in his capacity

Hence this petition, with the following assigned errors:

I

WHETHER THE CONTRACT OF AGENCY BETWEEN LEGASPI AND PRIVATE RESPONDENT

GUTIERREZ HAS BEEN EFFECTIVELY REVOKED BY LEGASPI.

(a) that the applicant is entitled to the relief demanded, the whole or part of such relief consists in restraining
the commission or continuance of the act or acts complained of, or in requiring the performance of an act or
acts, either for a limited period or perpetually;

II
WHETHER THE COMPLAINT AGAINST PETITIONERS SHOULD BE DISMISSED.
III
WHETHER RESPONDENT JUDGE OUGHT TO HAVE INHIBITED HIMSELF FROM FURTHER
PROCEEDING WITH THE CASE.
We find no merit in the petition.
On the first issue, petitioners claim that the special power of attorney of Gutierrez to represent Legaspi has
already been revoked by the latter. Private respondent Gutierrez, however, contends that the unilateral
revocation is invalid as his agency is coupled with interest.
We agree with private respondent.
Art. 1868 of the Civil Code provides that by the contract of agency, an agent binds himself to render some
service or do something in representation or on behalf of another, known as the principal, with the consent or
authority of the latter.[13]
A contract of agency is generally revocable as it is a personal contract of representation based on trust and
confidence reposed by the principal on his agent. As the power of the agent to act depends on the will and
license of the principal he represents, the power of the agent ceases when the will or permission is withdrawn
by the principal. Thus, generally, the agency may be revoked by the principal at will. [14]
However, an exception to the revocability of a contract of agency is when it is coupled with interest, i.e., if a
bilateral contract depends upon the agency.[15] The reason for its irrevocability is because the agency becomes
part of another obligation or agreement. It is not solely the rights of the principal but also that of the agent and
third persons which are affected. Hence, the law provides that in such cases, the agency cannot be revoked at
the sole will of the principal.
In the case at bar, we agree with the finding of the trial and appellate courts that the agency granted by
Legaspi to Gutierrez is coupled with interest as a bilateral contract depends on it. It is clear from the records
that Gutierrez was given by Legaspi, inter alia, the power to manage the treasure hunting activities in
the subject land; to file any case against anyone who enters the land without authority from Legaspi;
to engage the services of lawyers to carry out the agency; and, to dig for any treasure within the land
and enter into agreements relative thereto. It was likewise agreed upon that Gutierrez shall be entitled to
40% of whatever treasure may be found in the land. Pursuant to this authority and to protect Legaspis land
from the alleged illegal entry of petitioners, agent Gutierrez hired the services of Atty. Adaza to prosecute the
case for damages and injunction against petitioners. As payment for legal services, Gutierrez agreed to
assign to Atty. Adaza 30% of Legaspis share in whatever treasure may be recovered in the subject
land. It is clear that the treasure that may be found in the land is the subject matter of the agency; that under
the SPA, Gutierrez can enter into contract for the legal services of Atty. Adaza; and, thus Gutierrez and Atty.
Adaza have an interest in the subject matter of the agency, i.e., in the treasures that may be found in the land.
This bilateral contract depends on the agency and thus renders it as one coupled with interest, irrevocable at
the sole will of the principal Legaspi. [16] When an agency is constituted as a clause in a bilateral contract, that
is, when the agency is inserted in another agreement, the agency ceases to be revocable at the pleasure of
the principal as the agency shall now follow the condition of the bilateral agreement. [17] Consequently, the
Deed of Revocation executed by Legaspi has no effect. The authority of Gutierrez to file and continue with the
prosecution of the case at bar is unaffected.
On the second issue, we hold that the issuance of the writ of preliminary injunction is justified. A writ of
preliminary injunction is an ancilliary or preventive remedy that is resorted to by a litigant to protect or preserve
his rights or interests and for no other purpose during the pendency of the principal action. [18] It is issued by the
court to prevent threatened or continuous irremediable injury to the applicant before his claim can be
thoroughly studied and adjudicated.[19] Its aim is to preserve the status quo ante until the merits of the case
can be heard fully, upon the applicants showing of two important conditions, viz.: (1) the right to be
protected prima facie exists; and, (2) the acts sought to be enjoined are violative of that right. [20]
Section 3, Rule 58 of the 1997 Rules of Civil Procedure provides that a writ of preliminary injunction may be
issued when it is established:

