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American Jurisprudence, Second Edition

Database updated November 2011


Agency
Anne E. Melley, J.D., of the staff of the National Legal Research Group, Inc.
I. IN GENERAL
Topic Summary Correlation Table References
1. Generally; definitions
West's Key Number Digest
West's Key Number Digest, Principal and Agent 1

A.L.R. Library
Who is "agent,' so as to subject principal to liability, under 2(a)(1)(A) of
Commodity Exchange Act (7 U.S.C.A. 4), 98 A.L.R. Fed. 588.
The term "agency" means a fiduciary relationship by which a party confides to
another the management of some business to be transacted in the former's
name or on his or her account, and by which such other assumes to do the
business and render an account of it.[FN1] It has also been defined as the
fiduciary relationship which results from the manifestation of consent by one
person to another that the other will act on his or her behalf and subject to his or
her control, and consent by the other so to act.[FN2]
In an agency relationship, the party for whom another acts and from whom such
other derives authority to act is a "principal."[FN3] The one who acts for and
represents the principal and acquires his or her authority from the principal is an
"agent."[FN4] Pursuant to the grant of authority by the principal,[FN5] the agent
is the representative of the principal and acts for, in the place of, and instead of,
the principal.[FN6]
CUMULATIVE SUPPLEMENT
Statutes:
Restatement Third, Agency 1.01 defines "agency" as the fiduciary
relationship that arises when one person (a "principal") manifests assent to
another person (an "agent") that the agent shall act on the principal's behalf and
subject to the principal's control, and the agent manifests assent or otherwise
consents so to act.

Restatement Third, Agency 1.04 defines the terms: coagents, disclosed,


undisclosed, and unidentified principals, gratuitous agent, notice, person, power
given as security, power of attorney, subagent, superior and subordinate
coagents, and trustee and agent-trustee.
Restatement Third, Agency 1.02 provides that an agency relationship arises
only when the elements stated in Restatement Third, Agency 1.01, defining
"agency," are present, and that whether a relationship is characterized as
agency in an agreement between parties or in the context of industry or popular
usage is not controlling.
Cases:
The principal controls the agent. In re J.L.H., 645 S.E.2d 833 (N.C. Ct. App. 2007).
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 167552

April 23, 2007

EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner,


vs.
EDWIN CUIZON and ERWIN CUIZON, Respondents.
DECISION
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 Resolution 2 dated 17 March 2005 in CAG.R. SP No. 71397 entitled, "Eurotech Industrial Technologies, Inc. v. Hon. Antonio
T. Echavez." The assailed Decision and Resolution affirmed the Order 3 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. CEB19672.
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 ninety-one 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. 0933 9prepared 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 opposition 22 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.
We disagree.
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 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.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice

ROMEO J. CALLEJO, SR.


Asscociate Justice

ANTONIO EDUARDO B. NACHURA


Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, it is hereby certified that the conclusions in the above
Decision were reached in consultation before the case was assigned to the writer
of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice

Footnotes
1

Penned by Associate Justice Vicente L. Yap with Associate Justices Arsenio J.


Magpale and Ramon M. Bato , Jr., concurring; rollo, pp. 33-36.

Id. at 37-39.

Id. at 83-84.

Annex "H" of the Complaint; records, p. 18.

Referring to Impact Systems Sales.

Referring to petitioner Eurotech Industrial Technologies, Inc.

Annex "G" of the Complaint; records, p. 17.

Annex "H" of the Complaint; id. at 18.

Annex "I" of the Complaint; id. at 19.

10

Annex "J" of the Complaint; id. at 20.

11

Annex "L" of the Complaint; id. at 22.

12

The case was raffled off to Branch 8 of the RTC Cebu City.

13

Records, p. 27.

14

Id. at 38-41.

15

Id. at 38.

16

Ibid.

17

Id. at 1.

18

Id. at 50.

19

Id. at 61.

20

Edwin Cuizons counsel requested that the Special and Affirmative Defenses in
his Answer be treated as his Motion to Dismiss; Order dated 16 October 2001; id.
at 78.
21

Id. at 82-86.

22

Memorandum dated 16 November 2001; id. at 87-91.

23

Id. at 95-96.

24

Rollo, p. 35.

25

Id. at 17.

26

Id. at 21-22.

27

Id. at 25-26.

28

Id. at 98-114.

29

Article 1868 of the Civil Code.

30

Reuschlein and Gregory, Agency and Partnership (1979 edition), p. 1.

31

3 Am Jur 2d, 1.

32

Padilla, Agency Text and Cases, (1986 edition), p. 2.

33

He who acts through another acts by or for himself; id. at 2.

34

Yu Eng Cho v. Pan American World Airways, Inc., 385 Phil. 453, 465 (2000).

35

3 Am Jur 2d, 91, p. 602.

36

Records, p. 2.

37

Annex "H" of the Complaint; records, p. 18.

38

Annex "G" of the Complaint; id. at 17.

39

Philippine Products Company v. Primateria Societe Anonyme Pour Le


Commerce Exterieur, 122 Phil. 698, 702 (1965).
40

De Leon and De Leon, Jr., Comments and Cases on Partnership, Agency, and
Trusts (1999 edition), p. 512.
41

Rule 3, 1 of the Revised Rules of Court.

Republic of the Philippines


SUPREME COURT
Manila
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 co-defendant, 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
(1) Declaring the deed of sale, Exh. "C", null and void insofar as the one-half proindiviso share of Concepcion Rallos in the property in question, Lot 5983 of the
Cadastral Survey of Cebu is concerned;
(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;
(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.
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 subjectmatter 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 onehalf (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?
Before proceedings to the issues, We shall briefly restate certain principles of law
relevant to the matter tinder consideration.
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:
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-in-fact, 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. 19With
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.
So Ordered.
Teehankee (Chairman), Makasiar, Fernandez and Guerrero, JJ., concur.

Footnotes
1 p. 40, rollo
2 p, 42, Ibid.
3 Art. 1317, Civil Code of the Philippines
4 Ibid
5 Art. 1868, Civil Code. By the contract of the agency of a person blinds himself
to render some service or to do something in representation or on behalf of
another, with the consent of the authority of the latter.
Art. 1881, Civil Code. The Agent must act within the scope of his authority. He
may do acts as may be conductive to the accomplishment of the purpose of the
agency.
11 Manresa 422-423; 4 Sanchez Roman 478, 2nd Ed.; 26 Scaevola, 243, 262;
Tolentino, Comments, Civil Code of the Philippines, p.340, vol. 5, 1959 Ed.
See also Columbia University Club v. Higgins, D.CN.Y., 23 f. Supp. 572, 574;
Valentine Oil Co. v. Young 109 P. 2d 180, 185.

6 74 C.J.S. 4; Valentine Oil Co. v. Powers, 59 N.W. 2d 160, 163, 157 Neb. 87;
Purnell v. City of Florence, 175 So. 417, 27 Ala. App. 516; Stroman Motor Co. v.
Brown, 243 P. 133, 126 Ok. 36
7 See Art. 1919 of the Civil Code
8 Hermosa v. Longara, 1953, 93 Phil. 977, 983; Del Rosario, et al. v. Abad, et al.,
1958, 104 Phil. 648, 652
9 11 Manresa 572-573; Tolentino, supra, 369-370
10 2 Kent Comm. 641, cited in Williston on Contracts, 3rd Ed., Vol. 2, p. 288
11 See Notes on Acts of agent after principal's death, 39 Am. Dec. 81,83, citing
Ewell's Evans on Agency, 116; Dunlap's Paley on Agency, 186; Story on Agency,
see. 488; Harper v. Little. 11 Am. Dec. 25; Staples v. Bradbury, 23 Id. 494; Gale v.
Tappan 37 Id. 194; Hunt v. Rousmanier, 2 Mason, 244, S.C. 8 Wheat, 174; Boones
Executor v. Clarke 3 Cranch C.C. 389; Hank of 'Washington v. Person, 2 'Rash.
C.C. 6.85; Scruggs v. Driver's Executor, 31 Ala. 274; McGriff v. Porter, 5 Fla. 373;
Lincoln v. Emerson, 108 Mass 87; 'Wilson v. Edmonds, 24 N.H 517; Easton v. Ellis,
1 Handy (Ohio), 70; McDonald v. Black's Administrators, 20 Ohio, 185; Michigan
Ins. Co. v. Leavenworth, 30 Vt. 11; Huston v. Cantril, 11 Leigh, 136; Campanari v.
'Woodburn, 15 Com B 400
See also ',Williston on Contracts, 3rd Ed., Vol. 2, p. 289
12 see p. 15, 30-31 64 68-69, Record on Appeal
13 pp. 71-72, Ibid.
14 p. 7 of the Decision at page 14, rollo
15 105 Phil. 79:i, 798
16 p. 6 of Decision, at page 13, rollo
17 pp. 6-7 of Decision at pp, 13-14, Ibid.
18 See Articles 1921 & 1922 of the Civil Code
19 2 C.J.S. 1 174 citing American Jurisprudence in different States from Alabama
to Washington; emphasis supplied.
20 p. 8, decision at Page 15, rollo
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-18058

January 16, 1923

FABIOLA SEVERINO, plaintiff-appellee,


vs.
GUILLERMO SEVERINO, defendant-appellant.
FELICITAS VILLANUEVA, intervenor-appellee.
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 selfinterest 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.
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:
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.
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.
Araullo, C. J., Johnson, Street, Malcolm, Avancea, Villamor, Johns, and
Romualdez, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

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.

PADILLA, J.:p
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;
(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

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 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 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
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.

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 Services or its subagents. (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.
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."
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.
Melencio-Herrera, and Regalado, JJ., concur.
Paras, J., took no part. Son is a partner in one of the counsel.

Sarmiento, J., is on leave.

Footnotes
1 Penned by Justice Serafin B. Camilon and concurred in by Justices Jose C.
Campos, Jr. and Desiderio P. Jurado.
2 Penned by Judge Herminio C. Mariano.
3 Rollo, pp. 110-118.
4 Rollo, p. 102.
5 Ibid., p. 104.
6 Ibid., p. 121.
7 Rollo, p. 162.
8 Rollo, pp. 173-174.
9 Ibid., p. 210.
10 Rollo, p. 212.
11 Rollo, p. 291.
12 NAESS Shipping Philippines, Inc. vs. NLRC, G.R. No. 73441, 4 September 1987,
153 SCRA 657.
13 North Negros Sugar Co. vs. Compania General de Tabacos, No. L-9277, 29
March 1957; Article 1374, Civil Code of the Philippines.
14 Equitable Banking Corporation vs. Intermediate Appellate Court, G.R. No.
74451, 25 May 1988, 161 SCRA 518.
15 Government of the Philippine Islands vs. Derham Brothers and the
International Banking Corporation, 36 Phil. 960.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 130148 December 15, 1997


JOSE BORDADOR and LYDIA BORDADOR, petitioners,
vs.
BRIGIDA D. LUZ, ERNESTO M. LUZ and NARCISO DEGANOS, respondents.

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 to Brigida D. Luz, received
several pieces of gold and jewelry from petitioner 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 barangaycourt
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 Dangerous. 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 June 25, 1990, and attorney's 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 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 latter's claim for money and damages in
the sum of P725,463.98, plus interests and attorney's fees, despite the fact that
the evidence does not show that they signed any of the subject receipts or
authorized Deganos to received 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 .
. . . 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 transaction 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 be 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 coutcome 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 theponente.
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 court's decision. 23Petitioners 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 petitioner's 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 court's 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.
Puno, Mendoza and Martinez, JJ., concur.
Footnotes
1 Rollo, 86.
2 Ibid., 203.
3 Ibid., 85.
4 Ibid., 78-84.
5 Ibid., 111-112.
6 Ibid., 85-97.
7 Ibid., 94.
8 Article 1403 of the Civil Code pertinently provides that the following contracts
are unenforceable unless they are ratified:
1. Those entered into the name of another person by one who had been given no
authority or legal representation, or who has acted beyond his power.
2. Those that do not comply with the Statute of Frauds as set forth in this
number. In the following cases, an agreement hereafter made shall be
unenforceable by action, unless the same, or some note or memorandum
thereof, be in writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received without the writing or
a secondary evidence of its contents:
xxx xxx xxx
(b) A special promise to answer for the debt, default, or miscarriage of another;
xxx xxx xxx
9 Rollo, 97.
10 Justice Maximiano C. Asuncion as ponente, with the concurrence of Justice
Jesus M. Elbinias and Justice Ramon A. Barcelona of the Eleventh Division of the
Court of Appeals, affirmed the decision of the trial court in a decision dated July
9, 1997; Rollo, 9-13.

11 The resolution was dated August 18, 1997; Rollo, 70-A.


12 Rollo, 33-40.
13 Ibid., 40.
14 Ibid., 40-41.
15 Ibid., 12.
16 Toyota Shaw, Inc. vs. Court of Appeals, et al., G.R. No. 116650, May 23, 1995,
244 SCRA 320.
17 Rollo, 128-131.
18 Ibid., 41.
19 Section 4, Rule 111, Rules of Court.
20 Salta vs. De Veyra, etc., et al., L-37733 and Philippine National Bank vs.
Purisima, etc., et al., L-38035, jointly decided on September 30, 1992, 117 SCRA
212.
21 Rollo, 47.
22 Ibid., 48.
23 Ibid., 9-13.
24 Ibid., 160-167.
25 Ibid., 178-182.
26 Ibid., 70-A.
27 Section 3(m), Rule 131, Rules of Court.
28 Section 3(n), Rule 131, Rules of Court provides that it is presumed that a
court, or judge acting as such, whether in the Philippines or elsewhere, was
acting in the lawful exercise of jurisdiction.
29 Rollo, 52.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. Nos. 152613 & 152628

November 20, 2009

APEX MINING CO., INC., petitioner,


vs.
SOUTHEAST MINDANAO GOLD MINING CORP., the mines adjudication

board, provincial mining regulatory board (PMRB-DAVAO), MONKAYO


INTEGRATED SMALL SCALE MINERS ASSOCIATION, INC., ROSENDO
VILLAFLOR, BALITE COMMUNAL PORTAL MINING COOPERATIVE, DAVAO
UNITED MINERS COOPERATIVE, ANTONIO DACUDAO, PUTING-BATO GOLD
MINERS COOPERATIVE, ROMEO ALTAMERA, THELMA CATAPANG, LUIS
GALANG, RENATO BASMILLO, FRANCISCO YOBIDO, EDUARDO GLORIA,
EDWIN ASION, MACARIO HERNANDEZ, REYNALDO CARUBIO, ROBERTO
BUNIALES, RUDY ESPORTONO, ROMEO CASTILLO, JOSE REA, GIL
GANADO, PRIMITIVA LICAYAN, LETICIA ALQUEZA and JOEL BRILLANTES
Management Mining Corporation, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 152619-20
BALITE COMMUNAL PORTAL MINING COOPERATIVE, petitioner,
vs.
SOUTHEAST MINDANAO GOLD MINING CORP., APEX MINING CO., INC.,
The Mines Adjudication Board, Provincial Mining Regulatory Board
(PMRB-DAVAO), MONKAYO INTEGRATED SMALL SCALE MINERS
ASSOCIATION, INC., ROSENDO VILLAFLOR, DAVAO UNITED MINERS
COOPERATIVE, ANTONIO DACUDAO, PUTING-BATO GOLD MINERS
COOPERATIVE, ROMEO ALTAMERA, THELMA CATAPANG, LUIS GALANG,
RENATO BASMILLO, FRANCISCO YOBIDO, EDUARDO GLORIA, EDWIN
ASION, MACARIO HERNANDEZ, REYNALDO CARUBIO, ROBERTO
BUNIALES, RUDY ESPORTONO, ROMEO CASTILLO, JOSE REA, GIL
GANADO, PRIMITIVA LICAYAN, LETICIA ALQUEZA and JOEL BRILLANTES
Management Mining Corporation, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 152870-71
THE MINES ADJUDICATION BOARD AND ITS MEMBERS, THE HON. VICTOR
O. RAMOS (Chairman), UNDERSECRETARY VIRGILIO MARCELO (Member)
and DIRECTOR HORACIO RAMOS (Member),petitioners,
vs.
SOUTHEAST MINDANAO GOLD MINING CORPORATION, Respondent.
RESOLUTION
CHICO-NAZARIO, J.:
This resolves the motion for reconsideration dated 12 July 2006, filed by
Southeast Mindanao Gold Mining Corporation (SEM), of this Courts Decision
dated 23 June 2006 (Assailed Decision). The Assailed Decision held that the
assignment of Exploration Permit (EP) 133 in favor of SEM violated one of the
conditions stipulated in the permit, i.e., that the same shall be for the exclusive
use and benefit of Marcopper Mining Corporation (MMC) or its duly authorized
agents. Since SEM did not claim or submit evidence that it was a designated

agent of MMC, the latter cannot be considered as an agent of the former that can
use EP 133 and benefit from it. It also ruled that the transfer of EP 133 violated
Presidential Decree No. 463, which requires that the assignment of a mining right
be made with the prior approval of the Secretary of the Department of
Environment and Natural Resources (DENR). Moreover, the Assailed Decision
pointed out that EP 133 expired by non-renewal since it was not renewed before
or after its expiration.
The Assailed Decision likewise upheld the validity of Proclamation No. 297 absent
any question against its validity. In view of this, and considering that under
Section 5 of Republic Act No. 7942, otherwise known as the "Mining Act of 1995,"
mining operations in mineral reservations may be undertaken directly by the
State or through a contractor, the Court deemed the issue of ownership of
priority right over the contested Diwalwal Gold Rush Area as having been
overtaken by the said proclamation. Thus, it was held in the Assailed Decision
that it is now within the prerogative of the Executive Department to undertake
directly the mining operations of the disputed area or to award the operations to
private entities including petitioners Apex and Balite, subject to applicable laws,
rules and regulations, and provided that these private entities are qualified.
SEM also filed a Motion for Referral of Case to the Court En Banc and for Oral
Arguments dated 22 August 2006.
Apex, for its part, filed a Motion for Clarification of the Assailed Decision, praying
that the Court elucidate on the Decisions pronouncement that "mining
operations, are now, therefore within the full control of the State through the
executive branch." Moreover, Apex asks this Court to order the Mines and
Geosciences Board (MGB) to accept its application for an exploration permit.
In its Manifestation and Motion dated 28 July 2006, Balite echoes the same
concern as that of Apex on the actual takeover by the State of the mining
industry in the disputed area to the exclusion of the private sector. In addition,
Balite prays for this Court to direct MGB to accept its application for an
exploration permit.
Camilo Banad, et al., likewise filed a motion for reconsideration and prayed that
the disputed area be awarded to them.
In the Resolution dated 15 April 2008, the Court En Banc resolved to accept the
instant cases. The Court, in a resolution dated 29 April 2008, resolved to set the
cases for Oral Argument on 1 July 2008.
During the Oral Argument, the Court identified the following principal issues to
be discussed by the parties:
1. Whether the transfer or assignment of Exploration Permit (EP) 133 by MMC to
SEM was validly made without violating any of the terms and conditions set forth
in Presidential Decree No. 463 and EP 133 itself.

2. Whether Southeast Mindanao Mining Corp. acquired a vested right over the
disputed area, which constitutes a property right protected by the Constitution.
3. Whether the assailed Decision dated 23 June 2006 of the Third Division in this
case is contrary to and overturns the earlier Decision of this Court in Apex v.
Garcia (G.R. No. 92605, 16 July 1991, 199 SCRA 278).
4. Whether the issuance of Proclamation No. 297 declaring the disputed area as
mineral reservation outweighs the claims of SEM, Apex Mining Co. Inc. and Balite
Communal Portal Mining Cooperative over the Diwalwal Gold Rush Area.
5. Whether the issue of the legality/constitutionality of Proclamation No. 297 was
belatedly raised.
6. Assuming that the legality/constitutionality of Proclamation No. 297 was timely
raised, whether said proclamation violates any of the following:
a. Article XII, Section 4 of the Constitution;
b. Section 1 of Republic Act No. 3092;
c. Section 14 of the Administrative Code of 1987;
d. Section 5(a) of Republic Act No. 7586;
e. Section 4(a) of Republic Act No. 6657; and
f. Section 2, Subsection 2.1.2 of Executive Order No. 318 dated 9 June 2004.
After hearing the arguments of the parties, the Court required them to submit
their respective memoranda. Memoranda were accordingly filed by SEM, Apex,
Balite and Mines Adjudication Board (MAB).
We shall resolve the second issue before dwelling on the first, third and the rest
of the issues.
MMC or SEM Did Not Have Vested Rights Over the Diwalwal Gold Rush Area
Petitioner SEM vigorously argues that Apex Mining Co., Inc. v. Garcia 1 vested in
MMC mining rights over the disputed area. It claims that the mining rights that
MMC acquired under the said case were the ones assigned to SEM, and not the
right to explore under MMCs EP 133. It insists that mining rights, once obtained,
continue to subsist regardless of the validity of the exploration permit; thus,
mining rights are independent of the exploration permit and therefore do not
expire with the permit. SEM insists that a mining right is a vested property right
that not even the government can take away. To support this thesis, SEM cites
this Courts ruling in McDaniel v. Apacible and Cuisia 2 and in Gold Creek Mining
Corporation v. Rodriguez,3 which were decided in 1922 and 1938, respectively.
McDaniel and Gold Creek Mining Corporation are not in point.

In 1916, McDaniel, petitioner therein, located minerals, i.e., petroleum, on an


unoccupied public land and registered his mineral claims with the office of the
mining recorder pursuant to the Philippine Bill of 1902, where a mining claim
locator, soon after locating the mine, enjoyed possessory rights with respect to
such mining claim with or without a patent therefor. In that case, the Agriculture
Secretary, by virtue of Act No. 2932, approved in 1920, which provides that "all
public lands may be leased by the then Secretary of Agriculture and Natural
Resources," was about to grant the application for lease of therein respondent,
overlapping the mining claims of the subject petitioner. Petitioner argued that,
being a valid locator, he had vested right over the public land where his mining
claims were located. There, the Court ruled that the mining claim perfected
under the Philippine Bill of 1902, is "property in the highest sense of that term,
which may be sold and conveyed, and will pass by descent, and is not therefore
subject to the disposal of the Government." The Court then declared that since
petitioner had already perfected his mining claim under the Philippine Bill of
1902, a subsequent statute, i.e., Act No. 2932, could not operate to deprive him
of his already perfected mining claim, without violating his property right.
Gold Creek Mining reiterated the ruling in McDaniel that a perfected mining claim
under the Philippine Bill of 1902 no longer formed part of the public domain;
hence, such mining claim does not come within the prohibition against the
alienation of natural resources under Section 1, Article XII of the 1935
Constitution.
Gleaned from the ruling on the foregoing cases is that for this law to apply, it
must be established that the mining claim must have been perfected when the
Philippine Bill of 1902 was still in force and effect. This is so because, unlike the
subsequent laws that prohibit the alienation of mining lands, the Philippine Bill of
1902 sanctioned the alienation of mining lands to private individuals. The
Philippine Bill of 1902 contained provisions for, among many other things, the
open and free exploration, occupation and purchase of mineral deposits and the
land where they may be found. It declared "all valuable mineral deposits in
public lands in the Philippine Islands, both surveyed and unsurveyed x x x to be
free and open to exploration, occupation, and purchase, and the land in which
they are found to occupation and purchase, by citizens of the United States, or of
said Islands x x x."4 Pursuant to this law, the holder of the mineral claim is
entitled to all the minerals that may lie within his claim, provided he does three
acts: First, he enters the mining land and locates a plot of ground measuring,
where possible, but not exceeding, one thousand feet in length by one thousand
feet in breadth, in as nearly a rectangular form as possible. 5Second, the mining
locator has to record the mineral claim in the mining recorder within thirty (30)
days after the location thereof.6 Lastly, he must comply with the annual actual
work requirement.7 Complete mining rights, namely, the rights to explore,
develop and utilize, are acquired by a mining locator by simply following the
foregoing requirements.1avvphi1
With the effectivity of the 1935 Constitution, where the regalian doctrine was
adopted, it was declared that all natural resources of the Philippines, including

mineral lands and minerals, were property belonging to the State. 8Excluded,
however, from the property of public domain were the mineral lands and
minerals that were located and perfected by virtue of the Philippine Bill of 1902,
since they were already considered private properties of the locators. 9
Commonwealth Act No. 137 or the Mining Act of 1936, which expressly adopted
the regalian doctrine following the provision of the 1935 Constitution, also
proscribed the alienation of mining lands and granted only lease rights to mining
claimants, who were prohibited from purchasing the mining claim itself.
When Presidential Decree No. 463, which revised Commonwealth Act No. 137,
was in force in 1974, it likewise recognized the regalian doctrine embodied in the
1973 Constitution. It declared that all mineral deposits and public and private
lands belonged to the state while, nonetheless, recognizing mineral rights that
had already been existing under the Philippine Bill of 1902 as being beyond the
purview of the regalian doctrine.10 The possessory rights of mining claim holders
under the Philippine Bill of 1902 remained intact and effective, and such rights
were recognized as property rights that the holders could convey or pass by
descent.11
In the instant cases, SEM does not aver or prove that its mining rights had been
perfected and completed when the Philippine Bill of 1902 was still the operative
law. Surely, it is impossible for SEM to successfully assert that it acquired mining
rights over the disputed area in accordance with the same bill, since it was only
in 1984 that MMC, SEMs predecessor-in-interest, filed its declaration of locations
and its prospecting permit application in compliance with Presidential Decree No.
463. It was on 1 July 1985 and 10 March 1986 that a Prospecting Permit and EP
133, respectively, were issued to MMC. Considering these facts, there is no
possibility that MMC or SEM could have acquired a perfected mining claim under
the auspices of the Philippine Bill of 1902. Whatever mining rights MMC had that
it invalidly transferred to SEM cannot, by any stretch of imagination, be
considered "mining rights" as contemplated under the Philippine Bill of 1902 and
immortalized in McDaniel and Gold Creek Mining.
SEM likens EP 133 with a building permit. SEM likewise equates its supposed
rights attached to the exploration permit with the rights that a private property
land owner has to said landholding. This analogy has no basis in law. As earlier
discussed, under the 1935, 1973 and 1987 Constitutions, national wealth, such
as mineral resources, are owned by the State and not by their discoverer. The
discoverer or locator can only develop and utilize said minerals for his own
benefit if he has complied with all the requirements set forth by applicable laws
and if the State has conferred on him such right through permits, concessions or
agreements. In other words, without the imprimatur of the State, any mining
aspirant does not have any definitive right over the mineral land because, unlike
a private landholding, mineral land is owned by the State, and the same cannot
be alienated to any private person as explicitly stated in Section 2, Article XIV of
the 1987 Constitution:

All lands of public domain, waters, minerals x x x and all other natural resources
are owned by the State. With the exception of agricultural lands, all other natural
resources shall not be alienated. (Emphases supplied.)
Further, a closer scrutiny of the deed of assignment in favor of SEM reveals that
MMC assigned to the former the rights and interests it had in EP 133, thus:
1. That for ONE PESO (P1.00) and other valuable consideration received by the
ASSIGNOR from the ASSIGNEE, the ASSIGNOR hereby ASSIGNS, TRANSFERS and
CONVEYS unto the ASSIGNEE whatever rights or interest the ASSIGNOR may
have in the area situated in Monkayo, Davao del Norte and Cateel, Davao
Oriental, identified as Exploration Permit No. 133 and Application for a Permit to
Prospect in Bunawan, Agusan del Sur respectively. (Emphasis supplied.)
It is evident that what MMC had over the disputed area during the assignment
was an exploration permit. Clearly, the right that SEM acquired was limited to
exploration, only because MMC was a mere holder of an exploration permit. As
previously explained, SEM did not acquire the rights inherent in the permit, as
the assignment by MMC to SEM was done in violation of the condition stipulated
in the permit, and the assignment was effected without the approval of the
proper authority in contravention of the provision of the mining law governing at
that time. In addition, the permit expired on 6 July 1994. It is, therefore, quite
clear that SEM has no right over the area.
Even assuming arguendo that SEM obtained the rights attached in EP 133, said
rights cannot be considered as property rights protected under the fundamental
law.
An exploration permit does not automatically ripen into a right to extract and
utilize the minerals; much less does it develop into a vested right. The holder of
an exploration permit only has the right to conduct exploration works on the area
awarded. Presidential Decree No. 463 defined exploration as "the examination
and investigation of lands supposed to contain valuable minerals, by drilling,
trenching, shaft sinking, tunneling, test pitting and other means, for the purpose
of probing the presence of mineral deposits and the extent thereof." Exploration
does not include development and exploitation of the minerals found.
Development is defined by the same statute as the steps necessarily taken to
reach an ore body or mineral deposit so that it can be mined, whereas
exploitation is defined as "the extraction and utilization of mineral deposits." An
exploration permit is nothing more than a mere right accorded to its holder to be
given priority in the governments consideration in the granting of the right to
develop and utilize the minerals over the area. An exploration permit is merely
inchoate, in that the holder still has to comply with the terms and conditions
embodied in the permit. This is manifest in the language of Presidential Decree
No. 463, thus:
Sec. 8. x x x The right to exploit therein shall be awarded by the President under
such terms and conditions as recommended by the Director and approved by the

Secretary Provided, That the persons or corporations who undertook prospecting


and exploration of said area shall be given priority.
In La Bugal-Blaan Tribal Association, Inc. v. Ramos, 12 this Court emphasized:
Pursuant to Section 20 of RA 7942, an exploration permit merely grants to a
qualified person the right to conduct exploration for all minerals in specified
areas. Such a permit does not amount to an authorization to extract and carry off
the mineral resources that may be discovered. x x x.
Pursuant to Section 24 of RA 7942, an exploration permit grantee who
determines the commercial viability of a mining area may, within the term of the
permit, file with the MGB a declaration of mining project feasibility accompanied
by a work program for development. The approval of the mining project
feasibility and compliance with other requirements of RA 7942 vests in the
grantee the exclusive right to an MPSA or any other mineral agreement, or to an
FTAA. (Underscoring ours.)
The non-acquisition by MMC or SEM of any vested right over the disputed area is
supported by this Courts ruling in Southeast Mindanao Gold Mining Corporation
v. Balite Portal Mining Cooperative13 :
Clearly then, the Apex Mining case did not invest petitioner with any definite
right to the Diwalwal mines which it could now set up against respondent BCMC
and other mining groups.
Incidentally, it must likewise be pointed out that under no circumstances may
petitioners rights under EP No. 133 be regarded as total and absolute. As
correctly held by the Court of Appeals in its challenged decision, EP No. 133
merely evidences a privilege granted by the State, which may be amended,
modified or rescinded when the national interest so requires. x x x. (Underscoring
supplied.)
Unfortunately, SEM cannot be given priority to develop and exploit the area
covered by EP 133 because, as discussed in the assailed Decision, EP 133
expired by non-renewal on 6 July 1994. Also, as already mentioned, the transfer
of the said permit to SEM was without legal effect because it was done in
contravention of Presidential Decree No. 463 which requires prior approval from
the proper authority. Simply told, SEM holds nothing for it to be entitled to
conduct mining activities in the disputed mineral land.
SEM wants to impress on this Court that its alleged mining rights, by virtue of its
being a transferee of EP 133, is similar to a Financial and Technical Assistance
Agreement (FTAA) of a foreign contractor, which merits protection by the due
process clause of the Constitution. SEM cites La Bugal-Blaan Tribal Association,
Inc. v. Ramos,14 as follows:
To say that an FTAA is just like a mere timber license or permit and does not
involve contract or property rights which merit protection by the due process
clause of the Constitution, and may therefore be revoked or cancelled in the blink

of an eye, is to adopt a well-nigh confiscatory stance; at the very least, it is


downright dismissive of the property rights of businesspersons and corporate
entities that have investments in the mining industry, whose investments,
operations and expenditures do contribute to the general welfare of the people,
the coffers of government, and the strength of the economy. x x x.
Again, this argument is not meritorious. SEM did not acquire the rights attached
to EP 133, since their transfer was without legal effect. Granting for the sake of
argument that SEM was a valid transferee of the permit, its right is not that of a
mining contractor. An exploration permit grantee is vested with the right to
conduct exploration only, while an FTAA or MPSA contractor is authorized to
extract and carry off the mineral resources that may be discovered in the
area.15 An exploration permit holder still has to comply with the mining project
feasibility and other requirements under the mining law. It has to obtain approval
of such accomplished requirements from the appropriate government agencies.
Upon obtaining this approval, the exploration permit holder has to file an
application for an FTAA or an MPSA and have it approved also. Until the MPSA
application of SEM is approved, it cannot lawfully claim that it possesses the
rights of an MPSA or FTAA holder, thus:
x x x prior to the issuance of such FTAA or mineral agreement, the exploration
permit grantee (or prospective contractor) cannot yet be deemed to have
entered into any contract or agreement with the State x x x. 16
But again, SEM is not qualified to apply for an FTAA or any mineral agreement,
considering that it is not a holder of a valid exploration permit, since EP 133
expired by non-renewal and the transfer to it of the same permit has no legal
value.
More importantly, assuming arguendo that SEM has a valid exploration permit, it
cannot assert any mining right over the disputed area, since the State has taken
over the mining operations therein, pursuant to Proclamation No. 297 issued by
the President on 25 November 2002. The Court has consistently ruled that the
nature of a natural resource exploration permit is analogous to that of a license.
In Republic v. Rosemoor Mining and Development Corporation, this Court
articulated:
Like timber permits, mining exploration permits do not vest in the grantee any
permanent or irrevocable right within the purview of the non-impairment of
contract and due process clauses of the Constitution, since the State, under its
all-encompassing police power, may alter, modify or amend the same, in
accordance with the demands of the general welfare. 17 (Emphasis supplied.)
As a mere license or privilege, an exploration permit can be validly amended by
the President of the Republic when national interests suitably necessitate. The
Court instructed thus:
Timber licenses, permits and license agreements are the principal instruments by
which the State regulates the utilization and disposition of forest resources to the

end that the public welfare is promoted. x x x They may be validly amended,
modified, replaced or rescinded by the Chief Executive when national interests so
require.18
Recognizing the importance of the countrys natural resources, not only for
national economic development, but also for its security and national defense,
Section 5 of Republic Act No. 7942 empowers the President, when the national
interest so requires, to establish mineral reservations where mining operations
shall be undertaken directly by the State or through a contractor, viz:
SEC 5. Mineral Reservations. When the national interest so requires, such as
when there is a need to preserve strategic raw materials for industries critical to
national development, or certain minerals for scientific, cultural or ecological
value, the President may establish mineral reservations upon the
recommendation of the Director through the Secretary. Mining operations in
existing mineral reservations and such other reservations as may thereafter be
established, shall be undertaken by the Department or through a contractor x x
x. (Emphasis supplied.)
Due to the pressing concerns in the Diwalwal Gold Rush Area brought about by
unregulated small to medium-scale mining operations causing ecological, health
and peace and order problems, the President, on 25 November 2002, issued
Proclamation No. 297, which declared the area as a mineral reservation and as
an environmentally critical area. This executive fiat was aimed at preventing the
further dissipation of the natural environment and rationalizing the mining
operations in the area in order to attain an orderly balance between socioeconomic growth and environmental protection. The area being a mineral
reservation, the Executive Department has full control over it pursuant to Section
5 of Republic Act No. 7942. It can either directly undertake the exploration,
development and utilization of the minerals found therein, or it can enter into
agreements with qualified entities. Since the Executive Department now has
control over the exploration, development and utilization of the resources in the
disputed area, SEMs exploration permit, assuming that it is still valid, has been
effectively withdrawn. The exercise of such power through Proclamation No. 297
is in accord with jura regalia, where the State exercises its sovereign power as
owner of lands of the public domain and the mineral deposits found within. Thus,
Article XII, Section 2 of the 1987 Constitution emphasizes:
SEC. 2. All lands of the public domain, water, minerals, coal, petroleum, and
other mineral oils, all forces of potential energy, fisheries, forests or timber,
wildlife, flora and fauna, and other natural resources are owned by the State.
With the exception of agricultural lands, all other natural resources shall not be
alienated. The exploration, development, and utilization of natural resources
shall be under the full control and supervision of the State. The State may
directly undertake such activities, or it may enter into co-production, joint
venture, or product-sharing agreements with Filipino citizens, or corporations or
associations at least sixty per centum of whose capital is owned by such citizens.
(Emphasis supplied.)

Furthermore, said proclamation cannot be denounced as offensive to the


fundamental law because the State is sanctioned to do so in the exercise of its
police power.19 The issues on health and peace and order, as well the decadence
of the forest resources brought about by unregulated mining in the area, are
matters of national interest. The declaration of the Chief Executive making the
area a mineral reservation, therefore, is sanctioned by Section 5 of Republic Act
No. 7942.
The Assignment of EP No. 133 by MMC in Favor of SEM Violated Section 97 of
Presidential Decree No. 463 and the Terms and Conditions Set Forth in the Permit
SEM claims that the approval requirement under Section 97 of Presidential
Decree No. 463 is not applicable to this case, because MMC neither applied for
nor was granted a mining lease contract. The said provision states:
SEC. 97. Assignment of Mining Rights. A mining lease contract or any interest
therein shall not be transferred, assigned, or subleased without the prior
approval of the Secretary: Provided, that such transfer, assignment or sublease
may be made only to a qualified person possessing the resources and capability
to continue the mining operations of the lessee and that the assignor has
complied with all the obligations of the lease: Provided, further, That such
transfer or assignment shall be duly registered with the office of the mining
recorder concerned. (Emphasis supplied.)
Exploration Permit 133 was issued in favor of MMC on 10 March 1986, when
Presidential Decree No. 463 was still the governing law. Presidential Decree No.
463 pertains to the old system of exploration, development and utilization of
natural resources through "license, concession or lease." 20
Pursuant to this law, a mining lease contract confers on the lessee or his
successors the right to extract, to remove, process and utilize the mineral
deposits found on or underneath the surface of his mining claims covered by the
lease. The lessee may also enter into a service contract for the exploration,
development and exploitation of the minerals from the lands covered by his
lease, to wit:
SEC. 44. A mining lease contract shall grant to the lessee, his heirs, successors,
and assigns the right to extract all mineral deposits found on or underneath the
surface of his mining claims covered by the lease, continued vertically
downward; to remove, process, and otherwise utilize the mineral deposits for his
own benefit; and to use the lands covered by the lease for the purpose or
purposes specified therein x x x That a lessee may on his own or through the
Government, enter into a service contract for the exploration, development
and exploitation of his claims and the processing and marketing of the product
thereof, subject to the rules and regulations that shall be promulgated by the
Director, with the approval of the Secretary x x x. (Emphases supplied.)
In other words, the lessees interests are not only limited to the extraction or
utilization of the minerals in the contract area, but also to include the right to

explore and develop the same. This right to explore the mining claim or the
contract area is derived from the exploration permit duly issued by the proper
authority. An exploration permit is, thus, covered by the term "any other interest
therein." Section 97 is entitled, "Assignment of Mining Rights." This alone gives a
hint that before mining rights -- namely, the rights to explore, develop and utilize
-- are transferred or assigned, prior approval must be obtained from the DENR
Secretary. An exploration permit, thus, cannot be assigned without the
imprimatur of the Secretary of the DENR.
It is instructive to note that under Section 13 of Presidential Decree No. 463, the
prospecting and exploration of minerals in government reservations, such as
forest reservations, are prohibited, except with the permission of the government
agency concerned. It is the government agency concerned that has the
prerogative to conduct prospecting, exploration and exploitation of such reserved
lands.21 It is only in instances wherein said government agency, in this case the
Bureau of Mines, cannot undertake said mining operations that qualified persons
may be allowed by the government to undertake such operations. PNOC-EDC v.
Veneracion, Jr.22 outlines the five requirements for acquiring mining rights in
reserved lands under Presidential Decree No. 463: (1) a prospecting permit from
the agency that has jurisdiction over the land; (2) an exploration permit from the
Bureau of Mines and Geo-Sciences (BMGS); (3) if the exploration reveals the
presence of commercial deposit, application to BMGS by the permit holder for
the exclusion of the area from the reservation; (4) a grant by the President of the
application to exclude the area from the reservation; and (5) a mining agreement
(lease, license or concession) approved by the DENR Secretary.
Here, MMC met the first and second requirements and obtained an exploration
permit over the disputed forest reserved land. Although MMC still has to prove to
the government that it is qualified to develop and utilize the subject mineral
land, as it has yet to go through the remaining process before it can secure a
lease agreement, nonetheless, it is bound to follow Section 97 of Presidential
Decree No. 463. The logic is not hard to discern. If a lease holder, who has
already demonstrated to the government his capacity and qualifications to
further develop and utilize the minerals within the contract area, is prohibited
from transferring his mining rights (rights to explore, develop and utilize), with
more reason will this proscription apply with extra force to a mere exploration
permit holder who is yet to exhibit his qualifications in conducting mining
operations. The rationale for the approval requirement under Section 97 of
Presidential Decree No. 463 is not hard to see. Exploration permits are strictly
granted to entities or individuals possessing the resources and capability to
undertake mining operations. Mining industry is a major support of the national
economy and the continuous and intensified exploration, development and wise
utilization of mining resources is vital for national development. For this reason,
Presidential Decree No. 463 makes it imperative that in awarding mining
operations, only persons possessing the financial resources and technical skill for
modern exploratory and development techniques are encouraged to undertake
the exploration, development and utilization of the countrys natural resources.
The preamble of Presidential Decree No. 463 provides thus:

WHEREAS, effective and continuous mining operations require considerable


outlays of capital and resources, and make it imperative that persons possessing
the financial resources and technical skills for modern exploratory and
development techniques be encouraged to undertake the exploration,
development and exploitation of our mineral resources;
The Court has said that a "preamble" is the key to understanding the statute,
written to open the minds of the makers to the mischiefs that are to be
remedied, and the purposes that are to be accomplished, by the provisions of the
statute.23 As such, when the statute itself is ambiguous and difficult to interpret,
the preamble may be resorted to as a key to understanding the statute.
Indubitably, without the scrutiny by the government agency as to the
qualifications of the would-be transferee of an exploration permit, the same may
fall into the hands of non-qualified entities, which would be counter-productive to
the development of the mining industry. It cannot be overemphasized that the
exploration, development and utilization of the countrys natural resources are
matters vital to the public interest and the general welfare; hence, their
regulation must be of utmost concern to the government, since these natural
resources are not only critical to the nations security, but they also ensure the
countrys survival as a viable and sovereign republic. 24
The approval requirement of the Secretary of the DENR for the assignment of
exploration permits is bolstered by Section 25 of Republic Act No. 7942
(otherwise known as the Philippine Mining Act of 1995), which provides that:
Sec. 25. Transfer or Assignment. An exploration permit may be transferred or
assigned to a qualified person subject to the approval of the Secretary upon the
recommendation of the Director.
SEM further posits that Section 97 of Presidential Decree No. 463, which requires
the prior approval of the DENR when there is a transfer of mining rights, cannot
be applied to the assignment of EP 133 executed by MMC in favor of SEM
because during the execution of the Deed of Assignment on 16 February 1994,
Executive Order No. 27925became the governing statute, inasmuch as the latter
abrogated the old mining system -- i.e., license, concession or lease -- which was
espoused by the former.
This contention is not well taken. While Presidential Decree No. 463 has already
been repealed by Executive Order No. 279, the administrative aspect of the
former law nonetheless remains applicable. Hence, the transfer or assignment of
exploration permits still needs the prior approval of the Secretary of the DENR.
As ruled in Miners Association of the Philippines, Inc. v. Factoran, Jr. 26 :
Presidential Decree No. 463, as amended, pertains to the old system of
exploration, development and utilization of natural resources through "license,
concession or lease" which, however, has been disallowed by Article XII, Section
2 of the 1987 Constitution. By virtue of the said constitutional mandate and its
implementing law, Executive Order No. 279, which superseded Executive Order

No. 211, the provisions dealing on "license, concession, or lease" of mineral


resources under Presidential Decree No. 463, as amended, and other existing
mining laws are deemed repealed and, therefore, ceased to operate as the
governing law. In other words, in all other areas of administration and
management of mineral lands, the provisions of Presidential Decree No. 463, as
amended, and other existing mining laws, still govern. (Emphasis supplied.)
Not only did the assignment of EP 133 to SEM violate Section 97 of Presidential
Decree No. 463, it likewise transgressed one of the conditions stipulated in the
grant of the said permit. The following terms and conditions attached to EP 133
are as follows:27
1. That the permittee shall abide by the work program submitted with the
application or statements made later in support thereof, and which shall be
considered as conditions and essential parts of this permit;
2. That permittee shall maintain a complete record of all activities and
accounting of all expenditures incurred therein subject to periodic inspection and
verification at reasonable intervals by the Bureau of Mines at the expense of the
applicant;
3. That the permittee shall submit to the Director of Mines within 15 days after
the end of each calendar quarter a report under oath of a full and complete
statement of the work done in the area covered by the permit;
4. That the term of this permit shall be for two (2) years to be effective from this
date, renewable for the same period at the discretion of the Director of Mines
and upon request of the applicant;
5. That the Director of Mines may at any time cancel this permit for violation of
its provision or in case of trouble or breach of peace arising in the area subject
hereof by reason of conflicting interests without any responsibility on the part of
the government as to expenditures for exploration that might have been
incurred, or as to other damages that might have been suffered by the
permittee;
6. That this permit shall be for the exclusive use and benefit of the permittee or
his duly authorized agents and shall be used for mineral exploration purposes
only and for no other purpose.
It must be noted that under Section 9028 of Presidential Decree No. 463, which
was the applicable statute during the issuance of EP 133, the DENR Secretary,
through the Director of the Bureau of Mines and Geosciences, was charged with
carrying out the said law. Also, under Commonwealth Act No. 136, also known as
"An Act Creating the Bureau of Mines," which was approved on 7 November
1936, the Director of Mines had the direct charge of the administration of the
mineral lands and minerals; and of the survey, classification, lease or any other
form of concession or disposition thereof under the Mining Act. 29 This power of
administration included the power to prescribe terms and conditions in granting
exploration permits to qualified entities.

Thus, in the grant of EP 133 in favor of the MMC, the Director of the BMG acted
within his power in laying down the terms and conditions attendant thereto. MMC
and SEM did not dispute the reasonableness of said conditions.
Quite conspicuous is the fact that neither MMC nor SEM denied that they were
unaware of the terms and conditions attached to EP 133. MMC and SEM did not
present any evidence that they objected to these conditions. Indubitably, MMC
wholeheartedly accepted these terms and conditions, which formed part of the
grant of the permit. MMC agreed to abide by these conditions. It must be
accentuated that a party to a contract cannot deny its validity, without outrage
to ones sense of justice and fairness, after enjoying its benefits. 30 Where parties
have entered into a well-defined contractual relationship, it is imperative that
they should honor and adhere to their rights and obligations as stated in their
contracts, because obligations arising from these have the force of law between
the contracting parties and should be complied with in good faith. 31 Condition
Number 6 categorically states that the permit shall be for the exclusive use and
benefit of MMC or its duly authorized agents. While it may be true that SEM, the
assignee of EP 133, is a 100% subsidiary corporation of MMC, records are bereft
of any evidence showing that the former is the duly authorized agent of the
latter. This Court cannot condone such utter disregard on the part of MMC to
honor its obligations under the permit. Undoubtedly, having violated this
condition, the assignment of EP 133 to SEM is void and has no legal effect.
To boot, SEM squandered whatever rights it assumed it had under EP 133. On 6
July 1993, EP 133 was extended for twelve more months or until 6 July 1994.
MMC or SEM, however, never renewed EP 133 either prior to or after its
expiration. Thus, EP 133 expired by non-renewal on 6 July 1994. With the
expiration of EP 133 on 6 July 1994, MMC lost any right to the Diwalwal Gold
Rush Area.
The Assailed Decision Resolved Facts and Issues That Transpired after the
Promulgation of Apex Mining Co., Inc. v. Garcia
SEM asserts that the 23 June 2006 Decision reversed the 16 July 1991 Decision of
the Court en banc entitled, "Apex Mining Co., Inc. v. Garcia." 32
The assailed Decision DID NOT overturn the 16 July 1991 Decision in Apex Mining
Co., Inc. v. Garcia.
It must be pointed out that what Apex Mining Co., Inc. v. Garcia resolved was the
issue of which, between Apex and MMC, availed itself of the proper procedure in
acquiring the right to prospect and to explore in the Agusan-Davao-Surigao
Forest Reserve. Apex registered its Declarations of Location (DOL) with the then
BMGS, while MMC was granted a permit to prospect by the Bureau of Forest
Development (BFD) and was subsequently granted an exploration permit by the
BMGS. Taking into consideration Presidential Decree No. 463, which provides that
"mining rights within forest reservation can be acquired by initially applying for a
permit to prospect with the BFD and subsequently for a permit to explore with

the BMGS," the Court therein ruled that MMC availed itself of the proper
procedure to validly operate within the forest reserve or reservation.
While it is true that Apex Mining Co., Inc. v. Garcia settled the issue of which
between Apex and MMC was legally entitled to explore in the disputed area, such
rights, though, were extinguished by subsequent events that transpired after the
decision was promulgated. These subsequent events, which were not attendant
in Apex Mining Co., Inc. v. Garcia33 dated 16 July 1991, are the following:
(1) the expiration of EP 133 by non-renewal on 6 July 1994;
(2) the transfer/assignment of EP 133 to SEM on 16 February 1994 which was
done in violation to the condition of EP 133 proscribing its transfer;
(3) the transfer/assignment of EP 133 to SEM is without legal effect for violating
PD 463 which mandates that the assignment of mining rights must be with the
prior approval of the Secretary of the DENR.
Moreover, in Southeast Mindanao Gold Mining Corporation v. Balite Portal Mining
Cooperative,34 the Court, through Associate Justice Consuelo Ynares-Santiago
(now retired), declared that Apex Mining Co., Inc. v. Garcia did not deal with the
issues of the expiration of EP 133 and the validity of the transfer of EP 133 to
SEM, viz:
Neither can the Apex Mining case foreclose any question pertaining to the
continuing validity of EP No. 133 on grounds which arose after the judgment in
said case was promulgated. While it is true that the Apex Mining case settled the
issue of who between Apex and Marcopper validly acquired mining rights over
the disputed area by availing of the proper procedural requisites mandated by
law, it certainly did not deal with the question raised by the oppositors in the
Consolidated Mines cases, i.e., whether EP No. 133 had already expired and
remained valid subsequent to its transfer by Marcopper to petitioner. (Emphasis
supplied.)
What is more revealing is that in the Resolution dated 26 November 1992,
resolving the motion for reconsideration of Apex Mining Co., Inc. v. Garcia, the
Court clarified that the ruling on the said decision was binding only between
Apex and MMC and with respect the particular issue raised therein. Facts and
issues not attendant to the said decision, as in these cases, are not settled by
the same. A portion of the disposition of the Apex Mining Co., Inc. v. Garcia
Resolution dated 26 November 1992 decrees:
x x x The decision rendered in this case is conclusive only between the parties
with respect to the particular issue herein raised and under the set of
circumstances herein prevailing. In no case should the decision be considered as
a precedent to resolve or settle claims of persons/entities not parties hereto.
Neither is it intended to unsettle rights of persons/entities which have been
acquired or which may have accrued upon reliance on laws passed by the
appropriate agencies. (Emphasis supplied.)

The Issue of the Constitutionality of Proclamation Is Raised Belatedly


In its last-ditch effort to salvage its case, SEM contends that Proclamation No.
297, issued by President Gloria Macapagal-Arroyo and declaring the Diwalwal
Gold Rush Area as a mineral reservation, is invalid on the ground that it lacks the
concurrence of Congress as mandated by Section 4, Article XII of the
Constitution; Section 1 of Republic Act No. 3092; Section 14 of Executive Order
No. 292, otherwise known as the Administrative Code of 1987; Section 5(a) of
Republic Act No. 7586, and Section 4(a) of Republic Act No. 6657.
It is well-settled that when questions of constitutionality are raised, the court can
exercise its power of judicial review only if the following requisites are present:
(1) an actual and appropriate case exists; (2) there is a personal and substantial
interest of the party raising the constitutional question; (3) the exercise of
judicial review is pleaded at the earliest opportunity; and (4) the constitutional
question is the lis mota of the case.
Taking into consideration the foregoing requisites of judicial review, it is readily
clear that the third requisite is absent. The general rule is that the question of
constitutionality must be raised at the earliest opportunity, so that if it is not
raised in the pleadings, ordinarily it may not be raised at the trial; and if not
raised in the trial court, it will not be considered on appeal. 35
In the instant case, it must be pointed out that in the Reply to Respondent SEMs
Consolidated Comment filed on 20 May 2003, MAB mentioned Proclamation No.
297, which was issued on 25 November 2002. This proclamation, according to
the MAB, has rendered SEMs claim over the contested area moot, as the
President has already declared the same as a mineral reservation and as an
environmentally critical area. SEM did not put to issue the validity of said
proclamation in any of its pleadings despite numerous opportunities to question
the same. It was only after the assailed Decision was promulgated -- i.e., in
SEMs Motion for Reconsideration of the questioned Decision filed on 13 July
2006 and its Motion for Referral of the Case to the Court En Banc and for Oral
Arguments filed on 22 August 2006 -- that it assailed the validity of said
proclamation.
Certainly, posing the question on the constitutionality of Proclamation No. 297 for
the first time in its Motion for Reconsideration is, indeed, too late. 36
In fact, this Court, when it rendered the Decision it merely recognized that the
questioned proclamation came from a co-equal branch of government, which
entitled it to a strong presumption of constitutionality. 37 The presumption of its
constitutionality stands inasmuch as the parties in the instant cases did not
question its validity, much less present any evidence to prove that the same is
unconstitutional. This is in line with the precept that administrative issuances
have the force and effect of law and that they benefit from the same
presumption of validity and constitutionality enjoyed by statutes. 38
Proclamation No. 297 Is in Harmony with Article XII, Section 4, of the Constitution

At any rate, even if this Court were to consider the arguments belatedly raised
by SEM, said arguments are not meritorious.
SEM asserts that Article XII, Section 4 of the Constitution, bars the President from
excluding forest reserves/reservations and proclaiming the same as mineral
reservations, since the power to de-classify them resides in Congress.
Section 4, Article XII of the Constitution reads:
The Congress shall as soon as possible, determine by law the specific limits of
forest lands and national parks, marking clearly their boundaries on the ground.
Thereafter, such forest lands and national parks shall be conserved and may not
be increased nor diminished, except by law. The Congress shall provide, for such
periods as it may determine, measures to prohibit logging in endangered forests
and in watershed areas.
The above-quoted provision says that the area covered by forest lands and
national parks may not be expanded or reduced, unless pursuant to a law
enacted by Congress. Clear in the language of the constitutional provision is its
prospective tenor, since it speaks in this manner: "Congress shall as soon as
possible." It is only after the specific limits of the forest lands shall have been
determined by the legislature will this constitutional restriction apply. SEM does
not allege nor present any evidence that Congress had already enacted a statute
determining with specific limits forest lands and national parks. Considering the
absence of such law, Proclamation No. 297 could not have violated Section 4,
Article XII of the 1987 Constitution. In PICOP Resources, Inc. v. Base Metals
Mineral Resources Corporation,39 the Court had the occasion to similarly rule in
this fashion:
x x x Sec. 4, Art. XII of the 1987 Constitution, on the other hand, provides that
Congress shall determine the specific limits of forest lands and national parks,
marking clearly their boundaries on the ground. Once this is done, the area thus
covered by said forest lands and national parks may not be expanded or reduced
except also by congressional legislation. Since Congress has yet to enact a law
determining the specific limits of the forest lands covered by Proclamation No.
369 and marking clearly its boundaries on the ground, there can be no occasion
that could give rise to a violation of the constitutional provision.
Section 4, Article XII of the Constitution, addresses the concern of the drafters of
the 1987 Constitution about forests and the preservation of national parks. This
was brought about by the drafters awareness and fear of the continuing
destruction of this countrys forests. 40 In view of this concern, Congress is tasked
to fix by law the specific limits of forest lands and national parks, after which the
trees in these areas are to be taken care of. 41Hence, these forest lands and
national parks that Congress is to delimit through a law could be changed only
by Congress.
In addition, there is nothing in the constitutional provision that prohibits the
President from declaring a forest land as an environmentally critical area and

from regulating the mining operations therein by declaring it as a mineral


reservation in order to prevent the further degradation of the forest environment
and to resolve the health and peace and order problems that beset the area.
A closer examination of Section 4, Article XII of the Constitution and Proclamation
No. 297 reveals that there is nothing contradictory between the two.
Proclamation No. 297, a measure to attain and maintain a rational and orderly
balance between socio-economic growth and environmental protection, jibes
with the constitutional policy of preserving and protecting the forest lands from
being further devastated by denudation. In other words, the proclamation in
question is in line with Section 4, Article XII of the Constitution, as the former
fosters the preservation of the forest environment of the Diwalwal area and is
aimed at preventing the further degradation of the same. These objectives are
the very same reasons why the subject constitutional provision is in place.
What is more, jurisprudence has recognized the policy of multiple land use in our
laws towards the end that the countrys precious natural resources may be
rationally explored, developed, utilized and conserved. 42 It has been held that
forest reserves or reservations can at the same time be open to mining
operations, provided a prior written clearance by the government agency having
jurisdiction over such reservation is obtained. In other words mineral lands can
exist within forest reservations. These two terms are not anti-thetical. This is
made manifest if we read Section 47 of Presidential Decree No. 705 or the
Revised Forestry Code of the Philippines, which provides:
Mining operations in forest lands shall be regulated and conducted with due
regard to protection, development and utilization of other surface resources.
Location, prospecting, exploration, utilization or exploitation of mineral resources
in forest reservations shall be governed by mining laws, rules and regulations.
(Emphasis supplied.)
Also, Section 6 of Republic Act No. 7942 or the Mining Act of 1995, states that
mining operations in reserved lands other than mineral reservations, such as
forest reserves/reservations, are allowed, viz:
Mining operations in reserved lands other than mineral reservations may be
undertaken by the Department, subject to limitations as herein provided. In the
event that the Department cannot undertake such activities, they may be
undertaken by a qualified person in accordance with the rules and regulations
promulgated by the Secretary. (Emphasis supplied.)
Since forest reservations can be made mineral lands where mining operations
are conducted, then there is no argument that the disputed land, which lies
within a forest reservation, can be declared as a mineral reservation as well.
Republic Act No. 7942 Otherwise Known as the "Philippine Mining Act of 1995," is
the Applicable Law
Determined to rivet its crumbling cause, SEM then argues that Proclamation No.
297 is invalid, as it transgressed the statutes governing the exclusion of areas

already declared as forest reserves, such as Section 1 of Republic Act No.


3092,43 Section 14 of the Administrative Code of 1987, Section 5(a) of Republic
Act No. 7586,44 and Section 4(a) of Republic Act No. 6657. 45
Citing Section 1 of Republic Act No. 3092, which provides as follows:
Upon the recommendation of the Director of Forestry, with the approval of the
Department Head, the President of the Philippines shall set apart forest reserves
which shall include denuded forest lands from the public lands and he shall by
proclamation declare the establishment of such forest reserves and the
boundaries thereof, and thereafter such forest reserves shall not be entered, or
otherwise disposed of, but shall remain indefinitely as such for forest uses.
The President of the Philippines may, in like manner upon the recommendation of
the Director of Forestry, with the approval of the Department head, by
proclamation, modify the boundaries of any such forest reserve to conform with
subsequent precise survey but not to exclude any portion thereof except with the
concurrence of Congress.(Underscoring supplied.)
SEM submits that the foregoing provision is the governing statute on the
exclusion of areas already declared as forest reserves. Thus, areas already set
aside by law as forest reserves are no longer within the proclamation powers of
the President to modify or set aside for any other purposes such as mineral
reservation.
To bolster its contention that the President cannot disestablish forest reserves
into mineral reservations, SEM makes reference to Section 14, Chapter 4, Title I,
Book III of the Administrative Code of 1987, which partly recites:
The President shall have the power to reserve for settlement or public use, and
for specific public purposes, any of the lands of the public domain, the use of
which is not otherwise directed by law. The reserved land shall thereafter remain
subject to the specific public purpose indicated until otherwise provided by law
or proclamation. (Emphases supplied.)
SEM further contends that Section 7 of Republic Act No. 7586, 46 which declares
that the disestablishment of a protected area shall be done by Congress, and
Section 4(a) of Republic Act No. 6657,47 which in turn requires a law passed by
Congress before any forest reserve can be reclassified, militate against the
validity of Proclamation No. 297.
Proclamation No. 297, declaring a certain portion of land located in Monkayo,
Compostela Valley, with an area of 8,100 hectares, more or less, as a mineral
reservation, was issued by the President pursuant to Section 5 of Republic Act
No. 7942, also known as the "Philippine Mining Act of 1995."
Proclamation No. 297 did not modify the boundaries of the Agusan-DavaoSurigao Forest Reserve since, as earlier discussed, mineral reservations can exist
within forest reserves because of the multiple land use policy. The metes and

bounds of a forest reservation remain intact even if, within the said area, a
mineral land is located and thereafter declared as a mineral reservation.
More to the point, a perusal of Republic Act No. 3092, "An Act to Amend Certain
Sections of the Revised Administrative Code of 1917," which was approved on 17
August 1961, and the Administrative Code of 1987, shows that only those public
lands declared by the President as reserved pursuant to these two statutes are to
remain subject to the specific purpose. The tenor of the cited provisions, namely:
"the President of the Philippines shall set apart forest reserves" and "the
reserved land shall thereafter remain," speaks of future public reservations to be
declared, pursuant to these two statutes. These provisions do not apply to forest
reservations earlier declared as such, as in this case, which was proclaimed way
back on 27 February 1931, by Governor General Dwight F. Davis under
Proclamation No. 369.
Over and above that, Section 5 of Republic Act No. 7942 authorizes the President
to establish mineral reservations, to wit:
Sec. 5. Mineral Reservations. - When the national interest so requires, such as
when there is a need to preserve strategic raw materials for industries critical to
national development, or certain minerals for scientific, cultural or ecological
value, the President may establish mineral reservations upon the
recommendation of the Director through the Secretary. Mining operations in
existing mineral reservations and such other reservations as may thereafter be
established, shall be undertaken by the Department or through a contractor x x
x. (Emphasis supplied.)
It is a rudimentary principle in legal hermeneutics that where there are two acts
or provisions, one of which is special and particular and certainly involves the
matter in question, the other general, which, if standing alone, would include the
matter and thus conflict with the special act or provision, the special act must as
intended be taken as constituting an exception to the general act or provision,
especially when such general and special acts or provisions are
contemporaneous, as the Legislature is not to be presumed to have intended a
conflict.
Hence, it has become an established rule of statutory construction that where
one statute deals with a subject in general terms, and another deals with a part
of the same subject in a more detailed way, the two should be harmonized if
possible; but if there is any conflict, the latter shall prevail regardless of whether
it was passed prior to the general statute. Or where two statutes are of contrary
tenor or of different dates but are of equal theoretical application to a particular
case, the one specially designed therefor should prevail over the other.
It must be observed that Republic Act No. 3092, "An Act to Amend Certain
Sections of the Revised Administrative Code of 1917," and the Administrative
Code of 1987, are general laws. Section 1 of Republic Act No. 3092 and Section
14 of the Administrative Code of 1987 require the concurrence of Congress
before any portion of a forest reserve can be validly excluded therefrom. These

provisions are broad since they deal with all kinds of exclusion or reclassification
relative to forest reserves, i.e., forest reserve areas can be transformed into all
kinds of public purposes, not only the establishment of a mineral reservation.
Section 5 of Republic Act No. 7942 is a special provision, as it specifically treats
of the establishment of mineral reservations only. Said provision grants the
President the power to proclaim a mineral land as a mineral reservation,
regardless of whether such land is also an existing forest reservation.
Sec. 5(a) of Republic Act No. 7586 provides:
Sec. 5. Establishment and Extent of the System. The establishment and
operationalization of the System shall involve the following:
(a) All areas or islands in the Philippines proclaimed, designated or set aside,
pursuant to a law, presidential decree, presidential proclamation or executive
order as national park, game refuge, bird and wildlife sanctuary, wilderness area,
strict nature reserve, watershed, mangrove reserve, fish sanctuary, natural and
historical landmark, protected and managed landscape/seascape as well as
identified virgin forests before the effectivity of this Act are hereby designated as
initial components of the System. The initial components of the System shall be
governed by existing laws, rules and regulations, not inconsistent with this Act.
Glaring in the foregoing enumeration of areas comprising the initial component
of the NIPAS System under Republic Act No. 7586 is the absence of forest
reserves. Only protected areas enumerated under said provision cannot be
modified. Since the subject matter of Proclamation No. 297 is a forest reservation
proclaimed as a mineral reserve, Republic Act No. 7586 cannot possibly be made
applicable. Neither can Proclamation No. 297 possibly violate said law.
Similarly, Section 4(a) of Republic Act No. 6657 cannot be made applicable to the
instant case.
Section 4(a) of Republic Act No. 6657 reads:
All alienable and disposable lands of the public domain devoted to or suitable for
agriculture. No reclassification of forest or mineral lands to agricultural lands
shall be undertaken after the approval of this Act until Congress, taking into
account ecological, developmental and equity considerations, shall have
determined by law, the specific limits of the public domain. (Underscoring
supplied.)
Section 4(a) of Republic Act No. 6657 prohibits the reclassification of forest or
mineral lands into agricultural lands until Congress shall have determined by law
the specific limits of the public domain. A cursory reading of this provision will
readily show that the same is not relevant to the instant controversy, as there
has been no reclassification of a forest or mineral land into an agricultural land.
Furthermore, the settled rule of statutory construction is that if two or more laws
of different dates and of contrary tenors are of equal theoretical application to a

particular case, the statute of later date must prevail being a later expression of
legislative will.48
In the case at bar, there is no question that Republic Act No. 7942 was signed
into law later than Republic Act No. 3092, the Administrative Code of
1987,49 Republic Act No. 7586 and Republic Act No. 6657. Applying the cited
principle, the provisions of Republic Act No. 3092, the Administrative Code of
1987, Republic Act No. 7586 and Republic Act No. 6657 cited by SEM must yield
to Section 5 of Republic Act No. 7942.
Camilo Banad, et al., Cannot Seek Relief from This Court
Camilo Banad and his group admit that they are members of the Balite
Cooperative. They, however, claim that they are distinct from Balite and move
that this Court recognize them as prior mining locators.
Unfortunately for them, this Court cannot grant any relief they seek. Records
reveal that although they were parties to the instant cases before the Court of
Appeals, they did not file a petition for review before this Court to contest the
decision of the appellate court. The only petitioners in the instant cases are the
MAB, SEM, Balite and Apex. Consequently, having no personality in the instant
cases, they cannot seek any relief from this Court.
Apexs Motion for Clarification and Balites Manifestation and Motion
In its Motion for Clarification, Apex desires that the Court elucidate the assailed
Decisions pronouncement that "mining operations, are now, therefore within the
full control of the State through the executive branch" and place the said
pronouncement in the proper perspective as the declaration in La Bugal-BLaan,
which states that
The concept of control adopted in Section 2 of Article XII must be taken to mean
less than dictatorial, all-encompassing control; but nevertheless sufficient to give
the State the power to direct, restrain, regulate and govern the affairs of the
extractive enterprise.50
Apex states that the subject portion of the assailed Decision could send a chilling
effect to potential investors in the mining industry, who may be of the impression
that the State has taken over the mining industry, not as regulator but as an
operator. It is of the opinion that the State cannot directly undertake mining
operations.
Moreover, Apex is apprehensive of the following portion in the questioned
Decision "The State can also opt to award mining operations in the mineral
reservation to private entities including petitioner Apex and Balite, if it wishes." It
avers that the phrase "if it wishes" may whimsically be interpreted to mean a
blanket authority of the administrative authority to reject the formers
application for an exploration permit even though it complies with the prescribed
policies, rules and regulations.1 a vv p h i 1

Apex likewise asks this Court to order the MGB to accept its application for an
exploration permit.
Balite echoes the same concern as that of Apex on the actual take-over by the
State of the mining industry in the disputed area to the exclusion of the private
sector. In addition, Balite prays that this Court direct MGB to accept Balites
application for an exploration permit.
Contrary to the contention of Apex and Balite, the fourth paragraph of Section 2,
Article XII of the Constitution and Section 5 of Republic Act No. 7942 sanctions
the State, through the executive department, to undertake mining operations
directly, as an operator and not as a mere regulator of mineral undertakings. This
is made clearer by the fourth paragraph of Section 2, Article XII of the 1987
Constitution, which provides in part:
SEC. 2. x x x The State may directly undertake such activities, or it may enter
into co-production, joint venture, or production-sharing agreements with Filipino
citizens, or corporations or associations at least sixty per centum of whose
capital is owned by such citizens. x x x. (Emphasis supplied.)
Also, Section 5 of Republic Act No. 7942 states that the mining operations in
mineral reservations shall be undertaken by the Department of Environment and
Natural Resources or a contractor, to wit:
SEC. 5. Mineral Reservations. When the national interest so requires, such as
when there is a need to preserve strategic raw materials for industries critical to
national development, or certain minerals for scientific, cultural or ecological
value, the President may establish mineral reservations upon the
recommendation of the Director through the Secretary. Mining operations in
existing mineral reservations and such other reservations as may thereafter be
established, shall be undertaken by the Department or through a contractor x x
x. (Emphasis supplied.)
Undoubtedly, the Constitution, as well as Republic Act No. 7942, allows the
executive department to undertake mining operations. Besides, La Bugal-BLaan,
cited by Apex, did not refer to the fourth sentence of Section 2, Article XII of the
Constitution, but to the third sentence of the said provision, which states:
SEC. 2. x x x The exploration, development, and utilization of natural resources
shall be under the full control and supervision of the State. x x x.
Pursuant to Section 5 of Republic Act No. 7942, the executive department has
the option to undertake directly the mining operations in the Diwalwal Gold Rush
Area or to award mining operations therein to private entities. The phrase "if it
wishes" must be understood within the context of this provision. Hence, the
Court cannot dictate this co-equal branch to choose which of the two options to
select. It is the sole prerogative of the executive department to undertake
directly or to award the mining operations of the contested area.

Even assuming that the proper authority may decide to award the mining
operations of the disputed area, this Court cannot arrogate unto itself the task of
determining who, among the applicants, is qualified. It is the duty of the
appropriate administrative body to determine the qualifications of the applicants.
It is only when this administrative body whimsically denies the applications of
qualified applicants that the Court may interfere. But until then, the Court has no
power to direct said administrative body to accept the application of any
qualified applicant.
In view of this, the Court cannot grant the prayer of Apex and Balite asking the
Court to direct the MGB to accept their applications pending before the MGB.
SEMs Manifestation and Motion dated 25 January 2007
SEM wants to emphasize that its predecessor-in-interest, Marcopper or MMC,
complied with the mandatory exploration work program, required under EP 133,
by attaching therewith quarterly reports on exploration work from 20 June 1986
to March 1994.
It must be observed that this is the very first time at this very late stage that
SEM has presented the quarterly exploration reports. From the early phase of this
controversy, SEM did not disprove the arguments of the other parties that
Marcopper violated the terms under EP 133, among other violations, by not
complying with the mandatory exploration work program. Neither did it present
evidence for the appreciation of the lower tribunals. Hence, the non-compliance
with the mandatory exploration work program was not made an issue in any
stage of the proceedings. The rule is that an issue that was not raised in the
lower court or tribunal cannot be raised for the first time on appeal, as this would
violate the basic rules of fair play, justice and due process. 51 Thus, this Court
cannot take cognizance of the issue of whether or not MMC complied with the
mandatory work program.
In sum, this Court finds:
1. The assailed Decision did not overturn the 16 July 1991 Decision in Apex
Mining Co., Inc. v. Garcia. The former was decided on facts and issues that were
not attendant in the latter, such as the expiration of EP 133, the violation of the
condition embodied in EP 133 prohibiting its assignment, and the unauthorized
and invalid assignment of EP 133 by MMC to SEM, since this assignment was
effected without the approval of the Secretary of DENR;
2. SEM did not acquire vested right over the disputed area because its supposed
right was extinguished by the expiration of its exploration permit and by its
violation of the condition prohibiting the assignment of EP 133 by MMC to SEM. In
addition, even assuming that SEM has a valid exploration permit, such is a mere
license that can be withdrawn by the State. In fact, the same has been
withdrawn by the issuance of Proclamation No. 297, which places the disputed
area under the full control of the State through the Executive Department;

3. The approval requirement under Section 97 of Presidential Decree No. 463


applies to the assignment of EP 133 by MMC to SEM, since the exploration permit
is an interest in a mining lease contract;
4. The issue of the constitutionality and the legality of Proclamation No. 297 was
raised belatedly, as SEM questions the same for the first time in its Motion for
Reconsideration. Even if the issue were to be entertained, the said proclamation
is found to be in harmony with the Constitution and other existing statutes;
5. The motion for reconsideration of Camilo Banad, et al. cannot be passed upon
because they are not parties to the instant cases;
6. The prayers of Apex and Balite asking the Court to direct the MGB to accept
their applications for exploration permits cannot be granted, since it is the
Executive Department that has the prerogative to accept such applications, if
ever it decides to award the mining operations in the disputed area to a private
entity;
7. The Court cannot pass upon the issue of whether or not MMC complied with
the mandatory exploration work program, as such was a non-issue and was not
raised before the Court of Appeals and the lower tribunals.
WHEREFORE, premises considered, the Court holds:
1. The Motions for Reconsideration filed by Camilo Banad, et al. and Southeast
Mindanao Gold Mining Corporation are DENIED for lack of merit;
2. The Motion for Clarification of Apex Mining Co., Inc. and the Manifestation and
Motion of the Balite Communal Portal Mining Cooperative, insofar as these
motions/manifestation ask the Court to direct the Mines and Geo-Sciences
Bureau to accept their respective applications for exploration permits, are
DENIED;
3. The Manifestation and Urgent Motion dated 25 January 2007 of Southeast
Mindanao Gold Mining Corporation is DENIED.
4. The State, through the Executive Department, should it so desire, may now
award mining operations in the disputed area to any qualified entities it may
determine. The Mines and Geosciences Bureau may process exploration permits
pending before it, taking into consideration the applicable mining laws, rules and
regulations relative thereto.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Chief Justice

ANTONIO T. CARPIO
Associate Justice

On official leave
RENATO C. CORONA*
Associate Justice

CONCHITA CARPIO MORALES


Associate Justice

On official leave
PRESBITERO J. VELASCO, JR.*
Associate Justice

(No Part)
ANTONIO EDUARDO B.
NACHURA**
Associate Justice

TERESITA J. LEONARDO-DE
CASTRO
Associate Justice

ARTURO D. BRION
Associate Justice

On official leave
DIOSDADO M. PERALTA*
Associate Justice

LUCAS P. BERSAMIN
Associate Justice

MARIANO C. DEL CASTILLO


Associate Justice

ROBERTO A. ABAD
Associate Justice

MARTIN S. VILLARAMA, JR.


Associate Justice

CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that
the conclusions in the above Decision were reached in consultation before the
case was assigned to the writer of the opinion of the Court.
REYNATO S. PUNO
Chief Justice

Footnotes
*

**

On official leave.
No part.

G.R. No. 92605, 16 July 1991, 199 SCRA 278.

42 Phil. 749 (1922).

66 Phil. 259 (1938).

Atok Big-Wedge Mining Co. v. Intermediate Appellate Court, 330 Phil. 244, 262
(1996).
5

Id. at 262.

Id.

Id. at 263.

Id.

Id. at 264.

10

Id.

11

Id. at 267-268.

12

486 Phil. 754, 828-829 (2004).

13

429 Phil. 668, 682 (2002).

14

Supra note 12 at 895.

15

Southeast Mindanao Gold Mining Corporation v. Balite Portal Mining


Cooperative, supra note 13 at 682-683.
16

Id.

17

G.R. No. 149927, 30 March 2004, 426 SCRA 517, 530.

18

Id.

19

Id at 531.

20

Miners Association of the Philippines, Inc. v. Factoran, Jr., 310 Phil. 113, 130
(1995).
21

PNOC-Energy Development Corporation (PNOC-EDC) v. Veneracion, Jr., G.R. No.


129820, 30 November 2006, 509 SCRA 93, 106.
22

Id. at 107-110.

23

Estrada v. Escritor, 455 Phil. 411, 569 (2003).

24

Miners Association of the Philippines, Inc. v. Factoran, Jr., 310 Phil. 113, 130131 (1995).
25

Promulgated on 25 July 1987.

26

Supra note 24 at 130.

27

Records, Vol. 2, pp. 84-85.

28

Executive Officer. - The Secretary, through the Director, shall be the Executive
Officer charged with carrying out the provisions of this Decree. x x x.

29

Section 3, Commonwealth Act No. 136.

30

Premiere Development Bank v. Court of Appeals, 471 Phil. 704, 716 (2004).

31

Id.

32

Supra note 1 at 284.

33

Supra note 1 at 283-284.

34

Supra note 13 at 681.

35

Matibag v. Benipayo, 429 Phil. 554, 578-579 (2002).

36

Umali v. Exececutive Secretary Guingona, Jr., 365 Phil. 77, 87 (1999).

37

Senate of the Philippines v. Ermita, G.R. No. 169777, 20 April 2006, 488 SCRA
1, 66.
38

Mirasol v. Department of Public Works and Highways, G.R. No. 158793, 8 June
2006, 490 SCRA 318, 347-348.
39

G.R. No. 163509, 6 December 2006, 510 SCRA 400, 416.

40

Records of the Constitutional Commission, Vol. III, pp. 592-593.

41

Id.

42

PICOP Resources, Inc. v. Base Metals Mineral Resources Corporation, supra


note 39 at 419.
43

Approved on 17 August 1961.

44

Approved on 1 June 1992, this statute is known as the "National Integrated


Protected Areas System Act of 1992."
45

This Act is known as the "Comprehensive Agrarian Reform Law of 1998." It took
effect on 15 June 1988.
46

Disestablishment as Protected Area. When in the opinion of the DENR a


certain protected area should be withdrawn or disestablished, or its boundaries
modified as warranted by a study and sanctioned by the majority of the
members of the respective boards for the protected area as herein established in
Section 11, it shall, in turn, advise Congress. Disestablishment of a protected
area under the System or modification of its boundary shall take effect pursuant
to an act of Congress.
47

All alienable and disposable lands of the public domain devoted to or suitable
for agriculture. No reclassification of forest or mineral lands to agricultural lands
shall be undertaken after the approval of this Act until Congress, taking into
account ecological, developmental and equity considerations, shall have
determined by law, the specific limits of the public domain.

48

Philippine National Bank v. Cruz, G.R. No. 80593, 18 December 1989, 180 SCRA
206, 213.
49

This law is dated 25 July 1987.

50

Supra note 12 at 1093.

51

Multi-Realty Development Corporation v. Makati Tuscany Condominium


Corporation, G.R. No. 146726, 16 June 2006, 491 SCRA 9, 23.
The Lawphil Project - Arellano Law Foundation

SEPARATE OPINION
BERSAMIN, J.:
I concur with Honorable Minita V. Chico-Nazarios disposition of the challenges
posed by the motion for reconsideration and manifestation and urgent motion
dated January 25, 2007 filed by Southeast Mindanao Gold Mining Corporation
(SEM); the motion for clarification dated July 18, 2006 filed by Apex Mining
(Apex); and the manifestation and motion dated July 28, 2006 filed by Balite
Communal Portal Mining Cooperative (Balite).
Yet, I feel compelled to write in order to suggest that we should look at and
determine which between Apex and Balite has any priority right to explore,
develop and mine the Diwalwal Gold Rush Area in the event that the State,
represented by the Executive Department, decides either to develop and mine
the area directly, or to outsource the task to a service contractor. I am sure that
doing so will preclude further litigations from arising. I feel that such an approach
can only further the intent and letter of
Section 1,1 Rule 36, of the Rules of Court to determine the merits of the case, not
leaving anything undetermined.
Antecedents
The relevant antecedents excellently recounted in the decision are adopted
herein for purposes of giving this separate opinion the requisite backdrop, viz:
On 27 February 1931, Governor General Dwight F. Davis issued Proclamation No.
369, establishing the Agusan-Davao-Surigao Forest Reserve consisting of
approximately 1,927,400 hectares.
The disputed area, a rich tract of mineral land, is inside the forest reserve
located at Monkayo, Davao del Norte, and Cateel, Davao Oriental, consisting of
4,941.6759 hectares. This mineral land is encompassed by Mt. Diwata, which is

situated in the municipalities of Monkayo and Cateel. It later became known as


the "Diwalwal Gold Rush Area." It has since the early 1980s been stormed by
conflicts brought about by the numerous mining claimants scrambling for gold
that lies beneath its bosom.
On 21 November 1983, Camilo Banad and his group, who claimed to have first
discovered traces of gold in Mount Diwata, filed a Declaration of Location (DOL)
for six mining claims in the area.
Camilo Banad and some other natives pooled their skills and resources and
organized the Balite Communal Portal Mining Cooperative (Balite).
On 12 December 1983, Apex Mining Corporation (Apex) entered into operating
agreements with Banad and his group.
From November 1983 to February 1984, several individual applications for
mining locations over mineral land covering certain parts of the Diwalwal gold
rush area were filed with the Bureau of Mines and Geo-Sciences (BMG).
On 2 February 1984, Marcopper Mining Corporation (MMC) filed 16 DOLs or
mining claims for areas adjacent to the area covered by the DOL of Banad and
his group. After realizing that the area encompassed by its mining claims is a
forest reserve within the coverage of Proclamation No. 369 issued by Governor
General Davis, MMC abandoned the same and instead applied for a prospecting
permit with the Bureau of Forest Development (BFD).
On 1 July 1985, BFD issued a Prospecting Permit to MMC covering an area of
4,941.6759 hectares traversing the municipalities of Monkayo and Cateel, an
area within the forest reserve under Proclamation No. 369. The permit embraced
the areas claimed by Apex and the other individual mining claimants.
On 11 November 1985, MMC filed Exploration Permit Application No. 84-40 with
the BMG. On 10 March 1986, the BMG issued to MCC Exploration Permit No. 133
(EP 133).
Discovering the existence of several mining claims and the proliferation of smallscale miners in the area covered by EP 133, MMC thus filed on 11 April 1986
before the BMG a Petition for the Cancellation of the Mining Claims of Apex and
Small Scale Mining Permit Nos. (x-1)-04 and (x-1)-05 which was docketed as MAC
No. 1061. MMC alleged that the areas covered by its EP 133 and the mining
claims of Apex were within an established and existing forest reservation
(Agusan-Davao-Surigao Forest Reserve) under Proclamation No. 369 and that
pursuant to Presidential Decree No. 463, acquisition of mining rights within a
forest reserve is through the application for a permit to prospect with the BFD
and not through registration of a DOL with the BMG.
On 23 September 1986, Apex filed a motion to dismiss MMCs petition alleging
that its mining claims are not within any established or proclaimed forest
reserve, and as such, the acquisition of mining rights thereto must be

undertaken via registration of DOL with the BMG and not through the filing of
application for permit to prospect with the BFD.
On 9 December 1986, BMG dismissed MMCs petition on the ground that the area
covered by the Apex mining claims and MMCs permit to explore was not a forest
reservation. It further declared null and void MMCs EP 133 and sustained the
validity of Apex mining claims over the disputed area.
MMC appealed the adverse order of BMG to the Department of Environment and
Natural Resources (DENR).
On 15 April 1987, after due hearing, the DENR reversed the 9 December 1996
order of BMG and declared MMCs EP 133 valid and subsisting.
Apex filed a Motion for Reconsideration with the DENR which was subsequently
denied. Apex then filed an appeal before the Office of the President. On 27 July
1989, the Office of the President, through Assistant Executive Secretary for Legal
Affairs, Cancio C. Garcia,dismissed Apexs appeal and affirmed the DENR ruling.
Apex filed a Petition for Certiorari before this Court. The Petition was docketed as
G.R. No. 92605 entitled, "Apex Mining Co., Inc. v. Garcia." On 16 July 1991, this
Court rendered a Decision against Apex holding that the disputed area is a forest
reserve; hence, the proper procedure in acquiring mining rights therein is by
initially applying for a permit to prospect with the BFD and not through a
registration of DOL with the BMG.
On 27 December 1991, then DENR Secretary Fulgencio Factoran, Jr. issued
Department Administrative Order No. 66 (DAO No. 66) declaring 729 hectares of
the areas covered by the Agusan-Davao-Surigao Forest Reserve as non-forest
lands and open to small-scale mining purposes.
As DAO No. 66 declared a portion of the contested area open to small scale
miners, several mining entities filed applications for Mineral Production Sharing
Agreement (MPSA).
On 25 August 1993, Monkayo Integrated Small Scale Miners Association
(MISSMA) filed an MPSA application which was denied by the BMG on the
grounds that the area applied for is within the area covered by MMC EP 133 and
that the MISSMA was not qualified to apply for an MPSA under DAO No. 82, Series
of 1990.
On 5 January 1994, Rosendo Villaflor and his group filed before the BMG a
Petition for Cancellation of EP 133 and for the admission of their MPSA
Application. The Petition was docketed as RED Mines Case No. 8-8-94. Davao
United Miners Cooperative (DUMC) and Balite intervened and likewise sought the
cancellation of EP 133.
On 16 February 1994, MMC assigned EP 133 to Southeast Mindanao Gold Mining
Corporation (SEM), a domestic corporation which is alleged to be a 100% -owned
subsidiary of MMC.

On 14 June 1994, Balite filed with the BMG an MPSA application within the
contested area that was later on rejected.
On 23 June 1994, SEM filed an MPSA application for the entire 4,941.6759
hectares under EP 133, which was also denied by reason of the pendency of RED
Mines Case No. 8-8-94. On 1 September 1995, SEM filed another MPSA
application.
On 20 October 1995, BMG accepted and registered SEMs MPSA application and
the Deed of Assignment over EP 133 executed in its favor by MMC. SEMs
application was designated MPSA Application No. 128 (MPSAA 128). After
publication of SEMs application, the following filed before the BMG their adverse
claims or oppositions:
a) MAC Case No. 004 (XI) JB Management Mining Corporation;
b) MAC Case No. 005(XI) Davao United Miners Cooperative;
c) MAC Case No. 006(XI) Balite Integrated Small Scale Miners Cooperative;
d) MAC Case No. 007(XI) Monkayo Integrated Small Scale Miners Association,
Inc. (MISSMA);
e) MAC Case No. 008(XI) Paper Industries Corporation of the Philippines;
f) MAC Case No. 009(XI) Rosendo Villafor, et al.;
g) MAC Case No. 010(XI) Antonio Dacudao;
h) MAC Case No. 011(XI) Atty. Jose T. Amacio;
i) MAC Case No. 012(XI) Puting-Bato Gold Miners Cooperative;
j) MAC Case No. 016(XI) Balite Communal Portal Mining Cooperative;
k) MAC Case No. 97-01(XI) Romeo Altamera, et al.
To address the matter, the DENR constituted a Panel of Arbitrators (PA) to resolve
the following:
(a) The adverse claims on MPSAA No. 128; and
(b) The Petition to Cancel EP 133 filed by Rosendo Villaflor docketed as RED Case
No. 8-8-94.
On 13 June 1997, the PA rendered a resolution in RED Mines Case No. 8-8-94. As
to the Petition for Cancellation of EP 133 issued to MMC, the PA relied on the
ruling in Apex Mining Co., Inc. v. Garcia and opined that EP 133 was valid and
subsisting. It also declared that the BMG Director, under Section 99 of the
Consolidated Mines Administrative Order implementing Presidential Decree No.
463, was authorized to issue exploration permits and to renew the same without
limit.

With respect to the adverse claims on SEMs MPSAA No. 128, the PA ruled that
adverse claimants petitions were not filed in accordance with the existing rules
and regulations governing adverse claims because the adverse claimants failed
to submit the sketch plan containing the technical description of their respective
claims, which was a mandatory requirement for an adverse claim that would
allow the PA to determine if indeed there is an overlapping of the area occupied
by them and the area applied for by SEM. It added that the adverse claimants
were not claim owners but mere occupants conducting illegal mining activities at
the contested area since only MMC or its assignee SEM had valid mining claims
over the area as enunciated in Apex Mining Co., Inc. v. Garcia. Also, it maintained
that the adverse claimants were not qualified as small-scale miners under DENR
Department Administrative Order No. 34 (DAO No. 34), or the Implementing
Rules and Regulation of Republic Act No. 7076 (otherwise known as the "Peoples
Small-Scale Mining Act of 1991"), as they were not duly licensed by the DENR to
engage in the extraction or removal of minerals from the ground, and that they
were large-scale miners. The decretal portion of the PA resolution pronounces:
VIEWED IN THE LIGHT OF THE FOREGOING, the validity of Exploration Permit No.
133 is hereby reiterated and all the adverse claims against MPSAA No. 128 are
DISMISSED.
Undaunted by the PA ruling, the adverse claimants appealed to the Mines
Adjudication Board (MAB). In a Decision dated 6 January 1998, the MAB
considered erroneous the dismissal by the PA of the adverse claims filed against
MMC and SEM over a mere technicality of failure to submit a sketch plan. It
argued that the rules of procedure are not meant to defeat substantial justice as
the former are merely secondary in importance to the latter. Dealing with the
question on EP 133s validity, the MAB opined that said issue was not crucial and
was irrelevant in adjudicating the appealed case because EP 133 has long
expired due to its non-renewal and that the holder of the same, MMC, was no
longer a claimant of the Agusan-Davao-Surigao Forest Reserve having
relinquished its right to SEM. After it brushed aside the issue of the validity of EP
133 for being irrelevant, the MAB proceeded to treat SEMs MPSA application
over the disputed area as an entirely new and distinct application. It approved
the MPSA application, excluding the area segregated by DAO No. 66, which
declared 729 hectares within the Diwalwal area as non-forest lands open for
small-scale mining. The MAB resolved:
WHEREFORE, PREMISES CONSIDERED, the decision of the Panel of Arbitrators
dated 13 June 1997 is hereby VACATED and a new one entered in the records of
the case as follows:
1. SEMs MPSA application is hereby given due course subject to the full and
strict compliance of the provisions of the Mining Act and its Implementing Rules
and Regulations;
2. The area covered by DAO 66, series of 1991, actually occupied and actively
mined by the small-scale miners on or before August 1, 1987 as determined by

the Provincial Mining Regulatory Board (PMRB), is hereby excluded from the area
applied for by SEM;
3. A moratorium on all mining and mining-related activities, is hereby imposed
until such time that all necessary procedures, licenses, permits, and other
requisites as provided for by RA 7076, the Mining Act and its Implementing Rules
and Regulations and all other pertinent laws, rules and regulations are complied
with, and the appropriate environmental protection measures and safeguards
have been effectively put in place;
4. Consistent with the spirit of RA 7076, the Board encourages SEM and all smallscale miners to continue to negotiate in good faith and arrive at an agreement
beneficial to all. In the event of SEMs strict and full compliance with all the
requirements of the Mining Act and its Implementing Rules and Regulations, and
the concurrence of the small-scale miners actually occupying and actively mining
the area, SEM may apply for the inclusion of portions of the areas segregated
under paragraph 2 hereof, to its MPSA application. In this light, subject to the
preceding paragraph, the contract between JB [JB Management Mining
Corporation] and SEM is hereby recognized.
Dissatisfied, the Villaflor group and Balite appealed the decision to this Court.
SEM, aggrieved by the exclusion of 729 hectares from its MPSA application,
likewise appealed. Apex filed a Motion for Leave to Admit Petition for Intervention
predicated on its right to stake its claim over the Diwalwal gold rush which was
granted by the Court. These cases, however, were remanded to the Court of
Appeals for proper disposition pursuant to Rule 43 of the 1997 Rules of Civil
Procedure. The Court of Appeals consolidated the remanded cases as CA-G.R. SP
No. 61215 and No. 61216.
In the assailed Decision dated 13 March 2002, the Court of Appeals affirmed in
toto the decision of the PA and declared null and void the MAB decision.
The Court of Appeals, banking on the premise that the SEM is the agent of MMC
by virtue of its assignment of EP 133 in favor of SEM and the purported fact that
SEM is a 100% subsidiary of MMC, ruled that the transfer of EP 133 was valid. It
argued that since SEM is an agent of MMC, the assignment of EP 133 did not
violate the condition therein prohibiting its transfer except to MMCs duly
designated agent. Thus, despite the non-renewal of EP 133 on 6 July 1994, the
Court of Appeals deemed it relevant to declare EP 133 as valid since MMCs
mining rights were validly transferred to SEM prior to its expiration.
The Court of Appeals also ruled that MMCs right to explore under EP 133 is a
property right which the 1987 Constitution protects and which cannot be
divested without the holders consent. It stressed that MMCs failure to proceed
with the extraction and utilization of minerals did not diminish its vested right to
explore because its failure was not attributable to it.
Reading Proclamation No. 369, Section 11 of Commonwealth Act 137, and
Sections 6, 7, and 8 of Presidential Decree No. 463, the Court of Appeals

concluded that the issuance of DAO No. 66 was done by the DENR Secretary
beyond his power for it is the President who has the sole power to withdraw from
the forest reserve established under Proclamation No. 369 as non-forest land for
mining purposes. Accordingly, the segregation of 729 hectares of mining areas
from the coverage of EP 133 by the MAB was unfounded.
The Court of Appeals also faulted the DENR Secretary in implementing DAO No.
66 when he awarded the 729 hectares segregated from the coverage area of EP
133 to other corporations who were not qualified as small-scale miners under
Republic Act No. 7076.
As to the petitions of Villaflor and company, the Court of Appeals argued that
their failure to submit the sketch plan to the PA, which is a jurisdictional
requirement, was fatal to their appeal. It likewise stated the Villaflor and
companys mining claims, which were based on their alleged rights under DAO
No. 66, cannot stand as DAO No. 66 was null and void. The dispositive portion of
the Decision decreed:
WHEREFORE, premises considered, the Petition of Southeast Mindanao Gold
Mining Corporation is GRANTED while the Petition of Rosendo Villaflor, et al., is
DENIED for lack of merit. The Decision of the Panel of Arbitrators dated 13 June
1997 is AFFIRMED in toto and the assailed MAB Decision is hereby SET ASIDE and
declared as NULL and VOID.
Hence, the instant Petitions for Review on Certiorari under Rule 45 of the Rules of
Court filed by Apex, Balite and MAB.
During the pendency of these Petitions, President Gloria Macapagal-Arroyo issued
Proclamation No. 297 dated 25 November 2002. This proclamation excluded an
area of 8,100 hectares located in Monkayo, Compostela Valley, and proclaimed
the same as mineral reservation and as environmentally critical area.
Subsequently, DENR Administrative Order No. 2002-18 was issued declaring an
emergency situation in the Diwalwal gold rush area and ordering the stoppage of
all mining operations therein. Thereafter, Executive Order No. 217 dated 17 June
2003 was issued by the President creating the National Task Force Diwalwal
which is tasked to address the situation in the Diwalwal Gold Rush Area.
In G.R. No. 152613 and No. 152628, Apex raises the following issues:
I
WHETHER OR NOT SOUTHEAST MINDANAO GOLD MININGS [SEM] E.P. 133 IS
NULL AND VOID DUE TO THE FAILURE OF MARCOPPER TO COMPLY WITH THE
TERMS AND CONDITIONS PRESCRIBED IN EP 133.
II
WHETHER OR NOT APEX HAS A SUPERIOR AND PREFERENTIAL RIGHT TO STAKE
ITS CLAIM OVER THE ENTIRE 4,941 HECTARES AGAINST SEM AND THE OTHER

CLAIMANTS PURSUANT TO THE TIME-HONORED PRINCIPLE IN MINING LAW THAT


"PRIORITY IN TIME IS PRIORITY IN RIGHT."
In G.R. No. 152619-20, Balite anchors its petition on the following grounds:
I
WHETHER OR NOT THE MPSA OF SEM WHICH WAS FILED NINE (9) DAYS LATE
(JUNE 23, 1994) FROM THE FILING OF THE MPSA OF BALITE WHICH WAS FILED ON
JUNE 14, 1994 HAS A PREFERENTIAL RIGHT OVER THAT OF BALITE.
II
WHETHER OR NOT THE DISMISSAL BY THE PANEL OF ARBITRATORS OF THE
ADVERSE CLAIM OF BALITE ON THE GROUND THAT BALITE FAILED TO SUBMIT
THE REQUIRED SKETCH PLAN DESPITE THE FACT THAT BALITE, HAD IN FACT
SUBMITTED ON TIME WAS A VALID DISMISSAL OF BALITES ADVERSE CLAIM.
III
WHETHER OR NOT THE ACTUAL OCCUPATION AND SMALL-MINING OPERATIONS
OF BALITE PURSUANT TO DAO 66 IN THE 729 HECTARES WHICH WAS PART OF
THE 4,941.6759 HECTARES COVERED BY ITS MPSA WHICH WAS REJECTED BY THE
BUREAU OF MINES AND GEOSCIENCES WAS ILLEGAL.
In G.R. No. 152870-71, the MAB submits two issues, to wit:
I
WHETHER OR NOT EP NO. 133 IS STILL VALID AND SUBSISTING.
II
WHETHER OR NOT THE SUBSEQUENT ACTS OF THE GOVERNMENT SUCH AS THE
ISSUANCE OF DAO NO. 66, PROCLAMATION NO. 297, AND EXECUTIVE ORDER 217
CAN OUTWEIGH EP NO. 133 AS WELL AS OTHER ADVERSE CLAIMS OVER THE
DIWALWAL GOLD RUSH AREA.
The common issues raised by petitioners may be summarized as follows:
I. Whether or not the Court of Appeals erred in upholding the validity and
continuous existence of EP 133 as well as its transfer to SEM;
II. Whether or not the Court of Appeals erred in declaring that the DENR
Secretary has no authority to issue DAO No. 66; and
III. Whether or not the subsequent acts of the executive department such as the
issuance of Proclamation No. 297, and DAO No. 2002-18 can outweigh Apex and
Balites claims over the Diwalwal Gold Rush Area.
On the first issue, Apex takes exception to the Court of Appeals ruling upholding
the validity of MMCs EP 133 and its subsequent transfer to SEM asserting that
MMC failed to comply with the terms and conditions in its exploration permit,

thus, MMC and its successor-in-interest SEM lost their rights in the Diwalwal Gold
Rush Area. Apex pointed out that MMC violated four conditions in its permit. First,
MMC failed to comply with the mandatory work program, to complete exploration
work, and to declare a mining feasibility. Second, it reneged on its duty to submit
an Environmental Compliance Certificate. Third, it failed to comply with the
reportorial requirements. Fourth, it violated the terms of EP 133 when it assigned
said permit to SEM despite the explicit proscription against its transfer.
Apex likewise emphasizes that MMC failed to file its MPSA application required
under DAO No. 82 which caused its exploration permit to lapse because DAO No.
82 mandates holders of exploration permits to file a Letter of Intent and a MPSA
application not later than 17 July 1991. It said that because EP 133 expired prior
to its assignment to SEM, SEMs MPSA application should have been evaluated
on its own merit.
As regards the Court of Appeals recognition of SEMs vested right over the
disputed area, Apex bewails the same to be lacking in statutory bases. According
to Apex, Presidential Decree No. 463 and Republic Act No. 7942 impose upon the
claimant the obligation of actually undertaking exploration work within the
reserved lands in order to acquire priority right over the area. MMC, Apex claims,
failed to conduct the necessary exploration work, thus, MMC and its successor-ininterest SEM lost any right over the area.
In its Memorandum, Balite maintains that EP 133 of MMC, predecessor-in-interest
of SEM, is an expired and void permit which cannot be made the basis of SEMs
MPSA application.
Similarly, the MAB underscores that SEM did not acquire any right from MMC by
virtue of the transfer of EP 133 because the transfer directly violates the express
condition of the exploration permit stating that "it shall be for the exclusive use
and benefit of the permittee or his duly authorized agents." It added that while
MMC is the permittee, SEM cannot be considered as MMCs duly designated
agent as there is no proof on record authorizing SEM to represent MMC in its
business dealings or undertakings, and neither did SEM pursue its interest in the
permit as an agent of MMC. According to the MAB, the assignment by MMC of EP
133 in favor of SEM did not make the latter the duly authorized agent of MMC
since the concept of an agent under EP 133 is not equivalent to the concept of
assignee. It finds fault in the assignment of EP 133 which lacked the approval of
the DENR Secretary in contravention of Section 25 of Republic Act No. 7942
requiring his approval for a valid assignment or transfer of exploration permit to
be valid.
SEM, on the other hand, counters that the errors raised by petitioners Apex,
Balite and the MAB relate to factual and evidentiary matters which this Court
cannot inquire into in an appeal by certiorari.
Effects of the Decision

The decision affirms the application in this jurisdiction of the Regalian Doctrine,
which means that the State has dominion over all agricultural, timber and
mineral lands. It also affirms that Proclamation 297 dated November 25, 2002
was a constitutionally-sanctioned act.
Proclamation 297 has excluded 8,100 hectares of mineral land in Monkayo,
Compostela Valley, and has declared that:
xxx. Mining operations in the area may be undertaken either by the DENR
directly, subject to payment of just compensation that may be due to legitimate
and existing claimants, or thru a qualified contractor, subject to existing rights, if
any.
It is clear that under the Proclamation 297 regime of exploration, development
and utilization of mineral resources within the Diwalwal Gold Rush Area, the State
is bound to either pay lawful claimants just compensation (should it elect to
operate the mine directly), or to honor existing rights (should it choose to
outsource mining operations to a service contractor). The priority right of an
interested party is only deemed superseded by Proclamation 297 and DENR
Administrative Order (DAO) 2002-18 if the State elects to directly undertake
mining operations in the Diwalwal Gold Rush Area (but nonetheless requires the
State to pay just compensation that may be due to legitimate and existing
claimants). If the State chooses to outsource mining operations to a service
contractor, Proclamation 297 mandates that the existing rights should still be
recognized and honored.
Yet, the decision states that:
The issue on who has priority right over the disputed area is deemed overtaken
by the above subsequent developments particularly with the issuance of
Proclamation 297 and DAO No. 2002-18, both being constitutionally-sanctioned
acts of the Executive Branch. Mining operations in the Diwalwal Mineral
Reservation are now, therefore, within the full control of the State through the
executive branch. Pursuant to Section 5 of Republic Act No. 7942, the State can
either directly undertake the exploration, development and utilization of the area
or it can enter into agreements with qualified entities, viz:
SEC 5. Mineral Reservations. When the national interest so requires, such as
when there is a need to preserve strategic raw materials for industries critical to
national development, or certain minerals for scientific, cultural or ecological
value, the President may establish mineral reservations upon the
recommendation of the Director through the Secretary. Mining operations in
existing mineral reservations and such other reservations as may thereafter be
established, shall be undertaken by the Department or through a contractor x x x
.
It is now up to the Executive Department whether to take the first option, i.e., to
undertake directly the mining operations of the Diwalwal Gold Rush Area. As
already ruled, the State may not be precluded from considering a direct takeover

of the mines, if it is the only plausible remedy in sight to the gnawing


complexities generated by the gold rush. The State need be guided only by the
demands of public interest in settling on this option, as well as its material and
logistic feasibility. The State can also opt to award mining operations in the
mineral reservation to private entities including petitioners Apex and Balite, if it
wishes. The exercise of this prerogative lies with the Executive Department over
which courts will not interfere.
That the aforequoted passage of the decision, particularly the highlighted
portion, has generated interpretation by the parties causes me to pause in order
to ask whether the issuance of Proclamation 297 declaring the disputed area as a
mineral reservation outweighs the claims of Apex and Balite over the Diwalwal
Gold Rush Area; and which between Apex and Balite will have priority once the
Government opts to award mining operations in the mineral reservation to
private entities, including Apex and Balite, if it so wishes.
I humbly submit that the answers to these questions should be given by the
Court now, not later, if we are to prevent another round of litigation that will
surely undermine the efforts of the Government to establish a new order of
peace, development and prosperity in the Diwalwal Gold Rush Area.
I also submit that these questions are entirely justiciable in the present case. We
have already eliminated the claim of SEM and its parent company, Marcopper
Mining Corporation (MMC), due to the latters numerous violations of the terms of
Exploration Permit (EP) 133, which meanwhile expired without being renewed.
The issuance of Proclamation 297, and the declaration by this Court of the nullity
of DAO No. 66 (declaring 729 hectares within the Agusan-Davao-Surigao Forest
Reserve as non-forest land open to small-scale mining operations) necessitate a
final and definitive determination of the existing right of the remaining claimants
in this dispute, who can replace SEM and fill the void created by the expiration of
EP 133.
I have no difficulty in understanding from the decision that the remaining
claimants are Apex and Balite.
Submissions
The right of a legitimate and existing claimant envisioned in Proclamation 297
(i.e., "Mining operations in the area may be undertaken either by the DENR
directly, subject to payment of just compensation that may be due to legitimate
and existing claimants, or thru a qualified contractor, subject to existing rights, if
any") is a real right acquired over time by a person who discovered mineral
deposits, and was first to stake his claim through location and registration with
the mining recorder.
Under Philippine mining laws, which are essentially patterned after AngloAmerican models, the location and registration of a mining claim must be
followed by actual exploration and extraction of mineral deposits. The person
who is first to locate and register his mining claim and who subsequently

explores the area and extracts mineral deposits has a valid and existing right
regardless of technical defect in the registration.
Which between Apex and Balite has priority?
On the one hand, Apex rests its claim to priority on the precept of first-in-time,
first-in-right, a principle that is explicitly recognized by Section 1 of Presidential
Decree (P.D.) No. 99-A, which amended Commonwealth Act (C.A.) No. 137
(Mining Act), which provides:
Whenever there is a conflict between claim owners over a mining claim, whether
mineral or non-mineral, the locator of the claim who first registered his claim
with the proper mining registrar, notwithstanding any defect in form or
technicality, shall have the exclusive right to possess, exploit, explore, develop
and operate such mining claim.
Apex argues that Proclamation 297 does not extinguish its existing right over
Diwalwal Gold Rush Area, because: (1) it conducted exploration work in the area
from 1983 to 1991; (2) it spent a total of P15 million on exploration and
development work alone; and (3) its petition for intervention was admitted by
the Court in this case, which was indicative of its existing right over the disputed
area.
On the other hand, Balite states that it filed on June 14, 1994 its application for a
Mineral Production Sharing Agreement (MPSA) ahead of SEM; and that it had an
existing right over the disputed area by virtue of its native title right under R.A.
No. 8371 (IPRA),2 because its members are indigenous peoples (IPs) belonging to
the four tribes of Mangguangan, Manobo, Mandaya and Dibabawon.
During the oral arguments, Balites counsel described Balite as a "cooperative for
everybody," for its members were comprised of nomads, lowlanders, and IPs
belonging to the four tribes thus mentioned. Balite further asserts that it is a
small-scale mining cooperative, as defined under R.A. No. 7076, and is thus
entitled to apply for 25% percent of the Diwalwal mineral reservation.
Under the circumstances, it should be Apex who should be recognized as the
claimant with priority, with or without Proclamation 297.
Firstly: Being a cooperative whose principal purpose is to engage in the business
of mining, and not in the protection of the rights and interest of cultural
minorities, Balite is not entitled to preference by virtue of IPRA. I must point out
that IPRA speaks of rights of IPs, and of those belonging to the Indigenous
Cultural Communities (ICCs), but does not include a cooperative like Balite.
Under Sec. 7(b) of IPRA, only IPs and ICCs have the right to "manage and
conserve natural resources within the territories and uphold the responsibilities
for future generations; to benefit and share the profits from the allocation and
utilization of natural resources." IPs and ICCs have also the "right to negotiate
the terms and conditions for the exploration of natural resources."

I hasten to clarify, however, that in order to protect the rights of its IP members
over certain portions of the Diwalwal mineral reservation, Balite may represent
its IP members in negotiating the terms and conditions for the sharing of profit
and other benefits arising from the utilization of the mineral deposits that lay
beneath their ancestral land with the service contractor chosen by the State, but
it cannot directly undertake exploration, development and mining in the Diwalwal
mineral reservation.
Secondly: Upon learning of MMCs assignment of its EP 133 to SEM, Balite filed
with the Regional Executive Director of the Department of Environment and
Natural Resources (DENR) a petition seeking the cancellation of EP 133, and the
admission of its MPSA (entitled Rosendo Villaflor, et al. v. Marcopper Mining
Corporation and docketed as RED MINES Case No. 8-8-94). The petition was
referred to the Panel of Arbitrator (PA) pursuant to R.A. No. 7942.
Yet, Balites application for an MPSA, although filed prior to SEMs application, did
not qualify Balite as a first locator and registrant of a mining claim, because Apex
had registered its claims with the Bureau of Mines and Geo-Sciences (BMG) in
1982, much earlier than either Balite, or any other claimant.
Thirdly: While discovery and prior registration of a mining claim with the mining
recorder pave the way for a claimant to acquire a priority right over mineral land,
it is also important that the claimant must follow his discovery and registration
with actual exploration and mining. The final stage of exploration, development
and utilization is crucial to bestow upon the discoverer or first registrant an
existing right that he can invoke against the whole world, even against the
government.
Apex met the requirements of discovery, registration, actual exploration and
mining. In 1982, it explored and developed the area covered by its claims located
within the Diwalwal mineral reservation. It constructed mining tunnels, access
roads and bridges in and around its mine site to facilitate the extraction and
processing of gold ores. It sold tons of gold bullions to the Philippine government
from 1982 to 1992, and remitted millions of pesos in tax revenues to the national
coffers. It operated a modern gold processing plant, as contrasted from gold
panners who used crude mining techniques to extract gold ores.
Fourthly: The primordial consideration for granting or recognizing the existence
of real rights over mineral lands is discovery. The State rewards the discoverer of
mineral deposits for his labor and perseverance, and encourages other persons
to search for more minerals and sources of renewable energy to propel the
Nations economic growth and development. For this reason, the Philippines
adheres to the first-in-time, first-in-right postulate not only in resolving disputes
involving conflicting claims, but also in determining existing rights of claimants.
In view of the foregoing, Apex has an existing priority right in the Diwalwal
mineral reservation by virtue of first-in-time, first-in-right, for having performed
the requisite acts of location and registration, followed by actual exploration and
mining. Although it did not follow the procedure for registering its mining claim

laid down in theApex Mining Co., Inc. v. Garcia (G.R. No. 92605, July 16, 1991,
199 SCRA 278), Apex is not barred from acquiring a superior right over the area
to the exclusion of other claimants, because the registration of its claims predated that of the other claimants, including MMC, and because by express
provision of law (i.e., Sec. 1 of P.D. No. 99-A, which amended C.A. No. 137, Mining
Act, supra) no defect in form or technicality should bar the priority.
Fifthly: That the Court in Apex Mining Co., Inc. v. Garcia affirmed the decision of
the OP and the DENR nullifying and rendering inoperative Apexs mining claims
or declarations of location (DOLs) is of no moment. The priority right of Apex that
this Court ought to recognize herein, which the State must honor, does not
emanate from the DOLs, but is predicated on the principle of first-in-time, first-inright. The right of Apex to be recognized herein is distinct from its right as a
registered owner and operator of the DOLs, considering that the former arises
from a vacuum resulting from the extinction and nullification of MMCs EP 133.
Conclusion
I vote to grant the motion for clarification of Apex Mining Co., Inc., and to modify
the decision by declaring that Apex Mining Co., Inc. has an existing priority right
to explore, develop and utilize the mineral deposits in the Diwalwal Gold Rush
Area pursuant to Proclamation 297, subject only to the superior right of the State
to directly explore, develop and utilize.
LUCAS P. BERSAMIN
Associate Justice

Footnotes
1

Section 1. Rendition of judgments and final orders. A judgment or final order


determining the merits of the case shall be in writing personally and directly
prepared by the judge, stating clearly and distinctly the facts and the law on
which it is based, signed by him, and filed with the clerk of the court. (1a)
2

Indigenous People Rights Act of 1997.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. L-7089

August 31, 1954

DOMINGO DE LA CRUZ, plaintiff-appellant,


vs.
NORTHERN THEATRICAL ENTERPRISES INC., ET AL., defendants-appellees.

Conrado Rubio for appellant.


Ruiz, Ruiz, Ruiz, Ruiz, and Benjamin Guerrero for appellees.
MONTEMAYOR, J.:
The facts in this case based on an agreed statement of facts are simple. In the
year 1941 the Northern Theatrical Enterprises Inc., a domestic corporation
operated a movie house in Laoag, Ilocos Norte, and among the persons
employed by it was the plaintiff DOMINGO DE LA CRUZ, hired as a special guard
whose duties were to guard the main entrance of the cine, to maintain peace and
order and to report the commission of disorders within the premises. As such
guard he carried a revolver. In the afternoon of July 4, 1941, one Benjamin Martin
wanted to crash the gate or entrance of the movie house. Infuriated by the
refusal of plaintiff De la Cruz to let him in without first providing himself with a
ticket, Martin attacked him with a bolo. De la Cruz defendant himself as best he
could until he was cornered, at which moment to save himself he shot the gate
crasher, resulting in the latter's death.
For the killing, De la Cruz was charged with homicide in Criminal Case No. 8449
of the Court of First Instance of Ilocos Norte. After a re-investigation conducted
by the Provincial Fiscal the latter filed a motion to dismiss the complaint, which
was granted by the court in January 1943. On July 8, 1947, De la Cruz was again
accused of the same crime of homicide, in Criminal Case No. 431 of the same
Court. After trial, he was finally acquitted of the charge on January 31, 1948. In
both criminal cases De la Cruz employed a lawyer to defend him. He demanded
from his former employer reimbursement of his expenses but was refused, after
which he filed the present action against the movie corporation and the three
members of its board of directors, to recover not only the amounts he had paid
his lawyers but also moral damages said to have been suffered, due to his worry,
his neglect of his interests and his family as well in the supervision of the
cultivation of his land, a total of P15,000. On the basis of the complaint and the
answer filed by defendants wherein they asked for the dismissal of the
complaint, as well as the agreed statement of facts, the Court of First Instance of
Ilocos Norte after rejecting the theory of the plaintiff that he was an agent of the
defendants and that as such agent he was entitled to reimbursement of the
expenses incurred by him in connection with the agency (Arts. 1709-1729 of the
old Civil Code), found that plaintiff had no cause of action and dismissed the
complaint without costs. De la Cruz appealed directly to this Tribunal for the
reason that only questions of law are involved in the appeal.
We agree with the trial court that the relationship between the movie corporation
and the plaintiff was not that of principal and agent because the principle of
representation was in no way involved. Plaintiff was not employed to represent
the defendant corporation in its dealings with third parties. He was a mere
employee hired to perform a certain specific duty or task, that of acting as
special guard and staying at the main entrance of the movie house to stop gate
crashers and to maintain peace and order within the premises. The question
posed by this appeal is whether an employee or servant who in line of duty and

while in the performance of the task assigned to him, performs an act which
eventually results in his incurring in expenses, caused not directly by his master
or employer or his fellow servants or by reason of his performance of his duty,
but rather by a third party or stranger not in the employ of his employer, may
recover said damages against his employer.
The learned trial court in the last paragraph of its decision dismissing the
complaint said that "after studying many laws or provisions of law to find out
what law is applicable to the facts submitted and admitted by the parties, has
found none and it has no other alternative than to dismiss the complaint." The
trial court is right. We confess that we are not aware of any law or judicial
authority that is directly applicable to the present case, and realizing the
importance and far-reaching effect of a ruling on the subject-matter we have
searched, though vainly, for judicial authorities and enlightenment. All the laws
and principles of law we have found, as regards master and servants, or
employer and employee, refer to cases of physical injuries, light or serious,
resulting in loss of a member of the body or of any one of the senses, or
permanent physical disability or even death, suffered in line of duty and in the
course of the performance of the duties assigned to the servant or employee,
and these cases are mainly governed by the Employer's Liability Act and the
Workmen's Compensation Act. But a case involving damages caused to an
employee by a stranger or outsider while said employee was in the performance
of his duties, presents a novel question which under present legislation we are
neither able nor prepared to decide in favor of the employee.
In a case like the present or a similar case of say a driver employed by a
transportation company, who while in the course of employment runs over and
inflicts physical injuries on or causes the death of a pedestrian; and such driver is
later charged criminally in court, one can imagine that it would be to the interest
of the employer to give legal help to and defend its employee in order to show
that the latter was not guilty of any crime either deliberately or through
negligence, because should the employee be finally held criminally liable and he
is found to be insolvent, the employer would be subsidiarily liable. That is why,
we repeat, it is to the interest of the employer to render legal assistance to its
employee. But we are not prepared to say and to hold that the giving of said
legal assistance to its employees is a legal obligation. While it might yet and
possibly be regarded as a normal obligation, it does not at present count with the
sanction of man-made laws.
If the employer is not legally obliged to give, legal assistance to its employee and
provide him with a lawyer, naturally said employee may not recover the amount
he may have paid a lawyer hired by him.
Viewed from another angle it may be said that the damage suffered by the
plaintiff by reason of the expenses incurred by him in remunerating his lawyer, is
not caused by his act of shooting to death the gate crasher but rather by the
filing of the charge of homicide which made it necessary for him to defend
himself with the aid of counsel. Had no criminal charge been filed against him,

there would have been no expenses incurred or damage suffered. So the damage
suffered by plaintiff was caused rather by the improper filing of the criminal
charge, possibly at the instance of the heirs of the deceased gate crasher and by
the State through the Fiscal. We say improper filing, judging by the results of the
court proceedings, namely, acquittal. In other words, the plaintiff was innocent
and blameless. If despite his innocence and despite the absence of any criminal
responsibility on his part he was accused of homicide, then the responsibility for
the improper accusation may be laid at the door of the heirs of the deceased and
the State, and so theoretically, they are the parties that may be held responsible
civilly for damages and if this is so, we fail to see now this responsibility can be
transferred to the employer who in no way intervened, much less initiated the
criminal proceedings and whose only connection or relation to the whole affairs
was that he employed plaintiff to perform a special duty or task, which task or
duty was performed lawfully and without negligence.
Still another point of view is that the damages incurred here consisting of the
payment of the lawyer's fee did not flow directly from the performance of his
duties but only indirectly because there was an efficient, intervening cause,
namely, the filing of the criminal charges. In other words, the shooting to death
of the deceased by the plaintiff was not the proximate cause of the damages
suffered but may be regarded as only a remote cause, because from the
shooting to the damages suffered there was not that natural and continuous
sequence required to fix civil responsibility.
In view of the foregoing, the judgment of the lower court is affirmed. No costs.
Bengzon, Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, and Reyes,
J.B.L., JJ., concur.
Republic of the Philippines
SUPREME COURT
THIRD DIVISION
G.R. No. 156262 July 14, 2005
MARIA TUAZON, ALEJANDRO P. TUAZON, MELECIO P. TUAZON, Spouses
ANASTACIO and MARY T. BUENAVENTURA, Petitioners,
vs.
HEIRS OF BARTOLOME RAMOS, Respondents.
DECISION
PANGANIBAN, J.:
Stripped of nonessentials, the present case involves the collection of a sum of
money. Specifically, this case arose from the failure of petitioners to pay
respondents predecessor-in-interest. This fact was shown by the nonencashment of checks issued by a third person, but indorsed by herein Petitioner
Maria Tuazon in favor of the said predecessor. Under these circumstances, to

enable respondents to collect on the indebtedness, the check drawer need not
be impleaded in the Complaint. Thus, the suit is directed, not against the drawer,
but against the debtor who indorsed the checks in payment of the obligation.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court,
challenging the July 31, 2002 Decision 2 of the Court of Appeals (CA) in CA-GR CV
No. 46535. The decretal portion of the assailed Decision reads:
"WHEREFORE, the appeal is DISMISSED and the appealed decision is AFFIRMED."
On the other hand, the affirmed Decision 3 of Branch 34 of the Regional Trial Court
(RTC) of Gapan, Nueva Ecija, disposed as follows:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against
the defendants, ordering the defendants spouses Leonilo Tuazon and Maria
Tuazon to pay the plaintiffs, as follows:
"1. The sum of P1,750,050.00, with interests from the filing of the second
amended complaint;
"2. The sum of P50,000.00, as attorneys fees;
"3. The sum of P20,000.00, as moral damages
"4. And to pay the costs of suit.
x x x x x x x x x"4
The Facts
The facts are narrated by the CA as follows:
"[Respondents] alleged that between the period of May 2, 1988 and June 5,
1988, spouses Leonilo and Maria Tuazon purchased a total of 8,326 cavans of
rice from [the deceased Bartolome] Ramos [predecessor-in-interest of
respondents]. That of this [quantity,] x x x only 4,437 cavans [have been paid for
so far], leaving unpaid 3,889 cavans valued at P1,211,919.00. In payment
therefor, the spouses Tuazon issued x x x [several] Traders Royal Bank checks.
xxxxxxxxx
[B]ut when these [checks] were encashed, all of the checks bounced due to
insufficiency of funds. [Respondents] advanced that before issuing said checks[,]
spouses Tuazon already knew that they had no available fund to support the
checks, and they failed to provide for the payment of these despite repeated
demands made on them.
"[Respondents] averred that because spouses Tuazon anticipated that they
would be sued, they conspired with the other [defendants] to defraud them as
creditors by executing x x x fictitious sales of their properties. They executed x x

x simulated sale[s] [of three lots] in favor of the x x x spouses Buenaventura x x


x[,] as well as their residential lot and the house thereon[,] all located at Nueva
Ecija, and another simulated deed of sale dated July 12, 1988 of a Stake Toyota
registered with the Land Transportation Office of Cabanatuan City on September
7, 1988. [Co-petitioner] Melecio Tuazon, a son of spouses Tuazon, registered a
fictitious Deed of Sale on July 19, 1988 x x x over a residential lot located at
Nueva Ecija. Another simulated sale of a Toyota Willys was executed on January
25, 1988 in favor of their other son, [co-petitioner] Alejandro Tuazon x x x. As a
result of the said sales, the titles of these properties issued in the names of
spouses Tuazon were cancelled and new ones were issued in favor of the
[co-]defendants spouses Buenaventura, Alejandro Tuazon and Melecio Tuazon.
Resultantly, by the said ante-dated and simulated sales and the corresponding
transfers there was no more property left registered in the names of spouses
Tuazon answerable to creditors, to the damage and prejudice of [respondents].
"For their part, defendants denied having purchased x x x rice from [Bartolome]
Ramos. They alleged that it was Magdalena Ramos, wife of said deceased, who
owned and traded the merchandise and Maria Tuazon was merely her agent.
They argued that it was Evangeline Santos who was the buyer of the rice and
issued the checks to Maria Tuazon as payments therefor. In good faith[,] the
checks were received [by petitioner] from Evangeline Santos and turned over to
Ramos without knowing that these were not funded. And it is for this reason that
[petitioners] have been insisting on the inclusion of Evangeline Santos as an
indispensable party, and her non-inclusion was a fatal error. Refuting that the
sale of several properties were fictitious or simulated, spouses Tuazon contended
that these were sold because they were then meeting financial difficulties but
the disposals were made for value and in good faith and done before the filing of
the instant suit. To dispute the contention of plaintiffs that they were the buyers
of the rice, they argued that there was no sales invoice, official receipts or like
evidence to prove this. They assert that they were merely agents and should not
be held answerable."5
The corresponding civil and criminal cases were filed by respondents against
Spouses Tuazon. Those cases were later consolidated and amended to include
Spouses Anastacio and Mary Buenaventura, with Alejandro Tuazon and Melecio
Tuazon as additional defendants. Having passed away before the pretrial,
Bartolome Ramos was substituted by his heirs, herein respondents.
Contending that Evangeline Santos was an indispensable party in the case,
petitioners moved to file a third-party complaint against her. Allegedly, she was
primarily liable to respondents, because she was the one who had purchased the
merchandise from their predecessor, as evidenced by the fact that the checks
had been drawn in her name. The RTC, however, denied petitioners Motion.
Since the trial court acquitted petitioners in all three of the consolidated criminal
cases, they appealed only its decision finding them civilly liable to respondents.
Ruling of the Court of Appeals

Sustaining the RTC, the CA held that petitioners had failed to prove the existence
of an agency between respondents and Spouses Tuazon. The appellate court
disbelieved petitioners contention that Evangeline Santos should have been
impleaded as an indispensable party. Inasmuch as all the checks had been
indorsed by Maria Tuazon, who thereby became liable to subsequent holders for
the amounts stated in those checks, there was no need to implead Santos.
Hence, this Petition.6
Issues
Petitioners raise the following issues for our consideration:
"1. Whether or not the Honorable Court of Appeals erred in ruling that petitioners
are not agents of the respondents.
"2. Whether or not the Honorable Court of Appeals erred in rendering judgment
against the petitioners despite x x x the failure of the respondents to include in
their action Evangeline Santos, an indispensable party to the suit." 7
The Courts Ruling
The Petition is unmeritorious.
First Issue:
Agency
Well-entrenched is the rule that the Supreme Courts role in a petition under Rule
45 is limited to reviewing errors of law allegedly committed by the Court of
Appeals. Factual findings of the trial court, especially when affirmed by the CA,
are conclusive on the parties and this Court. 8 Petitioners have not given us
sufficient reasons to deviate from this rule.
In a contract of agency, one binds oneself to render some service or to do
something in representation or on behalf of another, with the latters consent or
authority.9 The following are the elements of agency: (1) the partiesconsent,
express or implied, to establish the relationship; (2) the object, which is the
execution of a juridical act in relation to a third person; (3) the representation, by
which the one who acts as an agent does so, not for oneself, but as a
representative; (4) the limitation that the agent acts within the scope of his or
her authority.10 As the basis of agency is representation, there must be, on the
part of the principal, an actual intention to appoint, an intention naturally
inferable from the principals words or actions. In the same manner, there must
be an intention on the part of the agent to accept the appointment and act upon
it. Absent such mutual intent, there is generally no agency. 11
This Court finds no reversible error in the findings of the courts a quo that
petitioners were the rice buyers themselves; they were not mere agents of
respondents in their rice dealership. The question of whether a contract is one of
sale or of agency depends on the intention of the parties. 12

The declarations of agents alone are generally insufficient to establish the fact or
extent of their authority.13 The law makes no presumption of agency; proving its
existence, nature and extent is incumbent upon the person alleging it. 14 In the
present case, petitioners raise the fact of agency as an affirmative defense, yet
fail to prove its existence.
The Court notes that petitioners, on their own behalf, sued Evangeline Santos for
collection of the amounts represented by the bounced checks, in a separate civil
case that they sought to be consolidated with the current one. If, as they claim,
they were mere agents of respondents, petitioners should have brought the suit
against Santos for and on behalf of their alleged principal, in accordance with
Section 2 of Rule 3 of the Rules on Civil Procedure. 15 Their filing a suit against
her in their own names negates their claim that they acted as mere agents in
selling the rice obtained from Bartolome Ramos.
Second Issue:
Indispensable Party
Petitioners argue that the lower courts erred in not allowing Evangeline Santos to
be impleaded as an indispensable party. They insist that respondents Complaint
against them is based on the bouncing checks she issued; hence, they point to
her as the person primarily liable for the obligation.
We hold that respondents cause of action is clearly founded on petitioners
failure to pay the purchase price of the rice. The trial court held that Petitioner
Maria Tuazon had indorsed the questioned checks in favor of respondents, in
accordance with Sections 31 and 63 of the Negotiable Instruments Law. 16 That
Santos was the drawer of the checks is thus immaterial to the respondents
cause of action.
As indorser, Petitioner Maria Tuazon warranted that upon due presentment, the
checks were to be accepted or paid, or both, according to their tenor; and that in
case they were dishonored, she would pay the corresponding amount. 17 After an
instrument is dishonored by nonpayment, indorsers cease to be merely
secondarily liable; they become principal debtors whose liability becomes
identical to that of the original obligor. The holder of a negotiable instrument
need not even proceed against the maker before suing the indorser. 18 Clearly,
Evangeline Santos -- as the drawer of the checks -- is not an indispensable party
in an action against Maria Tuazon, the indorser of the checks.
Indispensable parties are defined as "parties in interest without whom no final
determination can be had."19 The instant case was originally one for the
collection of the purchase price of the rice bought by Maria Tuazon from
respondents predecessor. In this case, it is clear that there is no privity of
contract between respondents and Santos. Hence, a final determination of the
rights and interest of the parties may be made without any need to implead her.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED.
Costs against petitioners.