(b) that the commission, continuance or non-performance of the act or acts complained of during the litigation
would probably work injustice to the applicant; or
(c) that a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or
suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the subject
of the action or proceeding, and tending to render the judgment ineffectual.
It is crystal clear that at the hearing for the issuance of a writ of preliminary injunction, mere prima
facie evidence is needed to establish the applicants rights or interests in the subject matter of the main action.
[21]
It is not required that the applicant should conclusively show that there was a violation of his rights as this
issue will still be fully litigated in the main case.[22]Thus, an applicant for a writ is required only to show that
he has an ostensible right to the final relief prayed for in his complaint. [23]
In the case at bar, we find that respondent judge had sufficient basis to issue the writ of preliminary injunction.
It was established, prima facie, that Legaspi has a right to peaceful possession of his land, pendente
lite. Legaspi had title to the subject land. It was likewise established that the diggings were conducted by
petitioners in the enclosed area of Legaspis land. Whether the land fenced by Gutierrez and claimed to be
included in the land of Legaspi covered an area beyond that which is included in the title of Legaspi is
a factual issue still subject to litigation and proof by the parties in the main case for damages. It was
necessary for the trial court to issue the writ of preliminary injunction during the pendency of the main case in
order to preserve the rights and interests of private respondents Legaspi and Gutierrez.
On the third issue, petitioners charge that the respondent judge lacked the neutrality of an impartial judge.
They fault the respondent judge for not giving credence to the testimony of their surveyor that the diggings
were conducted outside the land of Legaspi. They also claim that respondent judges rulings on objections
raised by the parties were biased against them.
We have carefully examined the records and we find no sufficient basis to hold that respondent judge should
have recused himself from hearing the case. There is no discernible pattern of bias on the rulings of the
respondent judge. Bias and partiality can never be presumed. Bare allegations of partiality will not suffice in an
absence of a clear showing that will overcome the presumption that the judge dispensed justice without fear or
favor.[24] It bears to stress again that a judges appreciation or misappreciation of the sufficiency of evidence
adduced by the parties, or the correctness of a judges orders or rulings on the objections of counsels during
the hearing, without proof of malice on the part of respondent judge, is not sufficient to show bias or partiality.
As we held in the case of Webb vs. People,[25] the adverse and erroneous rulings of a judge on the various
motions of a party do not sufficiently prove bias and prejudice to disqualify him. To be disqualifying, it must be
shown that the bias and prejudice stemmed from an extrajudicial source and result in an opinion on the merits
on some basis other than what the judge learned from his participation in the case. Opinions formed in the
course of judicial proceedings, although erroneous, as long as based on the evidence adduced, do not prove
bias or prejudice. We also emphasized that repeated rulings against a litigant, no matter how erroneously,
vigorously and consistently expressed, do not amount to bias and prejudice which can be a bases for the
disqualification of a judge.
Finally, the inhibition of respondent judge in hearing the case for damages has become moot and academic in
view of the latters death during the pendency of the case. The main case for damages shall now be heard and
tried before another judge.
IN VIEW WHEREOF, the impugned Orders of the trial court in Civil Case No. Q-00-40115, dated March 23
and April 4, 2000, are AFFIRMED. The presiding judge of the Regional Trial Court of Quezon City to whom
Civil Case No. Q-00-40115 was assigned is directed to proceed with dispatch in hearing the main case for
damages. No pronouncement as to costs.
SO ORDERED.
G.R. No. 76931

May 29, 1991

ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,

vs.
COURT OF APPEALS and AMERICAN AIR-LINES INCORPORATED, respondents.
G.R. No. 76933

May 29, 1991

AMERICAN AIRLINES, INCORPORATED, petitioner,

vs.
COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES,
INCORPORATED,respondents.

All monies collected by Orient Air Services for transportation sold hereunder on American's ticket stock or on
exchange orders, less applicable commissions to which Orient Air Services is entitled hereunder, are the
property of American and shall be held in trust by Orient Air Services until satisfactorily accounted for to
American.
5. Commissions

PADILLA, J.:
This case is a consolidation of two (2) petitions for review on certiorari of a decision 1 of the Court of Appeals in
CA-G.R. No. CV-04294, entitled "American Airlines, Inc. vs. Orient Air Services and Hotel Representatives,
Inc." which affirmed, with modification, the decision 2 of the Regional Trial Court of Manila, Branch IV, which
dismissed the complaint and granted therein defendant's counterclaim for agent's overriding commission and
damages.
The antecedent facts are as follows:
On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American Air), an air carrier offering
passenger and air cargo transportation in the Philippines, and Orient Air Services and Hotel Representatives
(hereinafter referred to as Orient Air), entered into a General Sales Agency Agreement (hereinafter referred to
as the Agreement), whereby the former authorized the latter to act as its exclusive general sales agent within
the Philippines for the sale of air passenger transportation. Pertinent provisions of the agreement are
reproduced, to wit:

American will pay Orient Air Services commission on transportation sold hereunder by Orient Air Services or
its sub-agents as follows:
(a) Sales agency commission
American will pay Orient Air Services a sales agency commission for all sales of transportation by Orient Air
Services or its sub-agents over American's services and any connecting through air transportation, when
made on American's ticket stock, equal to the following percentages of the tariff fares and charges:
(i) For transportation solely between points within the United States and between such points and Canada: 7%
or such other rate(s) as may be prescribed by the Air Traffic Conference of America.
(ii) For transportation included in a through ticket covering transportation between points other than those
described above: 8% or such other rate(s) as may be prescribed by the International Air Transport Association.
(b) Overriding commission

WITNESSETH
In consideration of the mutual convenants herein contained, the parties hereto agree as follows:

In addition to the above commission American will pay Orient Air Services an overriding commission of 3% of
the tariff fares and charges for all sales of transportation over American's service by Orient Air Service or its
sub-agents.

1. Representation of American by Orient Air Services

xxx
Orient Air Services will act on American's behalf as its exclusive General Sales Agent within the Philippines,
including any United States military installation therein which are not serviced by an Air Carrier Representation
Office (ACRO), for the sale of air passenger transportation. The services to be performed by Orient Air
Services shall include:
(a) soliciting and promoting passenger traffic for the services of American and, if necessary, employing staff
competent and sufficient to do so;
(b) providing and maintaining a suitable area in its place of business to be used exclusively for the transaction
of the business of American;

xxx

xxx

10. Default
If Orient Air Services shall at any time default in observing or performing any of the provisions of this
Agreement or shall become bankrupt or make any assignment for the benefit of or enter into any agreement or
promise with its creditors or go into liquidation, or suffer any of its goods to be taken in execution, or if it
ceases to be in business, this Agreement may, at the option of American, be terminated forthwith and
American may, without prejudice to any of its rights under this Agreement, take possession of any ticket forms,
exchange orders, traffic material or other property or funds belonging to American.
11. IATA and ATC Rules

(c) arranging for distribution of American's timetables, tariffs and promotional material to sales agents and the
general public in the assigned territory;
(d) servicing and supervising of sales agents (including such sub-agents as may be appointed by Orient Air
Services with the prior written consent of American) in the assigned territory including if required by American
the control of remittances and commissions retained; and

The provisions of this Agreement are subject to any applicable rules or resolutions of the International Air
Transport Association and the Air Traffic Conference of America, and such rules or resolutions shall control in
the event of any conflict with the provisions hereof.
xxx

xxx

xxx

(e) holding out a passenger reservation facility to sales agents and the general public in the assigned territory.