SO ORDERED.
ARTEMIO V. PANGANIBAN
Associate Justice
Chairman, Third Division
WECONCUR:
ANGELINA SANDOVAL-GUTIERREZ RENATO C. CORONA
Associate Justice Associate Justice
CONCHITA CARPIO MORALES CANCIO C. GARCIA
Associate Justice Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Courts Division.
ARTEMIO V. PANGANIBAN
Associate Justice
Chairman, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairmans Attestation, it is hereby certified that the conclusions in the above
Decision had been reached in consultation before the case was assigned to the
writer of the opinion of the Courts Division.
HILARIO G. DAVIDE, JR.
Chief Justice

Footnotes
1

Rollo, pp. 8-21.

Id., pp. 24-33. Seventeenth Division. Penned by Justice Roberto A. Barrios


(Division chairman) and concurred in by Justices Bienvenido L. Reyes and
Edgardo F. Sundiam (members).
3

Id., pp. 153-175.

Id., p. 174. Citations omitted.

Assailed Decision, pp. 5-7; rollo, pp. 28-30.

The case was deemed submitted for decision on September 8, 2003, upon
receipt by this Court of petitioners Memorandum, signed by Atty. Leoncio P.
Ferrer. Respondents Memorandum, signed by Atty. Irineo G. Calderon, was
received by the Court on September 5, 2003.
7

Petitioners Memorandum, pp. 9-10. Original in uppercase.

Ceballos v. Intestate Estate of the Late Emigdio Mercado, 430 SCRA 323, 331,
May 28, 2004 (citingBorromeo v. Sun, 375 Phil. 595, October 22, 1999; Go Ong v.
CA, 154 SCRA 270, September 24, 1987.).
9

Article 1868 of the New Civil Code.

10

Manila Memorial Park Cemetery, Inc. v. Linsangan, GR No. 151319, November


22, 2004; Spouses Yu Eng Cho v. Pan American World Airways Inc., 385 Phil. 453,
465, March 27, 2000 (citing Tolentino, Civil Code of the Philippines, p. 396, Vol. V,
1992 ed.).
11

Dominion Insurance Corporation v. CA, 426 Phil. 620, 626, February 6,


2002; Victorias Milling Co., Inc. v. CA, 389 Phil. 184, 196, June 19, 2000.
12

Victorias Milling Co., Inc. v. CA, supra, p. 197.

13

Litonjua v. Fernandez, 427 SCRA 478, 493, April 14, 2004.

14

Victorias Milling Co., Inc. v. CA, supra, p. 196; Lim v. CA, 321 Phil. 782, 794,
December 19, 1995 (citingPeople v. Yabut, 76 SCRA 624, April 29, 1977).
15

"SEC. 2. Parties in interest. - A real party in interest is the party who stands to
be benefited or injured by the judgment in the suit, or the party entitled to the
avails of the suit. Unless otherwise authorized by law or these Rules, every action
must be prosecuted or defended in the name of the real party in interest."
16

"SEC. 31. Indorsement; how made. - The indorsement must be written on the
instrument itself or upon a paper attached thereto. The signature of the indorser,
without additional words, is a sufficient indorsement."
SEC. 63. When a person deemed indorser. - A person placing his signature upon
an instrument otherwise than as maker, drawer, or acceptor, is deemed to be
indorser unless he clearly indicates by appropriate words his intention to be
bound in some other capacity."
17

66, id.

18

Metropol (Bacolod) Financing & Investment Corp. v. Sambok Motors Company,


205 Phil. 758, 762, February 28, 1983.
19

7, Rule 3 of the Rules of Court.

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 117356 June 19, 2000


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

QUISUMBING, J.:
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. 90-118.1wphi1.nt
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

P14,750,000.00. 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 Receipt-Refined 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.
On January 31, 1990, petitioner replied that it could not allow any
further withdrawals of sugar against SLDR No. 1214M because STM had
already withdrawn all the sugar covered by the cleared checks. 6
On March 2, 1990, CSC sent petitioner a letter demanding the release of
the balance of 23,000 bags.
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 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. 90-1118. 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 receipt 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
purchase 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 court's decision to the Court of Appeals.
On appeal, petitioner averted 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 and since 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 order 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

The appellate court explained the rationale for the modification as


follows:
There is merit in plaintiff-appellee's position.
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.
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 1214M, after which it was not
allowed to withdraw anymore. Documentary evidence
(Exhibit I, Id., p. 78, Exhibit K, Id., p. 80) show that plaintiffappellee 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. Defendantappellant, 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 plaintiffappellee'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.1wphi1.nt
After a second look at the evidence, We see no reason to
overturn the findings of the trial court on this point. 13
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).
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.
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.
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 withdrawn 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
The Civil Coed 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.
It is clear from Article 1868 that the basis of agency is
representation. 17 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, 20and in the absence of such
intent, there is generally no agency. 21 One factor which most clearly
distinguished 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 CCS, 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
established 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, plaintiff-appellee 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 co-plaintiff. 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 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 bad endorsed" to it. 27 The use of the word "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.
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.1wphi1.nt
Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur.
Footnotes
1 Records, p. 60.

2 Ibid.
3 Ibid.
4 Supra Note 1, at 9.
5 Id. at 11.
6 Id. at 12.
7 TSN, October 10, 1990, p. 16.
8 Supra Note 1, at 170.
9 CA Rollo, p. 134.
10 Id. at 131-132.
11 Rollo, p. 89.
12 Id. at 95.
13 Id. at 93-94.
14 Id. at 24.
15 Spouses Felipe and Irma Buag v. Court of Appeals, 303
SCRA 591, 596 (1999); Roman Catholic Archbishop of Manila
v. Court of Appeals, 336 Phil. 138, 149 (1997) citing Gevero
v. Intermediate Appellate Court, 189 SCRA 201, 208 (1990).
16 Records, p. 68.
17 Bordador v. Luz, 283 SCRA 374, 382 (1997).
18 Connell v. McLoughlin, 28 Or. 230; 42 P. 218.
19 Halladay v. Underwood, 90 Ill. App. 130.
20 Internal Trust Co. v. Bridges, 57 F. 753.
21 Security Co. v. Graybeal, 85 Iowa 543, 52 N.W. 497.
22 ROSCOE T. STEFFEN, AGENCY PARNERSHIP IN A
NUTSHEEL (1977) 30-31.
23 Supra, at 33.
24 Supra Note 11, at 87-88.

25 Bessing v. Prince, 52 Cal. App. 190, 198 P. 422;


Greenlease Lied Motors v. Sadler, 216 Iowa 302, 249 N.W.
383; Salisbury v. Brooks, 81 W Va. 233, 94 S.E. 117.
26 State v. Parker, 112 Conn. 39, 151 A. 325; Rucks-Brandt
Const. Co. v. Price, 165 Okl. 178, 23 P2d 690, cert den 291
US 679, 78 L. Ed 1067, 54 S. Ct. 526.
27 Supra Note 5.
28 Art. 1279. In order that compensation may be proper, it is
necessary:
(1) That each one of the obligors be bound
principally and that he be at the same time a
principal creditor of the other:
(2) That both debts consist in a sum of money, or
if the things due are consumable, they be of the
same kind, and also of the same quality if the
latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any
retention or controversy, commenced by third
persons and communicated in due time to the
debtor.
29 Supra Note 1.
30 CIVIL CODE, art. 1308; Rizal Commercial Banking Corp. v.
Court of Appeals, 178 SCRA 739, 744 (1989); Escano v. Court
of Appeals, 100 SCRA 197, 202 (1980).
31 CIVIL CODE, art. 1306; Legarda Koh v. Ongsiaco, 36 Phil. 185, 193
(1917); Icaza, et al. v. Ortega, 5 Phil. 166, 169 (1905).

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 149353

June 26, 2006

JOCELYN B. DOLES, Petitioner,


vs.
MA. AURA TINA ANGELES, Respondent.

DECISION
AUSTRIA-MARTINEZ, J.:
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", 3 petitioner, 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
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.
On July 29, 1998, the RTC rendered a decision the dispositive portion of which
states:
WHEREFORE, premises considered, the Court hereby orders the dismissal of the
complaint for insufficiency of evidence. With costs against plaintiff.
SO ORDERED.
The RTC held that the sale was void for lack of cause or consideration: 5
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
On April 30, 2001, the CA promulgated its Decision, the dispositive portion of
which reads:
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.
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 "relending" 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 1335 11of 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.
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.
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.
WHETHER OR NOT THE CONTRACT OF SALE WAS EXECUTED FOR A CAUSE. 14
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.
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?
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:
a. Inocencio and Moraquin are my friends while [as to] Jacob and Tomelden[,]
they were just referred.
Atty. Diza:
q. And you have transact[ed] with the plaintiff?
witness:
a. Yes, sir.
Atty. Diza:
q. What is that transaction?
witness:
a. To refer those persons to Aura and to refer again to Arsenio Pua, sir.
Atty. Diza:
q. Did the plaintiff personally see the transactions with your friends?
witness:
a. No, sir.

Atty. Diza:
q. Your friends and the plaintiff did not meet personally?
witness:
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.
xxxx
Atty. Diza:
q. Did the plaintiff knew [sic] that you will lend the money to your friends
specifically the one you mentioned [a] while ago?
witness:
a. Yes, she knows the money will go to those persons.
Atty. Diza:
q. You are re-lending the money?
witness:
a. Yes, sir.
Atty. Diza:
q. What profit do you have, do you have commission?
witness:
a. Yes, sir.
Atty. Diza:
q. How much?
witness:
a. Two percent to Tomelden, one percent to Jacob and then Inocencio and my
friends none, sir.

Based on the foregoing, the CA concluded that petitioner is the real borrower,
while the respondent, the real lender.
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.
Atty. Villacorta:
q. So the money came from Arsenio Pua?
witness:
a. Yes, because I am only representing him, sir.
Other portions of the testimony of respondent must likewise be considered: 24
Atty. Villacorta:
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. They go direct to Jocelyn because I dont know them.
xxxx
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?
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:
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.
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,
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 subagent 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.
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. 38253236 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 thereon 38 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.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
WE CONCUR:
ARTEMIO V. PANGANIBAN
Chief Justice
Chairperson
CONSUELO YNARES-SANTIAGO
Associate Justice

ROMEO J. CALLEJO, SR.


Asscociate Justice

MINITA V. CHICO-NAZARIO
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that
the conclusions in the above Decision were reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.

ARTEMIO V. PANGANIBAN
Chief Justice

Footnotes
1

Penned by Associate Justice Fermin A. Martin (now retired), with Associate


Justices Portia Alio-Hormachuelos and Mercedes Gozo-Dadole, concurring.
2

Penned by Associate Justice Mercedes Gozo-Dadole (vice retired Justice Fermin


A. Martin, Jr.), with Associate Justices Portia Alio-Hormachuelos and Marina L.
Buzon (new Third Member).
3

Exhibit "B", records, p. 9.

Exhibit "A"; records, p 7.

RTC Decision, at 7-8.

CA records, p. 19.

CA Decision, rollo, pp. 52-54.

Id. at 54-55.

Id. at 9.

10

Id. at 9-10.

11

Article 1335 of the Civil Code provides:

Art. 1335. There is violence when in order to wrest consent, serious or irresistible
force is employed.
There is intimidation when one of the contracting parties is compelled by a
reasonable and well-grounded fear of an imminent and grave evil upon his
person or property, or upon the person or property of his spouse, descendants or
ascendants, to give his consent.
xxxx
A threat to enforce one's claim through competent authority, if the claim is just
or legal, does not vitiate consent. (emphasis supplied).
12

CA Decision, at 10-12.

13

Id. at 12.

14

Rollo, p. 81.

15

See Rivera v. Roman, G.R. No. 142402, September 20, 2005, 470 SCRA
276; The Insular Life Assurance Company, Ltd. v. Court of Appeals, G.R. No.

126850, April 28, 2004, 428 SCRA 79, 86; Aguirre v. Court of Appeals, G.R. No.
122249, January 29, 2004, 421 SCRA 310, 319; C & S Fishfarm Corporation v.
Court of Appeals, 442 Phil. 279 (2002).
16

The fourth paragraph of the Deed of Absolute Sale reads: "NOW THEREFORE,
for and in consideration of the sum of FOUR HUNDRED FIVE THOUSAND FOUR
HUNDRED THIRTY PESOS ONLY (P 405,430.00) Philippine Currency, the Seller
hereby SELLS, TRANSFERS and CONVEYS to the Buyer, his heirs, successors or
assigns, the above-described parcel of land together with all the improvements
thereon." Exhibit "B".
17

See Zulueta v. Wong, G.R. No. 153514, June 8, 2005, 459 SCRA
671; Buenaventura v. Court of Appeals, G.R. No. 126376, November 20, 2003,
416 SCRA 263; Montecillo v. Reynes, 434 Phil. 456 (2002);Cruz v. Bancom
Finance Co., 429 Phil. 224 (2002); Rongavilla v. Court of Appeals, 355 Phil. 720
(1998);Bagnas v. Court of Appeals, G.R. No. 38498, August 10, 1989, 176 SCRA
159; Civil Code (1950) Arts. 1352, 1458 & 1471.
18

CA Decision, at 5-7; rollo, p. 48.

19

Id. at 7-8.

20

Id. at 9.

21

Id. at 9-10.

22

TSN, March 23, 1998, pp. 15-18, 20-21.

23

TSN, January 29, 1998, p. 18.

24

Id. at 19-23.

25

See Amon Trading Co. v. Court of Appeals, G.R. No. 158585, December 13,
2005; Victorias Milling Co., Inc. v. Court of Appeals, 389 Phil. 184 (2000); Civil
Code (1950), Art. 1868.
26

See Victorias Milling Co., Inc. v. Court of Appeals, id. citing Connell v.
McLoughlin, 28 Or. 230, 42 P. 218;Halladay v. Underwood, 90 Ill. App.
130; Internal Trust Co. v. Bridges, 57 F. 753; Hector M. De Leon & Hector M. De
Leon, Jr. Comments and Cases on Partnership, Agency, and Trusts, 356-57
(1999).
27

Civil Code (1950), Arts. 1869-72.

28

De Leon & De Leon, Jr., supra note 24, at 409.

29

Id. at 349, citing Orient Air Services & Hotel Representatives v. Court of
Appeals, 274 Phil. 926 (1991).
30

Id. at 356, citing Cia v. Phil. Refining Co., 45 Phil. 556, December 20, 1923; 5
Arturo M. Tolentino, Commentaries and Jurisprudence on the Civil Code of the
Philippines 398 (1991).

31

See Cia v. Phil. Refining Co., id. citing 3 Am. Jur. 2d., 430-31.

32

Civil Code (1950), Arts. 1892-93.

33

Paragraph 6 of respondents complaint reads:

6. On October 5. 1996 after defendant continuously failed to settle her personal


obligation to plaintiff, defendant offered to pay plaintiff by way of ceding the
above-described property on condition that plaintiff would assume the balance of
the mortgage and pay the monthly amortization of P4,748.11 for the remainder
of the 25 years to which the latter agreed; x x x
Annex "D" of the Petition, Rollo, p. 39. Respondent testified as follows:
Q. At the time of the sale, can you tell to this Court whether the defendant [is]
still indebted to the [NHMFC]?
A. I am aware that she is indebted.
Q. Is there any agreement with respect to the obligation of the defendant to the
NHMFC?
A. We have a verbal agreement that I will be the one to assume the balance.
Q. When you speak of balance what are you talking to? [sic]
A. Undue [sic] balance, sir.
TSN, January 13, 1998, at 14 (emphasis supplied).
34

See Bravo-Guerrero v. Bravo, G.R. No. 152658, July 29, 2005, 465 SCRA 244.

35

TSN, February 26, 1998, pp. 5-6.

36

Exhibit "A"; Rollo, p. 17.

37

Id. Exhibit "A-1"; Rollo, p. 72.

38

Civil Code (1950), Art. 2085(3).

39

See Gonzales v. Toledo, G.R. No. 149465, December 8, 2003, 417 SCRA
260; Tsai v. Court of Appeals, 418 Phil. 606 (2001); Philippine Bank of
Communications v. Court of Appeals, et al., 418 Phil. 606 (2001);Noel v. Court of
Appeals, 310 Phil. 89 (1995); Segura v. Segura, 165 SCRA 368, 375 (1988).
40

Exhibit "A"; Rollo, p. 71.

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 120465 September 9, 1999


WILLIAM UY and RODEL ROXAS, petitioners,
vs.
COURT OF APPEALS, HON. ROBERT BALAO and NATIONAL HOUSING
AUTHORITY, respondents.

KAPUNAN, J.:
Petitioners William Uy and Rodel Roxas are agents authorized to sell eight parcels
of land by the owners thereof. By virtue of such authority, petitioners offered to
sell the lands, located in Tuba, Tadiangan, Benguet to respondent National
Housing Authority (NHA) to be utilized and developed as a housing project.
On February 14, 1989, the NHA Board passed Resolution No. 1632 approving the
acquisition of said lands, with an area of 31.8231 hectares, at the cost of
P23.867 million, pursuant to which the parties executed a series of Deeds of
Absolute Sale covering the subject lands. Of the eight parcels of land, however,
only five were paid for by the NHA because of the report 1 it received from the
Land Geosciences Bureau of the Department of Environment and Natural
Resources (DENR) that the remaining area is located at an active landslide area
and therefore, not suitable for development into a housing project.
On 22 November 1991, the NHA issued Resolution No. 2352 cancelling the sale
over the three parcels of land. The NHA, through Resolution No. 2394,
subsecguently offered the amount of P1.225 million to the landowners asdaos
perjuicios.
On 9 March 1992, petitioners filed before the Regional Trial Court (RTC) of
Quezon City a Complaint for Damages against NHA and its General Manager
Robert Balao.
After trial, the RTC rendered a decision declaring the cancellation of the contract
to be justified. The trial court nevertheless awarded damages to plaintiffs in the
sum of P1.255 million, the same amount initially offered by NHA to petitioners as
damages.1wphi1.nt
Upon appeal by petitioners, the Court of Appeals reversed the decision of the
trial court and entered a new one dismissing the complaint. It held that since
there was "sufficient justifiable basis" in cancelling the sale, "it saw no reason"
for the award of damages. The Court of Appeals also noted that petitioners were
mere attorneys-in-fact and, therefore, not the real parties-in-interest in the action
before the trial court.
. . . In paragraph 4 of the complaint, plaintiffs alleged themselves to be "sellers'
agents" for the several owners of the 8 lots subject matter of the case.
Obsviously, William Uy and Rodel Roxas in filing this case acted as attorneys-infact of the lot owners who are the real parties in interest but who were omitted to

be pleaded as party-plaintiffs in the case. This omission is fatal. Where the action
is brought by an attorney-in-fact of a land owner in his name, (as in our present
action) and not in the name of his principal, the action was properly dismissed
(Ferrer vs. Villamor, 60 SCRA 406 [1974]; Marcelo vs. de Leon, 105 Phil. 1175)
because the rule is that every action must be prosecuted in the name of the real
parties-in-interest (Section 2, Rule 3, Rules of Court).
When plaintiffs UY and Roxas sought payment of damages in their favor in view
of the partial rescission of Resolution No. 1632 and the Deed of Absolute Sale
covering TCT Nos. 10998, 10999 and 11292 (Prayer complaint, page 5, RTC
records), it becomes obviously indispensable that the lot owners be included,
mentioned and named as party-plaintiffs, being the real party-in-interest. UY and
Roxas, as attorneys-in-fact or apoderados, cannot by themselves lawfully
commence this action, more so, when the supposed special power of attorney, in
their favor, was never presented as an evidence in this case. Besides, even if
herein plaintiffs Uy and Roxas were authorized by the lot owners to commence
this action, the same must still be filed in the name of the principal, (Filipino
Industrial Corporation vs. San Diego, 23 SCRA 706 [1968]). As such indispensable
party, their joinder in the action is mandatory and the complaint may be
dismissed if not so impleaded (NDC vs. CA, 211 SCRA 422 [1992]). 2
Their motion for reconsideration having been denied, petitioners seek relief from
this Court contending that:
I. THE RESPONDENT CA ERRED IN DECLARING THAT RESPONDENT NHA HAD ANY
LEGAL BASIS FOR RESCINDING THE SALE INVOLVING THE LAST THREE (3)
PARCELS COVERED BY NHA RESOLUTION NO. 1632.
II. GRANTING ARGUENDO THAT THE RESPONDENT NHA HAD LEGAL BASIS TO
RESCIND THE SUBJECT SALE, THE RESPONDENT CA NONETHELESS ERRED IN
DENYING HEREIN PETITIONERS' CLAIM TO DAMAGES, CONTRARY TO THE
PROVISIONS OF ART. 1191 OF THE CIVIL CODE.
III. THE RESPONDENT CA ERRED IN DISMISSING THE SUBJECT COMPLAINT
FINDING THAT THE PETITIONERS FAILED TO JOIN AS INDISPENSABLE PARTY
PLAINTIFF THE SELLING LOT-OWNERS. 3
We first resolve the issue raised in the the third assignment of error.
Petitioners claim that they lodged the complaint not in behalf of their principals
but in their own name as agents directly damaged by the termination of the
contract. The damages prayed for were intended not for the benefit of their
principals but to indemnify petitioners for the losses they themselves allegedly
incurred as a result of such termination. These damages consist mainly of
"unearned income" and advances. 4 Petitioners, thus, attempt to distinguish the
case at bar from those involving agents or apoderedos instituting actions in their
own name but in behalf of their principals. 5 Petitioners in this case purportedly
brought the action for damages in their own name and in their own behalf.
We find this contention unmeritorious.

Sec. 2, Rule 3 of the Rules of Court requires that every action must be
prosecuted and defended in the name of the real party-in-interest. The real
party-in-interest is the party who stands to be benefited or injured by the
judgment or the party entitled to the avails of the suit. "Interest, within the
meaning of the rule, means material interest, an interest in the issue and to be
affected by the decree, as distinguished from mere interest in the question
involved, or a mere incidental interest. 6 Cases construing the real party-ininterest provision can be more easily understood if it is borne in mind that the
true meaning of real party-in-interest may be summarized as follows: An action
shall be prosecuted in the name of the party who, by the substantive law, has
the right sought to be enforced. 7
Do petitioners, under substantive law, possess the right they seek to enforce?
We rule in the negative.
The applicable substantive law in this case is Article 1311 of the Civil Code,
which states:
Contracts take effect only between the parties, their assigns, and heirs, except in
case where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation, or by provision of law. . . .
If a contract should contain some stipulation in favor of a third person, he may
demand its fulfillment provided he communicated his acceptance to the obligor
before its revocation. A mere incidental benefit or interest of a person is not
sufficient. The contracting parties must have clearly and deliberately conferred a
favor upon a third person. (Emphasis supplied.)
Petitioners are not parties to the contract of sale between their principals and
NHA. They are mere agents of the owners of the land subject of the sale. As
agents, they only render some service or do something in representation or on
behalf of their principals. 8 The rendering of such service did not make them
parties to the contracts of sale executed in behalf of the latter. Since a contract
may be violated only by the parties thereto as against each other, the real
parties-in-interest, either as plaintiff or defendant, in an action upon that
contract must, generally, either be parties to said contract. 9
Neither has there been any allegation, much less proof, that petitioners are the
heirs of their principals.
Are petitioners assignees to the rights under the contract of sale? In McMicking
vs. Banco Espaol-Filipino, 10 we held that the rule requiring every action to be
prosecuted in the name of the real party-in-interest.
. . . recognizes the assignments of rights of action and also recognizes that when
one has a right of action assigned to him he is then the real party in interest and
may maintain an action upon such claim or right. The purpose of [this rule] is to
require the plaintiff to be the real party in interest, or, in other words, he must be
the person to whom the proceeds of the action shall belong, and to prevent
actions by persons who have no interest in the result of the same. . . .

Thus, an agent, in his own behalf, may bring an action founded on a contract
made for his principal, as an assignee of such contract. We find the following
declaration in Section 372 (1) of the Restatement of the Law on Agency
(Second): 11
Sec. 372. Agent as Owner of Contract Right
(1) Unless otherwise agreed, an agent who has or who acquires an interest in a
contract which he makes on behalf of his principal can, although not a promisee,
maintain such action thereon maintain such action thereon as might a transferee
having a similar interest.
The Comment on subsection (1) states:
a. Agent a transferee. One who has made a contract on behalf of another may
become an assignee of the contract and bring suit against the other party to it,
as any other transferee. The customs of business or the course of conduct
between the principal and the agent may indicate that an agent who ordinarily
has merely a security interest is a transferee of the principals rights under the
contract and as such is permitted to bring suit. If the agent has settled with his
principal with the understanding that he is to collect the claim against the obligor
by way of reimbursing himself for his advances and commissions, the agent is in
the position of an assignee who is the beneficial owner of the chose in action. He
has an irrevocable power to sue in his principal's name. . . . And, under the
statutes which permit the real party in interest to sue, he can maintain an action
in his own name. This power to sue is not affected by a settlement between the
principal and the obligor if the latter has notice of the agent's interest. . . . Even
though the agent has not settled with his principal, he may, by agreement with
the principal, have a right to receive payment and out of the proceeds to
reimburse himself for advances and commissions before turning the balance
over to the principal. In such a case, although there is no formal assignment, the
agent is in the position of a transferee of the whole claim for security; he has an
irrevocable power to sue in his principal's name and, under statutes which permit
the real party in interest to sue, he can maintain an action in his own name.
Petitioners, however, have not shown that they are assignees of their principals
to the subject contracts. While they alleged that they made advances and that
they suffered loss of commissions, they have not established any agreement
granting them "the right to receive payment and out of the proceeds to
reimburse [themselves] for advances and commissions before turning the
balance over to the principal[s]."
Finally, it does not appear that petitioners are beneficiaries of a stipulation pour
autrui under the second paragraph of Article 1311 of the Civil Code. Indeed,
there is no stipulation in any of the Deeds of Absolute Sale "clearly and
deliberately" conferring a favor to any third person.
That petitioners did not obtain their commissions or recoup their advances
because of the non-performance of the contract did not entitle them to file the

action below against respondent NHA. Section 372 (2) of the Restatement of the
Law on Agency (Second) states:
(2) An agent does not have such an interest in a contract as to entitle him to
maintain an action at law upon it in his own name merely because he is entitled
to a portion of the proceeds as compensation for making it or because he is
liable for its breach.
The following Comment on the above subsection is illuminating:
The fact that an agent who makes a contract for his principal will gain or suffer
loss by the performance or nonperformance of the contract by the principal or by
the other party thereto does not entitle him to maintain an action on his own
behalf against the other party for its breach. An agent entitled to receive a
commission from his principal upon the performance of a contract which he has
made on his principal's account does not, from this fact alone, have any claim
against the other party for breach of the contract, either in an action on the
contract or otherwise. An agent who is not a promisee cannot maintain an action
at law against a purchaser merely because he is entitled to have his
compensation or advances paid out of the purchase price before payment to the
principal. . . .
Thus, in Hopkins vs. Ives, 12 the Supreme Court of Arkansas, citing Section 372
(2) above, denied the claim of a real estate broker to recover his alleged
commission against the purchaser in an agreement to purchase property.
In Goduco vs. Court of appeals,

13

this Court held that:

. . . granting that appellant had the authority to sell the property, the same did
not make the buyer liable for the commission she claimed. At most, the owner of
the property and the one who promised to give her a commission should be the
one liable to pay the same and to whom the claim should have been
directed. . . .
As petitioners are not parties, heirs, assignees, or beneficiaries of a
stipulation pour autrui under the contracts of sale, they do not, under
substantive law, possess the right they seek to enforce. Therefore, they are not
the real parties-in-interest in this case.
Petitioners not being the real parties-in-interest, any decision rendered herein
would be pointless since the same would not bind the real parties-ininterest. 14
Nevertheless, to forestall further litigation on the substantive aspects of this
case, we shall proceed to rule on me merits. 15
Petitioners submit that respondent NHA had no legal basis to "rescind" the sale
of the subject three parcels of land. The existence of such legal basis,
notwithstanding, petitioners argue that they are still entitled to an award of
damages.

Petitioners confuse the cancellation of the contract by the NHA as a rescission of


the contract under Article 1191 of the Civil Code. The right of rescission or, more
accurately, resolution, of a party to an obligation under Article 1191 is predicated
on a breach of faith by the other party that violates the reciprocity between
them. 16 The power to rescind, therefore, is given to the injured party. 17 Article
1191 states:
The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.
In this case, the NHA did not rescind the contract. Indeed, it did not have the
right to do so for the other parties to the contract, the vendors, did not commit
any breach, much less a substantial breach, 18 of their obligation. Their obligation
was merely to deliver the parcels of land to the NHA, an obligation that they
fulfilled. The NHA did not suffer any injury by the performance thereof.
The cancellation, therefore, was not a rescission under Article 1191. Rather, the
cancellation was based on the negation of the cause arising from the realization
that the lands, which were the object of the sale, were not suitable for
housing.1wphi1.nt
Cause is the essential reason which moves the contracting parties to enter into
it. 19 In other words, the cause is the immediate, direct and proximate reason
which justifies the creation of an obligation through the will of the contracting
parties. 20 Cause, which is the essential reason for the contract, should be
distinguished from motive, which is the particular reason of a contracting party
which does not affect the other party. 21
For example, in a contract of sale of a piece of land, such as in this case, the
cause of the vendor (petitioners' principals) in entering into the contract is to
obtain the price. For the vendee, NHA, it is the acquisition of the land. 22 The
motive of the NHA, on the other hand, is to use said lands for housing. This is
apparent from the portion of the Deeds of Absolute Sale 23 stating:
WHEREAS, under the Executive Order No. 90 dated December 17, 1986, the
VENDEE is mandated to focus and concentrate its efforts and resources in
providing housing assistance to the lowest thirty percent (30%) of urban income
earners, thru slum upgrading and development of sites and services projects;
WHEREAS, Letters of Instructions Nos. 555 and 557 [as] amended by Letter of
Instruction No. 630, prescribed slum improvement and upgrading, as well as the
development of sites and services as the principal housing strategy for dealing
with slum, squatter and other blighted communities;
xxx xxx xxx

WHEREAS, the VENDEE, in pursuit of and in compliance with the above-stated


purposes offers to buy and the VENDORS, in a gesture of their willing to
cooperate with the above policy and commitments, agree to sell the aforesaid
property together with all the existing improvements there or belonging to the
VENDORS;
NOW, THEREFORE, for and in consideration of the foregoing premises and the
terms and conditions hereinbelow stipulated, the VENDORS hereby, sell, transfer,
cede and convey unto the VENDEE, its assigns, or successors-in-interest, a parcel
of land located at Bo. Tadiangan, Tuba, Benguet containing a total area of FIFTY
SIX THOUSAND EIGHT HUNDRED NINETEEN (56,819) SQUARE METERS, more or
less . . . .
Ordinarily, a party's motives for entering into the contract do not affect the
contract. However, when the motive predetermines the cause, the motive may
be regarded as the cause. In Liguez vs. Court of Appeals, 24 this Court, speaking
through Justice J.B.L. REYES, HELD:
. . . it is well to note, however, that Manresa himself (Vol. 8, pp. 641-642), while
maintaining the distinction and upholding the inoperativeness of the motives of
the parties to determine the validity of the contract, expressly excepts from the
rule those contracts that are conditioned upon the attainment of the motives of
either party.
The same view is held by the Supreme Court of Spain, in its decisions of February
4, 1941, and December 4, 1946, holding that the motive may be regarded
as causa when it predetermines the purpose of the contract.
In this case, it is clear, and petitioners do not dispute, that NHA would not have
entered into the contract were the lands not suitable for housing. In other words,
the quality of the land was an implied condition for the NHA to enter into the
contract. On the part of the NHA, therefore, the motive was the cause for its
being a party to the sale.
Were the lands indeed unsuitable for housing as NHA claimed?
We deem the findings contained in the report of the Land Geosciences Bureau
dated 15 July 1991 sufficient basis for the cancellation of the sale, thus:
In Tadiangan, Tuba, the housing site is situated in an area of moderate
topography. There [are] more areas of less sloping ground apparently habitable.
The site is underlain by . . . thick slide deposits (4-45m) consisting of huge
conglomerate boulders (see Photo No. 2) mix[ed] with silty clay materials.These
clay particles when saturated have some swelling characteristics which is
dangerous for any civil structures especially mass housing development. 25
Petitioners contend that the report was merely "preliminary," and not conclusive,
as indicated in its title:
MEMORANDUM

TO: EDWIN G. DOMINGO


Chief, Lands Geology Division
FROM: ARISTOTLE A. RILLON
Geologist II
SUBJECT: Preliminary Assessment of
Tadiangan Housing Project in Tuba, Benguet

26

Thus, page 2 of the report states in part:


xxx xxx xxx
Actually there is a need to conduct further geottechnical [sic] studies in the NHA
property. Standard Penetration Test (SPT) must be carried out to give an
estimate of the degree of compaction (the relative density) of the slide deposit
and also the bearing capacity of the soil materials. Another thing to consider is
the vulnerability of the area to landslides and other mass movements due to
thick soil cover. Preventive physical mitigation methods such as surface and
subsurface drainage and regrading of the slope must be done in the area. 27
We read the quoted portion, however, to mean only that further tests are
required to determine the "degree of compaction," "the bearing capacity of the
soil materials," and the "vulnerability of the area to landslides," since the tests
already conducted were inadequate to ascertain such geological attributes. It is
only in this sense that the assessment was "preliminary."
Accordingly, we hold that the NHA was justified in canceling the contract. The
realization of the mistake as regards the quality of the land resulted in the
negation of the motive/cause thus rendering the contract inexistent. 28 Article
1318 of the Civil Code states that:
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (Emphasis supplied.)
Therefore, assuming that petitioners are parties, assignees or beneficiaries to the
contract of sale, they would not be entitled to any award of damages.
WHEREFORE, the instant petition is hereby DENIED.
SO ORDERED.
Puno, Pardo and Ynares-Santiago, JJ., concur.
Davide, Jr., C.J., on leave.

Footnotes
1 Exhibit "4.
2 Rollo, pp. 26-27. Emphasis in the original.
3 Id., at 11.
4 Petitioners alleged in their complaint:
14. Exhausted with the procrastinations and unjustified positions being assumed
by the defendant NHA, herein plaintiffs hereby acquiesce to the notice of
rescission handed down by the defendant NHA, through its General Manager
Robert Balao, subject to the award of a reasonable and fair amount of damages.
14.a. Unearned Income: Had defendant NHA paid for the last three parcels of
land covered by Res. No. 1632, and the deeds of absolute sale referred to in par.
10 above, herein plaintiffs would have made an income of approximately P6.4
Million. Defendant NHA should be held answerable to the plaintiffs for this
unearned income as shall be proven in the course of the trial.1wphi1.nt
14.b. Opportunity Loss: Had defendant NHA paid for the subject parcels of land
within a reasonable time from February 1989, herein plaintiffs could have
invested their income of P6.4 Million and earn at a conservative return on
investment of 2%/year or at least P4.6 million over the last three years. Again,
defendant NHA should be required to indemnify the herein plaintiffs for this lost
opportunity as shall be proven in the course of the trial.
14.c. Expenses: Through the last three years, herein plaintiffs had consistently
and unhesitantly spent reasonable sums of money by way of representations,
advances to landowners, advances for the clearing of titles subject of the herein
transactions, advances to sub-agents, logistical expenses and lawyer's fees, in
the process, they also incurred loans to finance these expenses total expenses
incurred prior to the filing of the present case being estimated at P1.3 million.
Defendants should be required to reimburse the plaintiffs for these expenses as
shall be proven in the course of the trial.
15. Plaintiffs had suffered and continue to suffer prolonged agony and mental
anguish from the defendant NHA's previous procrastination and condescending
approach to the herein plaintiffs' plight for which defendant NHA should be
charged moral damages in favor of the plaintiffs in the amount of P600,000.00.
16. To set an example, and to prevent the recurrence of the herein
circumstances, defendant NHA should be charged exemplary damages in the
amount of P600,000.00 in favor of the herein plaintiff.
17. To vindicate their rights in the premises, plaintiffs had to contract the
services of herein counsel, and to incur cost of suit, as shall be proven in the
course of the trial. Defendant NHA should be held liable to the plaintiffs for these
amounts by way of attorney's fees in the amount of P1 million. (Records, pp. 45.)

5 Filipinas Industrial Corp. vs. San Diego, 23 SCRA 706 (1968); Brown vs. Brown,
3 SCRA 451 (1961); Marcelo vs. De Leon, 105 Phil. 1175 (1959); Esperanza and
Bullo vs. Catindig, 27 Phil. 397 (1914).
6 University of the Philippines vs. Ligot-Telan, 227 SCRA 343 (1993), Ralla vs.
Ralla, 199 SCRA 495 (1991); Rebolido vs. Court of Appeals, 170 SCRA 800 (1989).
7 1 FRANCISCO, The Revised Rules of Court in the Phil., ed., p. 211. See
also Lubbock Feed Lots, Inc. v. lowe Beef processors, 630 F. 2d 250 (1980).
8 Art. 1868, Civil Code.
9 Marimperio Compaa Naviera, S.A. vs. Court of Appeals, 156 SCRA 368
(1987). See also I MORAN, Comments on the Rules of Court, 1979 ed., p. 157.
10 13 Phil. 429 (1909).
11 As Adopted and Promulgated by the American Law institute at Washington,
D.C, May 23, 1957.
12 566 S.W.2d 147.
13 10 SCRA 275 (1964).
14 Filipinas Industrial Corporation vs. San Diego, 23 SCRA 706 (1968).
15 See: Arroyo and Granada and Gentero, 18 Phil. 484 (1911).
16 Romero vs. Court of Appeals, 250 SCRA 223 (1995).
17 Boysaw vs. Interphil Promotions, Inc., 148 SCRA 635, cited in Romero vs.
Court of Appeals, supra.
18 See Ocampo vs. Court of Appeals, 233 SCRA 551(1994). See also Power
Commercial and Industrial Corp vs. Court of Appeals, 274 SCRA 597 (1997), and
Massive Construction, Inc. vs. Intermediate Appelate Court, 223 SCRA 1 (1993).
19 Basic Books (Phil.), Inc. vs. Lopez, et al, 16 SCRA 291 (1966), citing General
Enterprises Inc. vs. Lienga Bay Logging Co., 11 SCRA 733 (1964).
20 Id., citing 3 Castan, 4th ed., p. 347.
21 Republic vs. Cloribel, 36 SCRA 534 (1970). See also Article 1351, Civil Code.
22 Art. 1350, Civil Code. In onerous contracts, the cause is understood to be, for
each contracting party, the prestation or promise of a thing or service by the
other. . . .
23 Exhibits "B," "C," and "D."
24 102 Phil. 577 (1957), cited in E. Razon Inc. vs. Philippine Ports Authority, 151
SCRA 233 (1987). See also Philippine National Construction Corp. vs. Court of
Appeals, 272 SCRA 183 (1997), where the Court held that ". . . As a general

principle, the motive or particular purpose of a party in entering into a contract


does not affed the validity nor existence of the contract; an exception is when
the realization of such motive or particular purpose has been made a condition
upon which the contract is made to depend." . . .
25 Records, p. 32. Emphasis supplied.
26 Id., at 31. Emphasis supplied.
27 Id., 32. Emphasis supplied.
28 Note that said contract is also voidable under Article 1331 of the Civil Code
which states:
Art. 1331. In order that mistake may invalidate consent, it should refer to the
substance of the thing which is the object of the contract, or to those conditions
which have principally moved one or both parties to enter into the contract.
xxx xxx xxx
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 150128 August 31, 2006
LAUREANO T. ANGELES, Petitioner,
vs.
PHILIPPINE NATIONAL RAILWAYS (PNR) AND RODOLFO
FLORES, 1Respondents.
DECISION
GARCIA, J.:
Under consideration is this petition for review under Rule 45 of the Rules of Court
assailing and seeking to set aside the following issuances of the Court of Appeals
(CA) in CA-G.R. CV No. 54062, to wit:
1. Decision 2 dated June 4, 2001, affirming an earlier decision of the Regional Trial
Court (RTC) of Quezon City, Branch 79, which dismissed the complaint for
specific performance and damages thereat commenced by the petitioner against
the herein respondents; and
2. Resolution 3 dated September 17, 2001, denying the petitioner's motion for
reconsideration.
The facts:
On May 5, 1980, the respondent Philippine National Railways (PNR) informed a
certain Gaudencio Romualdez (Romualdez, hereinafter) that it has accepted the

latters offer to buy, on an "AS IS, WHERE IS" basis, the PNRs
scrap/unserviceable rails located in Del Carmen and Lubao, Pampanga
at P1,300.00 and P2,100.00 per metric ton, respectively, for the total amount
of P96,600.00. After paying the stated purchase price, Romualdez addressed a
letter to Atty. Cipriano Dizon, PNRs Acting Purchasing Agent. Bearing date May
26, 1980, the letter reads:
Dear Atty. Dizon:
This is to inform you as President of San Juanico Enterprises, that I have
authorized the bearer, LIZETTE R. WIJANCO of No. 1606 Aragon St., Sta. Cruz,
Manila, to be my lawful representative in the withdrawal of the
scrap/unserviceable rails awarded to me.
For this reason, I have given her the original copy of the award, dated May 5,
1980 and O.R. No. 8706855 dated May 20, 1980 which will indicate my waiver of
rights, interests and participation in favor of LIZETTE R. WIJANCO.
Thank you for your cooperation.
Very truly yours,
(Sgd.) Gaudencio Romualdez
The Lizette R. Wijanco mentioned in the letter was Lizette Wijanco- Angeles,
petitioner's now deceased wife. That very same day May 26, 1980 Lizette
requested the PNR to transfer the location of withdrawal for the reason that the
scrap/unserviceable rails located in Del Carmen and Lubao, Pampanga were not
ready for hauling. The PNR granted said request and allowed Lizette to withdraw
scrap/unserviceable rails in Murcia, Capas and San Miguel, Tarlac instead.
However, the PNR subsequently suspended the withdrawal in view of what it
considered as documentary discrepancies coupled by reported pilferages of
over P500,000.00 worth of PNR scrap properties in Tarlac.
Consequently, the spouses Angeles demanded the refund of the amount
of P96,000.00. The PNR, however, refused to pay, alleging that as per delivery
receipt duly signed by Lizette, 54.658 metric tons of unserviceable rails had
already been withdrawn which, at P2,100.00 per metric ton, were
worth P114,781.80, an amount that exceeds the claim for refund.
On August 10, 1988, the spouses Angeles filed suit against the PNR and its
corporate secretary, Rodolfo Flores, among others, for specific performance and
damages before the Regional Trial Court of Quezon City. In it, they prayed that
PNR be directed to deliver 46 metric tons of scrap/unserviceable rails and to pay
them damages and attorney's fees.
Issues having been joined following the filing by PNR, et al., of their answer, trial
ensued. Meanwhile, Lizette W. Angeles passed away and was substituted by her
heirs, among whom is her husband, herein petitioner Laureno T. Angeles.

On April 16, 1996, the trial court, on the postulate that the spouses Angeles are
not the real parties-in-interest, rendered judgment dismissing their complaint for
lack of cause of action. As held by the court, Lizette was merely a representative
of Romualdez in the withdrawal of scrap or unserviceable rails awarded to him
and not an assignee to the latter's rights with respect to the award.
Aggrieved, the petitioner interposed an appeal with the CA, which, as stated at
the threshold hereof, in its decision of June 4, 2001, dismissed the appeal and
affirmed that of the trial court. The affirmatory decision was reiterated by the CA
in its resolution of September 17, 2001, denying the petitioners motion for
reconsideration.
Hence, the petitioners present recourse on the submission that the CA erred in
affirming the trial court's holding that petitioner and his spouse, as plaintiffs a
quo, had no cause of action as they were not the real parties-in-interest in this
case.
We DENY the petition.
At the crux of the issue is the matter of how the aforequoted May 26, 1980 letter
of Romualdez to Atty. Dizon of the PNR should be taken: was it meant to
designate, or has it the effect of designating, Lizette W. Angeles as a mere agent
or as an assignee of his (Romualdez's) interest in the scrap rails awarded to San
Juanico Enterprises? The CAs conclusion, affirmatory of that of the trial court, is
that Lizette was not an assignee, but merely an agent whose authority was
limited to the withdrawal of the scrap rails, hence, without personality to sue.
Where agency exists, the third party's (in this case, PNR's) liability on a contract
is to the principal and not to the agent and the relationship of the third party to
the principal is the same as that in a contract in which there is no agent.
Normally, the agent has neither rights nor liabilities as against the third party. He
cannot thus sue or be sued on the contract. Since a contract may be violated
only by the parties thereto as against each other, the real party-in-interest,
either as plaintiff or defendant in an action upon that contract must, generally,
be a contracting party.
The legal situation is, however, different where an agent is constituted as an
assignee. In such a case, the agent may, in his own behalf, sue on a contract
made for his principal, as an assignee of such contract. The rule
requiring every action to be prosecuted in the name of the real party-in-interest
recognizes the assignment of rights of action and also recognizes
that when one has a right assigned to him, he is then the real party-in-interest
and may maintain an action upon such claim or right. 4
Upon scrutiny of the subject Romualdez's letter to Atty. Cipriano Dizon dated May
26, 1980, it is at once apparent that Lizette was to act just as a "representative"
of Romualdez in the "withdrawal of rails," and not an assignee. For perspective,
we reproduce the contents of said letter:

This is to inform you as President of San Juanico Enterprises, that I


have authorized the bearer, LIZETTE R. WIJANCO x x x to be my lawful
representative in the withdrawal of the scrap/unserviceable rails
awarded to me.
For this reason, I have given her the original copy of the award, dated May 5,
1980 and O.R. No. 8706855 dated May 20, 1980 which will indicate my waiver of
rights, interests and participation in favor of LIZETTE R. WIJANCO. (Emphasis
added)
If Lizette was without legal standing to sue and appear in this case, there is more
reason to hold that her petitioner husband, either as her conjugal partner or her
heir, is also without such standing.
Petitioner makes much of the fact that the terms "agent" or "attorney-in-fact"
were not used in the Romualdez letter aforestated. It bears to stress, however,
that the words "principal" and "agent," are not the only terms used to designate
the parties in an agency relation. The agent may also be called an attorney,
proxy, delegate or, as here, representative.
It cannot be over emphasized that Romualdez's use of the active verb
"authorized," instead of "assigned," indicated an intent on his part to keep and
retain his interest in the subject matter. Stated a bit differently, he intended to
limit Lizettes role in the scrap transaction to being the representative of his
interest therein.
Petitioner submits that the second paragraph of the Romualdez letter, stating - "I
have given [Lizette] the original copy of the award x x x which will indicate my
waiver of rights, interests and participation in favor of Lizette R. Wijanco" clarifies that Lizette was intended to be an assignee, and not a mere agent.
We are not persuaded. As it were, the petitioner conveniently omitted an
important phrase preceding the paragraph which would have put the whole
matter in context. The phrase is "For this reason," and the antecedent thereof is
his (Romualdez) having appointed Lizette as his representative in the matter of
the withdrawal of the scrap items. In fine, the key phrase clearly conveys the
idea that Lizette was given the original copy of the contract award to enable her
to withdraw the rails as Romualdezs authorized representative.
Article 1374 of the Civil Code provides that the various stipulations of a contract
shall be read and interpreted together, attributing to the doubtful ones that
sense which may result from all of them taken jointly. In fine, the real intention of
the parties is primarily to be determined from the language used and gathered
from the whole instrument. When put into the context of the letter as a whole, it
is abundantly clear that the rights which Romualdez waived or ceded in favor of
Lizette were those in furtherance of the agency relation that he had established
for the withdrawal of the rails.
At any rate, any doubt as to the intent of Romualdez generated by the way his
letter was couched could be clarified by the acts of the main players themselves.

Article 1371 of the Civil Code provides that to judge the intention of the
contracting parties, their contemporaneous and subsequent acts shall be
principally considered. In other words, in case of doubt, resort may be made to
the situation, surroundings, and relations of the parties.
The fact of agency was, as the trial court aptly observed, 5 confirmed in
subsequent letters from the Angeles spouses in which they themselves refer to
Lizette as "authorized representative" of San Juanico Enterprises. Mention may
also be made that the withdrawal receipt which Lizette had signed indicated that
she was doing so in a representative capacity. One professing to act as agent for
another is estopped to deny his agency both as against his asserted principal
and third persons interested in the transaction which he engaged in.
Whether or not an agency has been created is a question to be determined by
the fact that one represents and is acting for another. The appellate court, and
before it, the trial court, had peremptorily determined that Lizette, with respect
to the withdrawal of the scrap in question, was acting for Romualdez. And with
the view we take of this case, there were substantial pieces of evidence adduced
to support this determination. The desired reversal urged by the petitioner
cannot, accordingly, be granted. For, factual findings of the trial court, adopted
and confirmed by the CA, are, as a rule, final and conclusive and may not be
disturbed on appeal. 6 So it must be here.
Petitioner maintains that the Romualdez letter in question was not in the form of
a special power of attorney, implying that the latter had not intended to merely
authorize his wife, Lizette, to perform an act for him (Romualdez). The contention
is specious. In the absence of statute, no form or method of execution is required
for a valid power of attorney; it may be in any form clearly showing on its face
the agents authority. 7
A power of attorney is only but an instrument in writing by which a person, as
principal, appoints another as his agent and confers upon him the authority to
perform certain specified acts on behalf of the principal. The written
authorization itself is the power of attorney, and this is clearly indicated by the
fact that it has also been called a "letter of attorney." Its primary purpose is not
to define the authority of the agent as between himself and his principal but to
evidence the authority of the agent to third parties with whom the agent
deals. 8 The letter under consideration is sufficient to constitute a power of
attorney. Except as may be required by statute, a power of attorney is valid
although no notary public intervened in its execution. 9
A power of attorney must be strictly construed and pursued. The instrument will
be held to grant only those powers which are specified therein, and the agent
may neither go beyond nor deviate from the power of attorney. 10Contextually, all
that Lizette was authorized to do was to withdraw the unserviceable/scrap
railings. Allowing her authority to sue therefor, especially in her own name,
would be to read something not intended, let alone written in the Romualdez
letter.

Finally, the petitioner's claim that Lizette paid the amount of P96,000.00 to the
PNR appears to be a mere afterthought; it ought to be dismissed outright under
the estoppel principle. In earlier proceedings, petitioner himself admitted in his
complaint that it was Romualdez who paid this amount.
WHEREFORE, the petition is DENIED and the assailed decision of the CA
is AFFIRMED.
Costs against the petitioner.
SO ORDERED.
CANCIO C. GARCIA
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Associate Justice
Chairperson
ANGELINA SANDOVAL-GUTIERREZ
Associate Justice

(ON LEAVE)
RENATO C. CORONA
Associate Justice

ADOLFO S. AZCUNA
Associate Justice
ATTESTATION
I attest that the conclusions in the above decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.
REYNATO S . PUNO
Associate Justice
Chairperson, Second Division
CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution, and the Division
Chairperson's Attestation, it is hereby certified that the conclusions in the above
decision were reached in consultation before the case was assigned to the writer
of the opinion of the Court.
ARTEMIO V. PANGANIBAN
Chief Justice

Footnotes

As filed, the petition impleads the Court of Appeals as among the respondents.
Pursuant to Sec. 4, Rule 45, the CA need not be impleaded.
2

Penned by Associate Justice Martin S. Villarama, Jr., with Associate Justices


Conrado M. Vasquez, Jr. and Alicia L. Santos, concurring; Rollo, pp. 46-53.
3

Id. at 75.

Uy v. Court of Appeals, G.R. No. 120465, September 9, 1999, 314 SCRA 69.

RTC Decision, pp. 17-18; Rollo, pp. 71-72.

Lubos v. Galupo, G.R. No. 139136, January 16, 2002, 373 SCRA 618.

3 Am Jur. 2d, Agency, Sec. 25.

Ibid. Sec. 23.

Reyes v. Santiago, CA-G.R. No. 47996-7-R, Nov. 27, 1975.

10

3 Am. Jur. 2d, Agency, Sec. 31.


FIRST DIVISION

[G.R. No. 119858. April 29, 2003]

EDWARD C. ONG, petitioner, vs. THE COURT OF APPEALS AND THE


PEOPLE OF THE PHILIPPINES,respondents.
DECISION
CARPIO, J.:

The Case
Petitioner Edward C. Ong (petitioner) filed this petition for review
on certiorari[1] to nullify the Decision[2] dated 27 October 1994 of the Court of
Appeals in CA-G.R. C.R. No. 14031, and its Resolution [3] dated 18 April 1995,
denying petitioners motion for reconsideration. The assailed Decision affirmed in
toto petitioners conviction[4] by the Regional Trial Court of Manila, Branch 35,
[5]
on two counts of estafa for violation of the Trust Receipts Law, [6] as follows:
WHEREFORE, judgment is rendered: (1) pronouncing accused EDWARD C. ONG
guilty beyond reasonable doubt on two counts, as principal on both counts, of
ESTAFA defined under No. 1 (b) of Article 315 of the Revised Penal Code in
relation to Section 13 of Presidential Decree No. 115, and penalized under the 1st
paragraph of the same Article 315, and sentenced said accused in each count to
TEN (10) YEARS of prision mayor, as minimum, to TWENTY (20) YEARS
of reclusion temporal, as maximum;

(2)
ACQUITTING accused BENITO ONG of the crime charged against him, his
guilt thereof not having been established by the People beyond reasonable
doubt;
(3)
Ordering accused Edward C. Ong to pay private complainant Solid Bank
Corporation the aggregate sum of P2,976,576.37 as reparation for the damages
said accused caused to the private complainant, plus the interest thereon at the
legal rate and the penalty of 1% per month, both interest and penalty
computed from July 15, 1991, until the principal obligation is fully paid;
(4)
Ordering Benito Ong to pay, jointly and severally with Edward C. Ong, the
private complainant the legal interest and the penalty of 1% per month due and
accruing on the unpaid amount of P1,449,395.71, still owing to the private
offended under the trust receipt Exhibit C, computed from July 15, 1991, until the
said unpaid obligation is fully paid;
(5)

Ordering accused Edward C. Ong to pay the costs of these two actions.

SO ORDERED.[7]

The Charge
Assistant City Prosecutor Dina P. Teves of the City of Manila charged
petitioner and Benito Ong with two counts of estafa under separate Informations
dated 11 October 1991.
In Criminal Case No. 92-101989, the Information indicts petitioner and Benito
Ong of the crime of estafa committed as follows:
That on or about July 23, 1990, in the City of Manila, Philippines, the said
accused, representing ARMAGRI International Corporation, conspiring and
confederating together did then and there willfully, unlawfully and feloniously
defraud the SOLIDBANK Corporation represented by its Accountant, DEMETRIO
LAZARO, a corporation duly organized and existing under the laws of the
Philippines located at Juan Luna Street, Binondo, this City, in the following
manner, to wit: the said accused received in trust from said SOLIDBANK
Corporation the following, to wit:
10,000 bags of urea
valued at P2,050,000.00 specified in a Trust Receipt Agreement and covered by a
Letter of Credit No. DOM GD 90-009 in favor of the Fertiphil Corporation; under
the express obligation on the part of the said accused to account for said goods
to Solidbank Corporation and/or remit the proceeds of the sale thereof within the
period specified in the Agreement or return the goods, if unsold immediately or
upon demand; but said accused, once in possession of said goods, far from
complying with the aforesaid obligation failed and refused and still fails and
refuses to do so despite repeated demands made upon him to that effect and
with intent to defraud, willfully, unlawfully and feloniously misapplied,
misappropriated and converted the same or the value thereof to his own
personal use and benefit, to the damage and prejudice of the said Solidbank
Corporation in the aforesaid amount of P2,050,000.00 Philippine Currency.

Contrary to law.
In Criminal Case No. 92-101990, the Information likewise charges petitioner
of the crime of estafa committed as follows:
That on or about July 6, 1990, in the City of Manila, Philippines, the said accused,
representing ARMAGRI International Corporation, did then and there willfully,
unlawfully and feloniously defraud the SOLIDBANK Corporation represented by its
Accountant, DEMETRIO LAZARO, a corporation duly organized and existing under
the laws of the Philippines located at Juan Luna Street, Binondo, this City, in the
following manner, to wit: the said accused received in trust from said SOLIDBANK
Corporation the following goods, to wit:
125 pcs. Rear diff. assy RNZO 49
50 pcs. Front & Rear diff assy. Isuzu Elof
85 units 1-Beam assy. Isuzu Spz
all valued at P2,532,500.00 specified in a Trust Receipt Agreement and covered
by a Domestic Letter of Credit No. DOM GD 90-006 in favor of the Metropole
Industrial Sales with address at P.O. Box AC 219, Quezon City; under the express
obligation on the part of the said accused to account for said goods to Solidbank
Corporation and/or remit the proceeds of the sale thereof within the period
specified in the Agreement or return the goods, if unsold immediately or upon
demand; but said accused, once in possession of said goods, far from complying
with the aforesaid obligation failed and refused and still fails and refuses to do so
despite repeated demands made upon him to that effect and with intent to
defraud, willfully, unlawfully and feloniously misapplied, misappropriated and
converted the same or the value thereof to his own personal use and benefit, to
the damage and prejudice of the said Solidbank Corporation in the aforesaid
amount of P2,532,500.00 Philippine Currency.
Contrary to law.

Arraignment and Plea


With the assistance of counsel, petitioner and Benito Ong both pleaded not
guilty when arraigned. Thereafter, trial ensued.

Version of the Prosecution


The prosecutions evidence disclosed that on 22 June 1990, petitioner,
representing ARMAGRI International Corporation [8](ARMAGRI), applied for a
letter of credit for P2,532,500.00 with SOLIDBANK Corporation (Bank) to
finance the purchase of differential assemblies from Metropole Industrial Sales.
On 6 July 1990, petitioner, representing ARMAGRI, executed a trust
receipt[9] acknowledging receipt from the Bank of the goods valued
at P2,532,500.00.
On 12 July 1990, petitioner and Benito Ong, representing ARMAGRI, applied
for another letter of credit for P2,050,000.00 to finance the purchase of

merchandise from Fertiphil Corporation. The Bank approved the application,


opened the letter of credit and paid to Fertiphil Corporation the amount
of P2,050,000.00. On 23 July 1990, petitioner, signing for ARMAGRI, executed
another trust receipt[10] in favor of the Bank acknowledging receipt of the
merchandise.
Both trust receipts contained the same stipulations. Under the trust receipts,
ARMAGRI undertook to account for the goods held in trust for the Bank, or if the
goods are sold, to turn over the proceeds to the Bank. ARMAGRI also undertook
the obligation to keep the proceeds in the form of money, bills or receivables as
the separate property of the Bank or to return the goods upon demand by the
Bank, if not sold. In addition, petitioner executed the following additional
undertaking stamped on the dorsal portion of both trust receipts:
I/We jointly and severally agreed to any increase or decrease in the interest rate
which may occur after July 1, 1981, when the Central Bank floated the interest
rates, and to pay additionally the penalty of 1% per month until the amount/s or
installment/s due and unpaid under the trust receipt on the reverse side hereof
is/are fully paid.[11]
Petitioner signed alone the foregoing additional undertaking in the Trust Receipt
for P2,253,500.00, while both petitioner and Benito Ong signed the additional
undertaking in the Trust Receipt for P2,050,000.00.
When the trust receipts became due and demandable, ARMAGRI failed to pay
deliver the goods to the Bank despite several demand letters.
[12]
Consequently, as of 31 May 1991, the unpaid account under the first trust
receipt amounted to P1,527,180.66,[13] while the unpaid account under the
second trust receipt amounted to P1,449,395.71.[14]
or

Version of the Defense


After the prosecution rested its case, petitioner and Benito Ong, through
counsel, manifested in open court that they were waiving their right to present
evidence. The trial court then considered the case submitted for decision. [15]

The Ruling of the Court of Appeals


Petitioner appealed his conviction to the Court of Appeals. On 27 October
1994, the Court of Appeals affirmed the trial courts decisionin toto. Petitioner
filed a motion for reconsideration but the same was denied by the Court of
Appeals in the Resolution dated 18 April 1995.
The Court of Appeals held that although petitioner is neither a director nor an
officer of ARMAGRI, he certainly comes within the term employees or other x x x
persons therein responsible for the offense in Section 13 of the Trust Receipts
Law. The Court of Appeals explained as follows:
It is not disputed that appellant transacted with the Solid Bank on behalf of
ARMAGRI. This is because the Corporation cannot by itself transact business or
sign documents it being an artificial person. It has to accomplish these through

its agents. A corporation has a personality distinct and separate from those
acting on its behalf. In the fulfillment of its purpose, the corporation by necessity
has to employ persons to act on its behalf.
Being a mere artificial person, the law (Section 13, P.D. 115) recognizes the
impossibility of imposing the penalty of imprisonment on the corporation itself.
For this reason, it is the officers or employees or other persons whom the law
holds responsible.[16]
The Court of Appeals ruled that what made petitioner liable was his failure to
account to the entruster Bank what he undertook to perform under the trust
receipts. The Court of Appeals held that ARMAGRI, which petitioner represented,
could not itself negotiate the execution of the trust receipts, go to the Bank to
receive, return or account for the entrusted goods. Based on the representations
of petitioner, the Bank accepted the trust receipts and, consequently, expected
petitioner to return or account for the goods entrusted. [17]
The Court of Appeals also ruled that the prosecution need not prove that
petitioner is occupying a position in ARMAGRI in the nature of an officer or similar
position to hold him the person(s) therein responsible for the offense. The
Court of Appeals held that petitioners admission that his participation was
merely incidental still makes him fall within the purview of the law as one of the
corporations employees or other officials or persons therein responsible for the
offense. Incidental or not, petitioner was then acting on behalf of ARMAGRI,
carrying out the corporations decision when he signed the trust receipts.
The Court of Appeals further ruled that the prosecution need not prove that
petitioner personally received and misappropriated the goods subject of the trust
receipts. Evidence of misappropriation is not required under the Trust Receipts
Law. To establish the crime ofestafa, it is sufficient to show failure by the
entrustee to turn over the goods or the proceeds of the sale of the goods
covered by a trust receipt. Moreover, the bank is not obliged to determine if the
goods came into the actual possession of the entrustee. Trust receipts are issued
to facilitate the purchase of merchandise. To obligate the bank to examine the
fact of actual possession by the entrustee of the goods subject of every trust
receipt will greatly impede commercial transactions.
Hence, this petition.

The Issues
Petitioner seeks to reverse his conviction by contending that the Court of
Appeals erred:
1. IN RULING THAT, BY THE MERE CIRCUMSTANCE THAT PETITIONER ACTED AS
AGENT AND SIGNED FOR THE ENTRUSTEE CORPORATION, PETITIONER WAS
NECESSARILY THE ONE RESPONSIBLE FOR THE OFFENSE; AND
2. IN CONVICTING PETITIONER UNDER SPECIFICATIONS NOT ALLEGED IN THE
INFORMATION.