13. Termination

In connection with scheduled or non-scheduled air passenger transportation within the United States, neither
Orient Air Services nor its sub-agents will perform services for any other air carrier similar to those to be
performed hereunder for American without the prior written consent of American. Subject to periodic
instructions and continued consent from American, Orient Air Services may sell air passenger transportation to
be performed within the United States by other scheduled air carriers provided American does not provide
substantially equivalent schedules between the points involved.

American may terminate the Agreement on two days' notice in the event Orient Air Services is unable to
transfer to the United States the funds payable by Orient Air Services to American under this Agreement.
Either party may terminate the Agreement without cause by giving the other 30 days' notice by letter, telegram
or cable.

xxx

On 11 May 1981, alleging that Orient Air had reneged on its obligations under the Agreement by failing to
promptly remit the net proceeds of sales for the months of January to March 1981 in the amount of US
$254,400.40, American Air by itself undertook the collection of the proceeds of tickets sold originally by Orient
Air and terminated forthwith the Agreement in accordance with Paragraph 13 thereof (Termination). Four (4)
days later, or on 15 May 1981, American Air instituted suit against Orient Air with the Court of First Instance of
Manila, Branch 24, for Accounting with Preliminary Attachment or Garnishment, Mandatory Injunction and
Restraining Order 4 averring the aforesaid basis for the termination of the Agreement as well as therein
defendant's previous record of failures "to promptly settle past outstanding refunds of which there were
available funds in the possession of the defendant, . . . to the damage and prejudice of plaintiff." 5

xxx

xxx

4. Remittances
Orient Air Services shall remit in United States dollars to American the ticket stock or exchange orders, less
commissions to which Orient Air Services is entitled hereunder, not less frequently than semi-monthly, on the
15th and last days of each month for sales made during the preceding half month.

xxx

xxx

x x x3

In its Answer 6 with counterclaim dated 9 July 1981, defendant Orient Air denied the material allegations of the
complaint with respect to plaintiff's entitlement to alleged unremitted amounts, contending that after application
thereof to the commissions due it under the Agreement, plaintiff in fact still owed Orient Air a balance in unpaid
overriding commissions. Further, the defendant contended that the actions taken by American Air in the course
of terminating the Agreement as well as the termination itself were untenable, Orient Air claiming that
American Air's precipitous conduct had occasioned prejudice to its business interests.

The principal issue for resolution by the Court is the extent of Orient Air's right to the 3% overriding
commission. It is the stand of American Air that such commission is based only on sales of its services actually
negotiated or transacted by Orient Air, otherwise referred to as "ticketed sales." As basis thereof, primary
reliance is placed upon paragraph 5(b) of the Agreement which, in reiteration, is quoted as follows:

Finding that the record and the evidence substantiated the allegations of the defendant, the trial court ruled in
its favor, rendering a decision dated 16 July 1984, the dispositive portion of which reads:

a) . . .

5. Commissions

b) Overriding Commission
WHEREFORE, all the foregoing premises considered, judgment is hereby rendered in favor of defendant and
against plaintiff dismissing the complaint and holding the termination made by the latter as affecting the GSA
agreement illegal and improper and order the plaintiff to reinstate defendant as its general sales agent for
passenger tranportation in the Philippines in accordance with said GSA agreement; plaintiff is ordered to pay
defendant the balance of the overriding commission on total flown revenue covering the period from March 16,
1977 to December 31, 1980 in the amount of US$84,821.31 plus the additional amount of US$8,000.00 by
way of proper 3% overriding commission per month commencing from January 1, 1981 until such
reinstatement or said amounts in its Philippine peso equivalent legally prevailing at the time of payment plus
legal interest to commence from the filing of the counterclaim up to the time of payment. Further, plaintiff is
directed to pay defendant the amount of One Million Five Hundred Thousand (Pl,500,000.00) pesos as and for
exemplary damages; and the amount of Three Hundred Thousand (P300,000.00) pesos as and by way of
attorney's fees.
Costs against plaintiff. 7
On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision promulgated on 27 January
1986, affirmed the findings of the court a quo on their material points but with some modifications with respect
to the monetary awards granted. The dispositive portion of the appellate court's decision is as follows:
WHEREFORE, with the following modifications
1) American is ordered to pay Orient the sum of US$53,491.11 representing the balance of the latter's
overriding commission covering the period March 16, 1977 to December 31, 1980, or its Philippine peso
equivalent in accordance with the official rate of exchange legally prevailing on July 10, 1981, the date the
counterclaim was filed;
2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's overriding commission per month
starting January 1, 1981 until date of termination, May 9, 1981 or its Philippine peso equivalent in accordance
with the official rate of exchange legally prevailing on July 10, 1981, the date the counterclaim was filed
3) American is ordered to pay interest of 12% on said amounts from July 10, 1981 the date the answer with
counterclaim was filed, until full payment;
4) American is ordered to pay Orient exemplary damages of P200,000.00;
5) American is ordered to pay Orient the sum of P25,000.00 as attorney's fees.
the rest of the appealed decision is affirmed.
Costs against American.8
American Air moved for reconsideration of the aforementioned decision, assailing the substance thereof and
arguing for its reversal. The appellate court's decision was also the subject of a Motion for Partial
Reconsideration by Orient Air which prayed for the restoration of the trial court's ruling with respect to the
monetary awards. The Court of Appeals, by resolution promulgated on 17 December 1986, denied American
Air's motion and with respect to that of Orient Air, ruled thus:
Orient's motion for partial reconsideration is denied insofar as it prays for affirmance of the trial court's award
of exemplary damages and attorney's fees, but granted insofar as the rate of exchange is concerned. The
decision of January 27, 1986 is modified in paragraphs (1) and (2) of the dispositive part so that the payment
of the sums mentioned therein shall be at their Philippine peso equivalent in accordance with the official rate
of exchange legally prevailing on the date of actual payment. 9
Both parties appealed the aforesaid resolution and decision of the respondent court, Orient Air as petitioner in
G.R. No. 76931 and American Air as petitioner in G.R. No. 76933. By resolution 10 of this Court dated 25
March 1987 both petitions were consolidated, hence, the case at bar.

In addition to the above commission, American will pay Orient Air Services an overriding commission of 3% of
the tariff fees and charges for all sales of transportation over American's services by Orient Air Servicesor
its sub-agents. (Emphasis supplied)
Since Orient Air was allowed to carry only the ticket stocks of American Air, and the former not having opted to
appoint any sub-agents, it is American Air's contention that Orient Air can claim entitlement to the disputed
overriding commission based only on ticketed sales. This is supposed to be the clear meaning of the
underscored portion of the above provision. Thus, to be entitled to the 3% overriding commission, the sale
must be made by Orient Air and the sale must be done with the use of American Air's ticket stocks.
On the other hand, Orient Air contends that the contractual stipulation of a 3% overriding commission covers
the total revenue of American Air and not merely that derived from ticketed sales undertaken by Orient Air. The
latter, in justification of its submission, invokes its designation as the exclusive General Sales Agent of
American Air, with the corresponding obligations arising from such agency, such as, the promotion and
solicitation for the services of its principal. In effect, by virtue of such exclusivity, "all sales of transportation
over American Air's services are necessarily by Orient Air." 11
It is a well settled legal principle that in the interpretation of a contract, the entirety thereof must be taken into
consideration to ascertain the meaning of its provisions. 12 The various stipulations in the contract must be
read together to give effect to all. 13 After a careful examination of the records, the Court finds merit in the
contention of Orient Air that the Agreement, when interpreted in accordance with the foregoing principles,
entitles it to the 3% overriding commission based on total revenue, or as referred to by the parties, "total flown
revenue."
As the designated exclusive General Sales Agent of American Air, Orient Air was responsible for the promotion
and marketing of American Air's services for air passenger transportation, and the solicitation of sales therefor.
In return for such efforts and services, Orient Air was to be paid commissions of two (2) kinds: first, a sales
agency commission, ranging from 7-8% of tariff fares and charges from sales by Orient Air when made on
American Air ticket stock; and second, an overriding commission of 3% of tariff fares and charges for all
sales of passenger transportation over American Air services. It is immediately observed that the precondition
attached to the first type of commission does not obtain for the second type of commissions. The latter type of
commissions would accrue for sales of American Air services made not on its ticket stock but on the ticket
stock of other air carriers sold by such carriers or other authorized ticketing facilities or travel agents. To rule
otherwise, i.e., to limit the basis of such overriding commissions to sales from American Air ticket stock would
erase any distinction between the two (2) types of commissions and would lead to the absurd conclusion that
the parties had entered into a contract with meaningless provisions. Such an interpretation must at all times be
avoided with every effort exerted to harmonize the entire Agreement.
An additional point before finally disposing of this issue. It is clear from the records that American Air was the
party responsible for the preparation of the Agreement. Consequently, any ambiguity in this "contract of
adhesion" is to be taken "contra proferentem", i.e., construed against the party who caused the ambiguity and
could have avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code provides that
the interpretation of obscure words or stipulations in a contract shall not favor the party who caused the
obscurity. 14 To put it differently, when several interpretations of a provision are otherwise equally proper, that
interpretation or construction is to be adopted which is most favorable to the party in whose favor the provision
was made and who did not cause the ambiguity. 15 We therefore agree with the respondent appellate court's
declaration that:
Any ambiguity in a contract, whose terms are susceptible of different interpretations, must be read against the
party who drafted it. 16
We now turn to the propriety of American Air's termination of the Agreement. The respondent appellate court,
on this issue, ruled thus:
It is not denied that Orient withheld remittances but such action finds justification from paragraph 4 of the
Agreement, Exh. F, which provides for remittances to American less commissions to which Orient is entitled,