The Ruling of the Court

The Court sustains the conviction of petitioner.

First Assigned Error: Petitioner comes within


the purview of Section 13 of the Trust Receipts Law.
Petitioner contends that the Court of Appeals erred in finding him liable for
the default of ARMAGRI, arguing that in signing the trust receipts, he merely
acted as an agent of ARMAGRI. Petitioner asserts that nowhere in the trust
receipts did he assume personal responsibility for the undertakings of ARMAGRI
which was the entrustee.
Petitioners arguments fail to persuade us.
The pivotal issue for resolution is whether petitioner comes within the
purview of Section 13 of the Trust Receipts Law which provides:
x x x. If the violation is committed by a corporation, partnership, association or
other juridical entities, the penalty provided for in this Decree shall be imposed
upon the directors, officers, employees or other officials or persons therein
responsible for the offense, without prejudice to the civil liabilities arising from
the offense. (Emphasis supplied)
We hold that petitioner is a person responsible for violation of the Trust
Receipts Law.
The relevant penal provision of the Trust Receipts Law reads:
SEC. 13. Penalty Clause. The failure of the entrustee to turn over the
proceeds of the sale of the goods, documents or instruments covered by a trust
receipt to the extent of the amount owing to the entruster or as appears in the
trust receipt or to return said goods, documents or instruments if they were not
sold or disposed of in accordance with the terms of the trust receipt shall
constitute the crime of estafa, punishable under the provisions of Article Three
Hundred and Fifteen, Paragraph One (b), of Act Numbered Three Thousand Eight
Hundred and Fifteen, as amended, otherwise known as the Revised Penal Code. If
the violation or offense is committed by a corporation, partnership, association
or other juridical entities, the penalty provided for in this Decree shall be
imposed upon the directors, officers, employees or other officials or persons
therein responsible for the offense, without prejudice to the civil liabilities arising
from the criminal offense. (Emphasis supplied)
The Trust Receipts Law is violated whenever the entrustee fails to: (1) turn
over the proceeds of the sale of the goods, or (2) return the goods covered by
the trust receipts if the goods are not sold. [18] The mere failure to account or
return gives rise to the crime which ismalum prohibitum.[19] There is no
requirement to prove intent to defraud. [20]
The Trust Receipts Law recognizes the impossibility of imposing the penalty
of imprisonment on a corporation. Hence, if the entrustee is a corporation, the
law makes the officers or employees or other persons responsible for the offense
liable to suffer the penalty of imprisonment. The reason is obvious: corporations,
partnerships, associations and other juridical entities cannot be put to jail.

Hence, the criminal liability falls on the human agent responsible for the violation
of the Trust Receipts Law.
In the instant case, the Bank was the entruster while ARMAGRI was the
entrustee. Being the entrustee, ARMAGRI was the one responsible to account for
the goods or its proceeds in case of sale. However, the criminal liability for
violation of the Trust Receipts Law falls on the human agent responsible for the
violation. Petitioner, who admits being the agent of ARMAGRI, is the person
responsible for the offense for two reasons. First, petitioner is the signatory to
the trust receipts, the loan applications and the letters of credit. Second, despite
being the signatory to the trust receipts and the other documents, petitioner did
not explain or show why he is not responsible for the failure to turn over the
proceeds of the sale or account for the goods covered by the trust receipts.
The Bank released the goods to ARMAGRI upon execution of the trust
receipts and as part of the loan transactions of ARMAGRI. The Bank had a right to
demand from ARMAGRI payment or at least a return of the goods. ARMAGRI
failed to pay or return the goods despite repeated demands by the Bank.
It is a well-settled doctrine long before the enactment of the Trust Receipts
Law, that the failure to account, upon demand, for funds or property held in trust
is evidence of conversion or misappropriation. [21] Under the law, mere failure by
the entrustee to account for the goods received in trust constitutes estafa. The
Trust Receipts Law punishes dishonesty and abuse of confidence in the handling
of money or goods to the prejudice of public order. [22] The mere failure to deliver
the proceeds of the sale or the goods if not sold constitutes a criminal offense
that causes prejudice not only to the creditor, but also to the public interest.
[23]
Evidently, the Bank suffered prejudice for neither money nor the goods were
turned over to the Bank.
The Trust Receipts Law expressly makes the corporations officers or
employees or other persons therein responsible for the offense liable to suffer
the penalty of imprisonment. In the instant case, petitioner signed the two trust
receipts on behalf of ARMAGRI[24] as the latter could only act through its agents.
When petitioner signed the trust receipts, he acknowledged receipt of the goods
covered by the trust receipts. In addition, petitioner was fully aware of the terms
and conditions stated in the trust receipts, including the obligation to turn over
the proceeds of the sale or return the goods to the Bank, to wit:
Received, upon the TRUST hereinafter mentioned from SOLIDBANK
CORPORATION (hereafter referred to as the BANK), the following goods and
merchandise, the property of said BANK specified in the bill of lading as follows: x
x x and in consideration thereof, I/we hereby agree to hold said goods in
Trust for the said BANK and as its property with liberty to sell the same for its
account but without authority to make any other disposition whatsoever of the
said goods or any part thereof (or the proceeds thereof) either by way of
conditional sale, pledge, or otherwise.
In case of sale I/we agree to hand the proceeds as soon as received to
the BANK to apply against the relative acceptance (as described above) and for
the payment of any other indebtedness of mine/ours to SOLIDBANK
CORPORATION.
x x x.

I/we agree to keep said goods, manufactured products, or proceeds thereof,


whether in the form of money or bills, receivables, or accounts, separate and
capable of identification as the property of the BANK.
I/we further agree to return the goods, documents, or instruments in
the event of their non-sale, upon demand or within _______ days, at the
option of the BANK.
x x x. (Emphasis supplied)[25]
True, petitioner acted on behalf of ARMAGRI. However, it is a well-settled rule
that the law of agency governing civil cases has no application in criminal cases.
When a person participates in the commission of a crime, he cannot escape
punishment on the ground that he simply acted as an agent of another party.
[26]
In the instant case, the Bank accepted the trust receipts signed by petitioner
based on petitioners representations. It is the fact of being the signatory to the
two trust receipts, and thus a direct participant to the crime, which makes
petitioner a person responsible for the offense.
Petitioner could have raised the defense that he had nothing to do with the
failure to account for the proceeds or to return the goods. Petitioner could have
shown that he had severed his relationship with ARMAGRI prior to the loss of the
proceeds or the disappearance of the goods. Petitioner, however, waived his
right to present any evidence, and thus failed to show that he is not responsible
for the violation of the Trust Receipts Law.
There is no dispute that on 6 July 1990 and on 23 July 1990, petitioner signed
the two trust receipts[27] on behalf of ARMAGRI. Petitioner, acting on behalf of
ARMAGRI, expressly acknowledged receipt of the goods in trust for the Bank.
ARMAGRI failed to comply with its undertakings under the trust receipts. On the
other hand, petitioner failed to explain and communicate to the Bank what
happened to the goods despite repeated demands from the Bank. As of 13 May
1991, the unpaid account under the first and second trust receipts amounted
to P1,527,180.60 and P1,449,395.71, respectively.[28]

Second Assigned Error: Petitioners conviction under


the allegations in the two Informations for Estafa.
Petitioner argues that he cannot be convicted on a new set of facts not
alleged in the Informations. Petitioner claims that the trial courts decision found
that it was ARMAGRI that transacted with the Bank, acting through petitioner as
its agent. Petitioner asserts that this contradicts the specific allegation in the
Informations that it was petitioner who was constituted as the entrustee and was
thus obligated to account for the goods or its proceeds if sold. Petitioner
maintains that this absolves him from criminal liability.
We find no merit in petitioners arguments.
Contrary to petitioners assertions, the Informations explicitly allege that
petitioner, representing ARMAGRI, defrauded the Bank by failing to remit the
proceeds of the sale or to return the goods despite demands by the Bank, to the
latters prejudice. As an essential element of estafa with abuse of confidence, it
is sufficient that the Informations specifically allege that the entrustee received
the goods. The Informations expressly state that ARMAGRI, represented by

petitioner, received the goods in trust for the Bank under the express obligation
to remit the proceeds of the sale or to return the goods upon demand by the
Bank. There is no need to allege in the Informations in what capacity petitioner
participated to hold him responsible for the offense. Under the Trust Receipts
Law, it is sufficient to allege and establish the failure of ARMAGRI, whom
petitioner represented, to remit the proceeds or to return the goods to the Bank.
When petitioner signed the trust receipts, he claimed he was representing
ARMAGRI. The corporation obviously acts only through its human agents and it is
the conduct of such agents which the law must deter. [29] The existence of the
corporate entity does not shield from prosecution the agent who knowingly and
intentionally commits a crime at the instance of a corporation. [30]

Penalty for the crime of Estafa.


The penalty for the crime of estafa is prescribed in Article 315 of the Revised
Penal Code, as follows:
1st. The penalty of prision correccional in its maximum period to prision mayor in
its minimum period, if the amount of the fraud is over 12,000 pesos but does not
exceed 22,000 pesos; and if such amount exceeds the latter sum, the penalty
provided in this paragraph shall be imposed in its maximum period, adding one
year for each additional 10,000 pesos; but the total penalty which may be
imposed should not exceed twenty years. x x x.
In the instant case, the amount of the fraud in Criminal Case No. 92-101989
is P1,527,180.66. In Criminal Case No. 92-101990, the amount of the fraud
is P1,449,395.71. Since
the
amounts
of
the
fraud
in
each estafa exceeds P22,000.00, the penalty of prision correccional maximum
to prision mayor minimum should be imposed in its maximum period as
prescribed in Article 315 of the Revised Penal Code. The maximum indeterminate
sentence should be taken from this maximum period which has a duration of 6
years, 8 months and 21 days to 8 years. One year is then added for each
additional P10,000.00, but the total penalty should not exceed 20 years. Thus,
the maximum penalty for each count of estafa in this case should be 20 years.
Under the Indeterminate Sentence Law, the minimum indeterminate
sentence can be anywhere within the range of the penalty next lower in degree
to the penalty prescribed by the Code for the offense. The minimum range of the
penalty is determined without first considering any modifying circumstance
attendant to the commission of the crime and without reference to the periods
into which it may be subdivided. [31] The modifying circumstances are considered
only in the imposition of the maximum term of the indeterminate sentence.
[32]
Since the penalty prescribed in Article 315 is prision correccional maximum
to prision mayor minimum, the penalty next lower in degree would be prision
correccional minimum to medium. Thus, the minimum term of the indeterminate
penalty should be anywhere within 6 months and 1 day to 4 years and 2 months.
[33]

Accordingly, the Court finds a need to modify in part the penalties imposed
by the trial court. The minimum penalty for each count ofestafa should be
reduced to four (4) years and two (2) months of prision correccional.

As for the civil liability arising from the criminal offense, the question is
whether as the signatory for ARMAGRI, petitioner is personally liable pursuant to
the provision of Section 13 of the Trust Receipts Law.
In Prudential Bank v. Intermediate Appellate Court,[34] the Court
discussed the imposition of civil liability for violation of the Trust Receipts Law in
this wise:
It is clear that if the violation or offense is committed by a corporation,
partnership, association or other juridical entities, the penalty shall be imposed
upon the directors, officers, employees or other officials or persons responsible
for the offense. The penalty referred to is imprisonment, the duration of which
would depend on the amount of the fraud as provided for in Article 315 of the
Revised Penal Code. The reason for this is obvious: corporation, partnership,
association or other juridical entities cannot be put in jail. However, it is these
entities which are made liable for the civil liabilities arising from the
criminal offense. This is the import of the clause without prejudice to the civil
liabilities arising from the criminal offense. (Emphasis supplied)
In Prudential Bank, the Court ruled that the person signing the trust receipt for
the corporation is not solidarily liable with the entrustee-corporation for the civil
liability arising from the criminal offense. He may, however, be personally liable
if he bound himself to pay the debt of the corporation under a separate contract
of surety or guaranty.
In the instant case, petitioner did not sign in his personal capacity the
solidary guarantee clause[35] found on the dorsal portion of the trust receipts.
Petitioner placed his signature after the typewritten words ARMCO INDUSTRIAL
CORPORATION found at the end of the solidary guarantee clause. Evidently,
petitioner did not undertake to guaranty personally the payment of the principal
and interest of ARMAGRIs debt under the two trust receipts.
In contrast, petitioner signed the stamped additional undertaking without
any indication he was signing for ARMAGRI. Petitioner merely placed his
signature after the additional undertaking. Clearly, what petitioner signed in his
personal capacity was the stamped additional undertaking to pay a monthly
penalty of 1% of the total obligation in case of ARMAGRIs default.
In the additional undertaking, petitioner bound himself to pay jointly and
severally a monthly penalty of 1% in case of ARMAGRIs default. [36] Thus,
petitioner is liable to the Bank for the stipulated monthly penalty of 1% on the
outstanding amount of each trust receipt. The penalty shall be computed from
15 July 1991, when petitioner received the demand letter, [37] until the debt is fully
paid.
WHEREFORE, the assailed Decision is AFFIRMED with MODIFICATION. In
Criminal Case No. 92-101989 and in Criminal Case No. 92-101990, for each count
of estafa, petitioner EDWARD C. ONG is sentenced to an indeterminate penalty of
imprisonment from four (4) years and two (2) months of prision correccional as
MINIMUM, to twenty (20) years of reclusion temporal as MAXIMUM. Petitioner is
ordered to pay SOLIDBANK CORPORATION the stipulated penalty of 1% per
month on the outstanding balance of the two trust receipts to be computed from
15 July 1991 until the debt is fully paid.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Vitug, Ynares-Santiago, and Azcuna, JJ., concur.

[1]

Under Rule 45 of the Rules of Court.

[2]

Penned by Associate Justice Antonio M. Martinez with Associate Justices Fermin


A. Martin, Jr. and Conrado M. Vasquez, Jr. concurring, Rollo, pp. 19-29.

[3]

Rollo, p. 31.

[4]

In Criminal Case Nos. 92-101989 & 92-101990, entitled People v. Benito Ong
& Edward C. Ong.

[5]

Penned by Judge Ramon Makasiar, CA Records, pp.10-16.

[6]

Section 13 of PD No. 115, the Trust Receipts Law.

[7]

CA Records, p. 16.

[8]

Formerly ARMCO Industrial Corporation, Rollo, p. 21, CA Decision, p. 3.

[9]

Exhibit B, Records, p. 103.

[10]

Exhibit C, ibid., p. 104.

[11]

Exhibits B-3 & B-4, Records, p. 103; Exhibits C-3 & C-4, Records, p. 104.

[12]

Exhibits D, H & I, ibid., pp. 105 & 108-A.

[13]

Exhibit E, ibid., p. 106.

[14]

Exhibit F, ibid., p. 107.

[15]

Records, p. 116.

[16]

Rollo, pp. 24-25.

[17]

Ibid., p. 25.

[18]

Metropolitan Bank and Trust Company v. Tonda, G.R. No. 134436, 16 August
2000, 338 SCRA 254.

[19]

People v. Nitafan, G.R. Nos. 81559-60, 6 April 1992, 207 SCRA 726.

[20]

Colinares v. Court of Appeals, G.R. No. 90828, 5 September 2000, 339 SCRA
609.

[21]

Hayco v. CA, Nos. L-55775-86, 26 August 1995, 138 SCRA 227; Dayawon v.
Badilla, A.M. No. MTJ- 00-1309, 6 September 2000, 339 SCRA 702.

[22]

Supra, see note 18.

[23]

Supra, see note 20.

[24]

Exhibits B-1 & C-2, Records, pp. 103 & 104.

[25]

Exhibits B & C, Records, pp. 103 & 104.

[26]

People v. Chowdury, G.R. Nos. 129577-80, 15 February 2000, 325 SCRA 572.

[27]

Supra, see notes 9 & 10.

[28]

Supra, see notes 13 & 14.

[29]

Supra, see note 26.

[30]

Supra, see note 26.

[31]

People v. Gabres, 335 Phil. 242 (1997).

[32]

Ibid.

[33]

People v. Bautista, 311 Phil. 227 (1995); Dela Cruz v. CA, 333 Phil. 126 (1996);
People v. Ortiz-Miyake, 344 Phil. 598 (1997); People v. Saley, 353 Phil. 897
(1998).

[34]

G.R. No. 74886, 8 December 1992, 216 SCRA 257.

[35]

This clause states: In consideration of SOLIDBANK CORPORATION complying


with the foregoing, we jointly and severally agree and undertake to pay on
demand to SOLIDBANK CORPORATION, all sums of money which the said
SOLIDBANK CORPORATION may call upon us to pay arising out of or
pertaining to, and/or in any event connected with the default of and/or
non-fulfillment in any respect of the undertaking of the aforesaid: x x x.

[36]

Supra, see note 11.

[37]

Supra, see note 12.


Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 142616

July 31, 2001

PHILIPPINE NATIONAL BANK, petitioner,


vs.
RITRATTO GROUP INC., RIATTO INTERNATIONAL, INC., and DADASAN
GENERAL MERCHANDISE,respondents.
KAPUNAN, J.:
In a petition for review on certiorari under Rule 45 of the Revised Rules of Court,
petitioner seeks to annul and set aside the Court of Appeals' decision in C.A. CV
G.R. S.P. No. 55374 dated March 27, 2000, affirming the Order issuing a writ of
preliminary injunction of the Regional Trial Court of Makati, Branch 147 dated
June 30, 1999, and its Order dated October 4, 1999, which denied petitioner's
motion to dismiss.
The antecedents of this case are as follows:
Petitioner Philippine National Bank is a domestic corporation organized and
existing under Philippine law. Meanwhile, respondents Ritratto Group, Inc., Riatto
International, Inc. and Dadasan General Merchandise are domestic corporations,
likewise, organized and existing under Philippine law.
On May 29, 1996, PNB International Finance Ltd. (PNB-IFL) a subsidiary company
of PNB, organized and doing business in Hong Kong, extended a letter of credit in
favor of the respondents in the amount of US$300,000.00 secured by real estate

mortgages constituted over four (4) parcels of land in Makati City. This credit
facility was later increased successively to US$1,140,000.00 in September 1996;
to US$1,290,000.00 in November 1996; to US$1,425,000.00 in February 1997;
and decreased to US$1,421,316.18 in April 1998. Respondents made repayments
of the loan incurred by remitting those amounts to their loan account with PNBIFL in Hong Kong.
However, as of April 30, 1998, their outstanding obligations stood at
US$1,497,274.70. Pursuant to the terms of the real estate mortgages, PNB-IFL,
through its attorney-in-fact PNB, notified the respondents of the foreclosure of all
the real estate mortgages and that the properties subject thereof were to be sold
at a public auction on May 27, 1999 at the Makati City Hall.
On May 25, 1999, respondents filed a complaint for injunction with prayer for the
issuance of a writ of preliminary injunction and/or temporary restraining order
before the Regional Trial Court of Makati. The Executive Judge of the Regional
Trial Court of Makati issued a 72-hour temporary restraining order. On May 28,
1999, the case was raffled to Branch 147 of the Regional Trial Court of Makati.
The trial judge then set a hearing on June 8, 1999. At the hearing of the
application for preliminary injunction, petitioner was given a period of seven days
to file its written opposition to the application. On June 15, 1999, petitioner filed
an opposition to the application for a writ of preliminary injunction to which the
respondents filed a reply. On June 25, 1999, petitioner filed a motion to dismiss
on the grounds of failure to state a cause of action and the absence of any privity
between the petitioner and respondents. On June 30, 1999, the trial court judge
issued an Order for the issuance of a writ of preliminary injunction, which writ
was correspondingly issued on July 14, 1999. On October 4, 1999, the motion to
dismiss was denied by the trial court judge for lack of merit.
Petitioner, thereafter, in a petition for certiorari and prohibition assailed the
issuance of the writ of preliminary injunction before the Court of Appeals. In the
impugned decision,1 the appellate court dismissed the petition. Petitioner thus
seeks recourse to this Court and raises the following errors:
1.
THE COURT OF APPEALS PALPABLY ERRED IN NOT DISMISSING THE
COMPLAINT A QUO, CONSIDERING THAT BY THE ALLEGATIONS OF THE
COMPLAINT, NO CAUSE OF ACTION EXISTS AGAINST PETITIONER, WHICH IS
NOT A REAL PARTY IN INTEREST BEING A MERE ATTORNEY-IN-FACT
AUTHORIZED TO ENFORCE AN ANCILLARY CONTRACT.
2.
THE COURT OF APPEALS PALPABLY ERRED IN ALLOWING THE TRIAL COURT
TO ISSUE IN EXCESS OR LACK OF JURISDICTION A WRIT OF PRELIMINARY
INJUNCTION OVER AND BEYOND WHAT WAS PRAYED FOR IN THE
COMPLAINT A QUO CONTRARY TO CHIEF OF STAFF, AFP VS. GUADIZ JR.,
101 SCRA 827.2
Petitioner prays, inter alia, that the Court of Appeals' Decision dated March 27,
2000 and the trial court's Orders dated June 30, 1999 and October 4, 1999 be set
aside and the dismissal of the complaint in the instant case. 3

In their Comment, respondents argue that even assuming arguendo that


petitioner and PNB-IFL are two separate entities, petitioner is still the party-ininterest in the application for preliminary injunction because it is tasked to
commit acts of foreclosing respondents' properties. 4 Respondents maintain that
the entire credit facility is void as it contains stipulations in violation of the
principle of mutuality of contracts. 5 In addition, respondents justified the act of
the court a quo in applying the doctrine of "Piercing the Veil of Corporate
Identity" by stating that petitioner is merely an alter ego or a business conduit of
PNB-IFL.6
The petition is impressed with merit.
Respondents, in their complaint, anchor their prayer for injunction on alleged
invalid provisions of the contract:
GROUNDS
I
THE DETERMINATION OF THE INTEREST RATES BEING LEFT TO THE SOLE
DISCRETION OF THE DEFENDANT PNB CONTRAVENES THE PRINCIPAL OF
MUTUALITY OF CONTRACTS.
II
THERE BEING A STIPULATION IN THE LOAN AGREEMENT THAT THE RATE OF
INTEREST AGREED UPON MAY BE UNILATERALLY MODIFIED BY DEFENDANT,
THERE WAS NO STIPULATION THAT THE RATE OF INTEREST SHALL BE
REDUCED IN THE EVENT THAT THE APPLICABLE MAXIMUM RATE OF
INTEREST IS REDUCED BY LAW OR BY THE MONETARY BOARD. 7
Based on the aforementioned grounds, respondents sought to enjoin and restrain
PNB from the foreclosure and eventual sale of the property in order to protect
their rights to said property by reason of void credit facilities as bases for the real
estate mortgage over the said property. 8
The contract questioned is one entered into between respondent and PNB-IFL,
not PNB. In their complaint, respondents admit that petitioner is a mere attorneyin-fact for the PNB-IFL with full power and authority to, inter alia, foreclose on the
properties mortgaged to secure their loan obligations with PNB-IFL. In other
words, herein petitioner is an agent with limited authority and specific duties
under a special power of attorney incorporated in the real estate mortgage. It is
not privy to the loan contracts entered into by respondents and PNB-IFL.
The issue of the validity of the loan contracts is a matter between PNB-IFL, the
petitioner's principal and the party to the loan contracts, and the respondents.
Yet, despite the recognition that petitioner is a mere agent, the respondents in
their complaint prayed that the petitioner PNB be ordered to re-compute the
rescheduling of the interest to be paid by them in accordance with the terms and
conditions in the documents evidencing the credit facilities, and crediting the
amount previously paid to PNB by herein respondents. 9

Clearly, petitioner not being a part to the contract has no power to re-compute
the interest rates set forth in the contract. Respondents, therefore, do not have
any cause of action against petitioner.
The trial court, however, in its Order dated October 4, 1994, ruled that since
PNB-IFL, is a wholly owned subsidiary of defendant Philippine National Bank, the
suit against the defendant PNB is a suit against PNB-IFL. 10 In justifying its ruling,
the trial court, citing the case of Koppel Phil. Inc. vs. Yatco,11 reasoned that the
corporate entity may be disregarded where a corporation is the mere alter ego,
or business conduit of a person or where the corporation is so organized and
controlled and its affairs are so conducted, as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation. 12
We disagree.
The general rule is that as a legal entity, a corporation has a personality distinct
and separate from its individual stockholders or members, and is not affected by
the personal rights, obligations and transactions of the latter. 13The mere fact that
a corporation owns all of the stocks of another corporation, taken alone is not
sufficient to justify their being treated as one entity. If used to perform legitimate
functions, a subsidiary's separate existence may be respected, and the liability of
the parent corporation as well as the subsidiary will be confined to those arising
in their respective business. The courts may in the exercise of judicial discretion
step in to prevent the abuses of separate entity privilege and pierce the veil of
corporate entity.
We find, however, that the ruling in Koppel finds no application in the case at bar.
In said case, this Court disregarded the separate existence of the parent and the
subsidiary on the ground that the latter was formed merely for the purpose of
evading the payment of higher taxes. In the case at bar, respondents fail to show
any cogent reason why the separate entities of the PNB and PNB-IFL should be
disregarded.
While there exists no definite test of general application in determining when a
subsidiary may be treated as a mere instrumentality of the parent corporation,
some factors have been identified that will justify the application of the
treatment of the doctrine of the piercing of the corporate veil. The case
of Garrett vs. Southern Railway Co.14is enlightening. The case involved a suit
against the Southern Railway Company. Plaintiff was employed by Lenoir Car
Works and alleged that he sustained injuries while working for Lenoir. He,
however, filed a suit against Southern Railway Company on the ground that
Southern had acquired the entire capital stock of Lenoir Car Works, hence, the
latter corporation was but a mere instrumentality of the former. The Tennessee
Supreme Court stated that as a general rule the stock ownership alone by one
corporation of the stock of another does not thereby render the dominant
corporation liable for the torts of the subsidiary unless the separate corporate
existence of the subsidiary is a mere sham, or unless the control of the
subsidiary is such that it is but an instrumentality or adjunct of the dominant
corporation. Said Court then outlined the circumstances which may be useful in
the determination of whether the subsidiary is but a mere instrumentality of the
parent-corporation:

The Circumstance rendering the subsidiary an instrumentality. It is


manifestly impossible to catalogue the infinite variations of fact that can
arise but there are certain common circumstances which are important
and which, if present in the proper combination, are controlling.
These are as follows:
(a) The parent corporation owns all or most of the capital stock of the
subsidiary.
(b) The parent and subsidiary corporations have common directors or
officers.
(c) The parent corporation finances the subsidiary.
(d) The parent corporation subscribes to all the capital stock of the
subsidiary or otherwise causes its incorporation.
(e) The subsidiary has grossly inadequate capital.
(f) The parent corporation pays the salaries and other expenses or losses
of the subsidiary.
(g) The subsidiary has substantially no business except with the parent
corporation or no assets except those conveyed to or by the parent
corporation.
(h) In the papers of the parent corporation or in the statements of its
officers, the subsidiary is described as a department or division of the
parent corporation, or its business or financial responsibility is referred to
as the parent corporation's own.
(i) The parent corporation uses the property of the subsidiary as its own.
(j) The directors or executives of the subsidiary do not act independently
in the interest of the subsidiary but take their orders from the parent
corporation.
(k) The formal legal requirements of the subsidiary are not observed.
The Tennessee Supreme Court thus ruled:
In the case at bar only two of the eleven listed indicia occur, namely, the
ownership of most of the capital stock of Lenoir by Southern, and possibly
subscription to the capital stock of Lenoir. . . The complaint must be
dismissed.
Similarly, in this jurisdiction, we have held that the doctrine of piercing the
corporate veil is an equitable doctrine developed to address situations where the
separate corporate personality of a corporation is abused or used for wrongful
purposes. The doctrine applies when the corporate fiction is used to defeat public
convenience, justify wrong, protect fraud or defend crime, or when it is made as
a shield to confuse the legitimate issues, or where a corporation is the mere alter

ego or business conduit of a person, or where the corporation is so organized and


controlled and its affairs are so conducted as to make it merely an
instrumentality, agency, conduit or adjunct of another corporation. 15
In Concept Builders, Inc. v. NLRC,16 we have laid the test in determining the
applicability of the doctrine of piercing the veil of corporate fiction, to wit:
1. Control, not mere majority or complete control, but complete
domination, not only of finances but of policy and business practice in
respect to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own.
2. Such control must have been used by the defendant to commit fraud or
wrong, to perpetuate the violation of a statutory or other positive legal
duty, or dishonest and, unjust act in contravention of plaintiffs legal rights;
and,
3. The aforesaid control and breach of duty must proximately cause the
injury or unjust loss complained of.
The absence of any one of these elements prevents "piercing the
corporate veil." In applying the "instrumentality" or "alter ego" doctrine,
the courts are concerned with reality and not form, with how the
corporation operated and the individual defendant's relationship to the
operation.17
Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB,
there is no showing of the indicative factors that the former corporation is a mere
instrumentality of the latter are present. Neither is there a demonstration that
any of the evils sought to be prevented by the doctrine of piercing the corporate
veil exists. Inescapably, therefore, the doctrine of piercing the corporate veil
based on the alter ego or instrumentality doctrine finds no application in the
case at bar.
In any case, the parent-subsidiary relationship between PNB and PNB-IFL is not
the significant legal relationship involved in this case since the petitioner was not
sued because it is the parent company of PNB-IFL. Rather, the petitioner was
sued because it acted as an attorney-in-fact of PNB-IFL in initiating the
foreclosure proceedings. A suit against an agent cannot without compelling
reasons be considered a suit against the principal. Under the Rules of Court,
every action must be prosecuted or defended in the name of the real party-ininterest, unless otherwise authorized by law or these Rules. 18 In mandatory
terms, the Rules require that "parties-in-interest without whom no final
determination can be had, an action shall be joined either as plaintiffs or
defendants."19 In the case at bar, the injunction suit is directed only against the
agent, not the principal.
Anent the issuance of the preliminary injunction, the same must be lifted as it is
a mere provisional remedy but adjunct to the main suit. 20 A writ of preliminary
injunction is an ancillary or preventive remedy that may only be 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. The dismissal of the principal action
thus results in the denial of the prayer for the issuance of the writ. Further, there

is no showing that respondents are entitled to the issuance of the writ. Section 3,
Rule 58, of the 1997 Rules of Civil Procedure provides:
SECTION 3. Grounds for issuance of preliminary injunction. A
preliminary injunction may be granted when it is established:
(a) That the applicant is entitled to the relief demanded, and 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,
(b) That the commission, continuance or non-performance of the acts 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.
Thus, an injunctive remedy may only be resorted to when there is a pressing
necessity to avoid injurious consequences which cannot be remedied under any
standard compensation.21 Respondents do not deny their indebtedness. Their
properties are by their own choice encumbered by real estate mortgages. Upon
the non-payment of the loans, which were secured by the mortgages sought to
be foreclosed, the mortgaged properties are properly subject to a foreclosure
sale. Moreover, respondents questioned the alleged void stipulations in the
contract only when petitioner initiated the foreclosure proceedings. Clearly,
respondents have failed to prove that they have a right protected and that the
acts against which the writ is to be directed are violative of said right. 22The Court
is not unmindful of the findings of both the trial court and the appellate court
that there may be serious grounds to nullify the provisions of the loan
agreement. However, as earlier discussed, respondents committed the mistake
of filing the case against the wrong party, thus, they must suffer the
consequences of their error.
All told, respondents do not have a cause of action against the petitioner as the
latter is not privy to the contract the provisions of which respondents seek to
declare void. Accordingly, the case before the Regional Trial Court must be
dismissed and the preliminary injunction issued in connection therewith, must be
lifted.
IN VIEW OF THE FOREGOING, the petition is hereby GRANTED. The assailed
decision of the Court of Appeals is hereby REVERSED. The Orders dated June 30,
1999 and October 4, 1999 of the Regional Trial Court of Makati, Branch 147 in
Civil Case No. 99-1037 are hereby ANNULLED and SET ASIDE and the complaint
in said case DISMISSED.
SO ORDERED.
Puno, Pardo and Santiago, JJ ., concur.
Davide, Jr., C .J ., on official leave.

Footnotes
1

Decision, Court of Appeals, pp. 1-6; Rollo, pp. 37-42.

Petition, p. 10; Rollo, p. 20.

Id., at 24; Id., at 34.

Comment, pp. 12-13; Rollo, pp. 438-439.

Id., at 17-19; Id., at 443-445.

Id., at 20-24; Id., at 446-450.

Rollo, p. 266.

Id., at 270.

See Complaint, p. 15; Rollo, p. 64.

10

Rollo, p. 49.

11

77 Phil. 496 (1946).

12

Ibid.

13

Yutivo Sons Hardware Company v. Court of Tax Appeals, 1 SCRA 160


(1961).
14

173 F. Supp. 915, E.D. Tenn. (1959).

15

Umali v. Court of Appeals, 189 SCRA 529, 524 (1990).

16

257 SCRA 149 (1996).

17

Id., at 159.

18

See RULES OF COURT, Rule 3, sec. 2.

19

RULES OF COURT, Rule 3, sec. 7.

20

Philippine Airlines, Inc. vs. NLRC, 287 SCRA 672 (1998).

21

Union Bank of the Philippines v. Court of Appeals, 311 SCRA 795, 805806 (1999).
22

China Banking Corporation v. Court of Appeals, 265 SCRA 327, 343


(1996).

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. L-18287

March 30, 1963

TRINIDAD J. FRANCISCO, plaintiff-appellee,


vs.
GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-appellant.
----------------------------G.R. No. L-18155

March 30, 1963

TRINIDAD J. FRANCISCO, plaintiff-appellant,


vs.
GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-appellee.
Vicente J. Francisco for plaintiff-appellee.
The Government Corporate Counsel for defendant-appellant.
REYES, J.B.L., J.:
Appeal by the Government Service Insurance System from the decision of the
Court of First Instance of Rizal (Hon. Angel H. Mojica, presiding), in its Civil Case
No. 2088-P, entitled "Trinidad J. Francisco, plaintiff, vs. Government Service
Insurance System, defendant", the dispositive part of which reads as follows:
WHEREFORE, judgment is hereby rendered: (a) Declaring null and void the
consolidation in the name of the defendant, Government Service Insurance
System, of the title of the VIC-MARI Compound; said title shall be restored to the
plaintiff; and all payments made by the plaintiff, after her offer had been
accepted by the defendant, must be credited as amortizations on her loan; and
(b) Ordering the defendant to abide by the terms of the contract created by
plaintiff's offer and it's unconditional acceptance, with costs against the
defendant.
The plaintiff, Trinidad J. Francisco, likewise appealed separately (L-18155),
because the trial court did not award the P535,000.00 damages and attorney's
fees she claimed. Both appeals are, therefore, jointly treated in this decision.
The following facts are admitted by the parties: On 10 October 1956, the
plaintiff, Trinidad J. Francisco, in consideration of a loan in the amount of
P400,000.00, out of which the sum of P336,100.00 was released to her,
mortgaged in favor of the defendant, Government Service Insurance System
(hereinafter referred to as the System) a parcel of land containing an area of
18,232 square meters, with twenty-one (21) bungalows, known as Vic-Mari

Compound, located at Baesa, Quezon City, payable within ten (10) years in
monthly installments of P3,902.41, and with interest of 7% per annum
compounded monthly.
On 6 January 1959, the System extrajudicially foreclosed the mortgage on the
ground that up to that date the plaintiff-mortgagor was in arrears on her monthly
installments in the amount of P52,000.00. Payments made by the plaintiff at the
time of foreclosure amounted to P130,000.00. The System itself was the buyer of
the property in the foreclosure sale.
On 20 February 1959, the plaintiff's father, Atty. Vicente J. Francisco, sent a letter
to the general manager of the defendant corporation, Mr. Rodolfo P. Andal, the
material portion of which recited as follows:
Yesterday, I was finally able to collect what the Government owed me and I now
propose to pay said amount of P30,000 to the GSIS if it would agree that after
such payment the foreclosure of my daughter's mortgage would be set aside. I
am aware that the amount of P30,000 which I offer to pay will not cover the total
arrearage of P52,000 but as regards the balance, I propose this arrangement: for
the GSIS to take over the administration of the mortgaged property and to collect
the monthly installments, amounting to about P5,000, due on the unpaid
purchase price of more than 31 lots and houses therein and the monthly
installments collected shall be applied to the payment of Miss Francisco's
arrearage until the same is fully covered. It is requested, however, that from the
amount of the monthly installments collected, the sum of P350.00 be deducted
for necessary expenses, such as to pay the security guard, the street-caretaker,
the Meralco Bill for the street lights and sundry items.
It will be noted that the collectible income each month from the mortgaged
property, which as I said consists of installments amounting to about P5,000, is
more than enough to cover the monthly amortization on Miss Francisco's loan.
Indeed, had she not encountered difficulties, due to unforeseen circumstances, in
collecting the said installments, she could have paid the amortizations as they
fell due and there would have been really no need for the GSIS to resort to
foreclosure.
The proposed administration by the GSIS of the mortgaged property will continue
even after Miss Francisco's account shall have been kept up to date. However,
once the arrears shall have been paid, whatever amount of the monthly
installments collected in excess of the amortization due on the loan will be
turned over to Miss Francisco.
I make the foregoing proposal to show Francisco's sincere desire to work out any
fair arrangement for the settlement of her obligation. I trust that the GSIS, under
the broadminded policies of your administration, would give it serious
consideration.
Sincerely,.

s/ Vicente J. Francisco
t/ VICENTE J. FRANCISCO
On the same date, 20 February 1959, Atty. Francisco received the following
telegram:.
VICENTE FRANCISCO
SAMANILLO BLDG. ESCOLTA.
GSIS BOARD APPROVED YOUR REQUEST RE REDEMPTION OF FORECLOSED
PROPERTY OF YOUR DAUGHTER
ANDAL"
On 28 February 1959, Atty. Francisco remitted to the System, through Andal, a
check for P30,000.00, with an accompanying letter, which reads:
I am sending you herewith BPI Check No. B-299484 for Thirty Thousand Pesos
(P30,000.00) in accordance with my letter of February 20th and your reply
thereto of the same date, which reads:
GSIS BOARD APPROVED YOUR REQUEST RE REDEMPTION OF FORECLOSED
PROPERTY OF YOUR DAUGHTER
xxx

xxx

xxx

The defendant received the amount of P30,000.00, and issued therefor its official
receipt No. 1209874, dated 4 March 1959. It did not, however, take over the
administration of the compound. In the meantime, the plaintiff received the
monthly payments of some of the occupants thereat; then on 4 March 1960, she
remitted, through her father, the amount of P44,121.29, representing the total
monthly installments that she received from the occupants for the period from
March to December 1959 and January to February 1960, minus expenses and
real estate taxes. The defendant also received this amount, and issued the
corresponding official receipt.
Remittances, all accompanied by letters, corresponding to the months of March,
April, May, and June, 1960 and totalling P24,604.81 were also sent by the
plaintiff to the defendant from time to time, all of which were received and duly
receipted for.
Then the System sent three (3) letters, one dated 29 January 1960, which was
signed by its assistant general manager, and the other two letters, dated 19 and
26 February 1960, respectively, which were signed by Andal, asking the plaintiff
for a proposal for the payment of her indebtedness, since according to the
System the one-year period for redemption had expired.
In reply, Atty. Francisco sent a letter, dated 11 March 1960, protesting against
the System's request for proposal of payment and inviting its attention to the
concluded contract generated by his offer of 20 February 1959, and its
acceptance by telegram of the same date, the compliance of the terms of the

offer already commenced by the plaintiff, and the misapplication by the System
of the remittances she had made, and requesting the proper corrections.
By letter, dated 31 May 1960, the defendant countered the preceding protest
that, by all means, the plaintiff should pay attorney's fees of P35,644.14,
publication expenses, filing fee of P301.00, and surcharge of P23.64 for the
foreclosure work done; that the telegram should be disregarded in view of its
failure to express the contents of the board resolution due to the error of its
minor employees in couching the correct wording of the telegram. A copy of the
excerpts of the resolution of the Board of Directors (No. 380, February 20, 1959)
was attached to the letter, showing the approval of Francisco's offer
... subject to the condition that Mr. Vicente J. Francisco shall pay all expenses
incurred by the GSIS in the foreclosure of the mortgage.
Inasmuch as, according to the defendant, the remittances previously made by
Atty. Francisco were allegedly not sufficient to pay off her daughter's arrears,
including attorney's fees incurred by the defendant in foreclosing the mortgage,
and the one-year period for redemption has expired, said defendant, on 5 July
1960, consolidated the title to the compound in its name, and gave notice
thereof to the plaintiff on 26 July 1960 and to each occupant of the compound.
Hence, the plaintiff instituted the present suit, for specific performance and
damages. The defendant answered, pleading that the binding acceptance of
Francisco's offer was the resolution of the Board, and that Andal's telegram,
being erroneous, should be disregarded. After trial, the court below found that
the offer of Atty. Francisco, dated 20 February 1959, made on behalf of his
daughter, had been unqualifiedly accepted, and was binding, and rendered
judgment as noted at the start of this opinion.
The defendant-appellant corporation assigns six (6) errors allegedly committed
by the lower court, all of which, however, are resolvable on the single issue as to
whether or not the telegram generated a contract that is valid and binding upon
the parties.
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be
admitted and approved by this Honorable Court, without prejudice to the parties
adducing other evidence to prove their case not covered by this stipulation of
facts. 1wph1.t
We find no reason for altering the conclusion reached by the court below that the
offer of compromise made by plaintiff in the letter, Exhibit "A", had been validly
accepted, and was binding on the defendant. The terms of the offer were clear,
and over the signature of defendant's general manager, Rodolfo Andal, plaintiff
was informed telegraphically that her proposal had been accepted. There was
nothing in the telegram that hinted at any anomaly, or gave ground to suspect
its veracity, and the plaintiff, therefore, can not be blamed for relying upon it.
There is no denying that the telegram was within Andal's apparent authority, but
the defense is that he did not sign it, but that it was sent by the Board Secretary

in his name and without his knowledge. Assuming this to be true, how was
appellee to know it? Corporate transactions would speedily come to a standstill
were every person dealing with a corporation held duty-bound to disbelieve
every act of its responsible officers, no matter how regular they should appear on
their face. This Court has observed in Ramirez vs. Orientalist Co., 38 Phil. 634,
654-655, that
In passing upon the liability of a corporation in cases of this kind it is always well
to keep in mind the situation as it presents itself to the third party with whom the
contract is made. Naturally he can have little or no information as to what occurs
in corporate meetings; and he must necessarily rely upon the external
manifestations of corporate consent. The integrity of commercial transactions
can only be maintained by holding the corporation strictly to the liability fixed
upon it by its agents in accordance with law; and we would be sorry to announce
a doctrine which would permit the property of a man in the city of Paris to be
whisked out of his hands and carried into a remote quarter of the earth without
recourse against the corporation whose name and authority had been used in
the manner disclosed in this case. As already observed, it is familiar doctrine that
if a corporation knowingly permits one of its officers, or any other agent, to do
acts within the scope of an apparent authority, and thus holds him out to the
public as possessing power to do those acts, the corporation will, as against any
one who has in good faith dealt with the corporation through such agent, be
estopped from denying his authority; and where it is said "if the corporation
permits" this means the same as "if the thing is permitted by the directing power
of the corporation."
It has also been decided that
A very large part of the business of the country is carried on by corporations. It
certainly is not the practice of persons dealing with officers or agents who
assume to act for such entities to insist on being shown the resolution of the
board of directors authorizing the particular officer or agent to transact the
particular business which he assumes to conduct. A person who knows that the
officer or agent of the corporation habitually transacts certain kinds of business
for such corporation under circumstances which necessarily show knowledge on
the part of those charged with the conduct of the corporate business assumes,
as he has the right to assume, that such agent or officer is acting within the
scope of his authority. (Curtis Land & Loan Co. vs. Interior Land Co., 137 Wis.
341, 118 N.W. 853, 129 Am. St. Rep. 1068; as cited in 2 Fletcher's Encyclopedia,
Priv. Corp. 263, perm. Ed.)
Indeed, it is well-settled that
If a private corporation intentionally or negligently clothes its officers or agents
with apparent power to perform acts for it, the corporation will be estopped to
deny that such apparent authority is real, as to innocent third persons dealing in
good faith with such officers or agents. (2 Fletcher's Encyclopedia, Priv. Corp.
255, Perm. Ed.)

Hence, even if it were the board secretary who sent the telegram, the
corporation could not evade the binding effect produced by the telegram..
The defendant-appellant does not disown the telegram, and even asserts that it
came from its offices, as may be gleaned from the letter, dated 31 May 1960, to
Atty. Francisco, and signed "R. P. Andal, general manager by Leovigildo
Monasterial, legal counsel", wherein these phrases occur: "the telegram
sent ... by this office" and "the telegram we sent your" (emphasis supplied), but
it alleges mistake in couching the correct wording. This alleged mistake cannot
be taken seriously, because while the telegram is dated 20 February 1959, the
defendant informed Atty. Francisco of the alleged mistake only on 31 May 1960,
and all the while it accepted the various other remittances, starting on 28
February 1959, sent by the plaintiff to it in compliance with her performance of
her part of the new contract.
The inequity of permitting the System to deny its acceptance become more
patent when account is taken of the fact that in remitting the payment of
P30,000 advanced by her father, plaintiff's letter to Mr. Andal quoted verbatim
the telegram of acceptance. This was in itself notice to the corporation of the
terms of the allegedly unauthorized telegram, for as Ballentine says:
Knowledge of facts acquired or possessed by an officer or agent of a corporation
in the course of his employment, and in relation to matters within the scope of
his authority, is notice to the corporation, whether he communicates such
knowledge or not. (Ballentine, Law on Corporations, section 112.)
since a corporation cannot see, or know, anything except through its officers.
Yet, notwithstanding this notice, the defendant System pocketed the amount,
and kept silent about the telegram not being in accordance with the true facts,
as it now alleges. This silence, taken together with the unconditional acceptance
of three other subsequent remittances from plaintiff, constitutes in itself a
binding ratification of the original agreement (Civil Code, Art. 1393).
ART. 1393. Ratification may be effected expressly or tacitly. It is understood that
there is a tacit ratification if, with knowledge of the reason which renders the
contract voidable and such reason having ceased, the person who has a right to
invoke it should execute an act which necessarily implies an intention to waive
his right.
Nowhere else do the circumstances call more insistently for the application of the
equitable maxim that 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..
The defendant's assertion that the telegram came from it but that it was
incorrectly worded renders unnecessary to resolve the other point on controversy
as to whether the said telegram constitutes an actionable document..
Since the terms offered by the plaintiff in the letter of 20 February 1959 (Exhibit
"A") provided for the setting aside of the foreclosure effected by the defendant

System, the acceptance of the offer left the account of plaintiff in the same
condition as if no foreclosure had taken place. It follows, as the lower court has
correctly held, that the right of the System to collect attorneys' fees equivalent
to 10% of the due (P35,694.14) and the expenses and charges of P3,300.00 may
no longer be enforced, since by the express terms of the mortgage contract,
these sums were collectible only "in the event of foreclosure."
The court a quo also called attention to the unconscionability of defendant's
charging the attorney's fees, totalling over P35,000.00; and this point appears
well-taken, considering that the foreclosure was merely extra-judicial, and the
attorneys' work was limited to requiring the sheriff to effectuate the foreclosure.
However, in view of the parties' agreement to set the same aside, with the
consequential elimination of such incidental charges, the matter of
unreasonableness of the counsel fees need not be labored further.
Turning now to the plaintiff's separate appeal (Case G.R. No. L-18155): Her prayer
for an award of actual or compensatory damages for P83,333.33 is predicated on
her alleged unrealized profits due to her inability to sell the compound for the
price of P750,000.00 offered by one Vicente Alunan, which sale was allegedly
blocked because the System consolidated the title to the property in its name.
Plaintiff reckons the amount of P83,333.33 by placing the actual value of the
property at P666,666.67, a figure arrived at by assuming that the System's loan
of P400,000.00 constitutes 60% of the actual value of the security. The court a
quo correctly refused to award such actual or compensatory damages because it
could not determine with reasonable certainty the difference between the offered
price and the actual value of the property, for lack of competent evidence.
Without proof we cannot assume, or take judicial notice, as suggested by the
plaintiff, that the practice of lending institutions in the country is to give out as
loan 60% of the actual value of the collateral. Nor should we lose sight of the fact
that the price offered by Alunan was payable in installments covering five years,
so that it may not actually represent true market values.
Nor was there error in the appealed decision in denying moral damages, not only
on account of the plaintiff's failure to take the witness stand and testify to her
social humiliation, wounded feelings, anxiety, etc., as the decision holds, but
primarily because a breach of contract like that of defendant, not being malicious
or fraudulent, does not warrant the award of moral damages under Article 2220
of the Civil Code (Ventanilla vs. Centeno, L-14333, 28 Jan. 1961; Fores vs.
Miranda, L-12163, 4 March 1959).
There is no basis for awarding exemplary damages either, because this species
of damages is only allowed in addition to moral, temperate, liquidated, or
compensatory damages, none of which have been allowed in this case, for
reasons herein before discussed (Art. 2234, Civil Code; Velayo vs. Shell Co. of P.I.,
L-7817, Res. July 30, 1957; Singson, et al. vs. Aragon and Lorza, L-5164, Jan. 27,
1953, 49 O.G. No. 2, 515).
As to attorneys' fees, we agree with the trial court's stand that in view of the
absence of gross and evident bad faith in defendant's refusal to satisfy the

plaintiff's claim, and there being none of the other grounds enumerated in Article
2208 of the Civil Code, such absence precludes a recovery. The award of
attorneys' fees is essentially discretionary in the trial court, and no abuse of
discretion has been shown.
FOR THE FOREGOING REASONS, the appealed decision is hereby affirmed, with
costs against the defendant Government Service Insurance System, in G.R. No.L18287.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Barrera, Paredes,
Dizon, Regala and Makalintal, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 161757

January 25, 2006

SUNACE INTERNATIONAL MANAGEMENT SERVICES, INC.Petitioner,


vs.
NATIONAL LABOR RELATIONS COMMISSION, Second Division; HON.
ERNESTO S. DINOPOL, in his capacity as Labor Arbiter, NLRC; NCR,
Arbitration Branch, Quezon City and DIVINA A.
MONTEHERMOZO,Respondents.
DECISION
CARPIO MORALES, J.:
Petitioner, Sunace International Management Services (Sunace), a corporation
duly organized and existing under the laws of the Philippines, deployed to Taiwan
Divina A. Montehermozo (Divina) as a domestic helper under a 12-month
contract effective February 1, 1997.1 The deployment was with the assistance of
a Taiwanese broker, Edmund Wang, President of Jet Crown International Co., Ltd.
After her 12-month contract expired on February 1, 1998, Divina continued
working for her Taiwanese employer, Hang Rui Xiong, for two more years, after
which she returned to the Philippines on February 4, 2000.
Shortly after her return or on February 14, 2000, Divina filed a complaint2 before
the National Labor Relations Commission (NLRC) against Sunace, one Adelaide
Perez, the Taiwanese broker, and the employer-foreign principal alleging that she
was jailed for three months and that she was underpaid.
The following day or on February 15, 2000, Labor Arbitration Associate Regina T.
Gavin issued Summons3 to the Manager of Sunace, furnishing it with a copy of
Divinas complaint and directing it to appear for mandatory conference on
February 28, 2000.

The scheduled mandatory conference was reset. It appears to have been


concluded, however.
On April 6, 2000, Divina filed her Position Paper4 claiming that under her original
one-year contract and the 2-year extended contract which was with the
knowledge and consent of Sunace, the following amounts representing income
tax and savings were deducted:
Year

Deduction for Income Tax

Deduction for Savings

1997 NT10,450.00

NT23,100.00

1998 NT9,500.00

NT36,000.00

1999 NT13,300.00

NT36,000.00;5

and while the amounts deducted in 1997 were refunded to her, those deducted
in 1998 and 1999 were not. On even date, Sunace, by its Proprietor/General
Manager Maria Luisa Olarte, filed its Verified Answer and Position Paper, 6 claiming
as follows, quoted verbatim:
COMPLAINANT IS NOT ENTITLED FOR THE REFUND OF HER 24 MONTHS
SAVINGS
3. Complainant could not anymore claim nor entitled for the refund of her 24
months savings as she already took back her saving already last year and the
employer did not deduct any money from her salary, in accordance with
a Fascimile Message from the respondent SUNACEs employer, Jet Crown
International Co. Ltd., a xerographic copy of which is herewith attached
as ANNEX "2" hereof;
COMPLAINANT IS NOT ENTITLED TO REFUND OF HER 14 MONTHS TAX
AND PAYMENT OF ATTORNEYS FEES
4. There is no basis for the grant of tax refund to the complainant as the she
finished her one year contract and hence, was not illegally dismissed by her
employer. She could only lay claim over the tax refund or much more be
awarded of damages such as attorneys fees as said reliefs are available only
when the dismissal of a migrant worker is without just valid or lawful cause as
defined by law or contract.
The rationales behind the award of tax refund and payment of attorneys fees is
not to enrich the complainant but to compensate him for actual injury suffered.
Complainant did not suffer injury, hence, does not deserve to be compensated
for whatever kind of damages.
Hence, the complainant has NO cause of action against respondent SUNACE for
monetary claims, considering that she has been totally paid of all the monetary
benefits due her under her Employment Contract to her full satisfaction.

6. Furthermore, the tax deducted from her salary is in compliance with the
Taiwanese law, which respondent SUNACE has no control and complainant has to
obey and this Honorable Office has no authority/jurisdiction to intervene because
the power to tax is a sovereign power which the Taiwanese Government is
supreme in its own territory. The sovereign power of taxation of a state is
recognized under international law and among sovereign states.
7. That respondent SUNACE respectfully reserves the right to file supplemental
Verified Answer and/or Position Paper to substantiate its prayer for the dismissal
of the above case against the herein respondent. AND BY WAY OF x x x x (Emphasis and underscoring supplied)
Reacting to Divinas Position Paper, Sunace filed on April 25, 2000 an ". . . answer
to complainants position paper"7 alleging that Divinas 2-year extension of her
contract was without its knowledge and consent, hence, it had no liability
attaching to any claim arising therefrom, and Divina in fact executed a
Waiver/Quitclaim and Release of Responsibility and an Affidavit of Desistance,
copy of each document was annexed to said ". . . answer to complainants
position paper."
To Sunaces ". . . answer to complainants position paper," Divina filed a 2-page
reply,8 without, however, refuting Sunaces disclaimer of knowledge of the
extension of her contract and without saying anything about the Release, Waiver
and Quitclaim and Affidavit of Desistance.
The Labor Arbiter, rejected Sunaces claim that the extension of Divinas contract
for two more years was without its knowledge and consent in this wise:
We reject Sunaces submission that it should not be held responsible for the
amount withheld because her contract was extended for 2 more years without its
knowledge and consent because as Annex "B"9 shows, Sunace and Edmund
Wang have not stopped communicating with each other and yet the matter of
the contracts extension and Sunaces alleged non-consent thereto has not been
categorically established.
What Sunace should have done was to write to POEA about the extension and its
objection thereto, copy furnished the complainant herself, her foreign employer,
Hang Rui Xiong and the Taiwanese broker, Edmund Wang.
And because it did not, it is presumed to have consented to the extension and
should be liable for anything that resulted thereform (sic).10 (Underscoring
supplied)
The Labor Arbiter rejected too Sunaces argument that it is not liable on account
of Divinas execution of a Waiver and Quitclaim and an Affidavit of Desistance.
Observed the Labor Arbiter:

Should the parties arrive at any agreement as to the whole or any part of the
dispute, the same shall be reduced to writing and signed by the parties and their
respective counsel (sic), if any, before the Labor Arbiter.
The settlement shall be approved by the Labor Arbiter after being satisfied that it
was voluntarily entered into by the parties and after having explained to them
the terms and consequences thereof.
A compromise agreement entered into by the parties not in the presence of the
Labor Arbiter before whom the case is pending shall be approved by him, if after
confronting the parties, particularly the complainants, he is satisfied that they
understand the terms and conditions of the settlement and that it was entered
into freely voluntarily (sic) by them and the agreement is not contrary to law,
morals, and public policy.
And because no consideration is indicated in the documents, we strike them
down as contrary to law, morals, and public policy. 11
He accordingly decided in favor of Divina, by decision of October 9, 2000, 12 the
dispositive portion of which reads:
Wherefore, judgment is hereby rendered ordering respondents SUNACE
INTERNATIONAL SERVICES and its owner ADELAIDA PERGE, both in their personal
capacities and as agent of Hang Rui Xiong/Edmund Wang to jointly and severally
pay complainant DIVINA A. MONTEHERMOZO the sum of NT91,950.00 in its peso
equivalent at the date of payment, as refund for the amounts which she is
hereby adjudged entitled to as earlier discussed plus 10% thereof as attorneys
fees since compelled to litigate, complainant had to engage the services of
counsel.
SO ORDERED.13 (Underescoring supplied)
On appeal of Sunace, the NLRC, by Resolution of April 30, 2002, 14 affirmed the
Labor Arbiters decision.
Via petition for certiorari,15 Sunace elevated the case to the Court of Appeals
which dismissed it outright by Resolution of November 12, 2002, 16 the full text of
which reads:
The petition for certiorari faces outright dismissal.
The petition failed to allege facts constitutive of grave abuse of discretion on the
part of the public respondent amounting to lack of jurisdiction when the NLRC
affirmed the Labor Arbiters finding that petitioner Sunace International
Management Services impliedly consented to the extension of the contract of
private respondent Divina A. Montehermozo. It is undisputed that petitioner was
continually communicating with private respondents foreign employer (sic). As
agent of the foreign principal, "petitioner cannot profess ignorance of such
extension as obviously, the act of the principal extending

complainant (sic) employment contract necessarily bound it." Grave


abuse of discretion is not present in the case at bar.
ACCORDINGLY, the petition is hereby DENIED DUE
COURSE and DISMISSED.17
SO ORDERED.
(Emphasis on words in capital letters in the original; emphasis on words in small
letters and underscoring supplied)
Its Motion for Reconsideration having been denied by the appellate court by
Resolution of January 14, 2004,18Sunace filed the present petition for review on
certiorari.
The Court of Appeals affirmed the Labor Arbiter and NLRCs finding that Sunace
knew of and impliedly consented to the extension of Divinas 2-year contract. It
went on to state that "It is undisputed that [Sunace] was continually
communicating with [Divinas] foreign employer." It thus concluded that "[a]s
agent of the foreign principal, petitioner cannot profess ignorance of such
extension as obviously, the act of the principal extending complainant (sic)
employment contract necessarily bound it."
Contrary to the Court of Appeals finding, the alleged continuous communication
was with the Taiwanese brokerWang, not with the foreign employer Xiong.
The February 21, 2000 telefax message from the Taiwanese broker to Sunace,
the only basis of a finding of continuous communication, reads verbatim:
xxxx
Regarding to Divina, she did not say anything about her saving in police
station. As we contact with her employer, she took back her saving
already last years. And they did not deduct any money from her salary.
Or she will call back her employer to check it again. If her employer said
yes! we will get it back for her.
Thank you and best regards.
(Sgd.)
Edmund Wang
President19
The finding of the Court of Appeals solely on the basis of the above-quoted
telefax message, that Sunace continually communicated with the foreign
"principal" (sic) and therefore was aware of and had consented to the execution
of the extension of the contract is misplaced. The message does not provide
evidence that Sunace was privy to the new contract executed after the
expiration on February 1, 1998 of the original contract. That Sunace and the
Taiwanese broker communicated regarding Divinas allegedly withheld savings

does not necessarily mean that Sunace ratified the extension of the contract. As
Sunace points out in its Reply20 filed before the Court of Appeals,
As can be seen from that letter communication, it was just an information given
to the petitioner that the private respondent had t[aken] already her savings
from her foreign employer and that no deduction was made on her salary. It
contains nothing about the extension or the petitioners consent thereto. 21
Parenthetically, since the telefax message is dated February 21, 2000, it is safe
to assume that it was sent to enlighten Sunace who had been directed, by
Summons issued on February 15, 2000, to appear on February 28, 2000 for a
mandatory conference following Divinas filing of the complaint on February 14,
2000.
Respecting the Court of Appeals following dictum:
As agent of its foreign principal, [Sunace] cannot profess ignorance of such an
extension as obviously, the act of its principal extending [Divinas] employment
contract necessarily bound it,22
it too is a misapplication, a misapplication of the theory of imputed knowledge.
The theory of imputed knowledge ascribes the knowledge of the agent, Sunace,
to the principal, employer Xiong,not the other way around.23 The knowledge
of the principal-foreign employer cannot, therefore, be imputed to its agent
Sunace.
There being no substantial proof that Sunace knew of and consented to be bound
under the 2-year employment contract extension, it cannot be said to be privy
thereto. As such, it and its "owner" cannot be held solidarily liable for any of
Divinas claims arising from the 2-year employment extension. As the New Civil
Code provides,
Contracts take effect only between the parties, their assigns, and heirs, except in
case where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law. 24
Furthermore, as Sunace correctly points out, there was an implied revocation of
its agency relationship with its foreign principal when, after the termination of
the original employment contract, the foreign principal directly negotiated with
Divina and entered into a new and separate employment contract in Taiwan.
Article 1924 of the New Civil Code reading
The agency is revoked if the principal directly manages the business entrusted to
the agent, dealing directly with third persons.
thus applies.
In light of the foregoing discussions, consideration of the validity of the Waiver
and Affidavit of Desistance which Divina executed in favor of Sunace is rendered
unnecessary.

WHEREFORE, the petition is GRANTED. The challenged resolutions of the Court


of Appeals are herebyREVERSED and SET ASIDE. The complaint of respondent
Divina A. Montehermozo against petitioner isDISMISSED.
SO ORDERED.
CONCHITA CARPIO MORALES
Associate Justice
WE CONCUR:
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
ANTONIO T. CARPIO
Associate Justice

DANTE O. TINGA
Asscociate Justice

ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution, and the Division
Chairmans Attestation, it is hereby certified that the conclusions in the above
Decision were reached in consultation before the case was assigned to the writer
of the opinion of the Court.
ARTEMIO V. PANGANIBAN
Chief Justice

Footnotes
1

NLRC records, p. 18.

Id. at 2.

Id. at 5.

Id. at 21-26.

Id. at 52.

Id. at 13-19.

Id. at 28-34.

Id. at 36-37.

Photocopy of a telefax message of Taiwanese broker Wang to Sunace, NLRC


records, p. 26.
10

NLRC records, pp. 55-56.

11

Id. at 56-57 (citations omitted).

12

Id. at 51-58.

13

Id. at 57-58.

14

Id. at 190-196.

15

CA rollo, pp. 2-113.

16

Penned by Associate Justice Ruben T. Reyes with Associate Justices Remedios


Salazar-Fernando and Edgardo F. Sundiam, concurring.
17

CA rollo, pp. 115-116 (citations omitted).

18

Id. at 154-157.

19

Supra note 9.

20

CA rollo, pp. 146-152.

21

Id. at 148.

22

Id. at 29, 116 and 157.

23

Rovels Enterprises, Inc. v. Ocampo, G.R. No. 136821, October 17, 2002, 391
SCRA 176; vide Air France v. Court of Appeals, et al., 211 Phil. 601 (1983).
24

Civil Code, Article 1311.

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 114311 November 29, 1996


COSMIC LUMBER CORPORATION, petitioner,
vs.
COURT OF APPEAL and ISIDRO PEREZ, respondents.

BELLOSILLO, J.:
COSMIC LUMBER CORPORATION through its General Manager executed on 28
January 1985 a Special Power of Attorney appointing Paz G. Villamil-Estrada as
attorney-in-fact
. . . to initiate, institute and file any court action for the ejectment of third
persons and/or squatters of the entire lot 9127 and 443 and covered by TCT Nos.
37648 and 37649, for the said squatters to remove their houses and vacate the
premises in order that the corporation may take material possession of the entire
lot, and for this purpose, to appear at the pre-trial conference and enter into any
stipulation of facts and/or compromise agreement so far as it shall protect the
rights and interest of the corporation in the aforementioned lots. 1
On 11 March 1985 Paz G. Villamil-Estrada, by virtue of her power of attorney,
instituted an action for the ejectment of private respondent Isidro Perez and
recover the possession of a portion of Lot No. 443 before the Regional Trial Court
of Dagupan, docketed as Civil Case No. D-7750. 2
On 25 November 1985 Villamil-Estrada entered into a Compromise Agreement
with respondent Perez, the terms of which follow:
1. That as per relocation sketch plan dated June 5, 1985 prepared by Engineer
Rodolfo dela Cruz the area at present occupied by defendant wherein his house
is located is 333 square meters on the easternmost part of lot 443 and which
portion has been occupied by defendant for several years now;
2. That to buy peace said defendant pays unto the plaintiff through herein
attorney-in-fact the sum of P26,640.00 computed at P80.00/square meter;
3. That plaintiff hereby recognizes ownership and possession of the defendant by
virtue of this compromise agreement over said portion of 333 square m. of lot
443 which portion will be located on the easternmost part as indicated in the
sketch as annex A;
4. Whatever expenses of subdivision, registration, and other incidental expenses
shall be shouldered by the defendant. 3
On 27 November 1985 the "Compromise Agreement" was approved by the trial
court and judgment was rendered in accordance therewith. 4
Although the decision became final and executory it was not executed within the
5-year period from date of its finality allegedly due to the failure of petitioner to
produce the owner's duplicate copy of Title No. 37649 needed to segregate from
Lot No. 443 the portion sold by the attorney-in-fact, Paz G. Villamil-Estrada, to
private respondent under the compromise agreement. Thus on 25 January 1993
respondent filed a complaint to revive the judgment, docketed as Civil Case No.
D-10459. 5
Petitioner asserts that it was only when the summons in Civil Case No. D-10459
for the revival of judgment was served upon it that it came to know of the

compromise agreement entered into between Paz G. Villamil-Estrada and


respondent Isidro Perez upon which the trial court based its decision of 26 July
1993 in Civil Case No. D-7750. Forthwith, upon learning of the fraudulent
transaction, petitioner sought annulment of the decision of the trial court before
respondent Court of Appeals on the ground that the compromise agreement was
void because: (a) the attorney-in-fact did not have the authority to dispose of,
sell, encumber or divest the plaintiff of its ownership over its real property or any
portion thereof; (b) the authority of the attorney-in-fact was confined to the
institution and filing of an ejectment case against third persons/squatters on the
property of the plaintiff, and to cause their eviction therefrom; (c) while the
special power of attorney made mention of an authority to enter into a
compromise agreement, such authority was in connection with, and limited to,
the eviction of third persons/squatters thereat, in order that "the corporation
may take material possession of the entire lot;" (d) the amount of P26,640.00
alluded to as alleged consideration of said agreement was never received by the
plaintiff; (e) the private defendant acted in bad faith in. the execution of said
agreement knowing fully well the want of authority of the attorney-in-fact to sell,
encumber or dispose of the real property of plaintiff; and, (f) the disposal of a
corporate property indispensably requires a Board Resolution of its Directors, a
fact which is wanting in said Civil Case No. D-7750, and the General Manager is
not the proper officer to encumber a corporate property. 6
On 29 October 1993 respondent court dismissed the complaint on the basis of its
finding that not one of the grounds for annulment, namely, lack of jurisdiction,
fraud or illegality was shown to exist. 7 It also denied the motion for
reconsideration filed by petitioner, discoursing that the alleged nullity of the
compromise judgment on the ground that petitioner's attorney-in-fact VillamilEstrada was not authorized to sell the subject propety may be raised as a
defense in the execution of the compromise judgment as it does not bind
petitioner, but not as a ground for annulment of judgment because it does not
affect the jurisdiction of the trial court over the action nor does it amount to
extrinsic fraud. 8
Petitioner challenges this verdict. It argues that the decision of the trial court is
void because the compromise agreement upon which it was based is void.
Attorney-in-fact Villamil-Estrada did not possess the authority to sell or was she
armed with a Board Resolution authorizing the sale of its property. She was
merely empowered to enter into a compromise agreement in the recovery suit
she was authorized to file against persons squatting on Lot No. 443, such
authority being expressly confined to the "ejectment of third persons or
squatters of . . . lot . . . (No.) 443 . . . for the said squatters to remove their
houses and vacate the premises in order that the corporation may take material
possession of the entire lot . . ."
We agree with petitioner. The authority granted Villamil-Estrada under the
special power of attorney was explicit and exclusionary: for her to institute any
action in court to eject all persons found on Lots Nos. 9127 and 443 so that
petitioner could take material possession thereof, and for this purpose, to appear

at the pre-trial and enter into any stipulation of facts and/or compromise
agreement but only insofar as this was protective of the rights and interests of
petitioner in the property. Nowhere in this authorization was Villamil-Estrada
granted expressly or impliedly any power to sell the subject property nor a
portion thereof. Neither can a conferment of the power to sell be validly inferred
from the specific authority "to enter into a compromise agreement" because of
the explicit limitation fixed by the grantor that the compromise entered into shall
only be "so far as it shall protect the rights and interest of the corporation in the
aforementioned lots." In the context of the specific investiture of powers to
Villamil-Estrada, alienation by sale of an immovable certainly cannot be deemed
protective of the right of petitioner to physically possess the same, more so when
the land was being sold for a price of P80.00 per square meter, very much less
than its assessed value of P250.00 per square meter, and considering further
that petitioner never received the proceeds of the sale.
When the sale of a piece of land or any interest thereon is through an agent, the
authority of the latter shall be in writing; otherwise, the sale shall be void. 9 Thus
the authority of an agent to execute a contract for the sale of real estate must be
conferred in writing and must give him specific authority, either to conduct the
general business of the principal or to execute a binding contract containing
terms and conditions which are in the contract he did execute. 10 A special power
of attorney is necessary to enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for a valuable
consideration. 11 The express mandate required by law to enable an appointee of
an agency (couched) in general terms to sell must be one that expressly
mentions a sale or that includes a sale as a necessary ingredient of the act
mentioned. 12 For the principal to confer the right upon an agent to sell real
estate, a power of attorney must so express the powers of the agent in clear and
unmistakable language. When there is any reasonable doubt that the language
so used conveys such power, no such construction shall be given the
document. 13
It is therefore clear that by selling to respondent Perez a portion of petitioner's
land through a compromise agreement, Villamil-Estrada acted without or in
obvious authority. The sale ipso jure is consequently void. So is the compromise
agreement. This being the case, the judgment based thereon is necessarily void.
Antipodal to the opinion expressed by respondent court in resolving petitioner's
motion for reconsideration, the nullity of the settlement between Villamil-Estrada
and Perez impaired the jurisdiction of the trial court to render its decision based
on the compromise agreement. In Alviar v. Court of First Instance of La
Union, 14the Court held
. . . this court does not hesitate to hold that the judgment in question is null and
void ab initio. It is not binding upon and cannot be executed against the
petitioners. It is evident that the compromise upon which the judgment was
based was not subscribed by them . . . Neither could Attorney Ortega bind them
validly in the compromise because he had no special authority . . .

As the judgment in question is null and void ab initio, it is evident that the court
acquired no jurisdiction to render it, much less to order the execution thereof . . .
. . . A judgment, which is null and void ab initio, rendered by a court without
jurisdiction to do so, is without legal efficacy and may properly be impugned in
any proceeding by the party against whom it is sought to be enforced . . .
This ruling was adopted in Jacinto v. Montesa, 15 by Mr. Justice J. B.L. Reyes, a
much-respected authority on civil law, where the Court declared that a judgment
based on a compromise entered into by an attorney without specific authority
from the client is void. Such judgment may be impugned and its execution
restrained in any proceeding by the party against whom it is sought to be
enforced. The Court also observed that a defendant against whom a judgment
based on a compromise is sought to be enforced may file a petition
for certiorari to quash the execution. He could not move to have the compromise
set aside and then appeal from the order of denial since he was not a party to
the compromise. Thus it would appear that the obiter of the appellate court that
the alleged nullity of the compromise agreement should be raised as a defense
against its enforcement is not legally feasible. Petitioner could not be in a
position to question the compromise agreement in the action to revive the
compromise judgment since it was never privy to such agreement. VillamilEstrada who signed the compromise agreement may have been the attorney-infact but she could not legally bind petitioner thereto as she was not entrusted
with a special authority to sell the land, as required in Art. 1878, par. (5), of the
Civil Code.
Under authority of Sec. 9, par. (2), of B.P. Blg. 129, a party may now petition the
Court of Appeals to annul and set aside judgments of Regional Trial
Courts. 16 "Thus, the Intermediate Appellant Court (now Court of Appeals) shall
exercise . . . (2) Exclusive original jurisdiction over action for annulment of
judgments of the Regional Trial Courts . . ." However, certain requisites must first
be established before a final and executory judgment can be the subject of an
action for annulment. It must either be void for want of jurisdiction or for lack of
due process of law, or it has been obtained by fraud. 17
Conformably with law and the above-cited authorities, the petition to annul the
decision of the trial court in Civil Case No. D-7750 before the Court of Appeals
was proper. Emanating as it did from a void compromise agreement, the trial
court had no jurisdiction to render a judgment based thereon. 18
It would also appear, and quite contrary to the finding of the appellate court, that
the highly reprehensible conduct of attorney-in-fact Villamil-Estrada in Civil Case
No. 7750 constituted an extrinsic or collateral fraud by reason of which the
judgment rendered thereon should have been struck down. Not all the legal
semantics in the world can becloud the unassailable fact that petitioner was
deceived and betrayed by its attorney-in-fact, Villamil-Estrada deliberately
concealed from petitioner, her principal, that a compromise agreement had been
forged with the end-result that a portion of petitioner's property was sold to the
deforciant, literally for a song. Thus completely kept unaware of its agent's

artifice, petitioner was not accorded even a fighting chance to repudiate the
settlement so much so that the judgment based thereon became final and
executory.
For sure, the Court of Appeals restricted the concept of fraudulent acts within too
narrow limits. Fraud may assume different shapes and be committed in as many
different ways and here lies the danger of attempting to define fraud. For man in
his ingenuity and fertile imagination will always contrive new schemes to fool the
unwary.
There is extrinsic fraud within the meaning of Sec. 9, par. (2), of B.P. Blg. 129,
where it is one the effect of which prevents a party from hearing a trial, or real
contest, or from presenting all of his case to the court, or where it operates upon
matters, not pertaining to the judgment itself, but to the manner in which it was
procured so that there is not a fair submission of the controversy. In other words,
extrinsic fraud refers to any fraudulent act of the prevailing party in the litigation
which is committed outside of the trial of the case, whereby the defeated party
has been prevented from exhibiting fully his side of the case by fraud or
deception practiced on him by his opponent. 19 Fraud is extrinsic where the
unsuccessful party has been prevented from exhibiting fully his case, by fraud or
deception practiced on him by his opponent, as by keeping him away from court,
a false promise of a compromise; or where the defendant never had knowledge
of the suit, being kept in ignorance by the acts of the plaintiff; or where an
attorney fraudulently or without authority connives at his defeat; these and
similar cases which show that there has never been a real contest in the trial or
hearing of the case are reasons for which a new suit may be sustained to set
aside and annul the former judgment and open the case for a new and fair
hearing. 20
It may be argued that petitioner knew of the compromise agreement since the
principal is chargeable with and bound by the knowledge of or notice to his agent
received while the agent was acting as such. But the general rule is intended to
protect those who exercise good faith and not as a shield for unfair dealing.
Hence there is a well-established exception to the general rule as where the
conduct and dealings of the agent are such as to raise a clear presumption that
he will not communicate to the principal the facts in controversy. 21 The logical
reason for this exception is that where the agent is committing a fraud, it would
be contrary to common sense to presume or to expect that he would
communicate the facts to the principal. Verily, when an agent is engaged in the
perpetration of a fraud upon his principal for his own exclusive benefit, he is not
really acting for the principal but is really acting for himself, entirely outside the
scope of his agency. 22 Indeed, the basic tenets of agency rest on the highest
considerations of justice, equity and fair play, and an agent will not be permitted
to pervert his authority to his own personal advantage, and his act in secret
hostility to the interests of his principal transcends the power afforded him. 23
WHEREFORE, the petition is GRANTED. The decision and resolution of respondent
Court of Appeals dated 29 October 1993 and 10 March 1994, respectively, as

well as the decision of the Regional Trial Court of Dagupan City in Civil Case No.
D-7750 dated 27 November 1985, are NULLIFIED and SET ASIDE. The
"Compromise Agreement" entered into between Attorney-in-fact Paz G. VillamilEstrada and respondent Isidro Perez is declared VOID. This is without prejudice to
the right of petitioner to pursue its complaint against private respondent Isidro
Perez in Civil Case No. D-7750 for the recovery of possession of a portion of Lot
No. 443.
SO ORDERED.
Padilla, Vitug and Hermosisima, Jr., JJ., concur.
Kapunan, J., took no part.
Footnotes
1 CA Rollo, pp. 11.
2 Assigned to Br. 44.
3 CA Rollo, p. 17.
4 Penned by Judge Crispin C. Laron; id., p. 19.
5 Assigned to Br. 42.
6 CA Rollo, pp. 5-6.
7 Penned by Justice Minerva P. Gonzaga-Reyes with the concurrence of Justices
Santiago M. Kapunan and Eduardo G. Montenegro; Rollo, p. 43.
8 Rollo, p. 49.
9 Art. 1847, Civil Code of the Philippines.
10 Johnson v. Lennox, 55 Colo. 125, 133 P 744.
11 Art. 1878, par. (5), Civil Code of the Philippines.
12 Strong v. Gutierrez Repide, 6 Phil. 680 (1906).
13 Lian v. Puno, 31 Phil. 259 (1915).
14 64 Phil. 301, 305-306 (1937).
15 No. L-23098, 28 February 1967, 19 SCRA 513, 518-519. See also Quiban v.
Butalid, G.R. No. 90974, 27 August 1990, 189 SCRA 107.
16 Goldhoop Properties, Inc. v. Court of Appeals, G.R. No. 99431, 11 August
1992, 212 SCRA 498; Mercado v. Ubay, No. L-36830, 24 July 1990, 187 SCRA 719;
Gerardo v. De la Pea, G.R. No. 61527, 26 December 1990, 192 SCRA 691.
17 Islamic Da 'Wah Council of the Philippines v. Court of Appeals, G.R. No. 80892,
29 September 1989, 178 SCRA 178; Ramirez v. Court of Appeals, G.R. No. 76366,

3 July 1990, 187 SCRA 153; Ruiz v. Court of Appeals, G.R. No. 93454, 13
September 1991, 210 SCRA 577; Santos v. Court of Appeals, G.R. No. 59771, 21
July 1993, 224 SCRA 673. See also Parcon v. Court of Appeals, G.R. No. 85740, 9
November 1990, 191 SCRA 284.
18 See notes 14 and 15.
19 Macabingkil v. PHHC, No. L-29080, 17 August 1976, 72 SCRA 326, 343-344.
20 Id., p. 344 citing US v. Throckmorton, 25 L. Ed. 93, 95.
21 Mutual Life Ins. Co. v. Hilton Green, 241 US 613, 60 L Ed. 1202.
22 Aetna Casualty and Surety Co. v. Local Bldg. and Loan Assoc., 19 P2d 612,
616.
23 Strong v. Strong, 36 A2d 410, 415.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 94071 March 31, 1992


NEW LIFE ENTERPRISES and JULIAN SY, petitioners,
vs.
HON. COURT OF APPEALS, EQUITABLE INSURANCE CORPORATION,
RELIANCE SURETY AND INSURANCE CO., INC. and WESTERN GUARANTY
CORPORATION, respondents.

REGALADO, J.:
This appeal by certiorari seeks the nullification of the decision 1 of respondent
Court of Appeals in CA-G.R. CV No. 13866 which reversed the decision of the
Regional Trial Court, Branch LVII at Lucena City, jointly deciding Civil Cases Nos.
6-84, 7-84 and 8-84 thereof and consequently ordered the dismissal of the
aforesaid actions filed by herein petitioners.
The undisputed background of this case as found by the court a quo and
adopted by respondent court, being sustained by the evidence on record, we
hereby reproduce the same with approval. 2
The antecedents of this case show that Julian Sy and Jose Sy Bang have formed a
business partnership in the City of Lucena. Under the business name of New Life
Enterprises, the partnership engaged in the sale of construction
materials at its place of business, a two storey building situated at Iyam,

Lucena City. The facts show that Julian Sy insured the stocks in trade of New Life
Enterpriseswith Western Guaranty Corporation, Reliance Surety and Insurance.
Co., Inc., and Equitable Insurance Corporation.
On May 15, 1981, Western Guaranty Corporation issued Fire Insurance Policy No.
37201 in the amount of P350,000.00. This policy was renewed on May, 13, 1982.
On July 30,1981, Reliance Surety and Insurance Co., Inc. issued Fire
Insurance Policy No. 69135 inthe amount of P300,000.00 (Renewed under
Renewal Certificate No. 41997) An additional
insurancewas issued by the same company on
November 12, 1981 under Fire Insurance Policy No. 71547 in the amount of
P700,000.00.
On February 8, 1982, Equitable Insurance
Corporation issued Fire Insurance Policy No. 39328 in the amount of
P200,000.00.
Thus when the building occupied by the New Life Enterprises
was gutted by fire at about 2:00 o'clockin the morning of October 19, 1982, the
stocks in the trade inside said building were insured against
fire in the total amount of P1,550,000.00.
According to the certification issued by the Headquarters,Philippine Constabulary
/Integrated National Police, Camp Crame, the cause of fire was
electrical innature. According to the plaintiffs,
the building and the stocks inside were burned.
After the fire, JulianSy went to the agent of
Reliance Insurance whom he asked to accompany him to the
office of thecompany so that he can file
his claim. He averred that in support of his claim, he
submitted the fireclearance, the insurance policies and inventory of stocks. He
further testified that the three insurance companies are sister
companies, and as a matter of fact when he was following-up his claim with
Equitable Insurance, the Claims Manager told him to go first to Reliance
Insurance and if saidcompany agrees to pay, they would also pay. The same
treatment was given him by the otherinsurance
companies. Ultimately, the three insurance companies denied plaintiffs' claim for
payment.
In its letter of denial dated March 9, 1983, (Exhibit "C" No. 884) Western Guaranty Corporationthrough Claims Manager Bernard S. Razon told
the plaintiff that his claim "is
denied for breach ofpolicy conditions." Reliance Insurance purveyed the same
message in its letter dated November 23, 1982 and signed by Executive VicePresident Mary Dee Co (Exhibit "C" No. 7-84) which said that "plaintiff's
claim is denied for breach of policy conditions."
The letter of denial received by the plaintifffrom Equitable Insurance
Corporation (Exhibit "C" No. 6-84) was of the same tenor, as said letter dated
February 22, 1983, and signed by Vice-President

Elma R. Bondad, said "we find that certain


policy conditions were violated, therefore, we regret,
we have to deny your claim, as it is hereby denied in its entirety."
In relation to the case against Reliance
Surety and Insurance Company, a certain Atty. Serafin D. Dator, actingin behalf
of the plaintiff, sent a letter dated February 13, 1983 (Exhibit "G-l" No 784) to Executive Vice-President Mary Dee Co asking that he be informed as to
the specific policy conditions allegedly violated by theplaintiff. In her reply-letter
dated March 30, 1983, Executive Vice-President Mary Dee Co informed Atty.
Datorthat Julian Sy violated Policy Condition No. "3" which requires the insured
to give notice of any insurance orinsurances already effected covering the stocks
in trade. 3
Because of the denial of their claims for payment by the three (3) insurance
companies, petitioner filed separate
civil actions against the former before the Regional Trial
Court of Lucena City, which cases were consolidated for trial,
and thereafter the court below rendered its decision on December 19, l986 with
the following disposition:
WHEREFORE, judgment in the above-entitled cases is rendered in the following
manner, viz:
1. In Civil Case No. 6-84, judgment is rendered for the
plaintiff New Life Enterprises and against the defendant Equitable Insurance
Corporation ordering the latter to pay the former the sum of
TwoHundred Thousand (P200,000.00) Pesos and
considering that payment of the claim of the insuredhas been unreasonably deni
ed, pursuant to Sec. 244 of the Insurance Code, defendant is furtherordered to p
ay the plaintiff attorney's fees in the amount of Twenty Thousand (P20,000.00)
Pesos. Allsums of money to be paid by virtue
hereof shall bear interest at 12% per annum (pursuant
to Sec.244 of the Insurance Code) from
February 14, 1983, (91st day from November 16, 1982, when SwornStatement of
Fire Claim was received from the insured) until they are fully paid;
2. In Civil Case No. 784, judgment is rendered for the plaintiff Julian Sy and against
the defendantReliance Surety and Insurance Co.,
Inc., ordering the latter to pay the former the sum
ofP1,000,000.00 (P300,000.00 under Policy
No. 69135 and P700,000.00 under Policy No. 71547)
andconsidering that payment of the claim of the
insured has been unreasonably denied, pursuant to
Sec.244 of the Insurance Code, defendant is further ordered
to pay the plaintiff the amount of P100,000.00 as attorney's fees.

All sums of money to be paid by virtue hereof shall bear interest at 12% per
annum (pursuant to Sec. 244 of the Insurance Code) from February 14, 1983,
(91st day from November 16,
1982 when SwornStatement of Fire Claim was received from the insured) until
they are fully paid;
3. In Civil Case No. 8-84, judgment is rendered for
the plaintiff New Life Enterprises and against thedefendant Western Guaranty Co
rporation ordering the latter to pay the sum of P350,000.00
to theConsolidated Bank and Trust Corporation,
Lucena Branch, Lucena City, as stipulated on the
face ofPolicy No. 37201, and considering that payment of the
aforementioned sum of money has been
unreasonably denied, pursuant to Sec. 244 of the Insurance Code,
defendant is further ordered topay the plaintiff attorney's fees in the amount of
P35,000.00.
All sums of money to be paid by virtue hereof shall bear interest at 12% per
annum (pursuant to Sec. 244 of the Insurance Code) from February 5, 1982,
(91st day from 1st week of November 1983 when
insured filedformal claim for full indemnity according to adjuster
Vetremar Dela Merced) until they are fully paid. 4
As aforestated, respondent Court of Appeals reversed said judgment of the trial
court, hence this petition the cruxwherein is whether or not Conditions Nos. 3
and 27 of the insurance contracts were violated by petitioners thereby resulting
in their forfeiture of all the benefits thereunder.
Condition No. 3 of said insurance policies, otherwise known as
the "Other Insurance Clause," is uniformlycontained in all the aforestated
insurance contracts of herein petitioners, as follows:
3. The insured shall give notice to the Company
of any insurance or insurances already effected, or which
maysubsequently be effected, covering any of the property or properties
consisting of stocks in trade, goods inprocess
and/or inventories only hereby insured, and unless
such notice be given and the particulars of such
insurance or insurances be stated therein or endorsed on this policy pursuant to
Section 50 of the Insurance Code, by or on behalf of the Company
before the occurrence of any loss or damage, all benefits under thispolicy shall
be deemed forfeited, provided however, that this condition shall not apply when
the total insuranceor insurances in force at
the time of loss or damage not more than P200,000.00. 5
Petitioners admit that the respective insurance policies
issued by private respondents did not state or endorse thereon
the other insurance coverage obtained or subsequently effected on the same
stocks in trade for the loss of which compensation is claimed by

petitioners. 6 The policy


issued by respondent Western GuarantyCorporation (Western) did not
declare respondent Reliance Surety and Insurance Co., Inc. (Reliance) and
respondent Equitable Insurance Corporation (Equitable) as coinsurers on the same stocks,
while Reliance'sPolicies covering the same stocks did not
likewise declare Western and Equitable as such co-insurers. It is
furtheradmitted by petitioners that Equitable's policy stated "nil" in the space
thereon requiring indication of any co-insurance although there were three (3)
policies subsisting on the same stocks in trade at the time of the loss,namely,
that of Western in the amount of P350,000.00 and two (2) policies of Reliance in
the total amount of P1,000,000.00. 7
In other words, the coverage by other insurance or co-insurance effected
or subsequently arranged by petitioners were neither stated nor endorsed in the
policies of the three (3) private respondents, warranting forfeiture of all benefits
thereunder if we are to follow the express stipulation in the aforequoted Policy
Condition No. 3.
Petitioners contend that they are not to be blamed for the omissions,
alleging that insurance agent Leon Alvarez (for Western) and Yap Kam Chuan (for
Reliance and Equitable) knew about the existence of the additional
insurance coverage and that they were not informed about the requirement that
such other or additional insurance should be stated in the
policy, as they have not even read policies. 8 These contentions cannot pass
judicial muster.
The terms of the contract are clear and unambiguous.
The insured is specifically required to disclose to the insurer any other insurance
and its particulars which he may have effected on the
same subject matter. Theknowledge of such insurance
by the insurer's agents, even assuming the acquisition thereof by the former,
is notthe "notice" that would estop the insurers from denying the claim. Besides,
the so-called theory of imputed knowledge, that is, knowledge of the agent is
knowledge of the principal, aside from being
of dubious applicabilityhere has likewise been roundly
refuted by respondent court whose factual findings we find acceptable.
Thus, it points out that while petitioner Julian Sy
claimed that he had informed insurance agent Alvarez regarding the coinsurance on the property, he contradicted
himself by inexplicably claiming that he had not read the termsof the policies;
that Yap Dam Chuan could not likewise have obtained such
knowledge for the same reason, asidefrom the fact that
the insurance with Western was obtained before those of
Reliance and Equitable; and that theconclusion of
the trial court that Reliance and Equitable are "sister
companies" is an unfounded conjecture drawnfrom the mere fact that Yap Kam

Chuan was an agent for both companies which also had the
same insuranceclaims adjuster. Availment of the
services of the same agents and adjusters by different companies is a
commonpractice in the insurance business and such facts
do not warrant the speculative conclusion of the trial court.
Furthermore, when the words and language of documents are clear and plain
or readily understandable by an ordinary reader thereof, there is absolutely no
room for interpretation or construction anymore. 9 Courts are not allowed to
make contracts for the parties; rather, they will intervene
only when the terms of the policy areambiguous, equivocal,
or uncertain. 10 The parties must abide by the
terms of the contract because such termsconstitute the
measure of the insurer's liability and compliance therewith is a
condition precedent to the insured'sright of recovery from the insurer. 11
While it is a cardinal principle of insurance law that a policy or contract
of insurance is to be construed liberally
infavor of the insured and strictly against the insurer
company, yet contracts of insurance, like other contracts, are to be construed
according to the sense and meaning of the terms which
the parties themselves have used. If suchterms are clear and
unambiguous, they must be taken and understood in their plain, ordinary and
popular sense.12 Moreover,
obligations arising from contracts have the force of law between
the contracting parties and shouldbe complied with in good faith. 13
Petitioners should be aware of the fact that a party is not relieved of the duty to
exercise the ordinary care and prudence that would be exacted in relation to
other contracts. The conformity of the insured to the terms of the
policy is implied from his failure to express any disagreement with
what is provided for. 14 It may be true that themajority rule, as cited
by petitioners, is that injured
persons may accept policies without reading them, and that this is not
negligence per se. 15 But, this is not without any exception. It is and was
incumbent upon petitioner Sy to read the insurance contracts, and this can be
reasonably expected of him considering that he has been a businessman since
1965 16 and the contract concerns indemnity in case of loss in his moneymaking trade ofwhich important
consideration he could not have been unaware as it was pre-in case of loss in his
money-making trade of which important consideration he could not have been
unaware as it was precisely the reason for his procuring the same.
We reiterate our pronouncement in Pioneer Insurance and Surety Corporation vs.
Yap: 17
...
And considering the terms of the policy which required the insured to declare oth
er insurances,the statement in question must be deemed to be a statement

(warranty) binding on both insurer and insured, that there were no other
insurance on the property. . . .
The annotation then, must be deemed
to be a warranty that the property was not insured by any other policy.
Violation thereof entitled the insurer to rescind (Sec. 69, Insurance
Act). Suchmisrepresentation is fatal in the light of our views in Santa Ana vs.
Commercial Union Assurance Company, Ltd., 55 Phil. 329. The materiality of nondisclosure of other insurance policies is not open to doubt.
xxx xxx xxx
The obvious purpose of the aforesaid requirement in the policy
is to prevent over-insurance and thus avert the perpetration of fraud. The public,
as well as the insurer, is interested in preventing the situation
in which a fire would be profitable to the insured. According to Justice Story: "The
insured has no right to complain, for he assents to comply
with all the stipulations on his side, in order toentitle himself to the
benefit of the contract, which, upon reason or principle, he
has no right to askthe court to dispense with the
performance of his own part of the agreement, and yet to bind the otherparty to
obligations, which, but for those stipulations, would not have been entered into."
Subsequently, in the case of Pacific Banking Corporation vs. Court of Appeals, et
al., 18 we held:
It is not disputed that the insured failed to reveal before the
loss three other insurances. As found by the Court
of Appeals, by reason of said unrevealed insurances, the insured had been
guilty of a falsedeclaration; a clear misrepresentation and a vital one because
where the insured had been asked to reveal
but did not, that was deception. Otherwise stated, had the
insurer known that there were many co-insurances, it could have hesitated or
plainly desisted from entering into such contract.
Hence, theinsured was guilty of clear fraud (Rollo, p. 25).
Petitioner's contention that the allegation of fraud is but
a mere inference or suspicion is untenable. In fact, concrete evidence of fraud or
false declaration by the insured was furnished by the petitioner itself when the
facts alleged in the policy under clauses "Co-Insurances Declared" and
"OtherInsurance Clause" are materially different from the actual number of coinsurances taken over thesubject property. Consequently, "the whole foundation
of the contract fails, the
risk does not attachand the policy never becomes a contract between the
parties." Representations of facts are the foundation of the contract and if
the foundation does not exist, the superstructure does
not arise.Falsehood in such representations is not shown to vary
or add to the contract, or to terminate a contract which has once been made, but
to show that no contract has ever

existed (Tolentino,Commercial Laws of the Philippines, p.


991, Vol. II, 8th Ed.,) A void or inexistent contract is one which has no
force and effect from the very beginning, as if it had never been entered into,
and which cannot be validated either by time or by ratification
(Tongoy vs. C.A., 123 SCRA 99 (1983); Avila v. C.A., 145 SCRA, 1986).
As the insurance policy against fire expressly required that notice should be
given by the insured ofother insurance upon the same property,
the total absence of such notice nullifies the policy.
To further warrant and justify the forfeiture of the
benefits under the insurance contracts involved, we need
merelyto turn to Policy Condition No. 15 thereof, which reads in part:
15. . . . if any false declaration be made or used
in support thereof, . . . all benefits under this Policy shall be forfeited . . . .

19

Additionally, insofar as the liability of respondent


Reliance is concerned, it is not denied that the complaint for recovery was filed in
court by petitioners only on
January 31, 1984, or after more than one (1) year had
elapsedfrom petitioners' receipt of the insurers' letter of
denial on November 29, 1982. Policy Condition No. 27 of their insurance contract
with Reliance provides:
27. Action or suit
clause. If a claim be made and rejected and an action or suit be not commenc
ed
either inthe Insurance Commission or any court of competent jurisdiction of notic
e of such rejection, or in case ofarbitration taking place
as provided herein, within twelve (12) months after due
notice of the award made by thearbitrator or arbitrators
or umpire, then the claim shall for all purposes be
deemed to have been abandoned andshall not thereafter be recoverable
hereunder. 20
On this point, the trial court ruled:
. . . However, because of the peculiar circumstances of this case, we hesitate
in concluding that plaintiff's rightto ventilate his claim in court has been barred b
y reason of the time constraint provided in the insurancecontract. It is
evident that after the plaintiff had received
the letter of denial, he still found it necessary to beinformed of the specific cause
s or reasons for the denial of his claim, reason for which his lawyer, Atty. Dator
deemed it wise to send a
letter of inquiry to the defendant which was answered by
defendant's Executive Vice-President in a letter
dated March 30, 1983, . . . . Assuming, gratuitously, that the letter of Executive V
ice-President Mary Dee Co dated March 30, 1983, was received by plaintiff

on the same date, the period oflimitation should start to run only from said date
in the spirit of fair play and equity. . . . 21
We have perforce to reject this theory of the court below for being contrary to
what we have heretofore declared:
It is important to note the principle laid down by this Court in the case of Ang vs.
Fulton Fire Insurance Co. (2 SCRA 945 [1961]) to wit:
The condition contained in an insurance policy that claims must be presented
within one year
after rejection is not merely a procedural requirement but an important matter
essential to a prompt settlement of claims against insurance companies as it
demandsthat insurance suits be brought by
the insured while the evidence as to the origin andcause of destruction have not
yet disappeared.
In enunciating the above-cited principle, this Court had definitely
settled the rationale for the necessity of bringing suits against the Insurer
within one year from the rejection of the claim. The contention
of the respondents that the one-year prescriptive period does
not start to run until thepetition for reconsideration had been resolved by the ins
urer, runs counter to the declared purpose for requiring that an
action or suit be filed in the Insurance Commission or in a court of competent
jurisdiction from the denial of the claim. To uphold respondents' contention would
contradict anddefeat the very principle which this Court had
laid down. Moreover, it can easily be used by insured persons as a scheme or
device to waste time until any evidence which may be considered againstthem is
destroyed.
xxx xxx xxx
While in the Eagle Star case (96 Phil. 701),
this Court uses the phrase "final rejection", the
same cannot betaken to mean the rejection of a petition for reconsideration as
insisted by respondents.
Such was clearly notthe meaning contemplated by this Court. The insurance poli
cy in said case provides that the insured should file his claim first, with
the carrier and then with the insurer.
The "final rejection" being referred to in said case is the rejection by the
insurance company. 22
Furthermore, assuming arguendo that petitioners felt the
legitimate need to be clarified as to the policy condition violated, there was a
considerable lapse of time from their receipt of the insurer's clarificatory letter
dated March 30, 1983, up to the time the complaint was filed in court on
January 31, 1984. The one-year prescriptive periodwas yet
to expire on November 29, 1983, or about eight (8) months from the
receipt of the clarificatory letter, butpetitioners let the

period lapse without bringing their action in court.


We accordingly find no "peculiarcircumstances" sufficient to
relax the enforcement of the one-year prescriptive period and
we, therefore, hold thatpetitioners' claim was definitely filed out of time.
WHEREFORE, finding no cogent reason to disturb the judgment
of respondent Court of Appeals, the same ishereby AFFIRMED.
SO ORDERED.
Melencio-Hererra and Nocon, JJ., concur.
Paras, J., took no part.
Padilla, J., took no part.

Footnotes
1 Justice Serafin V.C. Guingona, ponente, with Justices Gloria C. Paras and
Bonifacio A. Cacdac, Jr., concurring Rollo, 51.
2 Per Judge Hoover S. Abling.
3 Rollo, 34-36.
4 Ibid., 32-33.
5 Exhibits "20-c", "18-b", "14-b"; Folder of Exhibit, 20, 29, 31.
6 Memorandum for Petitioners, 13.
7 Rollo, 35.
8 Memorandum for the Petitioners, 13.
9 Marina Port Services, Inc. vs. Iniego, et al., 181 SCRA 304 (1990).
10 Pan Malayan Insurance Corporation vs. Court of Appeals, et al., 184 SCRA 54
(1990).
11 Perla Compania de Seguros, Inc. vs. Court of Appeals, et al., 185 SCRA 741
(1990).
12 Sun Insurance Office, Ltd. vs. Court of Appeals, et al., 195 SCRA 193 (1991).
13 Article 1159, Civil Code.
14 Ang Giok Chip, etc. vs. Springfield Fire & Marine Insurance Company, 56 SCRA
375 (1931).
15 Vance on Insurance, 1951 ed., 257; Memorandum for the Petitioners, 22.

16 TSN, February 11, 1986, 28.


17 61 SCRA 426 (1974), citing General Insurance & Surety Corporation vs.
Ng Hua, 106 Phil. 1117, 1119-1120 (1960).
18 168 SCRA 1 (1988).
19 Exhibits "20-d", "18-e, "14-e"; Folder of Exhibits, 21, 30, 33.
20 Exhibit "14-f"; Folder of Exhibits, 33.
21 Rollo, 49.
22 Sun Insurance Office, Ltd. vs. Court of Appeals, et al., supra, Fn. 12.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-28740 February 24, 1981
FERMIN Z. CARAM, JR., petitioner,
vs.
CLARO L. LAURETA, respondent.
FERNANDEZ, J.:
This is a petition for certiorari to review the decision of the Court of Appeals
promulgated on January 29, 1968 in CA-G. R. NO. 35721-R entitled "Claro L.
Laureta, plaintiff-appellee versus Marcos Mata, Codidi Mata and Fermin Caram,
Jr., defendants- appellants; Tampino (Mansaca), et al. Intervenors-appellants,"
affirming the decision of the Court of First Instance of Davao in Civil Case No.
3083. 1
On June 25, 1959, Claro L. Laureta filed in the Court of First Instance of Davao an
action for nullity, recovery of ownership and/or reconveyance with damages and
attorney's fees against Marcos Mata, Codidi Mata, Fermin Z. Caram, Jr. and the
Register of Deeds of Davao City. 2
On June 10, 1945, Marcos Mata conveyed a large tract of agricultural land
covered by Original Certificate of Title No. 3019 in favor of Claro Laureta,
plaintiff, the respondent herein. The deed of absolute sale in favor of the plaintiff
was not registered because it was not acknowledged before a notary public or
any other authorized officer. At the time the sale was executed, there was no
authorized officer before whom the sale could be acknowledged inasmuch as the
civil government in Tagum, Davao was not as yet organized. However, the
defendant Marcos Mata delivered to Laureta the peaceful and lawful possession
of the premises of the land together with the pertinent papers thereof such as
the Owner's Duplicate Original Certificate of Title No. 3019, sketch plan, tax
declaration, tax receipts and other papers related thereto. 3 Since June 10, 1945,

the plaintiff Laureta had been and is stin in continuous, adverse and notorious
occupation of said land, without being molested, disturbed or stopped by any of
the defendants or their representatives. In fact, Laureta had been paying realty
taxes due thereon and had introduced improvements worth not less than
P20,000.00 at the time of the filing of the complaint. 4
On May 5, 1947, the same land covered by Original Certificate of Title No. 3019
was sold by Marcos Mata to defendant Fermin Z. Caram, Jr., petitioner herein. The
deed of sale in favor of Caram was acknowledged before Atty. Abelardo
Aportadera. On May 22, 1947, Marcos Mata, through Attys. Abelardo Aportadera
and Gumercindo Arcilla, filed with the Court of First Instance of Davao a petition
for the issuance of a new Owner's Duplicate of Original Certificate of Title No.
3019, alleging as ground therefor the loss of said title in the evacuation place of
defendant Marcos Mata in Magugpo, Tagum, Davao. On June 5, 1947, the Court
of First Instance of Davao issued an order directing the Register of Deeds of
Davao to issue a new Owner's Duplicate Certificate of Title No. 3019 in favor of
Marcos Mata and declaring the lost title as null and void. On December 9, 1947,
the second sale between Marcos Mata and Fermin Caram, Jr. was registered with
the Register of Deeds. On the same date, Transfer Certificate of Title No. 140 was
issued in favor of Fermin Caram Jr. 5
On August 29, 1959, the defendants Marcos Mata and Codidi Mata filed their
answer with counterclaim admitting the existence of a private absolute deed of
sale of his only property in favor of Claro L. Laureta but alleging that he signed
the same as he was subjected to duress, threat and intimidation for the plaintiff
was the commanding officer of the 10th division USFIP operating in the
unoccupied areas of Northern Davao with its headquarters at Project No. 7 (Km.
60, Davao Agusan Highways), in the Municipality of Tagum, Province of Davao;
that Laureta's words and requests were laws; that although the defendant Mata
did not like to sell his property or sign the document without even understanding
the same, he was ordered to accept P650.00 Mindanao Emergency notes; and
that due to his fear of harm or danger that will happen to him or to his family, if
he refused he had no other alternative but to sign the document. 6
The defendants Marcos Mata and Codidi Mata also admit the existence of a
record in the Registry of Deeds regarding a document allegedly signed by him in
favor of his co-defendant Fermin Caram, Jr. but denies that he ever signed the
document for he knew before hand that he had signed a deed of sale in favor of
the plaintiff and that the plaintiff was in possession of the certificate of title; that
if ever his thumb mark appeared in the document purportedly alienating the
property to Fermin Caram, did his consent was obtained through fraud and
misrepresentation for the defendant Mata is illiterate and ignorant and did not
know what he was signing; and that he did not receive a consideration for the
said sale. 7
The defendant Fermin Caram Jr. filed his answer on October 23, 1959 alleging
that he has no knowledge or information about the previous encumbrances,

transactions, and alienations in favor of plaintiff until the filing of the


complaints. 8
The trial court rendered a decision dated February 29, 1964, the dispositive
portion of which reads: 9
1. Declaring that the deed of sale, Exhibit A, executed by Marcos Mata in favor of
Claro L. Laureta stands and prevails over the deed of sale, Exhibit F, in favor of
Fermin Caram, Jr.;
2. Declaring as null and void the deed of sale Exhibit F, in favor of Fermin Caram,
Jr.;
3. Directing Marcos Mata to acknowledge the deed of sale, Exhibit A, in favor of
Claro L. Laureta;
4. Directing Claro L. Laureta to secure the approval of the Secretary of
Agriculture and Natural Resources on the deed, Exhibit A, after Marcos Mata shall
have acknowledged the same before a notary public;
5. Directing Claro L. Laureta to surrender to the Register of Deeds for the City
and Province of Davao the Owner's Duplicate of Original Certificate of Title No.
3019 and the latter to cancel the same;
6. Ordering the Register of Deeds for the City and Province of Davao to cancel
Transfer Certificate of Title No. T-140 in the name of Fermin Caram, Jr.;
7. Directing the Register of Deeds for the City and Province of Davao to issue a
title in favor of Claro L. Laureta, Filipino, resident of Quezon City, upon
presentation of the deed executed by Marcos Mata in his favor, Exhibit A, duly
acknowledged by him and approved by the Secretary of Agriculture and Natural
Resources, and
8. Dismissing the counterclaim and cross claim of Marcos Mata and Codidi Mata,
the counterclaim of Caram, Jr., the answer in intervention, counterclaim and
cross-claim of the Mansacas.
The Court makes no pronouncement as to costs.
SO ORDERED.
The defendants appealed from the judgment to the Court of Appeals.
appeal was docketed as CA-G.R. NO. 35721- R.

10

The

The Court of Appeals promulgated its decision on January 29, 1968 affirming the
judgment of the trial court.
In his brief, the petitioner assigns the following errors:
I

11

THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT IRESPE AND


APORTADERA WERE ATTORNEYS-IN-FACT OF PETITIONER CARAM FOR THE
PURPOSE OF BUYING THE PROPERTY IN QUESTION.
II
THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT THE
EVIDENCE ADDUCED IN THE TRIAL COURT CONSTITUTE LEGAL EVIDENCE OF
FRAUD ON THE PART OF IRESPE AND APORTADERA AT TRIBUTABLE TO
PETITIONER.
III
THE RESPONDENT COURT OF APPEALS COMMITTED GRAVE ERROR OF LAW IN
HOLDING THAT KNOWLEDGE OF IRESPE AND APORTADERA OF A PRIOR
UNREGISTERED SALE OF A TITLED PROPERTY ATTRIBUTABLE TO PETITIONER AND
EQUIVALENT IN LAW OF REGISTRATION OF SAID SALE.
IV
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT AN ACTION
FOR RECONVEYANCE ON THE GROUND OF FRAUD PRESCRIBES WITHIN FOUR (4)
YEARS.
The petitioner assails the finding of the trial court that the second sale of the
property was made through his representatives, Pedro Irespe and Atty. Abelardo
Aportadera. He argues that Pedro Irespe was acting merely as a broker or
intermediary with the specific task and duty to pay Marcos Mata the sum of
P1,000.00 for the latter's property and to see to it that the requisite deed of sale
covering the purchase was properly executed by Marcos Mata; that the Identity
of the property to be bought and the price of the purchase had already been
agreed upon by the parties; and that the other alleged representative, Atty.
Aportadera, merely acted as a notary public in the execution of the deed of sale.
The contention of the petitioner has no merit. The facts of record show that Mata,
the vendor, and Caram, the second vendee had never met. During the trial,
Marcos Mata testified that he knows Atty. Aportadera but did not know
Caram. 12 Thus, the sale of the property could have only been through Caram's
representatives, Irespe and Aportadera. The petitioner, in his answer, admitted
that Atty. Aportadera acted as his notary public and attorney-in-fact at the same
time in the purchase of the property. 13
The petitioner contends that he cannot be considered to have acted in bad faith
because there is no direct proof showing that Irespe and Aportadera, his alleged
agents, had knowledge of the first sale to Laureta. This contention is also without
merit.
The Court of Appeals, in affirming the decision of the trial court, said:

14

The trial court, in holding that appellant Caram. Jr. was not a purchaser in good
faith, at the time he bought the same property from appellant Mata, on May 5,

1947, entirely discredited the testimony of Aportadera. Thus it stated in its


decision:
The testimony of Atty. Aportadera quoted elsewhere in this decision is hollow.
There is every reason to believe that Irespe and he had known of the sale of the
property in question to Laureta on the day Mata and Irespe, accompanied by
Leaning Mansaca, went to the office of Atty. Aportadera for the sale of the same
property to Caram, Jr., represented by Irespe as attorney-in-fact. Ining Mansaca
was with the two Irespe and Mata to engage the services 6f Atty.
Aportadera in the annulment of the sale of his land to Laureta. When Leaning
Mansaca narrated to Atty. Aportadera the circumstances under which his
property had been sold to Laureta, he must have included in the narration the
sale of the land of Mata, for the two properties had been sold on the same
occassion and under the same circumstances. Even as early as immediately after
liberation, Irespe, who was the witness in most of the cases filed by Atty.
Aportadera in his capacity as Provincial Fiscal of Davao against Laureta, must
have known of the purchases of lands made by Laureta when he was regimental
commander, one of which was the sale made by Mata. It was not a mere
coincidence that Irespe was made guardian ad litem of Leaning Mansaca, at the
suggestion of Atty. Aportadera and attorney-in-fact of Caram, Jr.
The Court cannot help being convinced that Irespe, attorney-in-fact of Caram, Jr.
had knowledge of the prior existing transaction, Exhibit A, between Mata and
Laureta over the land, subject matter of this litigation, when the deed, Exhibit F,
was executed by Mata in favor of Caram, Jr. And this knowledge has the effect of
registration as to Caram, Jr. RA pp. 123-124)
We agree with His Honor's conclusion on this particular point, on two grounds
the first, the same concerns matters affecting the credibility of a witness of
which the findings of the trial court command great weight, and second, the
same is borne out by the testimony of Atty. Aportadera himself. (t.s.n., pp. 187190, 213-215, Restauro).
Even if Irespe and Aportadera did not have actual knowledge of the first sale, still
their actions have not satisfied the requirement of good faith. Bad faith is not
based solely on the fact that a vendee had knowledge of the defect or lack of
title of his vendor. In the case of Leung Yee vs. F. L. Strong Machinery Co. and
Williamson, this Court held: 15
One who purchases real estate with knowledge of a defect or lack of title in his
vendor can not claim that he has acquired title thereto in good faith, as against
the true owner of the land or of an interest therein, and the same rule must be
applied to one who has knowledge of facts which should have put him upon such
inquiry and investigation as might be necessary to acquaint him with the defects
in the title of his vendor.
In the instant case, Irespe and Aportadera had knowledge of circumstances
which ought to have put them an inquiry. Both of them knew that Mata's
certificate of title together with other papers pertaining to the land was taken by

soldiers under the command of Col. Claro L. Laureta. 16 Added to this is the fact
that at the time of the second sale Laureta was already in possession of the land.
Irespe and Aportadera should have investigated the nature of Laureta's
possession. If they failed to exercise the ordinary care expected of a buyer of real
estate they must suffer the consequences. The rule of caveat emptor requires
the purchaser to be aware of the supposed title of the vendor and one who buys
without checking the vendor's title takes all the risks and losses consequent to
such failure. 17
The principle that a person dealing with the owner of the registered land is not
bound to go behind the certificate and inquire into transactions the existence of
which is not there intimated 18 should not apply in this case. It was of common
knowledge that at the time the soldiers of Laureta took the documents from
Mata, the civil government of Tagum was not yet established and that there were
no officials to ratify contracts of sale and make them registerable. Obviously,
Aportadera and Irespe knew that even if Mata previously had sold t he Disputed
such sale could not have been registered.
There is no doubt then that Irespe and Aportadera, acting as agents of Caram,
purchased the property of Mata in bad faith. Applying the principle of agency,
Caram as principal, should also be deemed to have acted in bad faith.
Article 1544 of the New Civil Code provides that:
Art. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person
acquiring it who in good faith first recordered it in the Registry of Property.
Should there be no inscription, the ownership shag pertain to the person who in
good faith was first in the possession; and, in the absence thereof, to the person
who presents the oldest title, provided there is good faith. (1473)
Since Caram was a registrant in bad faith, the situation is as if there was no
registration at all. 19
The question to be determined now is, who was first in possession in good faith?
A possessor in good faith is one who is not aware that there exists in his title or
mode of acquisition any flaw which invalidates it. 20 Laureta was first in
possession of the property. He is also a possessor in good faith. It is true that
Mata had alleged that the deed of sale in favor of Laureta was procured by
force. 21 Such defect, however, was cured when, after the lapse of four years
from the time the intimidation ceased, Marcos Mata lost both his rights to file an
action for annulment or to set up nullity of the contract as a defense in an action
to enforce the same.
Anent the fourth error assigned, the petitioner contends that the second deed of
sale, Exhibit "F", is a voidable contract. Being a voidable contract, the action for

annulment of the same on the ground of fraud must be brought within four (4)
years from the discovery of the fraud. In the case at bar, Laureta is deemed to
have discovered that the land in question has been sold to Caram to his
prejudice on December 9, 1947, when the Deed of Sale, Exhibit "F" was recorded
and entered in the Original Certificate of Title by the Register of Deeds and a new
Certificate of Title No. 140 was issued in the name of Caram. Therefore, when the
present case was filed on June 29, 1959, plaintiff's cause of action had long
prescribed.
The petitioner's conclusion that the second deed of sale, "Exhibit F", is a voidable
contract is not correct. I n order that fraud can be a ground for the annulment of
a contract, it must be employed prior to or simultaneous to the, consent or
creation of the contract. The fraud or dolo causante must be that which
determines or is the essential cause of the contract. Dolo causante as a ground
for the annulment of contract is specifically described in Article 1338 of the New
Civil Code of the Philippines as "insidious words or machinations of one of the
contracting parties" which induced the other to enter into a contract, and
"without them, he would not have agreed to".
The second deed of sale in favor of Caram is not a voidable contract. No
evidence whatsoever was shown that through insidious words or machinations,
the representatives of Caram, Irespe and Aportadera had induced Mata to enter
into the contract.
Since the second deed of sale is not a voidable contract, Article 1391, Civil Code
of the Philippines which provides that the action for annulment shall be brought
within four (4) years from the time of the discovery of fraud does not apply.
Moreover, Laureta has been in continuous possession of the land since he bought
it in June 1945.
A more important reason why Laureta's action could not have prescribed is that
the second contract of sale, having been registered in bad faith, is null and void.
Article 1410 of the Civil Code of the Philippines provides that any action or
defense for the declaration of the inexistence of a contract does not prescribe.
In a Memorandum of Authorities 22 submitted to this Court on March 13, 1978,
the petitioner insists that the action of Laureta against Caram has prescribed
because the second contract of sale is not void under Article 1409 23 of the Civil
Code of the Philippines which enumerates the kinds of contracts which are
considered void. Moreover, Article 1544 of the New Civil Code of the Philippines
does not declare void a second sale of immovable registered in bad faith.
The fact that the second contract is not considered void under Article 1409 and
that Article 1544 does not declare void a deed of sale registered in bad faith
does not mean that said contract is not void. Article 1544 specifically provides
who shall be the owner in case of a double sale of an immovable property. To
give full effect to this provision, the status of the two contracts must be declared
valid so that one vendee may contract must be declared void to cut off all rights
which may arise from said contract. Otherwise, Article 1544 win be meaningless.

The first sale in favor of Laureta prevails over the sale in favor of Caram.
WHEREFORE, the petition is hereby denied and the decision of the Court of
Appeals sought to be reviewed is affirmed, without pronouncement as to costs.
SO ORDERED.
Makasiar Guerrero, De Castro* and Melencio-Herrera concur.

Footnotes
1 Annex "A", Rollo, pp. 35-48. Written by Justice Nicasio Yatco and concurred in
by Justice Salvador Esquerra and Justice Eulogio S. Serrano.
2 Record on Appeal, pp. 2-13, Rollo, p. 61.
3 Ibid., pp. 3-4.
4 Ibid., P.10; TSN, January 22, 1964, pp. 108, 110-111.
5 Ibid., pp. 6-8.
6 Ibid., p. 27.
7 Ibid., p. 29.
8 Ibid., p. 39.
9 Ibid., pp. 126-127.
10 Ibid., pp. 128-129.
11 Brief for Petitioner, pp. 1-2, Rollo, p. 139.
12 TSN, January 22, 1964, p. 98.
13 Record on Appeal, p. 38, Rollo, p. 61.
14 Rollo, pp. 45-47.
15 Leung Yee vs. Strong Machinery Co. and Williamson, 37 Phil. 644.
16 TSN, January 22, 1964, pp. 187-188.
17 Salvoro vs. Taega, 87 SCRA 349. 361.
18 Quimson vs. Suarez, 45 Phil. 906.
19 Salvorro vs. Taega, 87 SCRA 363.
20 Article 526, Civil Code of the Philippines.

21 The trial court found that the contract in favor of Laureta is voidable, but the
action to annul the same has long prescribed. See Record on Appeal, p. 120,
Rollo, p. 61.
22 Rollo, pp. 159-177.
23 Article 1409, Civil Code of the Philippines - The following contracts are
inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good
customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object of the
contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law
These contracts cannot be ratified. Neither can the right to set the defense of
illegality be waived.
* Mr. Justice de Castro was designation to sit with the First Division.
FIRST DIVISION
[G. R. No. 129919. February 6, 2002]
DOMINION INSURANCE CORPORATION, petitioner, vs.COURT OF
APPEALS, RODOLFO S. GUEVARRA, and FERNANDO
AUSTRIA, respondents.
DECISION
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
P156,473.90representing the total amount advanced by Guevarra in the
payment of the claims of Dominions clients.
The Facts
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 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.
In due time, third-party defendant Austria filed his answer.
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.
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.
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.
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.
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 November 18, 1992, the court a quo rendered judgment as follows:
WHEREFORE, premises considered, judgment is hereby rendered ordering:
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;
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.[6] 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]
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
dohereby 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 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.
2. To accept, underwrite and subscribed (sic) cover notes or Policies of
Insurance and Bonds for and on our behalf.
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 above-mentioned 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]
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.[22] Thus, the acts enumerated in or similar to those

enumerated in the Special Power of Attorney do not require a special power of


attorney.
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:
Article 1878. Special powers of attorney are necessary in the following cases:
(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 respondent Guevarras 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]
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:
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 ____________.
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 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.
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:
(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;
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][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. and that of the
Regional Trial Court, Branch 44, San Fernando, Pampanga,
No costs in this instance.
SO ORDERED.
Davide, Jr., (Chairman), Puno, Kapunan, and Ynares-Santiago, JJ., concur.

[1] Under Rule 45, Revised Rules of Court.


[2] In CA-G.R. CV No. 40803, promulgated on July 19, 1996, Petition, Annex B,
pp. 12-18. Godardo A. Jacinto, J., ponente, Salome A. Montoya and Maximiano C.
Asuncion, JJ., concurring..
[3] Decision, original Record, Civil Case 8855, pp. 358-361.
[4] Petition, Annex B, Rollo, pp. 12-18, at pp. 12-15.
[5] Notice of Appeal, Original Record, Civil Case No. 8855, p. 362.
[6] Petition, Annex B, Rollo, pp. 12-18.
[7] CA Rollo, pp. 99-112.
[8] Petition, Annex A, Rollo, p. 10.
[9] Filed on September 8, 1997, Rollo, pp. 20-50. On January 31, 2000, we
resolved to give due course to the petition (Rollo, pp. 79-80).
[10] Article 1869, Civil Code.
[11] Bordador v. Luz, 347 Phil. 654, 662 (1997).
[12] Victorias Milling Co., Inc. v. Court of Appeals, 333 SCRA 663, 675 (2000),
citing Connell v. McLoughlin, 28 Or. 230; 42 P. 218.
[13] Victorias Milling Co., Inc. v. Court of Appeals, 333 SCRA 663, 675 (2000),
citing Halladay v. Underwood, 90 Ill. App. 130.
[14] Victorias Milling Co., Inc. v. Court of Appeals, 333 SCRA 663, 675 (2000),
citing Internal Trust Co. v. Bridges, 57 F. 753.
[15] Victorias Milling Co., Inc. v. Court of Appeals, 333 SCRA 663, 675 (2000),
citing Security Co. v. Graybeal, 85 Iowa 543, 52 N.W. 497.

[16] Original Record, Civil Case No. 8855, p. 235.


[17] Now Dominion Insurance Corporation.
[18] Now Dominion Insurance Corporation.
[19] Original Record, Civil Case No. 8855, p. 235.
[20] Article 1876, Civil Code.
[21] Article 1877, Civil Code.
[22] Tolentino, Arturo M., Commentaries and Jurisprudence on the Civil Code of
the Philippines, Vol. V (1997), p. 405, citing 6 Llerena 137.
[23] Original Record, Civil Case No. 8855, pp. 236-237.
[24] Original Record, Civil Case No. 8855, pp. 236-237, at p. 236.
[25] Original Record, Civil Case No. 8855, p. 299.
[26] Original Record, Civil Case No. 8855, p. 299.
[27] Original Records, Civil Case No. 8855, pp. 11, 13, 15, 17, 19, 21, 23, 25.
[28] In CA-G.R. CV No. 40803.
[29] In Civil Case No. 8855.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 102737 August 21, 1996


FRANCISCO A. VELOSO, petitioner,
vs.
COURT OF APPEALS, AGLALOMA B. ESCARIO, assisted by her husband
GREGORIO L. ESCARIO, the REGISTER OF DEEDS FOR THE CITY OF
MANILA, respondents.

TORRES, JR., J.:p


This petition for review assails the decision of the Court of Appeals, dated July 29,
1991, the dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby AFFIRMED IN TOTO. Costs
against appellant. 1

The following are the antecedent facts:


Petitioner Francisco Veloso was the owner of a parcel of land situated in the
district of Tondo, Manila, with an area of one hundred seventy seven (177)
square meters and covered by Transfer Certificate of Title No. 49138 issued by
the Registry of Deeds of Manila. 2 The title was registered in the name of
Francisco A. Veloso, single, 3 on October 4, 1957. 4 The said title was
subsequently cancelled and a new one, Transfer Certificate of Title No. 180685,
was issued in the name of Aglaloma B. Escario, married to Gregorio L. Escario, on
May 24, 1988. 5
On August 24, 1988, petitioner Veloso filed an action for annulment of
documents, reconveyance of property with damages and preliminary injunction
and/or restraining order. The complaint, docketed as Civil Case No. 88-45926,
was raffled to the Regional Trial Court, Branch 45, Manila. Petitioner alleged
therein that he was the absolute owner of the subject property and he never
authorized anybody, not even his wife, to sell it. He alleged that he was in
possession of the title but when his wife, Irma, left for abroad, he found out that
his copy was missing. He then verified with the Registry of Deeds of Manila and
there he discovered that his title was already cancelled in favor of defendant
Aglaloma Escario. The transfer of property was supported by a General Power of
Attorney 6 dated November 29, 1985 and Deed of Absolute Sale, dated
November 2, 1987, executed by Irma Veloso, wife of the petitioner and appearing
as his attorney-in-fact, and defendant Aglaloma Escario. 7 Petitioner Veloso,
however, denied having executed the power of attorney and alleged that his
signature was falsified. He also denied having seen or even known Rosemarie
Reyes and Imelda Santos, the supposed witnesses in the execution of the power
of attorney. He vehemently denied having met or transacted with the defendant.
Thus, he contended that the sale of the property, and the subsequent transfer
thereof, were null and void. Petitioner Veloso, therefore, prayed that a temporary
restraining order be issued to prevent the transfer of the subject property; that
the General Power of Attorney, the Deed of Absolute Sale and the Transfer
Certificate of Title No. 180685 be annulled; and the subject property be
reconveyed to him.
Defendant Aglaloma Escario in her answer alleged that she was a buyer in good
faith and denied any knowledge of the alleged irregularity. She allegedly relied
on the general power of attorney of Irma Veloso which was sufficient in form and
substance and was duly notarized. She contended that plaintiff (herein
petitioner), had no cause of action against her. In seeking for the declaration of
nullity of the documents, the real party in interest was Irma Veloso, the wife of
the plaintiff. She should have been impleaded in the case. In fact, Plaintiff's
cause of action should have been against his wife, Irma. Consequently,
defendant Escario prayed for the dismissal of the complaint and the payment to
her of damages. 8
Pre-trial was conducted. The sole issue to be resolved by the trial court was
whether or not there was a valid sale of the subject property. 9

During the trial, plaintiff (herein petitioner) Francisco Veloso testified that he
acquired the subject property from the Philippine Building Corporation, as
evidenced by a Deed of Sale dated October 1, 1957. 10 He married Irma Lazatin
on January 20, 1962. 11 Hence, the property did not belong to their conjugal
partnership. Plaintiff further asserted that he did not sign the power of attorney
and as proof that his signature was falsified, he presented Allied Bank Checks
Nos. 16634640, 16634641 and 16634643, which allegedly bore his genuine
signature.
Witness for the plaintiff Atty. Julian G. Tubig denied any participation in the
execution of the general power of attorney. He attested that he did not sign
thereon, and the same was never entered in his Notarial Register on November
29, 1985.
In the decision of the trial court dated March 9, 1990, 12 defendant Aglaloma
Escario was adjudged the lawful owner of the property as she was deemed an
innocent purchaser for value. The assailed general power of attorney was held to
be valid and sufficient for the purpose. The trial court ruled that there was no
need for a special power of attorney when the special power was already
mentioned in the general one. It also declared that plaintiff failed to substantiate
his allegation of fraud. The court also stressed that plaintiff was not entirely
blameless for although he admitted to be the only person who had access to the
title and other important documents, his wife was still able to possess the copy.
Citing Section 55 of Act 496, the court held that Irma's possession and
production of the certificate of title was deemed a conclusive authority from the
plaintiff to the Register of Deeds to enter a new certificate. Then applying the
principle of equitable estoppel, plaintiff was held to bear the loss for it was he
who made the wrong possible. Thus:
WHEREFORE, the Court finds for the defendants and against plaintiff
a. declaring that there was a valid sale of the subject property in favor of the
defendant;
b. denying all other claims of the parties for want of legal and factual basis.
Without pronouncement as to costs.
SO ORDERED.
Not satisfied with the decision, petitioner Veloso filed his appeal with the Court of
Appeals. The respondent court affirmed in toto the findings of the trial court.
Hence, this petition for review before Us.
This petition for review was initially dismissed for failure to submit an affidavit of
service of a copy of the petition on the counsel for private respondent. 13 A
motion for reconsideration of the resolution was filed but it was denied in are
resolution dated March 30, 1992. 14 A second motion for reconsideration was filed

and in a resolution dated Aug. 3, 1992, the motion was granted and the petition
for review was reinstated. 15
A supplemental petition was filed on October 9, 1992 with the following
assignment of errors:
I
The Court of Appeals committed a grave error in not finding that the forgery of
the power of attorney (Exh . "C") had been adequately proven, despite the
preponderant evidence, and in doing so, it has so far departed from the
applicable provisions of law and the decisions of this Honorable Court, as to
warrant the grant of this petition for review on certiorari.
II
There are principles of justice and equity that warrant a review of the decision.
III
The Court of Appeals erred in affirming the decision of the trial court which
misapplied the principle of equitable estoppel since the petitioner did not fail in
his duty of observing due diligence in the safekeeping of the title to the property.
We find petitioner's contentions not meritorious.
An examination of the records showed that the assailed power of attorney was
valid and regular on its face. It was notarized and as such, it carries the
evidentiary weight conferred upon it with respect to its due execution. While it is
true that it was denominated as a general power of attorney, a perusal thereof
revealed that it stated an authority to sell, to wit:
2. To buy or sell, hire or lease, mortgage or otherwise hypothecate lands,
tenements and hereditaments or other forms of real property, more specifically
TCT No. 49138, upon such terms and conditions and under such covenants as my
said attorney shall deem fit and proper. 16
Thus, there was no need to execute a separate and special power of attorney
since the general power of attorney had expressly authorized the agent or
attorney in fact the power to sell the subject property. The special power of
attorney can be included in the general power when it is specified therein the act
or transaction for which the special power is required.
The general power of attorney was accepted by the Register of Deeds when the
title to the subject property was cancelled and transferred in the name of private
respondent. In LRC Consulta No. 123, Register of Deeds of Albay, Nov. 10, 1956,
it stated that:
Whether the instrument be denominated as "general power of attorney" or
"special power of attorney", what matters is the extent of the power or powers
contemplated upon the agent or attorney in fact. If the power is couched in

general terms, then such power cannot go beyond acts of administration.