and from paragraph 5(d) which specifically allows Orient to retain the full amount of its commissions. Since, as
stated ante, Orient is entitled to the 3% override. American's premise, therefore, for the cancellation of the
Agreement did not exist. . . ."
We agree with the findings of the respondent appellate court. As earlier established, Orient Air was entitled to
an overriding commission based on total flown revenue. American Air's perception that Orient Air was remiss
or in default of its obligations under the Agreement was, in fact, a situation where the latter acted in
accordance with the Agreementthat of retaining from the sales proceeds its accrued commissions before
remitting the balance to American Air. Since the latter was still obligated to Orient Air by way of such
commissions. Orient Air was clearly justified in retaining and refusing to remit the sums claimed by American
Air. The latter's termination of the Agreement was, therefore, without cause and basis, for which it should be
held liable to Orient Air.
On the matter of damages, the respondent appellate court modified by reduction the trial court's award of
exemplary damages and attorney's fees. This Court sees no error in such modification and, thus, affirms the
same.

By affirming this ruling of the trial court, respondent appellate court, in effect, compels American Air to extend
its personality to Orient Air. Such would be violative of the principles and essence of agency, defined by law as
a contract whereby "a person binds himself to render some service or to do something in representation or on
behalf of another, WITH THE CONSENT OR AUTHORITY OF THE LATTER . 17 (emphasis supplied) In an
agent-principal relationship, the personality of the principal is extended through the facility of the agent. In so
doing, the agent, by legal fiction, becomes the principal, authorized to perform all acts which the latter would
have him do. Such a relationship can only be effected with the consent of the principal, which must not, in any
way, be compelled by law or by any court. The Agreement itself between the parties states that "either party
may terminate the Agreement without cause by giving the other 30 days' notice by letter, telegram or cable."
(emphasis supplied) We, therefore, set aside the portion of the ruling of the respondent appellate court
reinstating Orient Air as general sales agent of American Air.
WHEREFORE, with the foregoing modification, the Court AFFIRMS the decision and resolution of the
respondent Court of Appeals, dated 27 January 1986 and 17 December 1986, respectively. Costs against
petitioner American Air.
SO ORDERED.

It is believed, however, that respondent appellate court erred in affirming the rest of the decision of the trial
court. We refer particularly to the lower court's decision ordering American Air to "reinstate defendant as its
general sales agent for passenger transportation in the Philippines in accordance with said GSA Agreement."