However, where the power to sell is specific, it not being merely implied, much
less couched in general terms, there can not be any doubt that the attorney in
fact may execute a valid sale. An instrument may be captioned as "special power
of attorney" but if the powers granted are couched in general terms without
mentioning any specific power to sell or mortgage or to do other specific acts of
strict dominion, then in that case only acts of administration may be deemed
conferred.
Petitioner contends that his signature on the power of attorney was falsified. He
also alleges that the same was not duly notarized for as testified by Atty. Tubig
himself, he did not sign thereon nor was it ever recorded in his notarial register.
To bolster his argument, petitioner had presented checks, marriage certificate
and his residence certificate to prove his alleged genuine signature which when
compared to the signature in the power of attorney, showed some difference.
We found, however, that the basis presented by the petitioner was inadequate to
sustain his allegation of forgery. Mere variance of the signatures cannot be
considered as conclusive proof that the same were forged. Forgery cannot be
presumed 17 Petitioner, however, failed to prove his allegation and simply relied
on the apparent difference of the signatures. His denial had not established that
the signature on the power of attorney was not his.
We agree with the conclusion of the lower court that private respondent was an
innocent purchaser for value. Respondent Aglaloma relied on the power of
attorney presented by petitioner's wife, Irma. Being the wife of the owner and
having with her the title of the property, there was no reason for the private
respondent not to believe in her authority. Moreover, the power of attorney was
notarized and as such, carried with it the presumption of its due execution. Thus,
having had no inkling on any irregularity and having no participation thereof,
private respondent was a buyer in good faith. It has been consistently held that a
purchaser in good faith is one who buys property of another, without notice that
some other person has a right to, or interest in such property and pays a full and
fair price for the same, at the time of such purchase, or before he has notice of
the claim or interest of some other person in the property. 18
Documents acknowledged before a notary public have the evidentiary weight
with respect to their due execution. The questioned power of attorney and deed
of sale, were notarized and therefore, presumed to be valid and duly executed.
Atty. Tubig denied having notarized the said documents and alleged that his
signature had also been falsified. He presented samples of his signature to prove
his contention. Forgery should be proved by clear and convincing evidence and
whoever alleges it has the burden of proving the same. Just like the petitioner,
witness Atty. Tubig merely pointed out that his signature was different from that
in the power of attorney and deed of sale. There had never been an accurate
examination of the signature, even that of the petitioner. To determine forgery, it
was held in Cesar vs. Sandiganbayan 19(quoting Osborn, The Problem of Proof)
that:

The process of identification, therefore, must include the determination of the


extent, kind, and significance of this resemblance as well as of the variation. It
then becomes necessary to determine whether the variation is due to the
operation of a different personality, or is only the expected and inevitable
variation found in the genuine writing of the same writer. It is also necessary to
decide whether the resemblance is the result of a more or less skillful imitation,
or is the habitual and characteristic resemblance which naturally appears in a
genuine writing. When these two questions are correctly answered the whole
problem of identification is solved.
Even granting for the sake of argument, that the petitioner's signature was
falsified and consequently, the power of attorney and the deed of sale were null
and void, such fact would not revoke the title subsequently issued in favor of
private respondent Aglaloma. In Tenio-Obsequio vs. Court of Appeals, 20 it was
held, viz:
The right of an innocent purchaser for value must be respected and protected,
even if the seller obtained his title through fraud. The remedy of the person
prejudiced is to bring an action for damages against those who caused or
employed the fraud, and if the latter are insolvent, an action against the
Treasurer of the Philippines may be filed for recovery of damages against the
Assurance Fund.
Finally; the trial court did not err in applying equitable estoppel in this case. The
principle of equitable estoppel states that where one or two innocent persons
must suffer a loss, he who by his conduct made the loss possible must bear it.
From the evidence adduced, it should be the petitioner who should bear the loss.
As the court a quo found:
Besides, the records of this case disclosed that the plaintiff is not entirely free
from blame. He admitted that he is the sole person who has access to TCT No.
49138 and other documents appertaining thereto (TSN, May 23, 1989, pp. 7-12)
However, the fact remains that the Certificate of Title, as well as other
documents necessary for the transfer of title were in the possession of plaintiff's
wife, Irma L. Veloso, consequently leaving no doubt or any suspicion on the part
of the defendant as to her authority. Under Section 55 of Act 496, as amended,
Irma's possession and production of the Certificate of Title to defendant operated
as "conclusive authority from the plaintiff to the Register of Deeds to enter a new
certificate." 21
Considering the foregoing premises, we found no error in the appreciation of
facts and application of law by the lower court which will warrant the reversal or
modification of the appealed decision.
ACCORDINGLY, the petition for review is hereby DENIED for lack of merit.
SO ORDERED.
Regalado, Romero, Puno and Mendoza, JJ., concur.

Footnotes
1 Decision, Rollo, p. 59, penned by J.N. Lapea, Jr. and concurred in by J.R.
Pronove and J. C. Santiago.
2 Exh. "A", Annex "A", Records, p. 12 and 155.
3 Exh. "A-1", Ibid.
4 Exh. "A-2", Ibid.
5 Exh. "B", Annex B, Exh. "3", Records, p. 15 and 157.
6 Records, pp. 96-97.
7 Records, pp. 94-95.
8 Answer, Records, pp. 43-47.
9 Order, Records, pp. 74-76.
10 Exh. "F", Records, pp. 163-164.
11 Exh. "H", Records, p. 166.
12 Decision, Records, pp. 283-292.
13 Resolution, February 3, 1992, Rollo, p. 65.
14 Rollo, p. 72.
15 Rollo, p. 93.
16 Records, pp. 96-97.
17 Tenio-Obsequio vs. Court of Appeals, G.R. 107967, March 1, 1994.
18 Bautista, et. al. vs. Court of Appeals, G.R. 106042, Feb. 28, 1994.
19 G.R. Nos. 54719-50, 17 January 1985.
20 G.R. 109767, March 1, 1994.
21 Decision, Records, p. 291.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-47740 July 20, 1982
LIM PIN, petitioner,
vs.

SPS. CONCHITA LIAO TAN, and TAN CHO HUA and HONORABLE CANCIO C.
GARCIA, PRESIDING JUDGE OF BRANCH I, CITY COURT OF CALOOCAN
CITY, respondents.
Raymundo M. Aguila for petitioner.
Teofilo F Manalo for private respondent.

GUTIERREZ, JR., J.:


In this petition for certiorari with prayer for the issuance of a writ of preliminary
injunction, the petitioner prays:
(1) that Judgment be rendered annulling or modifying the Judgment, dated
October 19, 1977, of the Respondent Judge rendered in Civil Case No. 11716,
City Court of Caloocan City. (2) That a Writ of Preliminary Injunction be issued
requiring Private Respondents, and all persons acting in their behalf, to refrain
from the Execution of the Judgment, dated October 19, 1977, of the City Court of
Caloocan City in Civil Case No. 11716 until further order.
The basis of the judgment, subject matter of the petition, is a compromise
agreement entered into between the petitioner, represented by her son, George
Hung and the private respondent Conchita Liao Tan both parties assisted by their
respective counsel, during the October 19, 1977 hearing of Civil Case No. 11716
for unlawful detainer. The complaint for unlawful detainer was filed in the court a
quo on August 12, 1977 by the private respondents against the petitioner. The
judgment incorporating the compromise agreement reads as follows:
When this case was caged for hearing this afternoon, October 19, 1977, plaintiffs
and defendant, the latter acting thru her son, George Hung, as her duly
authorized representative, assisted by their respective counsels, personally
appeared before this Court and mutually agreed as follows:
1. The parties admit that the stipulated rental for the leased premises is as
follows:
(a) For the months of April and May, 1977, at P1,500.00 a month; thereafter a
monthly increase of P500.00 until the rent al reaches to P 5,000.00 by
December, 1977,
2. That defendant admits having been in arrears in the payment of her rental
obligation since April, 1977 and that as of October, 1977, her total accrued
rentals already amounted to P18,000.00, broken down as follows:
April, 1977.........................P 1,500.00
May, 1977............................. 1,500.00
June, 1977............................. 2,000.00

July,1977............................... 2,500.00
August,1977......................... 3,000.00
September,1977.....................3,500.00
October,1977........................ 4,000.00
TOTAL P18,000.00
3. That defendant binds herself to pay in full said accrued rentals of P18,000.00
and attorney's fee of P 2,000.00, not later than October 31, 1977.
4. That the rental for November, 1977, shall be P4,500.00 a month while the
rentals for December, 1977 and for the succeeding months thereafter shall be
P5,000.00, payable at the residence of plaintiff within five (5) days of the current
month.
5. That the Plaintiff hereby agrees to allow the defendant to remain in the leased
premises at the rental herein agreed upon.
6. That should defendant fails to pay her accrued rental of P18,000.00, plus
attorney's fee of P2,000.00 by October 31, 1977, Plaintiff shall be entitled to an
immediate writ of execution to enforce defendant's ejectment from the leased
premises and the collection of all rental in arrears;
7. Defendant's representative, George Hung, affirmed before this court and the
same is confirmed by defendant's counsel, that he (George Hung) has the full
authority of her mother, the herein defendant, to act for her and to sign for and
in behalf this amicable settlement.
WHEREFORE, this Court, as prayed for, hereby approves the foregoing
compromise agreement and consequently renders Judgment in accordance with
the precise terms and conditions hereof. (Annex "D")
Spouses Conchita Liao Tan and Tan Cho Hua alleged in their complaint for
unlawful detainer that the plaintiff Conchita Liao Tan, as owner of a parcel of
registered land with improvements located at Francisco Street, Caloocan City,
had leased a portion of it, more particularly known as 91 Francisco Street,
Caloocan City to defendant Lim Pin on a month to month basis but that the latter
starting April, 1977 had not paid the agreed rental stipulated for such month and
the succeeding months thereafter based on the following schedule of payments:
a) For the month of April, 1977 P 1,500-00; b) For the month of May, 1977
P1,500-00: c) Commencing on the month of June, 1977 and for each calendar
month thereafter P6,000.00 per month; and that despite demand, the defendant
refused to vacate the leased premises. In addition to the actual damages, the
plaintiffs asked for an attorney's fee in the amount of P3,000.00.
On August 25, 1977, the defendant Lim Pin, filed her Answer denying the
material allegations of the complaint and protesting the alleged highly
"unconscionable and unreasonable" increase of rental demanded by plaintiffs. As

a counterclaim, she asked for an attorney's fee in the amount of P5,000.00. The
counterclaim was denied in the plaintiffs' Answer to Counterclaim, dated
September 1, 1982.
The initial hearing set for September 1, 1977 was reset to September 14, 1977
upon the joint motion of the parties who were trying to work out a possible
amicable settlement. Upon the failure of the parties to reach an amicable
settlement, the September 14, 1977 hearing proceeded as scheduled during
which plaintiff Conchita Liao Tan testified. For lack of material time, Conchita Liao
Tan's cross-examination was set for September 27, 1970 but this hearing was
again cancelled and reset to October 19, 1977.
On the scheduled October 19, 1977 hearing, defendant Lim Pin was absent. Her
son George Hung who attended with his mother all the previous hearings was
present together with the defendant's counsel. Plaintiff Conchita Liao Tan
together with her counsel was also present. Through the initiative of the court a
quo, the subject compromise agreement was formulated and executed and it
finally became the basis of the October 19, 1977 judgment in Civil Case No.
11716.
The aforesaid judgment was the subject of a motion for reconsideration filed on
October 28, 1977 by defendant Lim Pin on the following grounds: 1) that she
never authorized her son nor her counsel on record (Atty. Pastor Mamaril) to
enter into such compromise agreement and 2) that had she been present when
said agreement was prepared, she would not have acceded thereto.
The motion prompted the plaintiffs to file an "Opposition To Motion for
Reconsideration With Prayer that defendant's son George Hung and Atty. Pastor
P. Mamaril be cited for contempt" in the event they should belatedly deny that
George Hung was duly authorized by his mother to enter into the compromise
agreement dated November 5, 1982.
In the meantime, the plaintiffs, on November 3, 1977 filed an "Urgent Motion For
Immediate Execution of Judgment dated October 19, 1977."
All the foregoing motions were resolved by the respondent court in its Order
dated January 26, 1978.
The dispositive portion of the Order reads:
IN VIEW OF ALL THE FOREGOING, defendants' 'Motion For Reconsideration,' is
hereby DENIED, For reason hereinbefore mentioned, defendant's son George
Hung, is hereby declared in direct contempt of court and is hereby sentenced to
pay a fine of TWO HUNDRED (P200.00) Pesos, with subsidiary imprisonment in
case of insolvency. Finding the explanations given by Atty. Mamaril during the
hearing of November 18, 1977, to be meritorious, this Court finds no basis to
hold him in contempt. As prayed for by plaintiffs in their motion for execution,
which this Court finds justified, let a writ of execution be issued in this case.

A writ of execution was issued by the respondent court on the same date.
Pursuant to the writ of execution, the City Sheriff of Caloocan City, Metro Manila
served a "Notice of Ejectment" and "Notice to Levy", both dated February 3,
1978, which were received by the plaintiff on February 3, 1978. Hence, this
petition.
On February 8, 1978, We issued a temporary restraining order "enjoining
respondent judge from enforcing the execution of the judgment dated October
19, 1977 issued in Civil Case No. 11714." The petitioner raises two issues in this
petition:
1) Whether the respondent Judge committed grave abuse of discretion in
allowing the October 19, 1977 compromise agreement in the absence of the
petitioner; and
2) Whether the respondent Judge committed grave abuse of discretion
amounting to lack of jurisdiction in denying the petitioner's motion for
reconsideration on the October 19, 1977 judgment and in granting the issuance
of execution thereto upon motion of the private respondents.
Anent the first issue, the petitioner argues that the respondent Judge should not
have allowed her son George Hung and her then counsel, Atty. Pastor Mamaril in
her absence to enter into the October 19, 1977 compromise agreement with the
private respondent Conchita Liao Tan assisted by her counsel. She further argues
that "... considering that such compromise agreement would impose onerous
obligations upon Petitioner, such as a tremendous increase of rentals in the
premises being leased from Private Respondents from P1,500.00 a month to
P5,000.00 a month," and that said agreement contained admissions by
petitioner, the respondent Judge should have required a written authority and
power of attorney from her son and counsel. Her objections to the validity of the
compromise agreement are premised on Article 1878 of the Civil Code and Rule
138, Section 23 of the Rules of Court.
The arguments are not well taken.
Article 1878 is found in Title X of the Civil Code on Agency. It states that a special
power of attorney is necessary to compromise, to submit questions to
arbitration, to renounce the right to appeal from a judgment, to waive objections
to the venue of an action or to abandon a prescription already acquired.
Section 23 of Rule 138 on Attorneys and Admission to the Bar governs the
authority of attorneys to bind their clients and provides that "Attorneys have
authority to bind their clients in any case by any agreement in relation thereto
made in writing, and in taking appeal, and in an matters of ordinary Judicial
Procedure, but they cannot, without special authority, compromise their clients'
litigation or receive anything in discharge of their clients' claims but the full
amount in cash."
The requirements of a special power of attorney in Article 1878 of the Civil Code
and of a special authority in Rule 138 of the Rules of Court refer to the nature of

the authorization and not its form. The requirements are met if there is a clear
mandate from the principal specifically authorizing the performance of the act.
As early as 1906, this Court in Strong v. Gutierrez-Repide (6 Phil. 680) stated that
such a mandate may be either oral or written, the one vital thing being that it
shall be express. And more recently, We stated that, if the special authority is not
written, then it must be duly established by evidence:
... the Rules require, for attorneys to compromise the litigation of their clients, a
special authority. And while the same does not state that the special authority be
in writing the Court has every reason to expect that, if not in writing, the same
be duly established by evidence other than the self-serving assertion of counsel
himself that such authority was verbally given him. (Home Insurance Company
vs. United States lines Company, et al., 21 SCRA 863; 866: Vicente vs. Geraldez,
52 SCRA 210; 225).
We are satisfied from the records of this case that Judge Cancio C. Garcia took
the necessary precautionary measures and acted on the basis of satisfactory
evidence when he allowed the compromise agreement to be executed by George
Hung the petitioner's son.
The records show that prior to the October 19, 1977 hearing, the petitioner as
defendant in Civil Case No. 11-116 had repeatedly asked that the respondent
Judge approve her proposals for a monthly increase of P500.00 starting April,
1977 and that the increases be pegged at that rate until the monthly rental
reaches the sum of P5,000.00 on December, 1977. Such a proposal was not
acceptable at the time to the private respondents. Only at the October 19, 1977
hearing did private respondent Conchita Liao Tan have a change of mind. She
expressed a willingness to accomodate the proposals originating from the
petitioner prompting the court to suspend proceedings and initiate the execution
of the compromise agreement between the parties. Whereupon the following
took place: (1) The court asked George Hung whether he was willing to enter into
the compromise agreement and whether he had the authority of his mother to
enter into such a compromise agreement; (2) The defendant's counsel confirmed
in open court the assurance of George Hung that he had the full authority of his
mother to enter into a compromise agreement: (3) After the formulation of the
compromise agreement the Judge explained in Tagalog to both parties, including
George Hung its terms and conditions after which the same was reduced into
writing; (4) George Hung willingly signed the compromise agreement, the terms
and conditions of which were those originally proposed by the petitioner herself.
Hung was all the while assisted by their counsel.
There were other reasons which led the lower court to a finding that George
Hung had the full authority to enter into the compromise. The court itself
observed during the earlier hearings and it is not disputed that ... defendant Lim
Pin could not decide on anything without first consulting her son." George Hung's
later denial that he never manifested his authority to represent his mother was
rejected by the court. As a matter of fact, this sudden turnabout of George Hung

led the court to cite him for contempt. He was fined Two Hundred Pesos. The
citation for contempt was never appealed.
And finally, even assuming that George Hung and the petitioner's counsel acted
without authority, the compromise agreement itself was not null and void. It
would be merely unenforceable, capable of being ratified. (Dungo v. Lapena, 6
SCRA 1007). The compromise agreement was ratified by the petitioner when, on
October 24, 1977, a few days after the promulgation of the questioned judgment
and before the filing of a motion for reconsideration, she filed an "Ex-Parte
Motion To Withdraw Deposits" in Civil Case No. 11709, a consignation case
pending before the same court between the same parties. The ex-parte motion
in part reads:
xxx xxx xxx
3. That there is another case with this court assigned in Branch I docketed as
Civil Case No. 11716, for unlawful detainer, involving the same parties and
subject property and in the said case, parties have entered into a compromise
agreement whereby, among others, petitioner herein shall pay the accrued
monthly rentals to respondent (plaintiff in the aforementioned case);
4. That in order to implement the aforementioned compromise agreement, it is
necessary that the deposits made by petitioner be withdrawn, the same to be
paid to respondent Conchita Liao Tan. (Annex "2" for the private respondents, p.
71, rollo).
The second ground for this petition is consequently unmeritorious. The Petitioner
alleged that the respondent Judge acted with grave abuse of discretion
amounting to lack of jurisdiction when he denied the motion for reconsideration
of the October 19, 1977 judgment. The motion was based on the same alleged
absence of authority of the petitioner's son and her counsel. A similar allegation
regarding the writ of execution is likewise without merit. It is a well-settled rule
that a compromise judgment is final and executory and unappealable. We also
note that on or before June 26, 1978 the petitioner abandoned the disputed
property, notwithstanding our February 8, 1978 temporary restraining order
enjoining enforcement of the writ of execution.
WHEREFORE, the instant petition is hereby DISMISSED for lack of merit. The
temporary restraining order issued by this Court dated February 8, 1978 is
LIFTED. The judgment appealed from is AFFIRMED with costs against the
petitioner.
SO ORDERED.
Teehankee (Chairman), Makasiar, Plana, Vasquez and Relova, JJ., concur.
Melencio-Herrera, J., took no part.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. L-18377

December 29, 1962

ANASTACIO G. DUGO, petitioner,


vs.
ADRIANO LOPENA, ROSA RAMOS and HON. ANDRES REYES, Judge of the
Court of First Instance of Rizal, respondents.
Gatchalian, Padilla & Sison for petitioner.
Santiago F. Alidio for respondents.
REGALA, J.:
On September 10, 1959, herein petitioner Anastacio Dugo and one Rodrigo S.
Gonzales purchased 3 parcel of land from the respondents Adriano Lopena and
Rosa Ramos for the total price of P269,804.00. Of this amount P28.000.00 was
given as down payment with the agreement that the balance of P241,804.00
would be paid in 6 monthly installments.
To secure the payment of the balance Anastacio Dugo and Rodrigo S. Gonzales,
the vendees, on September 11, 1958, executed over the same 3 parcels of land
Deed of Real Estate Mortgage in favor of the respondent Adriano Lopena and
Rosa Ramos. This deed was duly registered with the Office of the Register of
Deeds Rizal, with the condition that failure of the vendees to pay any of the
installments on their maturity dates shall automatically cause the entire unpaid
balance to become due and demandable.
The vendees defaulted on the first installment. It resulted then that on November
7, 1959, the vendors, herein respondents Adriano Lopena and Rosa Ramos, filed
a complaint for the foreclosure of the aforementioned real estate mortgage with
the Court of First Instance of Rizal the Hon. Judge Andres Reyes, presiding. This
complaint was answered by the herein petitioner and the other vendee, Rodrigo
S. Gonzales, on December 7, 1959.
Meanwhile, there were 2 other civil cases filed in the same lower court against
the same defendants Anastacio Dugo and Rodrigo S. Gonzales. The plaintiff in
one was a certain Dionisio Lopena, and in the other case, the complainants were
Bernardo Lopena and Maria de la Cruz.
Both complaints involved the same cause of action as that of herein respondents
Adriano Lopena and Rosa Ramos. As a matter of fact all three cases arose out of
one transaction. In view of the identical nature of the above three cases, they
were consolidated by the lower court into just one proceeding.
It must be made clear, however, that this present decision refers solely to the
interests and claim of Adriano Lopena against Anastacio Dugo alone.

Before the cases could be tried, a compromise agreement dated January 15,
1960 was submitted to the lower court for approval. It was signed by herein
respondents Adriano Lopena and Rosa Ramos on one hand, and Rodrigo S.
Gonzales, on the other. It was not signed by the herein petitioner. However,
Rodrigo S. Gonzales represented that his signature was for both himself and the
herein petitioner. Moreover, Anastacio Dugo's counsel of record, Atty. Manuel O.
Chan, the same lawyer who signed and submitted for him the answer to the
complaint, was present at the preparation of the compromise agreement and this
counsel affixed his signature thereto.
The text of this agreement is hereunder quoted:
COMPROMISE AGREEMENT
COME NOW the parties in the above entitled cases and unto this Hon. Court
respectfully set forth:
That, the plaintiffs, have agreed to give the defendants up to June 30, 1960 to
pay the mortgage indebtedness in each of the said cases;
That, should the defendants fail to pay the said mortgage indebtedness,
judgments of foreclosure shall thereafter be entered against the said defendants;
That, the defendants hereby waive the period of redemption provided by law
after entry of judgments;
That, in the event of sale of the properties involved in these three cases, the
defendants agree that the said properties shall be sold at one time at public
auction, that is, one piece of property cannot be sold without the others.
This compromise agreement was approved by the lower court on the same day it
was submitted, January 15, 1960.
Subsequently, on May 3, 1960, a so-called Tri-Party Agreement was drawn. The
signatories to it were Anastacio Dugo (herein petitioner) and Rodrigo S.
Gonzales as debtors, Adriano Lopena and Rosa Ramos (herein respondents) as
creditors, and, one Emma R. Santos as pay or. The stipulations of the Tri-Party
Agreement were as follows: .
A TRI-PARTY AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This contract entered into by and between
(1) MMA R. SANTOS, Filipino, of legal age, single, with residence and postal
address at ..........., Rizal Avenue, Manila, hereinafter referred to as the PAYOR,
(2) ANASTACIO C. DUGO Filipino, of legal age, single, with residence and postal
address at 137 N. Domingo, Quezon City, and RODRIGO S. GONZALES, Filipino, of
legal age, married to Magdalena Balatbat, with residence and postal address at
73 Maryland, Quezon City, hereinafter referred to as the DEBTOR,

and
(3) DIONISIO LOPENA, married to Teofila Nofuente, LIBRADA LOPENA, married to
Arellano Cawagas, BERNARDO LOPENA, married to Maria de la Cruz, and
ADRIANO LOPENA, married to Rosa Ramos, all of whom are Filipinos, of legal
ages, with residence and postal address at Sucat, Muntinlupa, Rizal, hereinafter
represented by their attorney of record, ANTONIO LOPENA, hereinafter referred to
as the CREDITOR,
W I T N E S S E T H:
WHEREAS, the DEBTOR is indebted to the CREDITOR as of this date in the
aggregate amount of P503,000.00 for the collection of which, the latter as party
plaintiffs have institute foreclosure proceedings against the former as party
defendant in Civil Cases Nos. 5872, 5873 and 5874 now pending in the Court of
First Instance, Pasig, Rizal;
WHEREAS, the PAYOR, hereby submits and binds herself to the force and effect of
the Order dated January 15, 1960, of the Court of First Instance of Pasig, Rizal,
Branch VI, which order is hereby made an integral part of this agreement as
ANNEX "A";
WHEREAS, the PAYOR with due knowledge and consent of the DEBTOR, hereby
proposes to pay the aforesaid indebtedness in the sum of P503,000.00 to the
CREDITOR for and in behalf of the DEBTOR under the following terms and
condition petitions:
(a) To pay the said P503,000.00 in installments in the following schedule of
amounts and time: P50,000.00 on or before May 31, 1960 70,000.00 on or before
June 30, 1960 70,000.00 on or before July 31, 1960 313,000.00 on or before Aug.
31, 1960.
(b) That the DEBTOR and the PAYOR hereby waive any right to object and oblige
themselves not to oppose the motion that the CREDITOR may file during the first
week of July 1960, or subsequently thereafter, informing the Court of the exact
money obligation of the DEBTOR which shall be P503,000.00 minus whatever
payments, if any, made before June 30, 1960 by the PAYOR and praying for the
issuance of an order to sell the property covered by the mortgage.
(c) That the CREDITOR, once he has the order referred to, should not execute the
same by giving it to the sheriff if the PAYOR is regular and punctual in the
payment of all of the installments stated above. PROVIDED, however, if the
PAYOR defaults or fails to pay anyone of the installments in the manner stated
above, the PAYOR and the DEBTOR hereby permit the CREDITOR to execute the
order of sale referred to above, and they (PAYOR and DEBTOR) hereby waive any
and all objection's or oppositions to the propriety of the public auction sale and
to the confirmation of the sale to be made by the court.
(d) That the CREDITOR, at his option, may execute the August installment stated
in letter (a) of this paragraph if the PAYOR has paid regularly the May, June, and

July installments, and provided further that one half () of the August installment
in the amount of P156,500.00 is paid on the said date of August 31, 1960.
NOW, THEREFORE, for and in consideration of the foregoing stipulations, the
DEBTOR and CREDITOR hereby accept, approve and ratify the above-mentioned
propositions of the PAYOR and all the parties herein bind and oblige themselves
to comply to the covenants and stipulations aforestated;
That by mutual agreements of all the parties herein, this TRI-PARTY AGREEMENT
may be submitted to Court to form integral parts of the records of the Civil Cases
mentioned above;
IN WITNESS WHEREOF, the parties hereunto affix their signature on this 3rd day
of May, 1960 in the City of Manila, Philippines.
When Anastacio Dugo (herein petitioner) and Rodrigo S. Gonzales failed to pay
the balance of their indebtedness on June 30, 1960, herein respondents Lopena
and Ramos filed on July 5, 1960, a Motion for the Sale of Mortgaged Property.
Although this last motion was filed ex parte, Anastacio Dugo and Rodrigo S.
Gonzales were notified of it by the lower court. Neither of them, however, despite
the notice, filed any opposition thereto. As a result, the lower court granted the
above motion on July 19, 1960, and ordered the sale of the mortgaged property.
On August 25, 1960, the 3 parcels of land above-mentioned were sold by the
Sheriff at a public auction where at herein petitioners, together with the plaintiffs
of the other two cases won as the highest bidders. The said sheriff's sale was
later confirmed by the lower court on August 30, 1960. In this connection, it
should also made of record that before confirming the sale, the lower court gave
due notice of the motion for the confirmation to the herein petitioner who filed no
opposition therefore.
On August 31, 1960, Anastacio Dugo filed a motion to set aside all the
proceedings on the ground that the compromise agreement dated January 15,
1960 was void ab initio with respect to him because he did not sign the same.
Consequently, he argued, all subsequent proceedings under and by virtue of the
compromise agreement, including the foreclosure sale of August 25, 1960, were
void and null as regards him. This motion to set aside, however, was denied by
the lower court in its order of December 14, 1960.
Upon denial of the said motion to set aside, Anastacio Dugo filed a Notice of
Appeal from the order of August 31, 1960 approving the foreclosure sale of
August 25, 1960, as well as the order of December 14, 1960, denying his motion
to set aside. The approval of the record on appeal however, was opposed by the
herein respondent spouses who claimed that the judgment was not appealable
having been rendered by virtue of the compromise agreement. The opposition
was contained in a motion to dismiss the appeal. Anastacio Dugo filed a reply to
the above motion. Soon thereafter, the lower court dismissed the appeal.
Two issues were raised to this Court for review, to wit:

(1) Was the compromise agreement of January 15, 1960, the Order of the same
date approving the same, and, all the proceedings subsequent thereto, valid or
void insofar as the petitioner herein is concerned?
(2) Did the lower court abuse its discretion when it dismissed the appeal of the
herein petitioner?
Petitioner Anastacio Dugo insists that the Compromise Agreement was void ab
initio and could have no effect whatsoever against him because he did not sign
the same. Furthermore, as it was void, all the proceedings subsequent to its
execution, including the Order approving it, were similarly void and could not
result to anything adverse to his interest.
The argument was not well taken. It is true that a compromise is, in itself, a
contract. It is as such that the Civil Code speaks of it.
ART. 2028. A compromise is a contract whereby the parties, by making reciprocal
concessions, avoid a litigation or put an end to one already commenced.
Moreover, under Art. 1878 of the Civil Code, a third person cannot bind another
to a compromise agreement unless he, the third person, has obtained a special
power of attorney for that purpose from the party intended to be bound.
ART. 1878. Special powers of attorney are necessary in the following cases:

(3) To compromise, to submit questions to arbitration, to renounce the right to


appeal from a judgment, to waive objections to the venue of an action or to
abandon a prescription already acquired;
However, although the Civil Code expressly requires a special power of attorney
in order that one may compromise an interest of another, it is neither accurate
nor correct to conclude that its absence renders the compromise agreement
void. In such a case, the compromise is merely unenforceable. This results from
its nature is a contract. It must be governed by the rules and the law on
contracts.
ART. 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by one who has been given
no authority or legal representation, or who has acted beyond his powers;
Logically, then, the next inquiry in this case should be whether the herein
petitioner, Anastacio Dugo had or had not ratified the compromise agreement.
If he had, then the compromise agreement was legally enforced against him;
otherwise, he should be sustained in his contention that it never bound him, nor
ever could it be made to bind him.

The ratification of the compromise agreement was conclusively established by


the Tri-Party Agreement of May 1960. It is to be noted that the compromise
agreement was submitted to and approved by the lower court January 15, 1960.
Now, the Tri-Party Agreement referred itself to that order when it stipulated thus:
WHEREAS, the MAYOR, hereby submits and binds herself to the force and effect
of the order dated January 15, 1960, of the Court of First Instance of Pasig, Rizal,
Branch which order is hereby made an integral part of this agreement as Annex
"A".lawphil.net
Having so consented to making that court order approving the compromise
agreement an integral part of the Tri-Party Agreement, how can the petitioner
herein now repudiate the compromise agreement and claim he has not
authorized it?
When it appears that the client, on becoming aware the compromise and the
judgment thereon, fails to repudiate promptly the action of his attorney, he will
not afterwards be heard to contest its validity (Rivero vs. Rivero, 59 Phil. 15).
Besides, this Court has not overlooked the fact that which indeed Anastacio
Dugo was not a signatory to the compromise agreement, the principal provision
of the said instrument was for his benefit. Originally, Anastacio Dugo's
obligation matured and became demandable on October 10, 1959. However, the
compromise agreement extended the date of maturity to June 30, 1960. More
than anything, therefore, the compromise agreement operated to benefit the
herein petitioner because it afforded him more time and opportunity to fulfill his
monetary obligations under the contract. If only for this reason, this Court
believes that the herein petitioner should not be heard to repudiate the said
agreement.
Lastly, the compromise agreement stated "that, should the defendants fail to pay
the said mortgage indebtedness, judgment of foreclosure shall thereafter be
entered against the said defendants:" Beyond doubt, this was ratified by the TriParty Agreement when it covenanted that
If the MAYOR defaults or fails to pay anyone of the installments in the manner
stated above, the MAYOR and the DEBTOR hereby permit the CREDITOR to
execute the order of sale referred to above (the Judgment of Foreclosure), and
they (PAYOR and DEBTOR) hereby waive any and all objections or oppositions to
the propriety of the public auction sale and to the confirmation of the sale to be
made by the Court.
Petitioner Dugo finally argued that even assuming that the compromise
agreement was valid, it nevertheless could not be enforced against him because
it has been novated by the Tri-Party Agreement which brought in a third party,
namely, Emma R. Santos, who assumed the mortgaged obligation of the herein
petitioner.
This Court cannot accept the argument. Novation by presumption has never
been favored. To be sustained, it need be established that the old and new

contracts are incompatible in all points, or that the will to novate appears by
express agreement of the parties or in acts of similar import. (Martinez v.
Cavives, 25 Phil. 581; Tiy Sinco vs. Havana, 45 Phil. 707; Asia Banking Corp. vs.
Lacson Co.. 48 Phil. 482; Pascual vs. Lacsamana, 53 O.G. 2467, April 1957).
An obligation to pay a sum of money is not novated, in a new instrument wherein
the old is ratified, by changing only the term of payment and adding other
obligations not incompatible with the old one (Inchausti vs. Yulo, 34 Phil. 978;
Pablo vs. Sapungan, 71 Phil. 145) or wherein the old contract is merely
supplemented by the new one Ramos vs. Gibbon, 67 Phil. 371).
Herein petitioner claims that when a third party Emma R. Santos, came in and
assumed the mortgaged obligation, novation resulted thereby inasmuch as a
new debtor was substituted in place of the original one. In this kind of novation,
however, it is not enough that the juridical relation of the parties to the original
contract is extended to a third person; it is necessary that the old debtor be
released from the obligation, and the third person or new debtor take his place in
the new relation. Without such release, there is no novation; the third person
who has assumed the obligation of the debtor merely becomes a co-debtor or
surety. If there is no agreement as to solidarity, the first and the new debtors are
considered obligation jointly. (IV Tolentino, Civil Code, p. 360, citing Manresa.
There was no such release of the original debtor in the Tri-Party Agreement.
It is a very common thing in the business affairs for a stranger to a contract to
assume its obligations; an while this may have the effect of adding to the
number of persons liable, it does not necessarily imply the extinguishment of the
liability of the first debtor (Rios v Jacinto, etc., 49 Phil. 7; Garcia vs. Khu Yek
Ching, 65 Phil. 466). The mere fact that the creditor receives a guaranty or
accepts payments from a third person who has agreed to assume the obligation,
when there is no agreement that the first debtor shall be released from
responsibility, do not constitute a novation, and the creditor can still enforce the
obligation against the original debtor (Straight vs. Haskell, 49 Phil. 614; Pacific
Commercial Co. vs. Sotto, 34 Phil. 237; Estate of Mota vs. Serra, 47 Phil. 446).
In view of all the foregoing, We hold that the Tri-Party Agreement was an
instrument intended to render effective the compromise agreement. It merely
complemented an ratified the same. That a third person was involved in it is
inconsequential. Nowhere in the new agreement may the release of the herein
petitioner be even inferred.
Having held that the compromise agreement was validity and enforceable
against the herein petitioner, it follows that the lower court committed no abuse
of discretion when it dismissed the appeal of the herein petitioner.
WHEREFORE, the petition for certiorari and mandamus filed by the herein
petitioner is hereby dismissed. The order of the lower court dismissing the
appeal is her by affirmed, with costs.
Labrador, Concepcion, Reyes, J.B.L., Barrera and Makalintal, JJ., concur.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC

G.R. No. L-32473 July 31, 1973


IGNACIO VICENTE and MOISES ANGELES, petitioners,
vs.
HON. AMBROSIO M. GERALDEZ, as Judge of the Court of First Instance
of Bulacan, Branch V (Sta. Maria), and HI CEMENT
CORPORATION, respondents
G.R. No. L-32483 July 31, 1973
JUAN BERNABE, petitioner,
vs.
HI CEMENT CORPORATION and THE HON. AMBROSIO M. GERALDEZ,
Presiding Judge, Branch V, Court of First Instance of
Bulacan, respondents.
Librado S. Correa for petitioners Ignacio Vicente and Moises Angeles.
Francisco R. Capistrano and Andreciano F. Caballero for petitioner Juan Bernabe.
Renato L. Cayetano and Jesus G. Diaz for respondent HI Cement Corporation.

ANTONIO, J.:
There are two original actions of certiorari with prayer for preliminary injunction
wherein petitioners seek to annul the orders dated April 24, May 18, and July 18,
1970 of respondent Judge of the Court of First Instance of Bulacan in Civil Case
No. SM-201 (Hi Cement Corporation vs. Juan Bernabe, Ignacio Vicente and Moises
Angeles). The two cases are herein decided jointly because they proceed from
the same case and involve in substance the same question of law.
On September 9, 1967 herein private respondent Hi Cement Corporation filed
with the Court of First Instance of Bulacan a complaint for injunction and
damages against herein petitioners Juan Bernabe, Ignacio Vicente and Moises
Angeles. In said complaint the plaintiff alleged that it had acquired on October
27, 1965, Placer Lease Contract No. V-90, from the Banahaw Shale Mining
Association, under a deed of sale and transfer which was duly registered with the
Office of the Mining Recorder of Bulacan on November 4, 1965 and duly
approved by the Secretary of Agriculture and Natural Resources on December
15, 1965; that the said Placer Lease Contract No. V-90 was for a period of
twenty-five years commencing from August 1, 1960 and covered two mining

claims (Red Star VIII & IX) with a combined area of about fifty-one hectares; that
within the limits of Placer Mining Claim Red Star VIII are three parcels of land
claimed by the defendants Juan Bernabe (about two hectares), Ignacio Vicente
(about two hectares) and Moises Angeles (about one-fourth hectare); that the
plaintiff had, on several occasions, informed the defendants, thru its
representatives, of the plaintiff's acquisition of the aforesaid placer mining claims
which included the areas occupied by them; that the plaintiff had requested the
defendants to allow its workers to enter the area in question for exploration and
development purposes as well as for the extraction of minerals therefrom,
promising to pay the defendants reasonable amounts as damages, but the
defendants refused to allow entry of the plaintiff's representatives; that the
defendants were threatening the plaintiff's workers with bodily harm if they
entered the premises, for which reason the plaintiff had suffered irreparable
damages due to its failure to work on and develop its claims and to extract
minerals therefrom, resulting in its inability to comply with its contractual
commitments, for all of which reasons the plaintiff prayed the court to issue
preliminary writs of mandatory injunction perpetually restraining the defendants
and those cooperating with them from the commission or continuance of the acts
complained of, ordering defendants to allow plaintiff, or its agents and workers,
to enter, develop and extract minerals from the areas claimed by defendants, to
declare the injunction permanent after hearing, and to order the defendants to
pay damages to the plaintiff in the amount of P200,000.00, attorney's fees,
expenses of litigation and costs.
On September 12, 1967 the trial court issued a restraining order and required
the defendants to file their answers. The defendants filed their respective
answers, which contained the usual admissions and denials and interposed
special and affirmative defenses, namely, among others, that they are rightful
owners of certain portions of the land covered by the supposed mining claims of
the plaintiff; that it was the plaintiff and its workers who had committed acts of
force and violence when they entered into and intruded upon the defendants'
lands; and that the complaint failed to state a cause of action. The defendants
set up counter-claims against the plaintiff for actual and moral damages, as well
as for attorney's fees.
In another pleading filed on the same date, defendant Juan Bernabe opposed the
issuance of a writ of preliminary mandatory or prohibitory injunction. In its Order
dated September 30, 1967, the trial court, however, directed the issuance of a
writ of preliminary mandatory injunction upon the plaintiff's posting of a bond in
the amount of P100,000.00. In its order, the court suggested the relocation of the
boundaries of the plaintiff's claims in relation to the properties of the defendants,
and to this end named as Commissioner, a Surveyor from the Office of the
District Engineer of Bulacan to relocate the boundaries of the plaintiff's mining
claims, to show in a survey plan the location of the areas thereof in conflict with
the portions whose ownership is claimed by the defendants and to submit his
report thereof to the court on or before October 31, 1967. The court also directed
the parties to send their representatives to the place of the survey on the date
thereof and to furnish the surveyor with copies of their titles. The Commissioner

submitted his report to the Court on November 24, 1967 containing the following
findings:
1. In the attached survey plan, the area covered and embraced full and heavy
lines is the Placer Mining Claims of the Plaintiff containing an area of 107
hectares while the area bounded by fine-broken lines are the properties of the
Defendants.
2. The property of the Defendant MOISES ANGELES, consisting of two (2) parcels
known as Lot 1-B and Lot 2 of Psu-103374, both described in O.C.T. No. O-1769
with a total area of 34,984 square meters were totally covered by the Claims of
the Plaintiff.
3. The property of the Defendant IGNACIO VICENTE, containing an area of 32,619
square meters, is also inside the Claims of the Plaintiff.
4. The property of the defendant JUAN BERNABE known as Psu-178969,
described in O.C.T. No. 0-2050 is partially covered by the Claims of the Plaintiff
and the area affected is 57,539 square meters.
In an Order issued on December 14, 1967, the court approved the report "with
the conformity of all the parties in this case."
Thereafter, on April 2, 1968 plaintiff HI Cement Corporation filed a motion to
amend the complaint "so as to conform to the facts brought out and/or impliedly
admitted in the pre-trial. This motion was granted by the court on April 6, 1968.
Accordingly, on October 21, 1968, the plaintiff filed its amended complaint. The
amendments consisted in the statement of the correct areas of the land
belonging to defendants Bernabe (57,539 square meters), Vicente (32,619
square meters) and Angles (34,984 square meters), as well as the addition of
allegations to the effect, among others, that at the pre-trial the defendants
Angeles and Vicente declared their willingness to sell to the plaintiff their
properties covered by the plaintiff's mining claims for P10.00 per square meter,
and that when the plaintiff offered to pay only P0.90 per square meter, the said
defendants stated that they were willing to go to trial on the issue of what would
be the reasonable price for the properties of defendants sought to be taken by
plaintiff. With particular reference to defendant Bernabe, the amended complaint
alleged that the said defendant neither protested against nor prohibited the
predecessor-in-interest of the plaintiff from prospecting, discovering, locating and
contracting minerals from the aforementioned claims, or from conducting the
survey thereon, or filed any opposition against the application for lease by the
Red Star Mining Association, and that as a result of the failure of said defendant
to object to the acts of possession or occupation over the said property by
plaintiff, defendant is now estopped from claiming that plaintiff committed acts
of usurpation on said property. The plaintiff prayed the court, among other
things, to fix the reasonable value of the defendants' properties as reasonable
compensation for any resulting damage.

Defendant Bernabe filed an amended answer substantially reproducing his


original answer and denying the averments concerning him in the amended
complaint.
The respective counsels of the parties then conferred among themselves on the
possibility of terminating the case by compromise, the defendants having
previously signified their willingness to sell to the plaintiff their respective
properties at reasonable prices.
On January 30, 1969 the counsels of the parties executed and submitted to the
court for its approval the following Compromise Agreement:
COMPROMISE AGREEMENT
COME NOW the plaintiff and the defendants, represented by their respective
counsel, and respectfully submit the following agreement:
1. That the plaintiff is willing to buy the properties subject of litigation, and the
defendants are willing to sell their respective properties;
2. That this Honorable Court authorizes the plaintiff and the defendants to
appoint their respective commissioners, that is, one for the plaintiff and one for
each defendant;
3. That the parties hereby agree to abide by the decision of the Court based on
the findings of the Commissioners;
4. That the fees of the Commissioners shall be paid as follows:
For those appointed by the parties shall be paid by them respectively; and for
the one appointed by the Court, his fees shall be paid pro-rata by the parties;
5. That the names of the Commissioners to be appointed by the parties shall be
submitted to the Court on or before February 8, 1969.
WHEREFORE, the undersigned respectfully pray that the foregoing agreement be
approved.
Sta. Maria, Bulacan, January 30, 1969.
For the Plaintiff:
(Sgd. ) FRANCISCO VENTURA
t/ FRANCISCO VENTURA.
(Sgd.) FLORENTINO V. CARDENAS
t/ FLORENTINO V. CARDENAS
(Sgd.) ENRIQUETO I. MAGPANTAY
t/ ENRIQUETO I. MAGPANTAY
For Juan Bernabe:

(Sgd.) ANDRECIANO F. CABALLERO


t/ ANDRECIANO F. CABALLERO
For Ignacio Vicente and
Moises Angeles:
(Sgd.) CONRADO MANZANO
t/ CONRADO MANZANO
The Clerk of Court
CFI, Sta. Maria, Bulacan
GREETINGS:
Please submit the foregoing Compromise Agreement to the Honorable Court for
the consideration and approval immediately upon receipt hereof.
VENTURA, CARDENAS & MAGPANTAY
By:
(Sgd.) FRANCISCO VENTURA
t/ FRANCISCO VENTURA
On the same date, the foregoing Compromise Agreement was approved by the
trial court, which enjoined the parties to comply with the terms and conditions
thereof.
Pursuant to the terms of the said compromise agreement the counsels of both
parties submitted the names of the persons designated by them as their
respective commissioners, and in conformity therewith, the trial court, in its
Order dated February 26, 1969, appointed the following as Commissioners: Mr.
Larry G. Marquez, to represent the plaintiff; Mr. Demetrio M. Aquino, to represent
defendant Bernabe; Mr. Moises Correa, to represent defendant Angeles; Mr.
Santiago Cabungcal, to represent defendant Vicente; and Mr. Liberato
Barrameda, to represent the court, and directed that said Commissioners should
appear before the court on March 17, 1969, to take their oath and qualify as such
Commissioners, and then meet on March 31, 1969 in the court for their first
session and to submit their report not later than April 30, 1969.
On September 15, 1969, Commissioner Liberato Barrameda submitted to the
court for its approval a Consolidated Report, containing the three reports of the
Commissioners of the plaintiff and the three defendants, together with an
analysis of the said reports and a summary of the important facts and
conclusions. The following unit prices for the three defendants' properties were
recommended in the Consolidated Report:
A JUAN BERNABE at P12.00 per square meter, wherefrom plaintiff has been
extracting its first output, and would still continue to extract therefrom as the
property consists of a mountain of limestone and shale;

B IGNACIO VICENTE:
a) 60% or 19,571.4 sq. m. (mineral land) at P12.00 per sq. m.
b) 40% or 13,047.6 sq. m. (riceland) at P8.00 per sq. m.
C MOISES ANGELES (riceland) at P8.00 per sq. m.
It is worthy of note that in the individual report of the Commissioner nominated
by plaintiff HI Cement Corporation, the price recommended for defendant Juan
Bernabe's property was P0.60 per square meter, while in the individual report of
the Commissioner nominated by the said defendant, the price recommended
was P50.00 per square meter. The Commissioners named by defendants Vicente
and Angeles recommended was P15.00 per square meter for the lands owned by
the said two defendants, while the Commissioners named by the said two
defendants, while the Commissioner named by the plaintiff recommended P0.65
per square meter for Vicente's land, and P0.55 per square meter for Angeles'
land.
On October 21, 1969, Atty. Francisco Ventura, one of the three lawyers for
plaintiff HI Cement Corporation, filed with the trial court a manifestation stating
that on September 1, 1969 he sent a copy of the Compromise Agreement to Mr.
Antonio Diokno, President of the corporation, requesting the latter to intercede
with the Board of Directors for the confirmation or approval of the commitment
made by the plaintiff's lawyers to abide by the decision of the Court based on the
reports of the Commissioners; and that on October 15, 1969 he received a letter
from Mr. Diokno, a copy of which was attached to the manifestation. In that letter
Mr. Diokno said:
While I realize your interest in cooperating with the Court in its desire to expedite
the disposition of the case, this commitment would deprive us of the right to
appeal if we do not agree with the valuation set by the Court. Our Board,
therefore, cannot waive its rights; only when it knows the value set by the Court
on the properties can it decide whether to abide by it or appeal therefrom. I
would like to stress that, under the law, the compromise agreement requires the
express approval of our Board of Directors to be binding on our corporation. Such
an approval, I regret to say, cannot be obtained at this time.
On November 5, 1969, defendant Bernabe filed an answer to Atty. Ventura's
manifestation, praying the court to ignore, disregard and, if possible, order
striken from the record, the plaintiff's manifestation on the following grounds:
that its filing after the Consolidated Report of the Commissioners had been
submitted and approved, and long after the signing of the Compromise
Agreement on January 30, 1969, cast suspicion on the sincerity of the plaintiff's
motive; that when the Compromise Agreement was being considered, the court
inquired from the parties and their respective lawyers if all the attorneys
appearing in the case had been duly authorized and/or empowered to enter into
a compromise agreement, and the three lawyers for the plaintiff answered in the
affirmative; that in fact it was Atty. Ventura himself who prepared the draft of the

Compromise Agreement in his own handwriting and was the first to sign the
agreement; that one of the three lawyers for the plaintiff, Atty. Florentino V.
Cardenas, who also signed the Compromise Agreement, was the official
representative, indeed was an executive official, of plaintiff corporation; that the
Compromise Agreement, having been executed pursuant to a pre-trial
conference, partakes the nature of a stipulation of facts mutually agreed upon by
the parties and approved by the court, hence, was binding and conclusive upon
the parties; and that the nomination by the plaintiff of Mr. Larry G. Marquez as its
Commissioner pursuant to the Compromise Agreement, was a clear indication of
the plaintiff's tacit approval of the terms and conditions of the Compromise
Agreement, if not an implied ratification of Atty. Ventura's acts.
On March 13, 1970 the court rendered a decision in which the terms and
conditions of the Compromise Agreement are reproduced, and the Consolidated
Report of the Commissioners is extensively quoted. The rationale and dispositive
portion of the decision read:
What is fair and just compensation?
"Just compensation includes all elements of value that inheres in the property,
but it does not exceed market value fairly determined. The sum required to be
paid the owner does not depend upon the usage to which he has devoted his
land but is to be arrived at upon just consideration of all the uses for which it is
suitable. The highest and most profitable use for which the property is adoptable
and needed or likely to be needed in the reasonably near future is to be
considered, not necessarily as the measure of value, but to the full extent that
the prospect of demand for such use affects the market value while the property
is privately held."
The term fair and just compensation as applied in expropriation or eminent
domain proceedings need not necessarily be applied in the present case. In
expropriation proceedings the government is the party involved and its use is for
public purpose. In the instant case, however, private parties are involved and the
use of the land is a private venture and for profit.
It appears that defendants' properties are practically adjacent to plaintiff's plant
site. It also appears that practically all the surrounding areas were acquired by
the plaintiff by purchase.
In the report submitted by the commissioner representing the plaintiff, it is
claimed that the surrounding areas were acquired thru purchase by the plaintiff
in the amount of less than P1.00 per square meter. On the other hand, it appears
from the reports submitted by the commissioners representing the defendants
that there were some recorded sales around the area from P20.00 to P25.00 per
square meter and there were subdivision lots which command even higher
prices.
The properties are reported to consist of mineral land which are rocky and barren
containing limestone and shale. From viewpoint of the owners their property

which is described as rocky and barren mineral land must necessarily command
a higher price, and this Court believes that the plaintiff will adopt the same
attitude from the viewpoint of its business.
While it may be true that the plaintiff acquired properties within the area in
question at a low price, we cannot overlook the fact that this was so at the time
when plaintiff corporation was not yet in operation and that the land owners
were not as yet aware of the potential value of their landholdings.
Irrespective of the different classifications of the properties owned by the
defendants, and considering the benefits that will enure to the plaintiff and
bearing in mind the property rights and privileges to which the property owners
are entitled both under the constitution and the mining law, coupled with the fact
that the plaintiff had already taken advantage of the properties even long before
the rightful acquisition of the same, this Court believes that the just and fair
market value of the land should be in the amount P15.00 per square meter.
In view of the above findings, the plaintiff pursuant to the compromise
agreement, is hereby ordered to pay the defendants the amount of P15.00 per
square meter for the subject properties, and upon full payment, the restraining
order earlier issued by this Court shall be deemed lifted.
On March 23, 1970 defendant Juan Bernabe filed an urgent motion for execution
of judgment anchored on the proposition that the judgment, being based on a
compromise agreement, is not appealable and is, on the other hand,
immediately executory. The other two defendants, Moises Angeles and Ignacio
Vicente, likewise filed their respective motions for execution. These motions were
granted by the court in its Order of April 14, 1970.
On April 17, 1970 the plaintiff filed a motion for reconsideration of the April 14,
1970 Order, alleging that it had an opposition to the defendants' motions for
execution, and that the Compromise Agreement had been repudiated by the
plaintiff corporation through its Vice President, as earlier manifested by the
plaintiff. The plaintiff prayed for ten days from the date of the hearing of the
motion within which to file its written opposition to the motions for execution.
Defendant Juan Bernabe filed an opposition to the plaintiff's motion on April 21,
1970.
On April 22, 1970 the plaintiff filed with the court a motion for new trial on the
ground that the decision of the court dated March 13, 1970 is null and void
because it was based on the Compromise Agreement of January 30, 1969 which
was itself null and void for want of a special authority by the plaintiff's lawyers to
enter into the said agreement. The plaintiff also prayed that the decision dated
March 13, 1970 and the Order dated April 14, 1970 granting the defendants'
motions for execution, be set aside. Defendant Juan Bernabe filed on April 27,
1970 an opposition to the plaintiff's motion on the grounds that the decision of
the court is in accordance with law, for three lawyers for the plaintiff signed the
Compromise Agreement, and one of them, Atty. Cardenas, was an official
representative of plaintiff corporation, hence, when he signed the Compromise

Agreement, he did so in the dual capacity of lawyer and representative of the


management of the corporation; that the plaintiff itself pursued, enforced and
implemented the agreement by appointing Mr. Larry Marquez as its duly
accredited Commissioner; and that the plaintiff is conclusively bound by the acts
of its lawyers in entering into the Compromise Agreement.
In the meantime, or on April 24, 1970, the court issued an Order setting aside its
Order of April 14, 1970 under which the defendants' motions for execution of
judgment had been granted, and gave the plaintiff ten days within which to file
an opposition to the defendants' motions for execution.
On May 9, 1970 the plaintiff filed an opposition to the motions for execution of
judgment, on the grounds that the decision dated March 13, 1970 is contrary to
law for it is based on a compromise agreement executed by the plaintiff's
lawyers who had no special power of attorney as required by Article 1878 of the
Civil Code, or any special authority as required by Section 23, Rule 138 of the
Rules of Court; and that the judgment is void for lack of jurisdiction of the court
because the same is based on a void compromise agreement.
On May 18, 1970 the court issued an Order setting aside its decision dated March
13, 1970, denying the defendants' motions for execution of judgment, and
setting for June 23, 1970 a pre-trial conference in the case. The three defendants
moved for reconsideration, but their motions were denied in an Order dated July
18, 1970.
It is in these factual premises that the defendants in Civil Case No. SM-201 came
to this Court by means of the present petitions. In G.R. No. L-32473, petitioners
Vicente and Angeles pray this Court to issue a writ of preliminary injunction, and,
after hearing, to annul and set aside the Order dated May 18,1970 issued by
respondent Judge setting aside the decision dated March 13, 1970; to declare the
said decision legal, effective and immediately executory; to dissolve the writ of
preliminary mandatory injunction issued by respondent Judge on September 30,
1967 commanding petitioners to allow private respondent to enter their
respective properties and excavate thereon; to make the preliminary injunction
permanent; and to award treble costs in favor of petitioners and against private
respondent. In G.R. No. L-32483, petitioner Juan Bernabe prays this Court to
issue a writ of preliminary injunction or, at least a temporary restraining order,
and, after hearing, to annul and set aside the Order dated April 24, 1970 issued
by respondent Judge setting aside his Order of April 14, 1970 and allowing
private respondent to file an opposition to petitioners' motion for execution, the
Order dated May 18, 1970, and the Order dated July 18, 1970. Petitioner Bernabe
also seeks the reinstatement of the trial court's decision dated May 13, 1970 and
its Order dated April 14, 1970 granting his motion for execution of judgment, and
an award in his favor of attorney's fees and of actual, moral and exemplary
damages.
At issue is whether the respondent court, in setting aside its decision of March
13, 1970 and denying the motions for execution of said decision, had acted

without or in excess of its jurisdiction or with grave abuse of discretion. We hold


that said court did not, in view of the following considerations:
1. Special powers of attorney are necessary, among other cases, in the following:
to compromise and to renounce the right to appeal from a judgment. 1 Attorneys
have authority to bind their clients in any case by any agreement in relation
thereto made in writing, and in taking appeals, and in all matters of ordinary
judicial procedure, but they cannot, without special authority, compromise their
clients' litigation, or receive anything in discharge of their clients' claims but the
full amount in cash. 2
The Compromise Agreement dated January 30, 1969 was signed only by the
lawyers for petitioners and by the lawyers for private respondent corporation. It
is not disputed that the lawyers of respondent corporation had not submitted to
the Court any written authority from their client to enter into a compromise.
This Court has said that the Rules 3 "require, for attorneys to compromise the
litigation of their clients, a special authority. And while the same does not state
that the special authority be in writing the court has every reason to expect that,
if not in writing, the same be duly established by evidence other than the selfserving assertion of counsel himself that such authority was verbally given
him." 4
2. The law specifically requires that "juridical persons may compromise only in
the form and with the requisites which may be necessary to alienate their
property." 5 Under the corporation law the power to compromise or settle claims
in favor of or against the corporation is ordinarily and primarily committed to the
Board of Directors. The right of the Directors "to compromise a disputed claim
against the corporation rests upon their right to manage the affairs of the
corporation according to their honest and informed judgment and discretion as to
what is for the best interests of the corporation." 6 This power may however be
delegated either expressly or impliedly to other corporate officials or agents.
Thus it has been stated, that as a general rule an officer or agent of the
corporation has no power to compromise or settle a claim by or against the
corporation, except to the extent that such power is given to him either
expressly or by reasonable implication from the circumstances. 7 It is therefore
necessary to ascertain whether from the relevant facts it could be reasonably
concluded that the Board of Directors of the HI Cement Corporation had
authorized its lawyers to enter into the said compromise agreement.
Petitioners claim that private respondent's attorneys admitted twice in open
court on January 30, 1969, that they were authorized to compromise their client's
case, which according to them, was never denied by the said lawyers in any of
the pleadings filed by them in the case. The claim is unsupported by evidence.
On the contrary, in private respondent's "Reply to Defendant Bernabe's Answer
Dated November 8, 1969," said counsels categorically denied that they ever
represented to the court that they were authorized to enter into a compromise.
Indeed, the complete transcript of stenographic notes taken at the proceedings
on January 30, 1969 are before Us, and nowhere does it appear therein that

respondent corporation's lawyers ever made such a representation. In any event,


assuming arguendo that they did, such a self-serving assertion cannot properly
be the basis for the conclusion that the respondent corporation had in fact
authorized its lawyers to compromise the litigation.
3. Petitioners however insist that there was tacit ratification on the part of the
corporation, because it nominated Mr. Larry Marquez as its commissioner
pursuant to the agreement, paid his services therefor, and Atty. Florentino V.
Cardenas, respondent corporation's administrative manager, not only did not
object but even affixed his signature to the agreement. It is also argued that
respondent corporation having represented, through its lawyers, to the court and
to petitioners that said lawyers had authority to bind the corporation and having
induced by such representations the petitioners to sign the compromise
agreement, said respondent is now estopped from questioning the same.
The infirmity of these arguments is in their assumption that Atty. Cerdenas as
administrative manager had authority to bind the corporation or to compromise
the case. Whatever authority the officers or agents of a corporation may have is
derived from the board of directors, or other governing body, unless conferred by
the charter of the corporation. A corporation officer's power as an agent of the
corporation must therefore be sought from the statute, the charter, the by-laws,
or in a delegation of authority to such officer, from the acts of board of directors,
formally expressed or implied from a habit or custom of doing business. 8 In the
case at bar no provision of the charter and by-laws of the corporation or any
resolution or any other act of the board of directors of HI Cement Corporation has
been cited, from which We could reasonably infer that the administrative
manager had been granted expressly or impliedly the power to bind the
corporation or the authority to compromise the case. Absent such authority to
enter into the compromise, the signature of Atty. Cardenas on the agreement
would be legally ineffectual.
4. As regards the nomination of Mr. Marquez as commissioner, counsel for
respondent corporation has explained and this has not been disproven that
Atty. Cardenas, apparently on his own, submitted the same to the court. There is
no iota of proof that at the time of the submission to the Court, on February 26,
1969, of the name of Mr. Marquez, respondent corporation knew of the contents
of the compromise agreement. As matter of fact, according to the manifestation
of Atty. Ventura to the court, it was only on September 1, 1969 that he sent to Mr.
Antonio Diokno, Vice-President of the corporation, a copy of the compromise
agreement for the approval by the board of directors and on October 22, 1969,
Mr. Diokno informed him that the approval of the Board cannot be obtained, as
under the agreement the corporation is deprived of its right to appeal from the
judgement.
In the absence of any proof that the governing body of respondent corporation
had knowledge, either actual or constructive, or the contents of the compromise
agreement before September 1, 1969, why should the nomination of Mr. Marquez
as commissioner, by Attys. Ventura, Cardenas and Magpantay, on February 26,

1969, be considered as a form of tacit ratification of the compromise agreement


by the corporation? In order to ratify the unauthorized act of an agent and make
it binding on the corporation, it must be shown that the governing body or officer
authorized to ratify had full and complete knowledge of all the material facts
connected with the transaction to which it relates. 9 It cannot be assumed also
that Atty. Cardenas, as administrative manager of the corporation, had authority
to ratify. For ratification can never be made "on the part of the corporation by the
same persons who wrongfully assume the power to make the contract, but the
ratification must be by the officer or governing body having authority to make
such contract and, as we have seen, must be with full knowledge." 10
5. Equally inapposite is petitioners' invocation of the principle of estoppel. In the
case at bar, except those made by Attys. Ventura, Cardenas and Magpantay,
petitioners have not demonstrated any act or declaration of the corporation
amounting to false representation or concealment of material facts calculated to
mislead said petitioners. The acts or conduct for which the corporation may be
liable under the doctrine of estoppel must be those of the corporation, its
governing body or authorized officers, and not those of the purported agent who
is himself responsible for the misrepresentation. 11
It having been found by the trial court that "the counsel for the plaintiff entered
into the compromise agreement without the written authority of his client and
the latter did not ratify, on the contrary it repudiated and disowned the
same ...", 12 We therefore declare that the orders of the court a quo subject of
these two petitions, have not been issued in excess of its jurisdictional authority
or in grave abuse of its discretion.
WHEREFORE, the petitions in these two cases are hereby dismissed. Costs
against the petitioners.
Makalintal, Actg. C.J., Castro, Teehankee, Barredo, Makasiar and Esguerra, JJ.,
concur.
Zaldivar, J., is on leave.
Fernando, J., took no part.

Footnotes
1 Article 1878[3], Civil Code.
2 Rule 138, Section 23, Rules of Court.
3 Ibid.
4 Home Insurance Company v. United States Lines Co., et al., L-25593,
November 15, 1967, 21 SCRA 863, 866.
5 Article 2033, New Civil Code.

6 2 Fletcher, Cyclopedia Corporations, 572, 1969 Revised Volume. .


7 Golden West Credit & Adjustment Co. v. Wilson, 7 P. 2d. 345, 119 Cal. App. 627.
8 Celeste Sugar Co. v. Dunbar-Dukate Co., 107 So. 493, 160 La. 694.
Massachusetts Hospital Life Ins. Co. v. Nesson 190 N.E. 31, 286 Mass. 216.
Garland Corp. v. Waterloo Loan & Trust Co., 170 N.W. 373, 185 Iowa 190.
Wheatland Tube Co. v. McDowell & Co., 176 A. 217, 317 Pa. 295.
Victoria Park Co. v. Continental Ins. Co. of New York, 178 P. 724, 39 Cal. App. 347.
8 Board of Liquidators v. Kalaw, L-18805, Aug. 14, 1967, 20 SCRA 987.
2 Fletcher, Cyclopedia Corporations, footnote 70, 301, 1969 Revised Volume:
"A corporation is bound by the act of an officer or agent only to the extent that
the power to do the act has been conferred upon him expressly by the charter,
bylaws or action of the stockholders or directors, or can be implied from powers
expressly conferred, or which are incidental thereto, or where the act is within
the apparent powers which the corporation has caused third persons to believe it
has conferred upon the officer or agent. Erie R. Co. v. S.J. Groves & Sons Co., 114
NJL 216, 176 A. 377."
9 "In order to ratify the unauthorized act of an agent and make it effectual and
obligatory upon the principal, the general rule is that the ratification must be
made by the principal with a full and complete knowledge of all the material
facts connected with the transaction to which it relates; and this rule applies, of
course, to ratification by a corporation of an unauthorized contract or other act
by its officers or agents, whether the ratification is by the stockholders or by the
directors, or by a subordinate officer having authority to ratify." (2 Fletcher
Cyclopedia Corporations, 1049-1052, 1969 Revised Volume).
10 "Ratification can never be made on the part of the corporation by the same
person who wrongfully assume the power to make the contract, but the
ratification must be by the officer or governing body having authority to make
such contract and, as we have seen, must be with full knowledge. Accordingly, a
corporate officer or agent cannot ratify an unauthorized act or contract done or
entered into by himself so as to bind the corporation. In other words, one who
makes an unauthorized contract has no more right to ratify their own
unauthorized acts; even though they constitute a majority of the directors or of
the stockholders, and a board of directors, the majority of which were the
members of a preceding board which authorized or entered into an illegal
contract, cannot ratify it, since this would be in effect a ratification of one's own
act." (2 Fletcher, Cyclopedia Corporations, 1067-1069, 1969 Revised Volume.)
11 Dr. Beck & Co. v. General Elec. Co., 210 F Supp. 86.
Grummit v. Sturgeon Bay Winter Shorts Club, 197 F Supp. 455.

Mannion v. Campbell Soup Co., 243 Cal App 2d 317, 52 Cal Rpts 2 & 6.
Spencer Concrete Products Co. v. City of Spencer, 116 NW 2d 455.
12 Order of May 18, 1970.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 171460

July 24, 2007

LILLIAN N. MERCADO, CYNTHIA M. FEKARIS, and JULIAN MERCADO, JR.,


represented by their Attorney-In-Fact, ALFREDO M. PEREZ, Petitioners,
vs.
ALLIED BANKING CORPORATION, Respondent.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the
Revised Rules of Court, filed by petitioners Lillian N. Mercado, Cynthia M. Fekaris
and Julian Mercado, Jr., represented by their Attorney-In-Fact, Alfredo M. Perez,
seeking to reverse and set aside the Decision 1 of the Court of Appeals dated 12
October 2005, and its Resolution2 dated 15 February 2006 in CA-G.R. CV No.
82636. The Court of Appeals, in its assailed Decision and Resolution, reversed
the Decision3 of the Regional Trial Court (RTC) of Quezon City, Branch 220 dated
23 September 2003, declaring the deeds of real estate mortgage constituted on
TCT No. RT-18206 (106338) null and void. The dispositive portion of the assailed
Court of Appeals Decision thus reads:
WHEREFORE, the appealed decision is REVERSED and SET ASIDE, and a new
judgment is hereby entered dismissing the [petitioners] complaint. 4
Petitioners are heirs of Perla N. Mercado (Perla). Perla, during her lifetime, owned
several pieces of real property situated in different provinces of the Philippines.
Respondent, on the other hand, is a banking institution duly authorized as such
under the Philippine laws.
On 28 May 1992, Perla executed a Special Power of Attorney (SPA) in favor of her
husband, Julian D. Mercado (Julian) over several pieces of real property
registered under her name, authorizing the latter to perform the following acts:
1. To act in my behalf, to sell, alienate, mortgage, lease and deal otherwise over
the different parcels of land described hereinafter, to wit:
a) Calapan, Oriental Mindoro Properties covered by Transfer Certificates of Title
Nos. T-53618 - 3,522 Square Meters, T-46810 3,953 Square Meters, T-53140

177 Square Meters, T-21403 263 square Meters, T- 46807 39 Square Meters of
the Registry of Deeds of Oriental Mindoro;
b) Susana Heights, Muntinlupa covered by Transfer Certificates of Title Nos. T108954 600 Square Meters and RT-106338 805 Square Meters of the Registry
of Deeds of Pasig (now Makati);
c) Personal property 1983 Car with Vehicle Registration No. R-16381; Model
1983; Make Toyota; Engine No. T- 2464
2. To sign for and in my behalf any act of strict dominion or ownership any sale,
disposition, mortgage, lease or any other transactions including quit-claims,
waiver and relinquishment of rights in and over the parcels of land situated in
General Trias, Cavite, covered by Transfer Certificates of Title Nos. T-112254 and
T-112255 of the Registry of Deeds of Cavite, in conjunction with his co-owner and
in the person ATTY. AUGUSTO F. DEL ROSARIO;
3. To exercise any or all acts of strict dominion or ownership over the abovementioned properties, rights and interest therein. (Emphasis supplied.)
On the strength of the aforesaid SPA, Julian, on 12 December 1996, obtained a
loan from the respondent in the amount of P3,000,000.00, secured by real estate
mortgage constituted on TCT No. RT-18206 (106338) which covers a parcel of
land with an area of 805 square meters, registered with the Registry of Deeds of
Quezon City (subject property).5
Still using the subject property as security, Julian obtained an additional loan
from the respondent in the sum ofP5,000,000.00, evidenced by a Promissory
Note6 he executed on 5 February 1997 as another real estate mortgage (REM).
It appears, however, that there was no property identified in the SPA as TCT No.
RT 18206 (106338) and registered with the Registry of Deeds of Quezon City.
What was identified in the SPA instead was the property covered by TCT No. RT106338 registered with the Registry of Deeds of Pasig.
Subsequently, Julian defaulted on the payment of his loan obligations. Thus,
respondent initiated extra-judicial foreclosure proceedings over the subject
property which was subsequently sold at public auction wherein the respondent
was declared as the highest bidder as shown in the Sheriffs Certificate of Sale
dated 15 January 1998.7
On 23 March 1999, petitioners initiated with the RTC an action for the annulment
of REM constituted over the subject property on the ground that the same was
not covered by the SPA and that the said SPA, at the time the loan obligations
were contracted, no longer had force and effect since it was previously revoked
by Perla on 10 March 1993, as evidenced by the Revocation of SPA signed by the
latter.8
Petitioners likewise alleged that together with the copy of the Revocation of SPA,
Perla, in a Letter dated 23 January 1996, notified the Registry of Deeds of Quezon

City that any attempt to mortgage or sell the subject property must be with her
full consent documented in the form of an SPA duly authenticated before the
Philippine Consulate General in New York. 9
In the absence of authority to do so, the REM constituted by Julian over the
subject property was null and void; thus, petitioners likewise prayed that the
subsequent extra-judicial foreclosure proceedings and the auction sale of the
subject property be also nullified.
In its Answer with Compulsory Counterclaim, 10 respondent averred that, contrary
to petitioners allegations, the SPA in favor of Julian included the subject
property, covered by one of the titles specified in paragraph 1(b) thereof, TCT No.
RT- 106338 registered with the Registry of Deeds of Pasig (now Makati). The
subject property was purportedly registered previously under TCT No. T-106338,
and was only subsequently reconstituted as TCT RT-18206 (106338). Moreover,
TCT No. T-106338 was actually registered with the Registry of Deeds of Quezon
City and not before the Registry of Deeds of Pasig (now Makati). Respondent
explained that the discrepancy in the designation of the Registry of Deeds in the
SPA was merely an error that must not prevail over the clear intention of Perla to
include the subject property in the said SPA. In sum, the property referred to in
the SPA Perla executed in favor of Julian as covered by TCT No. 106338 of the
Registry of Deeds of Pasig (now Makati) and the subject property in the case at
bar, covered by RT 18206 (106338) of the Registry of Deeds of Quezon City, are
one and the same.
On 23 September 2003, the RTC rendered a Decision declaring the REM
constituted over the subject property null and void, for Julian was not authorized
by the terms of the SPA to mortgage the same. The court a quo likewise ordered
that the foreclosure proceedings and the auction sale conducted pursuant to the
void REM, be nullified. The dispositive portion of the Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
[herein petitioners] and against the [herein respondent] Bank:
1. Declaring the Real Estate Mortgages constituted and registered under Entry
Nos. PE-4543/RT-18206 and 2012/RT-18206 annotated on TCT No. RT-18206
(106338) of the Registry of Deeds of Quezon City as NULL and VOID;
2. Declaring the Sheriffs Sale and Certificate of Sale under FRE No. 2217 dated
January 15, 1998 over the property covered by TCT No. RT-18206 (106338) of the
Registry of Deeds of Quezon City as NULL and VOID;
3. Ordering the defendant Registry of Deeds of Quezon City to cancel the
annotation of Real Estate Mortgages appearing on Entry Nos. PE-4543/RT-18206
and 2012/RT-18206 on TCT No. RT-18206 (106338) of the Registry of Deeds of
Quezon City;
4. Ordering the [respondent] Bank to deliver/return to the [petitioners]
represented by their attorney-in-fact Alfredo M. Perez, the original Owners

Duplicate Copy of TCT No. RT-18206 (106338) free from the encumbrances
referred to above; and
5. Ordering the [respondent] Bank to pay the [petitioners] the amount
of P100,000.00 as for attorneys fees plus cost of the suit.
The other claim for damages and counterclaim are hereby DENIED for lack of
merit.11
Aggrieved, respondent appealed the adverse Decision before the Court of
Appeals.
In a Decision dated 12 October 2005, the Court of Appeals reversed the RTC
Decision and upheld the validity of the REM constituted over the subject property
on the strength of the SPA. The appellate court declared that Perla intended the
subject property to be included in the SPA she executed in favor of Julian, and
that her subsequent revocation of the said SPA, not being contained in a public
instrument, cannot bind third persons.
The Motion for Reconsideration interposed by the petitioners was denied by the
Court of Appeals in its Resolution dated 15 February 2006.
Petitioners are now before us assailing the Decision and Resolution rendered by
the Court of Appeals raising several issues, which are summarized as follows:
I WHETHER OR NOT THERE WAS A VALID MORTGAGE CONSTITUTED OVER
SUBJECT PROPERTY.
II WHETHER OR NOT THERE WAS A VALID REVOCATION OF THE SPA.
III WHETHER OR NOT THE RESPONDENT WAS A MORTGAGEE-IN- GOOD FAITH.
For a mortgage to be valid, Article 2085 of the Civil Code enumerates the
following essential requisites:
Art. 2085. The following requisites are essential to the contracts of pledge and
mortgage:
(1) That they be constituted to secure the fulfillment of a principal obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or
mortgaged;
(3) That the persons constituting the pledge or mortgage have the free disposal
of their property, and in the absence thereof, that they be legally authorized for
the purpose.
Third persons who are not parties to the principal obligation may secure the
latter by pledging or mortgaging their own property.
In the case at bar, it was Julian who obtained the loan obligations from
respondent which he secured with the mortgage of the subject property. The

property mortgaged was owned by his wife, Perla, considered a third party to the
loan obligations between Julian and respondent. It was, thus, a situation
recognized by the last paragraph of Article 2085 of the Civil Code afore-quoted.
However, since it was not Perla who personally mortgaged her own property to
secure Julians loan obligations with respondent, we proceed to determining if
she duly authorized Julian to do so on her behalf.
Under Article 1878 of the Civil Code, a special power of attorney is necessary in
cases where real rights over immovable property are created or conveyed. 12 In
the SPA executed by Perla in favor of Julian on 28 May 1992, the latter was
conferred with the authority to "sell, alienate, mortgage, lease and deal
otherwise" the different pieces of real and personal property registered in Perlas
name. The SPA likewise authorized Julian "[t]o exercise any or all acts of strict
dominion or ownership" over the identified properties, and rights and interest
therein. The existence and due execution of this SPA by Perla was not denied or
challenged by petitioners.
There is no question therefore that Julian was vested with the power to mortgage
the pieces of property identified in the SPA. However, as to whether the subject
property was among those identified in the SPA, so as to render Julians
mortgage of the same valid, is a question we still must resolve.
Petitioners insist that the subject property was not included in the SPA,
considering that it contained an exclusive enumeration of the pieces of property
over which Julian had authority, and these include only: (1) TCT No. T-53618, with
an area of 3,522 square meters, located at Calapan, Oriental Mindoro, and
registered with the Registry of Deeds of Oriental Mindoro; (2) TCT No. T-46810,
with an area of 3,953 square meters, located at Calapan, Oriental Mindoro, and
registered with the Registry of Deeds of Oriental Mindoro; (3) TCT No. T-53140,
with an area of 177 square meters, located at Calapan, Oriental Mindoro, and
registered with the Registry of Deeds of Oriental Mindoro; (4) TCT No. T-21403,
with an area of 263 square meters, located at Calapan, Oriental Mindoro, and
registered with the Registry of Deeds of Oriental Mindoro; (5) TCT No. T- 46807,
with an area of 39 square meters, located at Calapan, Oriental Mindoro, and
registered with the Registry of Deeds of Oriental Mindoro; (6) TCT No. T-108954,
with an area of 690 square meters and located at Susana Heights, Muntinlupa;
(7) RT-106338 805 Square Meters registered with the Registry of Deeds of Pasig
(now Makati); and (8) Personal Property consisting of a 1983 Car with Vehicle
Registration No. R-16381, Model 1983, Make Toyota, and Engine No. T- 2464.
Nowhere is it stated in the SPA that Julians authority extends to the subject
property covered by TCT No. RT 18206 (106338) registered with the Registry of
Deeds of Quezon City. Consequently, the act of Julian of constituting a mortgage
over the subject property is unenforceable for having been done without
authority.
Respondent, on the other hand, mainly hinges its argument on the declarations
made by the Court of Appeals that there was no property covered by TCT No.
106338 registered with the Registry of Deeds of Pasig (now Makati); but there

exists a property, the subject property herein, covered by TCT No. RT-18206
(106338) registered with the Registry of Deeds of Quezon City. Further
verification would reveal that TCT No. RT-18206 is merely a reconstitution of TCT
No. 106338, and the property covered by both certificates of title is actually
situated in Quezon City and not Pasig. From the foregoing circumstances,
respondent argues that Perla intended to include the subject property in the SPA,
and the failure of the instrument to reflect the recent TCT Number or the exact
designation of the Registry of Deeds, should not defeat Perlas clear intention.
After an examination of the literal terms of the SPA, we find that the subject
property was not among those enumerated therein. There is no obvious
reference to the subject property covered by TCT No. RT-18206 (106338)
registered with the Registry of Deeds of Quezon City.
There was also nothing in the language of the SPA from which we could deduce
the intention of Perla to include the subject property therein. We cannot attribute
such alleged intention to Perla who executed the SPA when the language of the
instrument is bare of any indication suggestive of such intention. Contrariwise, to
adopt the intent theory advanced by the respondent, in the absence of clear and
convincing evidence to that effect, would run afoul of the express tenor of the
SPA and thus defeat Perlas true intention.
In cases where the terms of the contract are clear as to leave no room for
interpretation, resort to circumstantial evidence to ascertain the true intent of
the parties, is not countenanced. As aptly stated in the case of JMA House,
Incorporated v. Sta. Monica Industrial and Development Corporation, 13 thus:
[T]he law is that if the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulation shall
control. When the language of the contract is explicit, leaving no doubt as to the
intention of the drafters, the courts may not read into it [in] any other intention
that would contradict its main import. The clear terms of the contract should
never be the subject matter of interpretation. Neither abstract justice nor the
rule on liberal interpretation justifies the creation of a contract for the parties
which they did not make themselves or the imposition upon one party to a
contract or obligation not assumed simply or merely to avoid seeming hardships.
The true meaning must be enforced, as it is to be presumed that the contracting
parties know their scope and effects. 14
Equally relevant is the rule that a power of attorney must be strictly construed
and pursued. The instrument will be held to grant only those powers which are
specified therein, and the agent may neither go beyond nor deviate from the
power of attorney.15 Where powers and duties are specified and defined in an
instrument, all such powers and duties are limited and are confined to those
which are specified and defined, and all other powers and duties are
excluded.16 This is but in accord with the disinclination of courts to enlarge the
authority granted beyond the powers expressly given and those which
incidentally flow or derive therefrom as being usual and reasonably necessary
and proper for the performance of such express powers. 17

Even the commentaries of renowned Civilist Manresa 18 supports a strict and


limited construction of the terms of a power of attorney:
The law, which must look after the interests of all, cannot permit a man to
express himself in a vague and general way with reference to the right he
confers upon another for the purpose of alienation or hypothecation, whereby he
might be despoiled of all he possessed and be brought to ruin, such excessive
authority must be set down in the most formal and explicit terms, and when this
is not done, the law reasonably presumes that the principal did not mean to
confer it.
In this case, we are not convinced that the property covered by TCT No. 106338
registered with the Registry of Deeds of Pasig (now Makati) is the same as the
subject property covered by TCT No. RT-18206 (106338) registered with the
Registry of Deeds of Quezon City. The records of the case are stripped of
supporting proofs to verify the respondents claim that the two titles cover the
same property. It failed to present any certification from the Registries of Deeds
concerned to support its assertion. Neither did respondent take the effort of
submitting and making part of the records of this case copies of TCTs No. RT106338 of the Registry of Deeds of Pasig (now Makati) and RT-18206 (106338) of
the Registry of Deeds of Quezon City, and closely comparing the technical
descriptions of the properties covered by the said TCTs. The bare and sweeping
statement of respondent that the properties covered by the two certificates of
title are one and the same contains nothing but empty imputation of a fact that
could hardly be given any evidentiary weight by this Court.
Having arrived at the conclusion that Julian was not conferred by Perla with the
authority to mortgage the subject property under the terms of the SPA, the real
estate mortgages Julian executed over the said property are therefore
unenforceable.
Assuming arguendo that the subject property was indeed included in the SPA
executed by Perla in favor of Julian, the said SPA was revoked by virtue of a
public instrument executed by Perla on 10 March 1993. To address respondents
assertion that the said revocation was unenforceable against it as a third party to
the SPA and as one who relied on the same in good faith, we quote with approval
the following ruling of the RTC on this matter:
Moreover, an agency is extinguished, among others, by its revocation (Article
1999, New Civil Code of the Philippines). The principal may revoke the agency at
will, and compel the agent to return the document evidencing the agency. Such
revocation may be express or implied (Article 1920, supra).
In this case, the revocation of the agency or Special Power of Attorney is
expressed and by a public document executed on March 10, 1993.
The Register of Deeds of Quezon City was even notified that any attempt to
mortgage or sell the property covered by TCT No. [RT-18206] 106338 located at
No. 21 Hillside Drive, Blue Ridge, Quezon City must have the full consent

documented in the form of a special power of attorney duly authenticated at the


Philippine Consulate General, New York City, N.Y., U.S.A.
The non-annotation of the revocation of the Special Power of Attorney on TCT No.
RT-18206 is of no consequence as far as the revocations existence and legal
effect is concerned since actual notice is always superior to constructive notice.
The actual notice of the revocation relayed to defendant Registry of Deeds of
Quezon City is not denied by either the Registry of Deeds of Quezon City or the
defendant Bank. In which case, there appears no reason why Section 52 of the
Property Registration Decree (P.D. No. 1529) should not apply to the situation.
Said Section 52 of P.D. No. 1529 provides:
"Section 52. Constructive notice upon registration. Every conveyance,
mortgage, lease, lien, attachment, order, judgment, instrument or entry affecting
registered land shall, if registered, filed or entered in the Office of the Register of
Deeds for the province or city where the land to which it relates lies, be
constructive notice to all persons from the time of such registering, filing or
entering. (Pres. Decree No. 1529, Section 53) (emphasis ours)
It thus developed that at the time the first loan transaction with defendant Bank
was effected on December 12, 1996, there was on record at the Office of the
Register of Deeds of Quezon City that the special power of attorney granted
Julian, Sr. by Perla had been revoked. That notice, works as constructive notice to
third parties of its being filed, effectively rendering Julian, Sr. without authority to
act for and in behalf of Perla as of the date the revocation letter was received by
the Register of Deeds of Quezon City on February 7, 1996. 19
Given that Perla revoked the SPA as early as 10 March 1993, and that she
informed the Registry of Deeds of Quezon City of such revocation in a letter
dated 23 January 1996 and received by the latter on 7 February 1996, then third
parties to the SPA are constructively notified that the same had been revoked
and Julian no longer had any authority to mortgage the subject property.
Although the revocation may not be annotated on TCT No. RT-18206 (106338), as
the RTC pointed out, neither the Registry of Deeds of Quezon City nor respondent
denied that Perlas 23 January 1996 letter was received by and filed with the
Registry of Deeds of Quezon City. Respondent would have undoubtedly come
across said letter if it indeed diligently investigated the subject property and the
circumstances surrounding its mortgage.
The final issue to be threshed out by this Court is whether the respondent is a
mortgagee-in-good faith. Respondent fervently asserts that it exercised
reasonable diligence required of a prudent man in dealing with the subject
property.
Elaborating, respondent claims to have carefully verified Julians authority over
the subject property which was validly contained in the SPA. It stresses that the
SPA was annotated at the back of the TCT of the subject property. Finally, after
conducting an investigation, it found that the property covered by TCT No.
106338, registered with the Registry of Deeds of Pasig (now Makati) referred to in

the SPA, and the subject property, covered by TCT No. 18206 (106338) registered
with the Registry of Deeds of Quezon City, are one and the same property. From
the foregoing, respondent concluded that Julian was indeed authorized to
constitute a mortgage over the subject property.
We are unconvinced. The property listed in the real estate mortgages Julian
executed in favor of PNB is the one covered by "TCT#RT-18206(106338)." On the
other hand, the Special Power of Attorney referred to TCT No. "RT-106338 805
Square Meters of the Registry of Deeds of Pasig now Makati." The palpable
difference between the TCT numbers referred to in the real estate mortgages and
Julians SPA, coupled with the fact that the said TCTs are registered in the
Registries of Deeds of different cities, should have put respondent on guard.
Respondents claim of prudence is debunked by the fact that it had conveniently
or otherwise overlooked the inconsistent details appearing on the face of the
documents, which it was relying on for its rights as mortgagee, and which
significantly affected the identification of the property being mortgaged.
In Arrofo v. Quio,20 we have elucidated that:
[Settled is the rule that] a person dealing with registered lands [is not required]
to inquire further than what the Torrens title on its face indicates. This rule,
however, is not absolute but admits of exceptions. Thus, while its is true, x x
x that a person dealing with registered lands need not go beyond the
certificate of title, it is likewise a well-settled rule that a purchaser or
mortgagee cannot close his eyes to facts which should put a reasonable
man on his guard, and then claim that he acted in good faith under the
belief that there was no defect in the title of the vendor or mortgagor.
His mere refusal to face up the fact that such defect exists, or his willful closing
of his eyes to the possibility of the existence of a defect in the vendors or
mortgagors title, will not make him an innocent purchaser for value, if it
afterwards develops that the title was in fact defective, and it appears that he
had such notice of the defect as would have led to its discovery had he acted
with the measure of precaution which may be required of a prudent man in a like
situation.
By putting blinders on its eyes, and by refusing to see the patent defect in the
scope of Julians authority, easily discernable from the plain terms of the SPA,
respondent cannot now claim to be an innocent mortgagee.
Further, in the case of Abad v. Guimba,21 we laid down the principle that where
the mortgagee does not directly deal with the registered owner of real property,
the law requires that a higher degree of prudence be exercised by the
mortgagee, thus:
While [the] one who buys from the registered owner does not need to look
behind the certificate of title, one who buys from [the] one who is not [the]
registered owner is expected to examine not only the certificate of title but all
factual circumstances necessary for [one] to determine if there are any flaws in
the title of the transferor, or in [the] capacity to transfer the land. Although the

instant case does not involve a sale but only a mortgage, the same rule applies
inasmuch as the law itself includes a mortgagee in the term "purchaser." 22
This principle is applied more strenuously when the mortgagee is a bank or a
banking institution. Thus, in the case of Cruz v. Bancom
Finance Corporation,23 we ruled:
Respondent, however, is not an ordinary mortgagee; it is a mortgagee-bank. As
such, unlike private individuals, it is expected to exercise greater care and
prudence in its dealings, including those involving registered lands. A banking
institution is expected to exercise due diligence before entering into a mortgage
contract. The ascertainment of the status or condition of a property offered to it
as security for a loan must be a standard and indispensable part of its
operations.24
Hence, considering that the property being mortgaged by Julian was not his, and
there are additional doubts or suspicions as to the real identity of the same, the
respondent bank should have proceeded with its transactions with Julian only
with utmost caution. As a bank, respondent must subject all its transactions to
the most rigid scrutiny, since its business is impressed with public interest and its
fiduciary character requires high standards of integrity and performance. 25 Where
respondent acted in undue haste in granting the mortgage loans in favor of Julian
and disregarding the apparent defects in the latters authority as agent, it failed
to discharge the degree of diligence required of it as a banking
corporation.1awphil
Thus, even granting for the sake of argument that the subject property and the
one identified in the SPA are one and the same, it would not elevate respondents
status to that of an innocent mortgagee. As a banking institution, jurisprudence
stringently requires that respondent should take more precautions than an
ordinary prudent man should, to ascertain the status and condition of the
properties offered as collateral and to verify the scope of the authority of the
agents dealing with these. Had respondent acted with the required degree of
diligence, it could have acquired knowledge of the letter dated 23 January 1996
sent by Perla to the Registry of Deeds of Quezon City which recorded the same.
The failure of the respondent to investigate into the circumstances surrounding
the mortgage of the subject property belies its contention of good faith.
On a last note, we find that the real estate mortgages constituted over the
subject property are unenforceable and not null and void, as ruled by the RTC. It
is best to reiterate that the said mortgage was entered into by Julian on behalf of
Perla without the latters authority and consequently, unenforceable under
Article 1403(1) of the Civil Code. Unenforceable contracts are those which cannot
be enforced by a proper action in court, unless they are ratified, because either
they are entered into without or in excess of authority or they do not comply with
the statute of frauds or both of the contracting parties do not possess the
required legal capacity.26 An unenforceable contract may be ratified, expressly or
impliedly, by the person in whose behalf it has been executed, before it is
revoked by the other contracting party. 27 Without Perlas ratification of the same,

the real estate mortgages constituted by Julian over the subject property cannot
be enforced by any action in court against Perla and/or her successors in
interest.
In sum, we rule that the contracts of real estate mortgage constituted over the
subject property covered by TCT No. RT 18206 (106338) registered with the
Registry of Deeds of Quezon City are unenforceable. Consequently, the
foreclosure proceedings and the auction sale of the subject property conducted
in pursuance of these unenforceable contracts are null and void. This, however,
is without prejudice to the right of the respondent to proceed against Julian, in
his personal capacity, for the amount of the loans.
WHEREFORE, IN VIEW OF THE FOREGOING, the instant petition is GRANTED.
The Decision dated 12 October 2005 and its Resolution dated 15 February 2006
rendered by the Court of Appeals in CA-G.R. CV No. 82636, are hereby
REVERSED. The Decision dated 23 September 2003 of the Regional Trial Court of
Quezon City, Branch 220, in Civil Case No. Q-99-37145, is hereby REINSTATED
and AFFIRMED with modification that the real estate mortgages constituted
over TCT No. RT 18206 (106338) are not null and void but UNENFORCEABLE. No
costs.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice

ANTONIO EDUARDO B. NACHURA


Associate Justice

ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, it is hereby certified that the conclusions in the above
Decision were reached in consultation before the case was assigned to the writer
of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

Footnotes
1

Penned by Associate Justice Delilah Vidallon-Magtolis with Associate Justices


Josefina Guevara-Salonga and Fernanda Lampas-Peralta, concurring. Rollo, pp.
44-59.
2

Id. at 61-64.

Id. at 71-84.

Id. at 59.

Susana Heights, Muntinlupa covered by Transfer Certificates of Title Nos. T108954 690 square meters; and RT-106338 805 square meters of the Registry
of Deeds of Pasig (now Makati);
6

Id. at 106-109.

Id. at 73

Id. at 74.

Id. at 74-75.

10

Id. at 96-103.

11

Id. at 84.

12

Paragraph 12 of Article 1878, Civil Code of the Philippines.

13

G.R. No. 154156, 31 August 2006, 500 SCRA 526.

14

Id. at 545-546.

15

Angeles v. Philippine National Railways (PNR), G.R. No. 150128, 31 August


2006, 500 SCRA 444, 453.
16

Bank of the Philippine Islands v. De Coster, 49 Phil. 574, 589 (1926) as cited in
Philippine National Bank v. Sta. Maria, 139 Phil. 781, 786 (1969).
17

Philippine National Bank v. Sta. Maria, id.

18

Vol. II, p. 60.

19

Rollo, pp. 80-81.

20

G.R. No. 145794, 26 January 2005, 449 SCRA 284.

21

G.R. No. 157002, 29 July 2005, 465 SCRA 356.

22

Id. at 368-369.

23

429 Phil. 225 (2002).

24

Id. at 239.

25

The General Banking Law of 2000, Section 2.

26

Article 1403, Civil Code of the Philippines.

27

Article 1317, Civil Code of the Philippines.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. L-23181

March 16, 1925

THE BANK OF THE PHILIPPINE ISLANDS, plaintiff-appellee,


vs.
GABRIELA ANDREA DE COSTER Y ROXAS, ET AL., defendants.
LA ORDEN DE DOMINICOS or PP. PREDICADORES DE LA PROVINCIA DEL
SANTISIMO ROSARIO,defendants-appellees;
GABRIELA ANDREA DE COSTER Y ROXAS, defendant-appellant.
Antonio M. Opisso for appellant.
Araneta and Zaragoza for the bank as appellee.
Perfecto Gabriel for the Dominican Corporation as appellee.
STATEMENT
March 10, 1924, the plaintiff filed a complaint in which it was alleged that it was
a domestic banking corporation with its principal office and place of business in
the City of Manila; that the defendant Gabriela Andrea de Coster y Roxas was the
wife of the defendant Jean M. Poizat, both of whom were residents of the City of
Manila; that the defendant J. M. Poizat and Co. was a duly registered partnership
with its principal office and place of business in the City of Manila; that the
defendant La Orden de Dominicos or PP. Predicadores de la Provincia del
Santisimo Rosario was a religious corporation duly organized and existing under
the laws of the Philippine Islands with its principal office and place of business in
the City of Manila; that on December 29, 1921, for value, the defendant Gabriela
Andrea de Coster y Roxas, having the consent and permission of her husband,
and he acting as her agent, said defendants made to the plaintiff a certain
promissory note for P292,000, payable one year after date, with interest of 9 per
cent per annum, payable monthly, in which, among other things, it is provided
that in the event of a suit or action, the defendants should pay the further sum of
P10,000, as attorney's fees; that the note in question was a joint and several

note; that to secure the payment thereof, the defendants Jean M. Poizat and J. M.
Poizat and Co. executed a chattel mortgage to the plaintiff on the
steamers Roger Poizat and Gabrielle Poizat, with the machinery and materials
belonging to the Poizat Vegetable Oil Mills and certain merchandise; that at the
same time and for the same purpose, the defendant Gabriela Andrea de Coster y
Roxas, having the consent and permission of her husband, and he acting as her
agent, they acknowledged and delivered to this plaintiff a mortgage on certain
real property lying and being situated in the City of Manila, which is specifically
described in the mortgage; that the real property was subject to a prior
mortgage in favor of La Orden de Dominicos or PP. Predicadores de la Provincia
del Santisimo Rosario, hence it is made a party defendant; that the note in
question is long past due and owing. The plaintiff having brought action against
the defendants on the note in the Court of First Instance of the City of Manila,
civil case No. 25218; that in such case the court rendered judgment against the
defendants Gabriela Andrea de Coster y Roxas, Jean M. Poizat and J. M. Poizat
and Co. jointly and severally for P292,000, with interest at the rate of 9 per cent
per annum from the 31st of August, 1923, P10,000 as attorney's fees, and
P2,500 for and in account of insurance upon the steamer Gabrielle Poizat, with
interest on that amount from February 9, 1924, at the rate of 9 per cent per
annum, and costs; that the said defendants have not paid the judgment or any
part thereof, and that the full amount of the debt secured by the mortgaged on
the property described in the complaint is now due and owing. Wherefore,
plaintiff prays for an order of the court to direct the sheriff of the City of Manila to
take immediate possession of the property described in the chattel mortgage
and sell the same according to the Chattel Mortgage Law; that the property
described in the real mortgage or so much thereof as may be required to pay the
amount due the plaintiff be sold according to law; that out of such sales plaintiff
shall be paid the amount due and owing it; and that such defendants be
adjudged to pay any remaining deficiency.
Copies of the chattel and real mortgage are attached to, and made a part of, the
complaint and marked, respectively, Exhibits A and B.
On April 24, 1924, the La Orden de Dominicos or PP. Predicadores de la Provincia
del Santisimo Rosario appeared in the suit and filed the following plea:
The defendant corporation, La Orden de Dominicos or PP. Predicadores de la
Provincia del Santisimo Rosario, for answer to the complaint, shows:
I. That the encumbrance above-mentioned, but not determined in paragraph V of
the complaint, consisting of a first mortgage in favor of the aforesaid religious
corporation on the property described in paragraph IV of the same complaint is
P125,000 with interest of 10 per cent per annum;
II. That the mortgagors Jean M. Poizat and Gabriela Andrea de Coster y Roxas,
have not paid the principal or the interest stipulated and agreed upon from the
16th of December, 1921 up to the present date;

III. The interest due up to the 30th of April of the present year 1924 amounts to a
total sum of P27,925.34.
Wherefore, it is prayed that the credit above-mentioned be taken into account
when the second mortgage is foreclosed.
May 3, 1924, on motion of the plaintiff, for failure to appear or answer, the
defendants Gabriela Andrea de Coster y Roxas and Jean M. Poizat and J.M. Poizat
& Co. were declared in default.
Without giving any notice of the defendants Jean M. Poizat, J.M. Poizat & Co. and
Gabriela Andrea de Coster y Roxas, and after the introduction of evidence on the
part of the plaintiff and the defendant Dominican Fathers, on June 24, 1924, the
court rendered an opinion in substance and to the effect that the plaintiff should
have judgment as prayed for in its complaint, and that the Dominican Fathers
should have judgment for the amount of their claim, and that the property
should be sold and the proceeds applied to satisfy the respective judgments.
About August 26, although her attorney, the defendant Gabriela Andrea de
Coster y Roxas filed a motion in which she recites that she is the legitimate wife
of the defendant Jean M. Poizat; that she had been absent from the Philippine
Islands and residing in the City of Paris from the year 1908 to April 30, 1924,
when she returned to Manila; that at that time of the filing of the complaint and
the issuance of the summons, she was absent from the Philippine Islands; that
the summons was delivered by the sheriff of the City of Manila to her husband,
and that through his malicious negligence, default was taken and judgment
entered for the respective amounts; that she never had any knowledge of the
actual facts until the latter part of July, 1924, when, through the local
newspapers, she learned that a default judgment had been rendered against her
on July 28, 1924; that when she first knew of that fact, she was unable to obtain
the rendition of accounts, because her husband had left the Philippine Islands
two days previous and gone to Hongkong; that she then went to Hongkong and
learned that her husband had left there under a false name and had gone to the
port of Singapore from whence he went to other places unknown to thus
defendant; that she then returned to Manila, and that in August, 1924, she came
into possession of documents showing the illegally of the notes and mortgage in
question; that she has a good and legal defense to the action, which involves the
validity of the order of the Dominican Fathers in this, that their mortgage does
not guarantee any loan made to this defendant; that it is a security only given
for a credit of a third person; that the mortgage was executed without the
marital consent of the wife; and that he did not have nay authority to make her
liable as surety on the debt of a third person; that as regards the notes to the
plaintiff: First, it does not represent any money paid to the defendant by the
bank; second, that it is exclusively the personal debt of the defendants Jean M.
Poizat and J.M. Poizat & Co., third, that it was executed by her husband, because
the bank desired more security for the payment of her husband's debt to the
bank; fourth, that it was executed by her husband in excess of the powers given
to him under his power of attorney; fifth, that it was executed as the result of

collusion between the bank and the defendant liable for the obligation of a third
person. That as to the mortgage: First, it was executed to secure a void
obligation; second, it does not guarantee any loan made to this defendant; third,
it was executed to secure a void litigation; second, it does not guarantee any
loan made to third defendant; third, it was executed without the express marital
consent which the law requires; fourth, it was executed through collusion. That if
the judgment is not set aside, the defendant will suffer irreparable injury; that
through surprise and negligence, for which she was not responsible, this
defendant was prevented from defending herself in this action; that this is a case
which comes under section 113 of the Code of Civil Procedure. She prays that the
judgment annulled and set aside and the case be reopened, and that she be
permitted to file an answer, and that the case be tried on its merits, and that a
final judgment be rendered, absolving her from all liability.
The motion was based upon, and supported by, the affidavit of the defendant
wife, to which was attached a large number of exhibits all of which tended to
support the motion.
After counter showings by the bank and the Dominican Fathers and the
arguments of respective counsel, the motion to set aside and vacate the
judgment was denied. A motion for a reconsideration was then made, and the
motion of the defendant to file an answer and make a defense was again denied.
The defendant Gabriela Andrea de Coster y Roxas appeals, assigning the
following errors;
PART I
AS TO THE JURISDICTION
I. The lower court erred in holding that it had acquired jurisdiction on the
defendant Gabriela Andrea de Coster y Roxas,
(1) There having been no service of the summons on her in the manner required
by section 396 of the Code of Civil Procedure, she being absent from the
Philippine Islands at the time of the filing of the complaint and of the issuance of
the summons in this case, and a resident of Paris, France, where she had lived
permanently and continuously for fifteen years prior thereof, and
(2) There having been no se rive by publication in the manner required by
section 398 of the Code of Civil Procedure.
II. The lower court erred in considering that in a case where the wife is the only
necessary party, service of the summons on the husband, at a place which is not
"the usual place of residence" of the wife and where the wife has never lived or
resided, is sufficient to give the court jurisdiction on the person and property of
the wife and to render judgment by default against her.
III. The court erred in admitting and considering evidence, outside of the sheriff's
return, of the fact that the husband of the defendant Gabriela Andrea de Coster y
Roxas was her attorney in fact with power to appear for the defendant in court.

IV. The court erred in holding that the non-appearance of an agent of the
defendant when service of the summons has been made on him not as the agent
of the defendant but in other capacity, will entitle the plaintiff who has misstated
the material jurisdictional facts of the complaint to a judgment by default against
the principal.
V. The lower court erred in refusing to vacate a judgment by default against the
defendant Gabriela Andrea de Coster y Roxas rendered on a defective summons,
served in a manner not provided for by the law, and in a case where the
complaint shows that plaintiff has no right of action.
PART II
AS TO THE MERITS OF THE DEFENSE
I. The lower court erred, with abuse of discretion, in holding that the negligence,
if any, of J.M. Poizat in not appearing on behalf of the defendant Gabriela Andrea
de Coster y Roxas, can be imputed to this defendant, without redress, and to the
advantage of the plaintiff bank who in collusion with said J.M. Poizat caused the
latter to contract beyond the scope of his powers as agent of this defendant the
obligation which is the subject matter of this case.
II. The lower court erred in holding that the relief on the part of J.M. Poizat that
there was no defense against the claim of the plaintiff on an obligation
contracted by said J.M. Poizat apparently as agent of the defendant Gabriela
Andrea de Coster y Roxas, but in truth beyond the scope of his authority, and
with knowledge on the part of the plaintiff bank that he was so acting beyond his
powers, was such an error was can be imputed to this defendant, and against
which she can obtain no redress.
III. The lower court erred in not holding that a principal is not liable for an
obligation contracted by his agent beyond his power even when both the creditor
and the agent believed that the latter was acting within the scope of his powers.
IV. The lower court erred in holding that because the agent of the defendant
Gabriela Andrea de Coster y Roxas had power to appear for her in court, his nonappearance could render this defendant liable to a judgment by default, when
the record shows that there was no service of the summons in accordance with
any of the forms of service provided by law.
V. The lower court erred in holding that J.M. Poizat was summoned as agent of hi
wife, the defendant Gabriela Andrea de Coster y Roxas, and was, in that
capacity, notified of all the decisions rendered in this case, there being nothing in
the record to support the truth of such finding.
VI. The lower court erred in holding that in contracting the obligations in favor of
the plaintiff Bank of the Philippine Islands and of the defendant Orden de PP.
Predicadores de la Provincia del Santisimo Rosario, the agent of the defendant
Gabriela Andrea de Coster y Roxas acted within the scope of his powers.

VII. The lower court erred in not holding that the plaintiff Bank of the Philippine
Islands and the defendant Orden de PP. Predicadores de la Provincia del
Santisimo Rosario had knowledge of the fact that J.M. Poizat in contracting the
respective obligations in their favor, pretending to act as agent of the defendant
Gabriela Andrea de Coster y Roxas, was acting beyond the scope of his powers
as such agent.
VIII. The lower court erred in making the following statement:
"It is however alleged, by the petitioner, that these loans were obtained to pay
debts, of strangers. Even so, this would not render the loan obtained by the
attorney in fact null and void. The circumstance that the agent used the money,
borrowed by him within the scope of his powers, to purposes for which he was
not authorized by his principal, may entitle the latter to demand from him the
corresponding liability for the damages suffered, but it cannot prejudice the
creditor and cause the nullity of the loan. But, even admitting that the money
borrowed was used by Poizat to pay debts which did not belong to his principal,
even then, he would have acted within his powers, since his principal, together
with the power to borrow money, had given her agent power to loan any amount
of money, and the payment of the debts of a stranger would amount to a loan
made by the agent on behalf of his principal to the person or entity whose debt
was paid with the money obtained from the creditors."
IX. The lower court erred in applying to this case the principle involved in the
case of Palanca vs. Smith, Bell and Co., 9 Phil., 131.
X. The court erred in supplying from its own imagination facts which did not take
place, of which there is no evidence in the record, and which the parties never
claimed to have existed, and then draw the conclusion that if under those
hypothetical facts the transaction between J.M. Poizat and the Bank of the
Philippine Islands might have been legal, then the transaction as it actually took
place was also legal.
XI. The lower court erred in holding that defendant has not alleged any of the
grounds enumerated in section 113 of the Code of Civil Procedure.
XII. The lower court erred in holding that this defendant-appellant has no
meritorious defense against the Dominican Order and the Bank of the Philippine
Islands.
XIII. The lower court erred in taking into consideration Exhibit A appearing at
pages 156-165 of the bill of exceptions.
XIV. The lower court erred in denying the motion filed by this defendantappellant.
XV. The lower court has acted throughout these proceedings with a clear abuse
of discretion.

JOHNS, J.:
We will decide the case of the bank first
The petition of the appellant states under oath:
II. That this defendant has been absent from the Philippine Islands and residing
in the City of Paris, France, since the year 1908 (1909), up to April 30, 1924, on
which date she arrived in this City of Manila, Philippine Islands.
III. That at the time when the complaint in this case was filed and the summons
issued, she was still absent from the Philippine Islands and had no knowledge
either of the filing of this action or of the facts which led to it.
Under oath the plaintiff, through its acting president, says:
I-II. That it admits the allegations contained in paragraphs I and II of the
aforesaid motion.
III. That it admits the first part of this paragraph, to wit: That at the time that the
complaint in the above entitled case was filed, the defendant Gabriela Andrea de
Coster y Roxas was absent from the Philippine Islands.
Paragraph 6 of section 396 of the Code of Civil Procedure provides:
In all other cases, to the defendant personally, or by leaving a copy at his usual
place of residence, in the hands of some person resident therein of sufficient
discretion to receive the same. But service upon a corporation, as provided in
subsections one and two, may be made by leaving the copy at the office of the
proper officer thereof if such officer cannot be found.
The return of the sheriff as to the service is as follows:
On this date I have served a copy of the within summons, and of the complaint
attached, upon Jean M. Poizat, personally, and the copies corresponding to J.M.
Poizat and Co., a company duly organized under the laws of the Philippine
Islands, by delivering said copies to its President Mr. Jean M. Poizat, personally,
and the copies corresponding to Gabriela Andrea de Coster y Roxas, by leaving
the same in the place of her usual residence in the City of Manila and in the
hands of her husband, Mr. J.M. Poizat, a person residing therein and of sufficient
discretion to receive it, personally.
Done at Manila, P.I., this 13th day of March, 1924.
RICARDO SUMMERS
Sheriff of Manila
By GREGORIO GARCIA
I hereby certify that on this date I have delivered a copy of this summons and of
the complaint corresponding to the "La Orden de Dominicos or PP. Predicadores
de la Provincia del Santisimo Rosario," through Father Pedro Pratt, Procurador

General of said Orden de Dominicos or PP. Predicadores de la Provincia del


Santisimo Rosario, personally.
Manila, P.I., April 1, 1924.
RICARDO SUMMERS
Sheriff of Manila
By SIMEON D. SERDEA
It will be noted that the service of summons and complaint was made on this
defendant on the 13th day of March, 1924, and that it is a stipulated fact that
since the year 1908 and up to April 30, 1924, she was "residing in the City of
Paris, France." Even so, it is contended that the service was valid by reason of
the fact that it was made at the usual place of residence and abode of the
defendant husband, and that legally the residence of the wife is that of the
husband. That contention is in direct conflict with the admission of the plaintiff
that since the year 1908 and up to April 30, 1924, the wife was residing in the
City of Paris. The residence of the wife in the City of Paris covered a period of
sixteen years.
It may be that where in the ordinary course of business the wife is absent from
the residence of husband on a pleasure trip or for business reasons or to visit
friends or relatives that, in the nature of such things, the residence of the wife
would continue and remain to be that of the husband. That is not this case. For
sixteen years the residence of the husband was in the City of Manila, and the
residence of the wife was in the City of Paris.
Upon the admitted facts, we are clearly of the opinion that the residence of the
husband was not the usual place of residence of the wife. Giving full force and
effect to the legal presumption that the usual place of residence of the wife is
that of her husband, that presumption is overcome by the admitted fact that the
wife was "residing in the City of Paris, France, since the year 1908 up to April 30,
1924."
Without placing a limitation upon the length of time sufficient to overcome the
legal presumption, suffice it to say that sixteen years is amply sufficient.
It follows that the substituted service attempted to be made under the provisions
of section 396 of the Code of Civil Procedure is null and void, and that by such
service the court never acquired jurisdiction of the person of the defendant wife.
In that event the plaintiff contends that under his power of attorney, the husband
was the general agent of the wife with authority to accept service of process for
her and in her name, and that by reason of the fact that the husband was duly
served and that he failed or neglected to appear or answer, his actions and
conduct were binding on the defendant wife. Be that as it may, there is nothing
in the record tending to show that the husband accepted service of any process
for or on account of his wife or as her agent, or that he was acting for or
representing her in his failure and neglect to appear or answer.

The first appearance in court of the defendant wife was made when she filed the
motion of August 26, 1924, in which she prays in legal effect that the judgment
against her be annulled and set aside and the case reopened, and that she be
permitted to file an answer and to have the case tried on its merits. That was a
general appearance as distinguished from a special appearance. When she filed
that motion asking to be relieved from the legal force and effect of the judgment,
she submitted herself to the jurisdiction of the court. If, in the first instance, she
had made a special appearance to question only the jurisdiction of the court, and
had not appeared for any other or different purpose, another and a different
question would have been presented. Having made a general appearance for
one purpose, she is now in court for all purposes.
It is an elementary rule of law that as a condition precedent, to entitle a party to
relief from a judgment "taken against him through his mistake, inadvertence,
surprise or excusable neglect," that, among other things, he must show to the
court that he has a meritorious defense. Based upon that legal principle the bank
contends that no such a showing has been made by the defendant wife. That
involves the legal construction of the power of attorney which, it is admitted, the
wife gave to her husband on August 25, 1903, which, among other things
material to this opinion, recites that she gave to him:
Such full and ample power as required or necessary, to the end that he may
perform on my behalf, and in my name and availing himself of all my rights and
actions, the following acts:
5. Loan or borrow any sums of money or fungible things at the rate of interest
and for the time and under the conditions which he might deem convenient,
collecting or paying the capital or the interest on their respective due dates;
executing and signing the corresponding public or private documents related
thereto, and making all these transactions with or without mortgages, pledges or
personal guaranty.
6. Enter into any kind of contracts whether civil or mercantile, giving due form
thereof either by private documents or public deeds with all clauses and
requisites provided by law for their validity and effect, having due regard to the
nature of each contract.
7. Draw, endorse, accept, issue and negotiate any drafts, bills of exchange,
letters of credit, letters of payment, bills, vales, promissory notes and all kinds of
documents representative of value; paying or collecting the value thereof on
their respective due dates, or protesting them for non-acceptance or nonpayment, utilizing in this case the rights granted by the Code of Commerce now
in force, in order to collect the value thereof, interests, expenses and damages
against whomsoever should be liable therefor.
8. Institute before the competent courts the corresponding action in justification
of the possession which I have or might have over any real estate, filing the
necessary pleadings, evidencing them by means of documentary or oral
testimony admissible by law; accepting notices and summons, and instituting all

necessary proceedings for the termination thereof and the consequent


inscription of said action in the corresponding office of the Register of Deeds, in
the same manner in which I might do if personally present and acting.
9. Represent me in all cases before the municipal courts, justice of the peace
courts, courts of first instance, supreme court and all other courts of regular or
any other special jurisdiction, appearing before them in any civil or criminal
proceedings, instituting and filing criminal and ordinary civil actions, claims in
intestate and testamentary proceedings, insolvencies and other actions provided
by law; filing complaints, answers, counterclaims, cross complaints, criminal
complaints and such other pleadings as might be necessary; filing demurrers,
taking and offering judicial admissions, documentary, expert, oral evidence, and
others provided by law, objecting to and opposing whatever contrary actions are
taken, offered and presented; accepting notices, citations and summons and
acknowledging their receipt to the proper judicial officials.
10. For to the end stated above and the incidents related thereto, I confer on him
ample and complete power, binding myself in the most solemn manner as
required by law to recognize as existing and valid all that he might do by virtue
hereof.
It is admitted that on December 29, 1921, the defendant husband signed the
name of the defendant wife to the promissory note in question, and that to
secure the payment of the note, upon the same date and as attorney in fact for
his wife, the husband signed the real mortgage in question in favor of the bank,
and that the mortgage was duly executed.
Based upon such admissions, the bank vigorously contends that the defendant
wife has not shown a meritorious defense. In fact that it appears from her own
showing that she does not have a legal defense. It must be admitted that upon
the face of the instruments, that fact appears to be true. To meet that
contention, the defendant wife points out, first, that the note in question is a
joint and several note, and, second, that it appears from the evidence, which she
submitted, that she is nothing more than an accommodation maker of the note.
She also submits evidence which tends to show:
First. That prior to July 25, 1921, Jean M. Poizat was personally indebted to the
Bank of the Philippine Islands in the sum of P290,050.02 (Exhibit H, page 66, bill
of exceptions);
Second. That on July 25, 1921, the personal indebtedness of Jean M. Poizat was
converted into six promissory notes aggregating the sum of P308,458.58 of
which P16,180 were paid, leaving an outstanding balance of P292,278.58
(Exhibits D, E, F, G, H and I, pages 75-80, bill of exceptions);
Third. That on December 29, 1921, the above promissory notes were cancelled
and substituted by a joint and several note signed by Jean M. Poizat in his
personal capacity and as agent of Gabriela Andrea de Coster y Roxas and as
member of the firm J.M. Poizat and Co.

In other words, that under the power of attorney, the husband had no authority
for and on behalf of the wife to execute a joint and several note or to make her
liable as an accommodation maker. That the debt in question was a preexisting
debt of her husband and of the firm of J.M. Poizat and Co., to which she was not a
party, and for which she was under no legal obligation to pay. That she never
borrowed any money from the bank, and that previous to the signing of the note,
she never had any dealings with the bank and was not indebted to the bank in
any amount. That the old, original debts of her husband and J.M. Poizat and Co.
to the bank, to which she was not a party, were all taken up and merged in the
new note of December 29, 1921, in question, and that at the time the note was
signed, she did not borrow any money, and that no money was loaned by the
bank to the makers of the note.
Assuming such facts to be true, it would be a valid defense by the defendant wife
to the payment of the note. There is no claim or pretense that the bank was
misled or deceived. If it had made an actual loan of P292,000 at the time the
note was executed, another and a different question would be presented. In the
ordinary course of its business, the bank knew that not a dollar was loaned or
borrowed on the strength of the note. It was given at the urgent and pressing
demand of the bank to obtain security for the six different notes which it held
against J.M. Poizat and Co. and Jean M. Poizat of date July 25, 1921, aggregating
about P292,000, and at the time it was given, those notes were taken up and
merged in the note of December 29, 1921, now in question. Upon the record
before us, there is no evidence that the defendant wife was a party to the notes
of July 25, 1921, or that she was under any legal liability to pay them.
The note and mortgage in question show upon their face that at the time they
were executed, the husband was attorney in fact for the defendant wife, and the
bank knew or should have known the nature and extent of his authority and the
limitations upon his power.
You will search the terms and provisions of the power of attorney in vain to find
any authority for the husband to make his wife liable as a surety for the payment
of the preexisting debt of a third person.
Paragraph 5 of the power of attorney above quoted authorizes the husband for in
the name of his wife to "loan or borrow any sums of money or fungible things,
etc." This should be construed to mean that the husband had power only to loan
his wife's money and to borrow money for or on account of his wife as her agent
and attorney in fact. That does not carry with it or imply that he had the legal
right to make his wife liable as a surety for the preexisting debt of a third person.
Paragraph 6 authorizes him to "enter into any kind of contracts whether civil or
mercantile, giving due form thereof either by private documents or public deeds,
etc."
Paragraph 7 authorizes him to "draw, endorse, accept, issue and negotiate any
drafts, bills of exchange, letters of credit, letters of payment, bills, vales,
promissory notes, etc."

The foregoing are the clauses in the power of attorney upon which the bank
relies for the authority of the husband to execute promissory notes for and on
behalf of his wife and as her agent.
It will be noted that there is no provision in either of them which authorizes or
empowers him to sign anything or to do anything which would make his wife
liable as a surety for a preexisting debt.
It is fundamental rule of construction that where in an instrument powers and
duties are specified and defined, that all of such powers and duties are limited
and confined to those which are specified and defined, and that all other powers
and duties are excluded.
Paragraph 8 of the power of attorney authorizes the husband to institute,
prosecute and defend all actions or proceedings in a court of justice, including
"accepting notices and summons."
There is nothing in the record tending to show that the husband accepted the
service of any notice or summons in the action on behalf of the bank, and even
so, if he had, it would not be a defense to open up and vacate a judgment under
section 113 of the Code of Civil Procedure. The same thing is true as to
paragraph 9 of the power of attorney.
The fact that an agent failed and neglected to perform his duties and to
represent the interests of his principal is not a bar to the principal obtaining legal
relief for the negligence of her agent, provided that the application for such a
relief is duly and properly made under the provisions of section 113.
It is very apparent from the face of the instrument that the whole purpose and
intent of the power of attorney was to empower and authorize the husband to
look after and protect the interests of the wife and for her and in her name to
transact any and all of her business. But nowhere does it provide or authorize
him to make her liable as a surety for the payment of the preexisting debt of a
third person.
Hence, it follows that the husband was not authorized or empowered to sign the
note in question for and on behalf of the wife as her act and deed, and that as to
her the note is void for want of power of her husband to execute it.
The same thing is true as to the real mortgage to the bank. It was given to
secure the note in question and was not given for any other purpose. The real
property described in the mortgage to the bank was and is the property of the
wife. The note being void as to her, it follows that as to her the real mortgage to
the bank is also void for want of power to execute it.
It appears that before the motion in question was filed, there were certain
negotiations between the bank and the attorney for the wife with a view of a
compromise or settlement of the bank's claim against her, and that during such
negotiations, there was some evidence or admissions on the part of her attorney
that she was liable for the bank's claim. It now contends that as a result of such

negotiations and admissions, the wife is estopped to deny her liability. but it also
appears that during such negotiations, both the wife and her attorney did not
have any knowledge of the actual facts, and that she was then ignorant of the
defense upon which she now relies. Be that as it may, such negotiations were
more or less in the nature of a compromise which was rejected by the bank, and
it appears that in any event both the wife and her attorney did not have any
knowledge of the facts upon which they now rely as a defense.
There is no claim or pretense that the debt in question was contracted for or on
account of the "usual daily expenses of the family, incurred by the wife or by her
order, with the tacit consent of the husband," as provided for in article 1362 of
the Civil Code. Neither is there any evidence tending to show that the wife was
legally liable for any portion of the original debt evidence by the note in
question.
This decision as to the bank on this motion is based on the assumption that the
facts are true as set forth and alleged in the petition to set aside and vacate the
judgment as to the wife, but we are not making any finding as to the actual truth
of such facts. That remains for the defendant wife to prove such alleged facts
when the case is tried on its merits.
It follows that the opinion of the lower court in refusing to set aside and vacate
the judgment of the plaintiff bank against the defendant wife is reversed, and
that judgment is vacated and set aside, and as to the bank the case is remanded
to the lower court, with leave for the wife to file an answer to plaintiff's cause of
action, and to have the case tried on its merits and for any further proceedings
not inconsistent with this opinion.
As to the judgment in favor of the Dominican Fathers, it appears that their plea
above quoted in the statement of facts was filed on April 24, 1924. In that plea
they say that they have a first mortgage on the property described in paragraph
IV of the complaint for P125,000 with interest at 10 per cent per annum. That the
mortgagors Jean M. Poizat and Gabriela Andrea de Coster y Roxas have not paid
the principal or the stipulated interest from December 16, 1921, to date, which
up to the 30th day of April, 1924, amounts to P27,925.34. Wherefore, it is prayed
that the credit above-mentioned be taken into account when the second
mortgage is foreclosed.
No other plea of any kind, nature or description was filed by it. The record shows
that a copy of this alleged plea was served upon the attorneys for the plaintiff
bank. There is nothing in the record which shows or tends to show that a copy of
it was ever served on either one of the defendants. Neither is there any evidence
that either of the defendants ever appeared in the original action. In fact,
judgment was rendered against them by default.
Under such a state of facts, the judgment in favor of the Dominican Fathers
cannot be sustained. In the first place, the plea above quoted filed on April 24,
1924, would not be sufficient to sustain a judgment. It does not even ask for a
judgment of the foreclosure of its mortgage. In the second place, no copy of the

plea was ever served upon either of the defendants, who were the real parties in
interest, and against whom a judgment was rendered for the full amount of the
note and the foreclosure of the mortgage. Such a proceeding cannot be
sustained on any legal principle.
Unless waived, a defendant has a legal right to service of process, to his day in
court and to be heard in his defense.
From what has been said, it follows that, if the transaction between the
Dominican Fathers and Jean M. Poizat as attorney in fact for his wife was an
original one and the P125,000 was actually loaned at the time the note and
mortgage were executed and the money was in good faith delivered to the
husband as the agent and attorney in fact of the wife, it would then be a valid
exercise of the power given to the husband, regardless of the question as to
what he may have done with the money.
Paragraph 5 of the power of attorney specifically authorizes him to borrow
money for and on account of his wife and her name, "and making all these
transactions with or without mortgages, pledges or personal guaranty."
It follows that the judgment of the lower court in favor of La Orden de Dominicos
or PP. Predicadores de la Provincia del Santisimo Rosario is reversed, without
prejudice to its right to either file an original suit to foreclose its mortgage or to
file a good and sufficient plea as intervenor in the instant suit, setting forth the
facts upon which it relies for a judgment on its note and the foreclosure of its
mortgage, copies of which should be served upon the defendants.
Neither party to recover costs. So ordered.
Ostrand and Romualdez, JJ., concur.
Johnson and Malcolm, JJ., concur in the result.

Separate Opinions
VILLAMOR, J., concurring and dissenting:
I concur in the result reached by the court in ordering the remanding of the case
for further proceedings, for in my opinion, the defendant-appellant, against
whom a judgment by default was rendered, has the right, under section 113 of
the Code of Civil Procedure, to have said judgment set aside and to be given an
opportunity to appear, having alleged facts which, if proven, would constitute a
good defense, but I dissent from the opinion of the majority in so far as it
attempts to decide certain features of the case raised by the defendantappellant, without waiting for the outcome of the new trial wherein the other
parties must naturally have the same opportunity to present their defenses
against the facts alleged by the appellant. In my opinion, the merits of the

question should not now be discussed without giving the trial court an
opportunity to pass upon the allegations and evidence of the parties litigant.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-24765

August 29, 1969

PHILIPPINE NATIONAL BANK, plaintiff-appellee,


vs.
MAXIMO STA. MARIA, ET AL., defendant,
VALERIANA, EMETERIA, TEOFILO, QUINTIN, ROSARIO and LEONILA, all
surnamed STA. MARIA, defendants-appellants.
Tomas Besa and Jose B. Galang for plaintiff-appellee.
G.P. Nuguid, Jr. for defendants-appellants.
TEEHANKEE, J.:
In this appeal certified to this Court by the Court of Appeals as involving
purely legal issues, we hold that a special power of attorney to mortgage real
estate is limited to such authority to mortgage and does not bind the grantor
personally to other obligations contracted by the grantee, in the absence of any
ratification or other similar act that would estop the grantor from questioning or
disowning such other obligations contracted by the grantee.
Plaintiff bank filed this action on February 10, 1961 against defendant
Maximo Sta. Maria and his six brothers and sisters, defendants-appellants,
Valeriana, Emeteria, Teofilo, Quintin, Rosario and Leonila, all surnamed Sta.
Maria, and the Associated Insurance & Surety Co., Inc. as surety, for the
collection of certain amounts representing unpaid balances on two agricultural
sugar crop loans due allegedly from defendants. 1
The said sugar crop loans were obtained by defendant Maximo Sta. Maria
from plaintiff bank under a special power of attorney, executed in his favor by his
six brothers and sisters, defendants-appellants herein, to mortgage a 16-odd
hectare parcel of land, jointly owned by all of them, the pertinent portion of
which reads as follows:
That we, VALERIANA, EMETERIA, TEOFILO, QUINTIN, ROSARIO and LEONILA
all surnamed STA. MARIA, sole heirs of our deceased parents CANDIDO STA.
MARIA and FRANCISCA DE LOS REYES, all of legal age, Filipinos, and residents of
Dinalupihan, Bataan, do hereby name, constitute and appoint Dr. MAXIMO STA.
MARIA, of legal age, married, and residing at Dinalupihan, Bataan to be our true
and lawful attorney of and in our place, name and stead to mortgage, or convey
as security to any bank, company or to any natural or juridical person, our

undivided shares over a certain parcel of land together the improvements


thereon which parcel of land is more particularly described as follows, to wit:
"Situated in the Barrio of Pinulot, Municipality of Dinalupihan, Bataan,
containing an area of 16.7249 hectares and bounded as follows to wit: North by
property of Alejandro Benito; on the Northeast, by public land and property of
Tomas Tulop; on the southeast, by property of Ramindo Agustin; on the
southwest, by properties of Jose V. Reyes and Emilio Reyes; and on the
northwest, by excluded portion claimed by Emilio Reyes."
of which parcel of land aforementioned we are together with our said
attorney who is our brother, the owners in equal undivided shares as evidenced
by Transfer Certificate of Title No. T-2785 of the Registry of Deeds of Bataan
dated Feb. 26th 1951. (Exh. E)2
In addition, Valeriana Sta. Maria alone also executed in favor of her
brother, Maximo, a special power of attorney to borrow money and mortgage any
real estate owned by her, granting him the following authority:
For me and in my name to borrow money and make, execute, sign and
deliver mortgages of real estate now owned by me standing in my name and to
make, execute, sign and deliver any and all promissory notes necessary in the
premises. (Exh. E-I)3
By virtue of the two above powers, Maximo Sta. Maria applied for two
separate crop loans, for the 1952-1953 and 1953-1954 crop years, with plaintiff
bank, one in the amount of P15,000.00, of which only the sum of P13,216.11 was
actually extended by plaintiff, and the other in the amount of P23,000.00, of
which only the sum of P12,427.57 was actually extended by plaintiff. As security
for the two loans, Maximo Sta. Maria executed in his own name in favor of
plaintiff bank two chattel mortgages on the standing crops, guaranteed by surety
bonds for the full authorized amounts of the loans executed by the Associated
Insurance & Surety Co., Inc. as surety with Maximo Sta. Maria as principal. The
records of the crop loan application further disclose that among the securities
given by Maximo for the loans were a "2nd mortgage on 25.3023 Has. of
sugarland, including sugar quota rights therein" including, the parcel of land
jointly owned by Maximo and his six brothers and sisters herein for the 19521953 crop loan, with the notation that the bank already held a first mortgage on
the same properties for the 1951-1952 crop loan of Maximo, 4 and a 3rd
mortgage on the same properties for the 1953-1954 crop loan. 5
The trial court rendered judgment in favor of plaintiff and against
defendants thus:1wph1.t
WHEREFORE premises considered, judgment is hereby rendered
condemning the defendant Maximo R. Sta. Maria and his co-defendants
Valeriana, Quintin, Rosario, Emeteria, Teofilo, and Leonila all surnamed Sta. Maria
and the Associated Insurance and Surety Company, Inc., jointly and severally, to
pay the plaintiff, the Philippine National Bank, Del Carmen Branch, as follows:

1. On the first cause of action, the sum of P8,500.72 with a daily interest of P0.83
on P6,100.00 at 6% per annum beginning August 21, 1963 until fully paid;
2. On the second cause of action, the sum of P14,299.79 with a daily interest of
P1.53 on P9,346.44 at 6% per annum until fully paid; and
3. On both causes of action the further sum equivalent to 10% of the total
amount due as attorney's fee as of the date of the execution of this decision, and
the costs.6
Defendant Maximo Sta. Maria and his surety, defendant Associated
Insurance & Surety Co., Inc. who did not resist the action, did not appeal the
judgment. This appeals been taken by his six brothers and sisters, defendantsappellants who reiterate in their brief their main contention in their answer to the
complaint that under this special power of attorney, Exh. E, they had not given
their brother, Maximo, the authority to borrow money but only to mortgage the
real estate jointly owned by them; and that if they are liable at all, their liability
should not go beyond the value of the property which they had authorized to be
given as security for the loans obtained by Maximo. In their answer, defendantsappellants had further contended that they did not benefit whatsoever from the
loans, and that the plaintiff bank's only recourse against them is to foreclose on
the property which they had authorized Maximo to mortgage.
We find the appeal of defendants-appellants, except for defendant
Valeriana Sta. Maria who had executed another special power of attorney, Exh. E1, expressly authorizing Maximo to borrow money on her behalf, to be well taken.
1. Plaintiff bank has not made out a cause of action against defendantsappellants (except Valeriana), so as to hold them liable for the unpaid balances
of the loans obtained by Maximo under the chattel mortgages executed by him
in his own name alone. In the early case of Bank of P.I. vs. De Coster, this Court,
in holding that the broad power of attorney given by the wife to the husband to
look after and protect the wife's interests and to transact her business did not
authorize him to make her liable as a surety for the payment of the pre-existing
debt of a third person, cited the fundamental construction rule that "where in an
instrument powers and duties are specified and defined, that all of such powers
and duties are limited andconfined to those which are specified and defined, and
all other powers and duties are excluded." 7 This is but in accord with the
disinclination of courts to enlarge an authority granted beyond the powers
expressly given and those which incidentally flow or derive therefrom as being
usual or reasonably necessary and proper for the performance of such express
powers. Even before the filing of the present action, this Court in the similar case
of De Villa vs. Fabricante 8 had already ruled that where the power of attorney
given to the husband by the wife was limited to a grant of authority to mortgage
a parcel of land titled in the wife's name, the wife may not be held liable for the
payment of the mortgage debt contracted by the husband, as the authority to
mortgage does not carry with it the authority to contract obligation. This Court
thus held in the said case:

Appellant claims that the trial court erred in holding that only Cesario A.
Fabricante is liable to pay the mortgage debt and not his wife who is exempt
from liability. The trial court said: "Only the defendant Cesario A. Fabricante is
liable for the payment of this amount because it does not appear that the other
defendant Maria G. de Fabricante had authorized Cesario A. Fabricante to
contract the debt also in her name. The power of attorney was not presented and
it is to be presumed that the power (of attorney) was limited to a grant of
authority to Cesario A. Fabricante to mortgage the parcel of land covered by
Transfer Certificate of Title in the name of Maria G. de Fabricante.
We went over the contents of the deed of mortgage executed by Cesario
Fabricante in favor of Appellant on April 18, 1944, and there is really nothing
therein from which we may infer that Cesario was authorized by his wife to
construct the obligation in her name. The deed shows that the authority was
limited to the execution of the mortgage insofar as the property of the wife is
concerned. There is a difference between authority to mortgage and authority to
contract obligation. Since the power of attorney was not presented as evidence,
the trial court was correct in presuming that the power was merely limited to a
grant of authority to mortgage unless the contrary is shown. 9
2. The authority granted by defendants-appellants (except Valeriana) unto their
brother, Maximo, was merely to mortgage the property jointly owned by them.
They did not grant Maximo any authority to contract for any loans in their names
and behalf. Maximo alone, with Valeriana who authorized him to borrow money,
must answer for said loans and the other defendants-appellants' only liability is
that the real estate authorized by them to be mortgaged would be subject to
foreclosure and sale to respond for the obligations contracted by Maximo. But
they cannot be held personally liable for the payment of such obligations, as
erroneously held by the trial court.
3. The fact that Maximo presented to the plaintiff bank Valeriana's additional
special power of attorney expressly authorizing him to borrow money, Exh. E-1,
aside from the authority to mortgage executed by Valeriana together with the
other defendants-appellants also in Maximo's favor, lends support to our view
that the bank was not satisfied with the authority to mortgage alone. For
otherwise, such authority to borrow would have been deemed unnecessary and a
surplusage. And having failed to require that Maximo submit a similar authority
to borrow, from the other defendants-appellants, plaintiff, which apparently was
satisfied with the surety bond for repayment put up by Maximo, cannot now seek
to hold said defendants-appellants similarly liable for the unpaid loans. Plaintiff's
argument that "a mortgage is simply an accessory contract, and that to effect
the mortgage, a loan has to be secured" 10 falls, far short of the mark. Maximo
had indeed, secured the loan on his own account and the defendants-appellants
had authorized him to mortgage their respective undivided shares of the real
property jointly owned by them as security for the loan. But that was the extent
of their authority land consequent liability, to have the real property answer for
the loan in case of non-payment. It is not unusual in family and business circles
that one would allow his property or an undivided share in real estate to be

mortgaged by another as security, either as an accommodation or for valuable


consideration, but the grant of such authority does not extend to assuming
personal liability, much less solidary liability, for any loan secured by the grantee
in the absence of express authority so given by the grantor.
4. The outcome might be different if there had been an express ratification of the
loans by defendants-appellants or if it had been shown that they had been
benefited by the crop loans so as to put them in estoppel. But the burden of
establishing such ratification or estoppel falls squarely upon plaintiff bank. It has
not only failed to discharge this burden, but the record stands undisputed that
defendant-appellant Quintin Sta. Maria testified that he and his co-defendants
executed the authority to mortgage "to accommodate (my) brother Dr. Maximo
Sta. Maria ... and because he is my brother, I signed it to accommodate him as
security for whatever he may apply as loan. Only for that land, we gave him as,
security" and that "we brothers did not receive any centavo as benefit." 11 The
record further shows plaintiff bank itself admitted during the trial that
defendants-appellants "did not profit from the loan" and that they "did not
receive any money (the loan proceeds) from (Maximo)." 12 No estoppel, therefore,
can be claimed by plaintiff as against defendants-appellants.
5. Now, as to the extent of defendant Valeriana Sta. Maria's liability to plaintiff.
As already stated above, Valeriana stands liable not merely on the mortgage of
her share in the property, but also for the loans which Maximo had obtained from
plaintiff bank, since she had expressly granted Maximo the authority to incur
such loans. (Exh. E-1.) Although the question has not been raised in appellants'
brief, we hold that Valeriana's liability for the loans secured by Maximo is
not joint and several or solidary as adjudged by the trial court, but only joint,
pursuant to the provisions of Article 1207 of the Civil Code that "the
concurrence ... of two or more debtors in one and the same obligation does not
imply that ... each one of the (debtors) is bound to render entire compliance with
the prestation. There is a solidary liability only when the obligation expressly so
states, or when the law or the nature of the obligation requires solidarity." It
should be noted that in the additional special power of attorney, Exh. E-1,
executed by Valeriana, she did not grant Maximo the authority to bind her
solidarity with him on any loans he might secure thereunder.
6. Finally, as to the 10% award of attorney's fees, this Court believes that
considering the resources of plaintiff bank and the fact that the principal debtor,
Maximo Sta. Maria, had not contested the suit, an award of five (5%) per cent of
the balance due on the principal, exclusive of interests, i.e., a balance of
P6,100.00 on the first cause of action and a balance of P9,346.44 on the second
cause of action, per the bank's statements of August 20, 1963, (Exhs. Q-1 and
BB-1, respectively) should be sufficient.
WHEREFORE, the judgment of the trial court against defendants-appellants
Emeteria, Teofilo, Quintin, Rosario and Leonila, all surnamed Sta. Maria is hereby
reversed and set aside, with costs in both instances against plaintiff. The
judgment against defendant-appellant Valeriana Sta. Maria is modified in that her

liability is held to be joint and not solidary, and the award of attorney's fees is
reduced as set forth in the preceding paragraph, without costs in this instance.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando,
Capistrano and Barredo, JJ., concur.
1wph1.t Reyes, J.B.L., J., is on official leave.
Footnotes
1

The original complaint included apparently another sister by the name of Elena,
Rec. on App., p. 2, but this is the only mention of Elena in the record. She
appears not to have been summoned and no answer was filed in her behalf. No
judgment was rendered against Elena; she did not execute the power of attorney
in question, and for all purposes, she is not a party hereto.
2

Rec. on App., 14-15, emphasis supplied.

Rec. on App., pp. 19-20, emphasis supplied.

Exh. A.

Exh. R.

Rec. on Appeal, pp. 156-157.

49 Phil. 574 (1926); 47 Phil. 594, 613 (1925).

105 Phil. 672, (April 30, 1959).

Id., at 673-674, emphasis supplied.

10

Appellee's Brief, p. 15.

11

T.S.N., August 12, 1963, pp. 40-41.

12

T.S.N., August 23, 1963, p. 55.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. L-38816

November 3, 1933

INSULAR DRUG CO., INC., plaintiff-appellee,


vs.
THE PHILIPPINE NATIONAL BANK, ET AL., defendants.
THE PHILIPPINE NATIONAL BANK, appellant.
Camus and Delgado for appellant.
Franco and Reinoso for appellee.

MALCOLM, J.:
This is an appeal taken by Philippine National Bank from a judgment of the
Court of First Instance of Manila requiring bank to pay to the Insular Drug Co.,
Inc., the sum of P18,285.92 with legal interest and costs.
The record consists of the testimony of Alfred Von Arend, President and
Manager of the Insular Drug Co., Inc., and of exhibits obtained from the
Philippine National Bank showing transactions of U.E. Foerster with the bank. The
Philippine National Bank was content to submit the case without presenting
evidence in its behalf. The meagre record and the statement of facts agreed
upon by the attorneys for the contending parties disclose the following facts:
The Insular Drug Co., Inc., is a Philippine corporation with offices in the City
of Manila. U.E. Foerster was formerly a salesman of drug company for the Islands
of Panay and Negros. Foerster also acted as a collector for the company. He was
instructed to take the checks which came to his hands for the drug company to
the Iloilo branch of the Chartered Bank of India, Australia and China and deposit
the amounts to the credit of the drug company. Instead, Foerster deposited
checks, including those of Juan Llorente, Dolores Salcedo, Estanislao Salcedo,
and a fourth party, with the Iloilo branch of the Philippine National Bank. The
checks were in that bank placed in the personal account of Foerster. Some of the
checks were drawn against the Bank of Philippine National Bank. After the
indorsement on the checks was written "Received payment prior indorsement
guaranteed by Philippine National bank, Iloilo Branch, Angel Padilla, Manager."
The indorsement on the checks took various forms, some being "Insular Drug
Company, Inc., By: (Sgd.) U. Foerster, Agent. (Sgd.) U. Foerster" other being
"Insular Drug Co., Inc., By: (Sgd.) Carmen E. de Foerster, Agent (Sgd.) Carmen E.
de Foerster"; others "Insular Drug Co., Inc., By: (Sgd.) Carmen E. de Foerster,
Carmen E. de Froster"; others "(Sgd.) Carmen E. de Foerster, (Sgd.) Carmen E. de
Foerster"; one (Sgd.) U. Foerster. (Sgd.) U. Foerster"; others; "Insular Drug Co.,
Inc., Carmen E. de Foerster, By: (Sgd.) V. Bacaldo," etc. In this connection it
should be explained that Carmen E. de Foerster was his stenographer. As a
consequence of the indorsements on checks the amounts therein stated were
subsequently withdrawn by U. E., Foerster and Carmen E. de Foerster.
Eventually the Manila office of the drug company investigated the
transactions of Foerster. Upon the discovery of anomalies, Foerster committed
suicide. But there is no evidence showing that the bank knew that Foerster was
misappropriating the funds of his principal. The Insular Drug Company claims
that it never received the face value of 132 checks here in the question covering
a total of P18,285.92.lawphil.net
There is no Philippine authority which directly fits the proven facts. The
case of Fulton Iron Works Co., vs. China Banking Corporation ([1930], 55 Phil.,
208), mentioned by both parties rest on a different states of facts. However,
there are elementary principles governing the relationship between a bank and
its customers which are controlling.

In first place, the bank argues that the drug company was never defrauded
at all. While the evidence on the extent of the loss suffered by the drug company
is not nearly as clear as it should be, it is a sufficient answer to state that no
such special defense was relied upon by the bank in the trial court. The drug
company saw fit to stand on the proposition that checks drawn in its favor were
improperly and illegally cashed by the bank for Foerster and placed in his
personal account, thus making it possible for Foerster to defraud the drug
company, and the bank did not try to go back of this proposition.
The next point relied upon by the bank, to the effect that Foerster had
implied authority to indorse all checks made out in the name of the Insular Drug
Co., Inc., has even less force. Not only did the bank permit Foerster to indorse
checks and then place them to his personal account, but it went farther and
permitted Foerster's wife and clerk to indorse the checks. The right of an agent
to indorse commercial paper is a very responsible power and will not be lightly
inferred. A salesman with authority to collect money belonging to his principal
does not have the implied authority to indorse checks received in payment. Any
person taking checks made payable to a corporation, which can act only by
agent does so at his peril, and must same by the consequences if the agent who
indorses the same is without authority. (Arcade Realty Co. vs. Bank of Commerce
[1919], 180 Cal., 318; Standard Steam Specialty Co., vs. Corn Exchange Bank
[1917], 220 N.Y., 278; People vs. Bank of North America [1879], 75 N.Y., 547;
Graham vs. United States Savings Institution [1870], 46 Mo., 186.) Further
speaking to the errors specified by the bank, it is sufficient to state that no trust
fund was involved; that the fact that bank acted in good faith does not relieve it
from responsibility; that no proof was adduced, admitting that Foerster had right
to indorse the checks, indicative of right of his wife and clerk to do the same ,
and that the checks drawn on the Bank of the Philippine Islands can not be
differentiated from those drawn on the Philippine National Bank because of the
indorsement by the latter.
In brief, this is a case where 132 checks made out in the name of the
Insular Drug Co., Inc., were brought to the branch office of the Philippine National
Bank in Iloilo by Foerster, a salesman of the drug company, Foerster's wife, and
Foerster's clerk. The bank could tell by the checks themselves that the money
belonged to the Insular Drug Co., Inc., and not to Foerster or his wife or his clerk.
When the bank credited those checks to the personal account of Foerster and
permitted Foerster and his wife to make withdrawals without there being made
authority from the drug company to do so, the bank made itself responsible to
the drug company for the amounts represented by the checks. The bank could
relieve itself from responsibility by pleading and proving that after the money
was withdrawn from the bank it passed to the drug company which thus suffered
no loss, but the bank has not done so. Much more could be said about this case,
but it suffices to state in conclusion that bank will have to stand the loss
occasioned by the negligence of its agents.
Overruling the errors assigned, judgment of the trial court will be affirmed,
the costs of this instance to be paid by appellant.

Villa-Real, Hull, Imperial, and Butte, JJ., concur.


Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-42958

October 21, 1936

C. N. HODGES, plaintiff-appellant,
vs.
CARLOTA SALAS and PAZ SALAS, defendants-appellees.
Jose P. Orozco and Gibbs, McDonough and Ozaeta for appellant.
Vicente Varela and Conrado V. Sanchez for appellees.

IMPERIAL, J.:
The action was brought by the plaintiff to foreclose a certain real estate
mortgage constituted by the defendants to secure a loan. The plaintiff appealed
from the judgment of the Court of First Instance of Occidental Negros absolving
the defendants from the complaint and stating: That of the capital of P28,000
referred to in Exhibit A, the defendants were liable only for the sum of
P14,451.71; that the transactions and negotiations specified in Exhibit A as well
as the interest charged are usurious; that the sum of P14,778.77 paid by the
defendants to the plaintiff should be applied to the payment of the capital of
P14,451.71; that the plaintiff must refund the sum of P3,327.06 to the
defendants and, lastly, he must pay the costs.
On September 2, 1923, the defendants executed a power of attorney in
favor of their brother-in-law Felix S. Yulo to enable him to obtain a loan and
secure it with a mortgage on the real property described in transfer certificate of
title No. 3335. The power of attorney was registered in the registry of deeds of
the Province of Occidental Negros and the pertinent clauses thereof read as
follows:
That we confer upon our brother-in-law Mr. Felix S. Yulo, married, of age
and resident of the municipality of Bago, Province of Occidental Negros, P. I., as
required by law, a special power of attorney to obtain, in our respective names
and representation, a loan in any amount which our said brother-in-law may
deem necessary, being empowered, by virtue of the authority conferred in this
power of attorney, to constitute a mortgage on a parcel of land absolutely
belonging to us, the technical description of which is as follows:
"TRANSFER CERTIFICATE OF TITLE NO. 3335
"A parcel of land (lot No. 2464 of the Cadastral Survey of Bago) with the
improvements thereon, situated in municipality of Bago. Bounded on the NE. and

NW. by the Lonoy Sapa and lot No. 2465; on the SE. by the Ilabo Sapa; and on
the SW. by the Ilabo Sapa, lot No. 2508 and the Sapa Talaptapan. Containing an
area of one million nine hundred ninety-four thousand eight hundred and thirtyfour square meters (1,994,834), more or less."
That we confer and grant to our said brother-in-law Mr. Felix S. Yulo power
and authority to perform and execute each and every act necessary to the
performance of his trust, which acts shall be for all purposes as if we had
performed or executed them personally, hereby ratifying and confirming
everything that our said brother-in-law Mr. Felix S. Yulo may execute or cause to
be executed.
Acting under said power of attorney, Felix S. Yulo, on March 27, 1926,
obtained a loan of P28,000 from the plaintiff, binding his principals jointly and
severally, to pay it within ten (10) years, together with interest thereon at 12 per
cent per annum payable annually in advance, to which effect he signed a
promissory note for said amount and executed a deed of mortgage of the real
property described in transfer certificate of title No. 3335 and the improvements
thereon consisting in concrete buildings. It was stated in the deed that in case
the defendants failed to pay the stipulated interest and the taxes on the real
property mortgaged and if the plaintiff were compelled to bring an action to
recover his credit, said defendants would be obliged to pay 10 per cent more on
the unpaid capital, as fees for the plaintiff's attorneys. The mortgage so
constituted was registered in the registry of deeds of the Province of Occidental
Negros and noted on the back of the transfer certificate of title.
The sum of P28,000 was not delivered to Felix S. Yulo, but by agreement
between him and the plaintiff, it was employed as follows:
Interest for one year from March 27, 1926,
to March 26, 1927, collected in advance by P3,360.
the plaintiff .........................
00
Paid for the mortgage constituted by Felix
S. Yulo, cancelled on the date of the
loan ..........................................................

8,188.2
9

Paid by Felix S. Yulo on account of the


purchase price of the real property bought
by him on Ortiz Street ........................

2,000.0
0

Check No. 4590 delivered to Felix S.


Yulo ..........................

3,391.7
1

Check No. 4597 in the name of Rafael


Santos, paid to him to cancel the mortgage 9,200.0
constituted by the defendants .....
0
Check No. 4598 delivered to Felix S.

1,860.0

Yulo ...........................

Total ............................................................. 28,000.


...........
00
The defendants failed to pay at maturity the interest stipulated which
should have been paid one year in advance. All the sums paid by them on
account of accrued interest up to March 27, 1934, on which the complaint was
filed, together with the corresponding exhibits, are as follows:
Date

Amount

Exhibit 1 April 5,
P1,500.
1927 ............................................................... 00
Exhibit 2 May 2,
500.00
1927 ................................................................
Exhibit 4 August 30,
1927 .........................................................

336.00

Exhibit 7 June 4,
3,360.0
1928 ................................................................ 0
Exhibit 8 May 15,
1929 ..............................................................

67.20

Exhibit 9 June 19,


1929 ..............................................................

67.20

Exhibit 10 July 25,


33.60
1929 ...............................................................
Exhibit 11 August 26,
1929 .........................................................

33.60

Exhibit 12 October 7,
1929 ..........................................................

392.55

Exhibit 13 October 7,
1929 ..........................................................

30.00

Exhibit 14 November 9,
1929 ......................................................

29.67

Exhibit 15 November 9,
1929 ......................................................

938.95

Exhibit 16 February 8,
1930 ........................................................

61.04

Exhibit 17 February 8,
1930 ........................................................

936.46

Exhibit 18 No
date .................................................................. 498.75
.....
Exhibit 19 February 10,
1931 ......................................................

498.75

Exhibit 20 August 20,


1931 .........................................................

498.75

Exhibit 21 July 7,
498.75
1932 .................................................................
Exhibit 22 July 29,
500.00
1932 ...............................................................
Exhibit 23 September 23,
1932 ....................................................

500.00

Exhibit 24 December 17,


1932 .....................................................

997.50

Exhibit 25 No
1,000.0
date ..................................................................
0
......
Exhibit 26 January 23,
1934 .........................................................

500.00

Total .................................................................. 14,779.


...........................
77
To the foregoing amount must be added the sum of P3,360 deducted by
the plaintiff upon granting the loan, as interest for one year, thereby making the
total amount of interest paid by the defendants and received by the plaintiff
P18,138.77.
The foregoing are facts inferred from the evidence and are not
controverted by the parties, with the exception of the existence of the
promissory note, the registration of the mortgage deed and the notation on the
back of the certificate of title.lwphi1.nt
I. The action brought by the plaintiff was for the foreclosure of a mortgage
in accordance with the provisions of sections 254 to 261 of the Code of Civil
Procedure. It was not expressly alleged in the complaint that the mortgage deed
had been registered in accordance with Act No. 496, which was the law
applicable in the case of the real property registered under the Torrens system. A

copy of the mortgage deed was attached to the complaint and made a part
thereof, but said copy did not show that the original had been duly registered. In
paragraph 3 of the complaint, however, it was alleged that the mortgage deed
had been noted on the back of transfer certificate of title No. 3335 by the
register of deeds of the Province of Occidental Negros, in accordance with the
provisions of the Mortgage Law. This specific allegation is equivalent to a
statement that the mortgage deed had been duly registered.
At the trial of the case, the attorney for the plaintiff did not present the
mortgage deed showing the registration thereof in the registry, or the owner's
transfer certificate of title. In their stead the plaintiff testified that the mortgage
had been duly registered in the registry of deeds of Occidental Negros and had
been noted on the back of the transfer certificate of title. The oral evidence was
admitted without any objection on the part of the attorney for the defendants. In
the appealed decision the court held that the plaintiff had failed to substantiate
his foreclosure suit and, not having presented competent evidence, the action
arising from his evidence was merely a personal action for the recovery of a
certain sum of money. The plaintiff excepted to this conclusion and assigns it in
his brief as the first error of law committed by the court.
Section 284 of the Code of Civil Procedure requires the contents of a
writing to be proven by the writing itself, except in cases therein specified.
Section 313, No. 6, provides that official or public documents must be proven by
presenting the original or a copy certified by the legal keeper thereof. According
to this, the plaintiff was obliged to present the original or a certified copy of the
mortgage deed showing the registration thereof, as well as the owner's transfer
certificate of title. Both would have been the best evidence to prove the
registration of the mortgage and the notation thereof on the back of the title.
Had the defendants objected to the oral evidence offered, there is no doubt that
it would have been rejected as incompetent. But it is universally accepted that
when secondary or incompetent evidence is presented and accepted without any
objection on the part of the other party, the latter is bound thereby and the court
is obliged to grant it, the probatory value it deserves. (City of
Manila vs. Cabangis, 10 Phil., 151; Bersabal vs. Bernal, 13 Phil., 463; Kuenzle &
Streiff vs. Jiongco, 22 Phil., 110; U. S. vs. Choa Tong, 22 Phil., 562; U. S. vs. Ong
Shiu, 28 Phil., 242; De Leon vs. Director of Prisons, 31 Phil., 60: U.
S. vs. Hernandez, 31 Phil., 342; 23 C. J., 39, section 1783, and the cases therein
cited; 10 R. C. L., 1008, paragraph 197, and the cases therein cited.)
Inasmuch as the registration of the mortgage and the notation thereof on
the back of the transfer certificate of title have been established by the oral
evidence above stated, the court was without authority to conclude that the
action was personal in character and, consequently, the first assignment of error
is well founded.
II. The court held that the loan and the mortgage were usurious and illegal
for two reasons: First, because the plaintiff charged compound interest
notwithstanding the fact that it had not been stipulated, and second, because

the plaintiff charged interest yearly in advance in accordance with the


agreement. These conclusions are the subject matter of the plaintiff's second
assignment of error.
The plaintiff categorically denied having charged compound interest,
stating in his brief that all the interest charged by him should be applied to the
interest unpaid by the defendants. We have examined Exhibits 8 to 17 of the
defendants, which are the evidence offered to establish the fact that compound
interest had been charged, and we have, without any difficulty, arrived at the
conclusion that the plaintiff has really charged said unauthorized and
unstipulated interest. If there is any doubt on this fact, it is dispelled by Exhibit
10, in the handwriting of the plaintiff himself, wherein it appears that the sum of
P33.60 was charged by him on account of interest on unpaid interest. But the
fact of charging illegal interest that may be charged, does not make the loan or
the mortgage usurious because the transactions took place subsequent to the
execution of said contracts and the latter do not appear to be void ab initio (66
C. J., pages 243, 244, section 194). Said interest should be applied first to the
payment of the stipulated and unpaid interest and, later, to that of the capital.
(Aguilar vs. Rubiato and Gonzalez Vila, 40 Phil., 570; Go Chioco vs. Martinez, 45
Phil., 256; Gui Jong & Co. vs. Rivera and Avellar, 45 Phil., 778; Lopez and
Javelona vs. El Hogar Filipino, 47 Phil., 249; Sajo vs. Gustilo, 48 Phil, 451.)
The plaintiff admits having charged in advance the interest corresponding
to the first year. The mortgage deed contains the stipulation that the defendants
should pay in advance the stipulated interest corresponding to each year. The
court declared the contract usurious for this reason, basing its opinion upon
some American authorities holding the same point of view. This court cannot
adopt said doctrine in this jurisdiction. Section 5 of Act No. 2655, as amended by
section 3 of Act No. 3291, expressly permit a creditor to charge in advance
interest corresponding to not more than one year, whatever the duration of the
loan. What is prohibited is the charging in advance of interest for more than one
year. Section 6 reiterates said rule in exempting a creditor found guilty of usury
from the obligation to return the interest and commissions collected by him in
advance, provided said interest and commissions are not for a period of more
than one year and the rate of interest does not exceed the maximum limit fixed
by law.
This court concludes, therefore, that the second assignment of error is well
founded in the sense that both the loan and the mortgage are not usurious or
illegal.
III. In his third assignment of error, the plaintiff contends that the court
should have declared the action for the usury interposed by the defendants in
their cross-complaint barred by the statute of limitations, in accordance with the
provision of section 6 of Act No. 2655, as amended by section 4 of Act No. 3291.
It is true that according to the evidence more than two years have already
elapsed from the time the defendants paid and the plaintiff received the usurious
interest to the registration of the cross-complaint, but the plaintiff cannot

successfully invoke the defense of prescription because he failed to allege it in


his reply to the cross-complaint. In order that prescription may constitute a valid
defense and it may be considered on appeal, it must be specifically pleaded in
the answer and proven with the same degree of certainty with which an essential
allegation in a civil action is established. Otherwise it will not be taken into
consideration, much less if it is alleged for the first time on appeal.
(Aldeguer vs. Hoskyn, 2 Phil., 500; Domingo vs. Osorio, 7 Phil, 405;
Marzon vs. Udtujan, 20 Phil., 232; Pelaez vs.Abreu, 26 Phil., 415; Corporacion de
PP. Agustinos Recoletos vs. Crisostomo, 32 Phil., 427; Karagdag vs. Barado, 33
Phil., 529.)
IV. The defendants proved that their attorney's fees were contracted at
P3,000. The evidence has not been contradicted. The amount so fixed is not
unreasonable or unconscionable. In the fourth assignment of error, the plaintiff
questions that part of the judgment ordering him to pay said fees. He contends
that he is not responsible for the payment thereof because neither the loan nor
the mortgage is usurious. However, this court has already stated that the plaintiff
violated the Usury Law in charging compound interest notwithstanding the fact
that it has not been so stipulated and that adding these sums to the stipulated
interest the average exceeds the maximum rate of interest that may be charged
for the loan which has been the subject matter of the transaction. This violation
falls under the precept of section 6 of the Usury Law and the plaintiff is obliged
to pay the fees of the attorney for the defendants. This court holds that the
fourth assignment of error is unfounded.
V. In the fifth assignment of error, the plaintiff alleges that the judgment is
erroneous for not having declared that the defendants ratified all the obligations
contracted by their attorney in fact. In the sixth assignment of error he contends
that an error was likewise committed in not declaring that by virtue of the
authority conferred by the defendants, agent Yulo was authorized to borrow
money and invest it as he wished, without being obliged to apply it necessarily
for the benefit of his principals. In the seventh assignment of error the plaintiff
alleges that the court erred in fixing the capital, which the defendants are
obliged to pay him by virtue of the power of attorney executed by them, at only
P14,451.71. In the eighth and last assignment of error, he insists that the court
should have ordered the defendants to pay the entire capital owed, with interest
thereon in accordance with the mortgage deed, together with 10 per cent thereof
as attorney's fees, the action having been instituted due to nonfeasance on the
part of the defendants.
These four assignments of errors refer to the interpretation and scope of
the power of attorney and to the computation of the capital and the interest to
be paid by the defendants and, finally, to whether or not the latter are obliged to
pay the fees of the attorney for the plaintiff. For this reason, this court passes
upon them jointly.
The pertinent clauses of the power of attorney from which may be
determined the intention of the principals in authorizing their agent to obtain a

loan, securing it with their real property, were quoted at the beginning. The
terms thereof are limited; the agent was thereby authorized only to borrow any
amount of money which he deemed necessary. There is nothing, however, to
indicate that the defendants had likewise authorized him to convert the money
obtained by him to his personal use. With respect to a power of attorney of
special character, it cannot be interpreted as also authorizing the agent to
dispose of the money as he pleased, particularly when it does not appear that
such was the intention of the principals, and in applying part of the funds to pay
his personal obligations, he exceeded his authority (art. 1714, Civil Code; Bank of
the Philippine Islands vs. De Coster, 47 Phil., 594 and 49 Phil., 574). In the case
like the present one, it should be understood that the agent was obliged to turn
over the money to the principals or, at least, place it at their disposal. In the case
of Manila Trading & Supply Co., vs. Uy Tiepo (G.R. No. 30339, March 2, 1929, not
reported), referring to a power of attorney to borrow any amount of money in
cash and to guarantee the payment thereof by the mortgage of certain property
belonging to the principals, this court held that the agent exceeded his authority
in guaranteeing his personal account for automobile parts by the mortgage, not
having been specially authorized to do so. This court then said:
Inasmuch as Jose S. Uy Tiepo, as agent of Daniel Ramos and Emilio
Villarosa, was only authorized to "borrow any amount of cash", and to guaranty
the payment of the sums of money so borrowed by the mortgage of the property
stated in the power of attorney, he exceeded the authority conferred upon him in
mortgaging his principal's property to secure the payment of his personal debt
for automobile parts, and the guaranties so made are null and void, the
principals in question not being responsible for said obligations.
The plaintiff contends that the agent's act of employing part of the loan to
pay his personal debts was ratified by the defendants in their letter to him dated
August 21, 1927 (Exhibit E). This court has carefully read the contents of said
document and has found nothing implying ratification or approval of the agent's
act. In it the defendants confined themselves to stating that they would notify
their agent of the maturity of the obligation contracted by him. They said nothing
about whether or not their agent was authorized to use the funds obtained by
him in the payment of his personal obligations.
In view of the foregoing, this court concludes that the fifth and sixth
assignments of error are unfounded.
In the seventh assignment of error, the plaintiff insists that the defendants
should answer for the entire loan plus the stipulated interest thereon. This court
has already stated the manner in which the agent employed the loan, according
to the plaintiff. Of the loan of P28,000, the agent applied the sum of P10,188.29
to the payment of his personal debt to the plaintiff. The balance of P17,811.71
constitutes the capital which the defendants are obliged to pay by virtue of the
power conferred upon their agent and the mortgage deed.
In connection with the stipulated interest, it appears that the capital of
P17,811.71 bore interest at 12 per cent per annum from March 27, 1926, to

September 30, 1936, equivalent to P22,460.56. All the interest paid by the
defendants to the plaintiff, including that which is considered as usurious,
amounts to P18,138.77, so that they are still indebted in said concept in the sum
of P4,321.79. Adding this sum to the capital of P17,811.71, makes a total of
P22,133.50, from which the sum of P3,000 constituting the fees of the attorney
for the defendants must be deducted, leaving a net balance of P19,133.50 which
is all that the defendants must pay to the plaintiff up to said date.
The foregoing disposes of the seventh assignment of error.
In the mortgage deed the defendants bound themselves to pay the fees of
the attorney for the plaintiff were to resort to the courts to foreclose the
mortgage. Said fees were fixed at 10 per cent of the capital which the
defendants might owe. This penalty according to what has been stated
heretofore, amounts to P1,781.17 which would have to be added to the total
amount to be paid to the plaintiff by the defendants. The court, having declared
the contracts usurious, did not order the defendants to pay the penalty and for
this reason the plaintiff assigns the omission as the eighth and last assignment of
alleged error. Inasmuch as the fees agreed upon are neither excessive nor
unreasonable, this court finds no good reason to disapprove it, particularly
because the defendants were also granted a larger amount in the same concept.
In view of the conclusions arrived at, the motion for a new trial filed by the
attorneys for the plaintiff on March 12, 1935, is denied, and the amendments to
the complaint proposed by them in their pleading of March 20 of said year are
admitted.
For all the foregoing reasons, the appealed judgment is modified and the
defendants are ordered to, pay jointly and severally to the plaintiff the sums of
P19,133.50 and P1,781.17. Within three months they shall make payment of said
two sums of money or deposit them with the clerk of court, at the disposal of the
plaintiff, upon failure to do which the real property mortgaged with the
improvements thereon shall be sold at public auction and the proceeds thereof
applied to the payment of the two sums of money above-stated; without special
pronouncement as to the costs of this instance. So ordered.
Avancea, C. J., Villa-Real, Abad Santos, Diaz, and Laurel, JJ., concur.
RESOLUTION
December 29, 1936
IMPERIAL, J.:
The motion for reconsideration presented by the appellee based upon the
three grounds: (1) That the capital for which they must answer to the appellant
should be only P16,422.39, not P17,811.71 as stated in the decision; (2) that the
computation of the payments made is incorrect, and (3) that the oral evidence
relative to the registration of the mortgage is insufficient.

I. It is claimed that as the true capital for which the appellees were held
responsible amounts only to P16,422.39, excluding the sum of P3,360 paid in
advance as interest corresponding to the first year, this latter sum should not be
paid in its entirety by the appellees but only that par thereof in proportion to the
capital owed. The contention is without any foundation because, as was already
stated in the decision, the agent was expressly authorized to borrow and receive
the total amount of P28,000. On the other hand, as it was stipulated that the
interest should be paid annually in advance, it is evident and just that the entire
sum of P3,360 representing said interest be paid by the appellees who
contracted the debt through an agent. The fact that after the contract had been
consummated and the interest for the first year paid, the agent, exceeding his
authority, unduly used part of the funds intrusted to him, does not relieve the
appellees of their obligation to answer for the entire interest for the first year. For
this reason, this court declares that the first ground is unfounded.
II. In the computation of the interest paid by the appellees and of that which they
should pay to the appellant by virtue of the terms of the contract, this court
proceeded to determine the time that elapsed from the date the contract
became effective and debited to the appellees the interest at the rate agreed
upon, deducting therefrom what they had paid in said concept, including the
interest paid by them for the first year because, the computation commenced
from the date fixed in the contract, which is March 27, 1926. The difference
represents the interest unpaid by the appellees up to September 30, 1936,
considered by this court as the date, on which the appellees' account with the
appellant was finally liquidated and closed, and added to the capital they
represent the amount appearing in the decision. This court sees no error of
accounting in this computation.
III. The appellees insist that the oral evidence upon which this court based its
opinion in declaring that the mortgage deed is registered, is insufficient. What
has been said in the decision on this point is so clear and understandable that
this court believes itself relieved from the obligation of reproducing it. There is no
merit in the last ground of the motion.
In answering the appellees' motion for reconsideration, the appellant
likewise seeks reconsideration of the decision, alleging that he is entitled to a
larger amount. Without going into details, because this court deems it
unnecessary, it is held that the appellant is not entitled to ask for reconsideration
of the decision on the ground that his petition to that effect has been filed too
late, after the decision in question became final with respect to him.
The appellees' motion for reconsideration is denied.
Avancea, C. J., Villa-Real, Abad Santos, Diaz, and Laurel, JJ., concur.
Republic of the Philippines
SUPREME COURT
FIRST DIVISION

G.R. No. 152658. July 29, 2005


LILY ELIZABETH BRAVO-GUERRERO, BEN MAURICIO P. BRAVO, 1 ROLAND
P. BRAVO, JR., OFELIA BRAVO-QUIESTAS, HEIRS OF CORPUSINIA BRAVONIOR namely: GERSON U. NIOR, MARK GERRY B. NIOR, CLIFF RICHARD B.
NIOR, BRYAN B. NIOR, WIDMARK B. NIOR, SHERRY ANNE B. NIOR,
represented by LILY ELIZABETH BRAVO-GUERRERO as their attorney-infact, and HONORABLE FLORENTINO A. TUASON, JR., Presiding Judge,
Regional Trial Court, Branch 139, Makati City, Petitioners,
vs.
EDWARD P. BRAVO, represented by his attorney-in-fact FATIMA C.
BRAVO, respondent, and DAVID B. DIAZ, JR., intervenor-respondent.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review2 assailing the Decision3 of 21 December
2001 of the Court of Appeals in CA-G.R. CV No. 67794. The Court of Appeals
reversed the Decision4 of 11 May 2000 of the Regional Trial Court of Makati,
Branch No. 139, in Civil Case No. 97-1379 denying respondents prayer to
partition the subject properties.
Antecedent Facts
Spouses Mauricio Bravo ("Mauricio") and Simona 5 Andaya Bravo ("Simona")
owned two parcels of land ("Properties") measuring 287 and 291 square meters
and located along Evangelista Street, Makati City, Metro Manila. The Properties
are registered under TCT Nos. 58999 and 59000 issued by the Register of Deeds
of Rizal on 23 May 1958. The Properties contain a large residential dwelling, a
smaller house and other improvements.
Mauricio and Simona had three children - Roland, Cesar and Lily, all surnamed
Bravo. Cesar died without issue. Lily Bravo married David Diaz, and had a son,
David B. Diaz, Jr. ("David Jr."). Roland had six children, namely, Lily Elizabeth
Bravo-Guerrero ("Elizabeth"), Edward Bravo ("Edward"), Roland Bravo, Jr.
("Roland Jr."), Senia Bravo, Benjamin Mauricio Bravo, and their half-sister, Ofelia
Bravo ("Ofelia").
Simona executed a General Power of Attorney ("GPA") on 17 June 1966
appointing Mauricio as her attorney-in-fact. In the GPA, Simona authorized
Mauricio to "mortgage or otherwise hypothecate, sell, assign and dispose of any
and all of my property, real, personal or mixed, of any kind whatsoever and
wheresoever situated, or any interest therein xxx." 6 Mauricio subsequently
mortgaged the Properties to the Philippine National Bank (PNB) and Development
Bank of the Philippines (DBP) for P10,000 and P5,000, respectively.7

On 25 October 1970, Mauricio executed a Deed of Sale with Assumption of Real


Estate Mortgage ("Deed of Sale") conveying the Properties to "Roland A. Bravo,
Ofelia A. Bravo and Elizabeth Bravo" 8 ("vendees"). The sale was conditioned on
the payment of P1,000 and on the assumption by the vendees of the PNB and
DBP mortgages over the Properties.
As certified by the Clerk of Court of the Regional Trial Court of Manila, the Deed
of Sale was notarized by Atty. Victorio Q. Guzman on 28 October 1970 and
entered in his Notarial Register. 9 However, the Deed of Sale was not annotated
on TCT Nos. 58999 and 59000. Neither was it presented to PNB and DBP. The
mortage loans and the receipts for loan payments issued by PNB and DBP
continued to be in Mauricios name even after his death on 20 November 1973.
Simona died in 1977.
On 23 June 1997, Edward, represented by his wife, Fatima Bravo, filed an action
for the judicial partition of the Properties. Edward claimed that he and the other
grandchildren of Mauricio and Simona are co-owners of the Properties by
succession. Despite this, petitioners refused to share with him the possession
and rental income of the Properties. Edward later amended his complaint to
include a prayer to annul the Deed of Sale, which he claimed was merely
simulated to prejudice the other heirs.
In 1999, David Jr., whose parents died in 1944 and who was subsequently raised
by Simona, moved to intervene in the case. David Jr. filed a complaint-inintervention impugning the validity of the Deed of Sale and praying for the
partition of the Properties among the surviving heirs of Mauricio and Simona. The
trial court allowed the intervention in its Order dated 5 May 1999. 10
The Ruling of the Trial Court
The trial court upheld Mauricios sale of the Properties to the vendees. The trial
court ruled that the sale did not prejudice the compulsory heirs, as the Properties
were conveyed for valuable consideration. The trial court also noted that the
Deed of Sale was duly notarized and was in existence for many years without
question about its validity.
The dispositive portion of the trial courts Decision of 11 May 2000 reads:
WHEREFORE, premises considered, the Court hereby DENIES the JUDICIAL
PARTITION of the properties covered by TCT Nos. 58999 and 59000 registered
with the Office of the Register of Deeds of Rizal.
SO ORDERED.11
Dissatisfied, Edward and David Jr. ("respondents") filed a joint appeal to the Court
of Appeals.
The Ruling of the Court of Appeals
Citing Article 166 of the Civil Code ("Article 166"), the Court of Appeals declared
the Deed of Sale void for lack of Simonas consent. The appellate court held that

the GPA executed by Simona in 1966 was not sufficient to authorize Mauricio to
sell the Properties because Article 1878 of the Civil Code ("Article 1878") requires
a special power of attorney for such transactions. The appellate court reasoned
that the GPA was executed merely to enable Mauricio to mortgage the
Properties, not to sell them.
The Court of Appeals also found that there was insufficient proof that the
vendees made the mortgage payments on the Properties, since the PNB and DBP
receipts were issued in Mauricios name. The appellate court opined that the
rental income of the Properties, which the vendees never shared with
respondents, was sufficient to cover the mortgage payments to PNB and DBP.
The Court of Appeals declared the Deed of Sale void and ordered the partition of
the Properties in its Decision of 21 December 2001 ("CA Decision"), as follows:
WHEREFORE, the decision of the Regional Trial Court of Makati City, MetroManila, Branch 13[9] dated 11 May 2000[,] review of which is sought in these
proceedings[,] is REVERSED.
1. The Deed of Sale with Assumption of Real Estate Mortgage (Exh. 4) dated 28
October 1970 is hereby declared null and void;
2. Judicial Partition on the questioned properties is hereby GRANTED in the
following manner:
A. In representation of his deceased mother, LILY BRAVO-DIAZ, intervenor DAVID
DIAZ, JR., is entitled to one-half (1/2) interest of the subject properties;
B. Plaintiff-appellant EDWARD BRAVO and the rest of the five siblings, namely:
LILY ELIZABETH, EDWARD, ROLAND, JR., SENIA, BENJAMIN and OFELIA are entitled
to one-sixth (1/6) representing the other half portion of the subject properties;
C. Plaintiff-appellant Edward Bravo, intervenor DAVID DIAZ, JR., SENIA and
BENJAMIN shall reimburse the defendant-appellees LILY ELIZABETH, OFELIA and
ROLAND the sum of One Thousand (P1,000.00) PESOS representing the
consideration paid on the questioned deed of sale with assumption of mortgage
with interest of six (6) percent per annum effective 28 October 1970 until fully
paid.
SO ORDERED.12
The Issues
Petitioners seek a reversal of the Decision of the Court of Appeals, raising these
issues:
1. WHETHER THE COURT OF APPEALS ERRED IN NOT UPHOLDING THE VALIDITY
AND ENFORCEMENT OF THE DEED OF SALE WITH ASSUMPTION OF MORTGAGE.
2. WHETHER THE COURT OF APPEALS ERRED IN ORDERING THE PARTITION OF
THE PROPERTY IN QUESTION.13

At the least, petitioners argue that the subject sale is valid as to Mauricios share
in the Properties.
On the other hand, respondents maintain that they are co-owners of the
Properties by succession. Respondents argue that the sale of the conjugal
Properties is void because: (1) Mauricio executed the Deed of Sale without
Simonas consent; and (2) the sale was merely simulated, as shown by the
grossly inadequate consideration Mauricio received for the Properties.
While this case was pending, Leonida Andaya Lolong ("Leonida"), David Jr.s aunt,
and Atty. Cendaa, respondents counsel, informed the Court that David Jr. died
on 14 September 2004. Afterwards, Leonida and Elizabeth wrote separate letters
asking for the resolution of this case. Atty. Cendaa later filed an urgent motion
to annotate attorneys lien on TCT Nos. 58999 and 59000. In its Resolution dated
10 November 2004,14 the Court noted the notice of David Jr.s death, the letters
written by Leonida and Elizabeth, and granted the motion to annotate attorneys
lien on TCT Nos. 58999 and 59000.
The Ruling of the Court
The petition is partly meritorious.
The questions of whether Simona consented to the Deed of Sale and whether the
subject sale was simulated are factual in nature. The rule is factual findings of
the Court of Appeals are binding on this Court. However, there are exceptions,
such as when the factual findings of the Court of Appeals and the trial court are
contradictory, or when the evidence on record does not support the factual
findings.15 Because these exceptions obtain in the present case, the Court will
consider these issues.
On the Requirement of the Wifes Consent
We hold that the Court of Appeals erred when it declared the Deed of Sale void
based on Article 166, which states:
Art. 166. Unless the wife has been declared a non compos mentis or a
spendthrift, or is under civil interdiction or is confined in a leprosarium, the
husband cannot alienate or encumber any real property of the conjugal
partnership without the wifes consent. If she refuses unreasonably to give her
consent, the court may compel her to grant the same.
This article shall not apply to property acquired by the conjugal partnerships
before the effective date of this Code.
Article 166 expressly applies only to properties acquired by the conjugal
partnership after the effectivity of the Civil Code of the Philippines ("Civil Code").
The Civil Code came into force on 30 August 1950. 16 Although there is no dispute
that the Properties were conjugal properties of Mauricio and Simona, the records
do not show, and the parties did not stipulate, when the Properties were
acquired.17 Under Article 1413 of the old Spanish Civil Code, the husband could

alienate conjugal partnership property for valuable consideration without the


wifes consent.18
Even under the present Civil Code, however, the Deed of Sale is not void. It is
well-settled that contracts alienating conjugal real property without the wifes
consent are merely voidable under the Civil Code that is, binding on the parties
unless annulled by a competent court and not void ab initio.19
Article 166 must be read in conjunction with Article 173 of the Civil Code ("Article
173"). The latter prescribes certain conditions before a sale of conjugal property
can be annulled for lack of the wifes consent, as follows:
Art. 173. The wife may, during the marriage and within ten years from
the transaction questioned, ask the courts for the annulment of any contract of
the husband entered into without her consent, when such consent is required, or
any act or contract of the husband which tends to defraud her or impair her
interest in the conjugal partnership property. Should the wife fail to exercise
this right, she or her heirs after the dissolution of the marriage, may
demand the value of property fraudulently alienated by the husband.
(Emphasis supplied)
Under the Civil Code, only the wife can ask to annul a contract that disposes of
conjugal real property without her consent. The wife must file the action for
annulment during the marriage and within ten years from the questioned
transaction. Article 173 is explicit on the remedies available if the wife fails to
exercise this right within the specified period. In such case, the wife or her heirs
can only demand the value of the property provided they prove that the husband
fraudulently alienated the property. Fraud is never presumed, but must be
established by clear and convincing evidence. 20
Respondents action to annul the Deed of Sale based on Article 166 must fail for
having been filed out of time. The marriage of Mauricio and Simona was
dissolved when Mauricio died in 1973. More than ten years have passed since
the execution of the Deed of Sale.
Further, respondents, who are Simonas heirs, are not the parties who can invoke
Article 166. Article 173 reserves that remedy to the wife alone. Only Simona had
the right to have the sale of the Properties annulled on the ground that Mauricio
sold the Properties without her consent.
Simona, however, did not assail the Deed of Sale during her marriage or even
after Mauricios death. The records are bereft of any indication that Simona
questioned the sale of the Properties at any time. Simona did not even attempt
to take possession of or reside on the Properties after Mauricios death. David Jr.,
who was raised by Simona, testified that he and Simona continued to live in
Pasay City after Mauricios death, while her children and other grandchildren
resided on the Properties.21
We also agree with the trial court that Simona authorized Mauricio to dispose of
the Properties when she executed the GPA. True, Article 1878 requires a special

power of attorney for an agent to execute a contract that transfers the ownership
of an immovable. However, the Court has clarified that Article 1878 refers to the
nature of the authorization, not to its form.22 Even if a document is titled as a
general power of attorney, the requirement of a special power of attorney is met
if there is a clear mandate from the principal specifically authorizing the
performance of the act.23
In Veloso v. Court of Appeals,24 the Court explained that a general power of
attorney could contain a special power to sell that satisfies the requirement of
Article 1878, thus:
An examination of the records showed that the assailed power of attorney was
valid and regular on its face. It was notarized and as such, it carries the
evidentiary weight conferred upon it with respect to its due execution. While it is
true that it was denominated as a general power of attorney, a perusal thereof
revealed that it stated an authority to sell, to wit:
"2. To buy or sell, hire or lease, mortgage or otherwise hypothecate lands,
tenements and hereditaments or other forms of real property, more specifically
TCT No. 49138, upon such terms and conditions and under such covenants as my
said attorney shall deem fit and proper."
Thus, there was no need to execute a separate and special power of attorney
since the general power of attorney had expressly authorized the agent or
attorney in fact the power to sell the subject property. The special power of
attorney can be included in the general power when it is specified
therein the act or transaction for which the special power is required.
(Emphasis supplied)
In this case, Simona expressly authorized Mauricio in the GPA to "sell, assign
and dispose of any and all of my property, real, personal or mixed, of any
kind whatsoever and wheresoever situated, or any interest therein xxx" as well
as to "act as my general representative and agent, with full authority to buy, sell,
negotiate and contract for me and in my behalf." 25 Taken together, these
provisions constitute a clear and specific mandate to Mauricio to sell the
Properties. Even if it is called a "general power of attorney," the specific
provisions in the GPA are sufficient for the purposes of Article 1878. These
provisions in the GPA likewise indicate that Simona consented to the sale of the
Properties.
Whether the Sale of the Properties was Simulated
or is Void for Gross Inadequacy of Price
We point out that the law on legitime does not bar the disposition of property for
valuable consideration to descendants or compulsory heirs. In a sale, cash of
equivalent value replaces the property taken from the estate. 26 There is no
diminution of the estate but merely a substitution in values. Donations and other
dispositions by gratuitous title, on the other hand, must be included in the
computation of legitimes.27

Respondents, however, contend that the sale of the Properties was merely
simulated. As proof, respondents point to the consideration of P1,000 in the Deed
of Sale, which respondents claim is grossly inadequate compared to the actual
value of the Properties.
Simulation of contract and gross inadequacy of price are distinct legal concepts,
with different effects. When the parties to an alleged contract do not really
intend to be bound by it, the contract is simulated and void. 28 A simulated or
fictitious contract has no legal effect whatsoever 29 because there is no real
agreement between the parties.
In contrast, a contract with inadequate consideration may nevertheless embody
a true agreement between the parties. A contract of sale is a consensual
contract, which becomes valid and binding upon the meeting of minds of the
parties on the price and the object of the sale. 30 The concept of a simulated sale
is thus incompatible with inadequacy of price. When the parties agree on a price
as the actual consideration, the sale is not simulated despite the inadequacy of
the price.31
Gross inadequacy of price by itself will not result in a void contract. Gross
inadequacy of price does not even affect the validity of a contract of sale, unless
it signifies a defect in the consent or that the parties actually intended a
donation or some other contract. 32 Inadequacy of cause will not invalidate a
contract unless there has been fraud, mistake or undue influence. 33 In this case,
respondents have not proved any of the instances that would invalidate the Deed
of Sale.
Respondents even failed to establish that the consideration paid by the vendees
for the Properties was grossly inadequate. As the trial court pointed out, the
Deed of Sale stipulates that, in addition to the payment of P1,000, the vendees
should assume the mortgage loans from PNB and DBP. The consideration for the
sale of the Properties was thus P1,000 in cash and the assumption of the P15,000
mortgage.
Respondents argue that P16,000 is still far below the actual value of the
Properties. To bolster their claim, respondents presented the following: (1) Tax
Declarations No. A-001-0090534 and A-001-0090635 for the year 1979, which
placed the assessed value of the Properties at P70,020 and their approximate
market value atP244,290; and (2) a certified copy of the Department of Finances
Department Order No. 62-9736 dated 6 June 1997 and attached
guidelines37 which established the zonal value of the properties along Evangelista
Street atP15,000 per square meter.
The subject Deed of Sale, however, was executed in 1970. The valuation of the
Properties in 1979 or 1997 is of little relevance to the issue of whether P16,000
was a grossly inadequate price to pay for the Properties in 1970. Certainly, there
is nothing surprising in the sharp increase in the value of the Properties nine or
twenty-seven years after the sale, particularly when we consider that the
Properties are located in the City of Makati.

More pertinent are Tax Declarations No. 1581238 and No. 15813,39 both issued in
1967, presented by petitioners. These tax declarations placed the assessed
value of both Properties at P16,160. Compared to this, the price ofP16,000
cannot be considered grossly inadequate, much less so shocking to the
conscience40 as to justify the setting aside of the Deed of Sale.
Respondents next contend that the vendees did not make the mortgage
payments on the Properties. Respondents allege that the rents paid by the
tenants leasing portions of the Properties were sufficient to cover the mortgage
payments to DBP and PNB.
Again, this argument does not help respondents cause. Assuming that the
vendees failed to pay the full price stated in the Deed of Sale, such partial failure
would not render the sale void. In Buenaventura v. Court of Appeals,41 the
Court held:
xxx If there is a meeting of the minds of the parties as to the price, the contract
of sale is valid, despite the manner of payment, or even the breach of that
manner of payment. xxx
It is not the act of payment of price that determines the validity of a contract of
sale. Payment of the price has nothing to do with the perfection of the contract.
Payment of the price goes into the performance of the contract. Failure to pay
the consideration is different from lack of consideration. The former results in a
right to demand the fulfillment or cancellation of the obligation under an existing
valid contract while the latter prevents the existence of a valid contract.
(Emphasis supplied.)
Neither was it shown that the rentals from tenants were sufficient to cover the
mortgage payments. The parties to this case stipulated to only one tenant, a
certain Federico M. Puno, who supposedly leased a room on the Properties
for P300 per month from 1992 to 1994.42 This is hardly significant, when we
consider that the mortgage was fully paid by 1974. Indeed, the fact that the
Properties were mortgaged to DBP and PNB indicates that the conjugal
partnership, or at least Mauricio, was short of funds.
Petitioners point out that they were duly employed and had the financial capacity
to buy the Properties in 1970. Respondents did not refute this. Petitioners
presented 72 receipts43 showing the mortgage payments made to PNB and DBP,
and the Release of the Real Estate Mortgage 44 ("Mortgage Release") dated 5 April
1974. True, these documents all bear Mauricios name. However, this tends to
support, rather than detract from, petitioner-vendees explanation that they
initially gave the mortgage payments directly to Mauricio, and then later directly
to the banks, without formally advising the bank of the sale. The last 3 mortgage
receipts and the Mortgage Release were all issued in Mauricios name even after
his death in 1970. Obviously, Mauricio could not have secured the Mortgage
Release and made these last payments.
Presumption of Regularity and Burden of Proof

The Deed of Sale was notarized and, as certified by the Regional Trial Court of
Manila, entered in the notarial books submitted to that court. As a document
acknowledged before a notary public, the Deed of Sale enjoys the presumption of
regularity45 and due execution.46 Absent evidence that is clear, convincing and
more than merely preponderant, the presumption must be upheld. 47
Respondents evidence in this case is not even preponderant. Respondents
allegations, testimony and bare denials cannot prevail over the documentary
evidence presented by petitioners. These documents the Deed of Sale and the
GPA which are both notarized, the receipts, the Mortgage Release and the 1967
tax declarations over the Properties support petitioners account of the sale.
As the parties challenging the regularity of the Deed of Sale and alleging its
simulation, respondents had the burden of proving these charges. 48 Respondents
failed to discharge this burden. Consequentially, the Deed of Sale stands.
On the Partition of the Property
Nevertheless, this Court finds it proper to grant the partition of the Properties,
subject to modification.
Petitioners have consistently claimed that their father is one of the vendees who
bought the Properties. Vendees Elizabeth and Ofelia both testified that the
"Roland A. Bravo" in the Deed of Sale is their father, 49 although their brother,
Roland Bravo, Jr., made some of the mortgage payments. Petitioners counsel,
Atty. Paggao, made the same clarification before the trial court. 50
As Roland Bravo, Sr. is also the father of respondent Edward Bravo, Edward is
thus a compulsory heir of Roland Bravo, and entitled to a share, along with his
brothers and sisters, in his fathers portion of the Properties. In short, Edward and
petitioners are co-owners of the Properties.
As such, Edward can rightfully ask for the partition of the Properties. Any coowner may demand at any time the partition of the common property unless a
co-owner has repudiated the co-ownership. 51 This action for partition does not
prescribe and is not subject to laches. 52
WHEREFORE, we REVERSE the Decision of 21 December 2001 of the Court of
Appeals in CA-G.R. CV No. 67794. We REINSTATE the Decision of 11 May 2000 of
the Regional Trial Court of Makati, Branch No. 139, in Civil Case No. 97-137,
declaring VALID the Deed of Sale with Assumption of Mortgage dated 28 October
1970, with the following MODIFICATIONS:
1. We GRANT judicial partition of the subject Properties in the following manner:
a. Petitioner LILY ELIZABETH BRAVO-GUERRERO is entitled to one-third (1/3) of
the Properties;
b. Petitioner OFELIA BRAVO-QUIESTAS is entitled to one-third (1/3) of the
Properties; and

c. The remaining one-third (1/3) portion of the Properties should be divided


equally between the children of ROLAND BRAVO.
2. The other heirs of ROLAND BRAVO must reimburse ROLAND BRAVO, JR. for
whatever expenses the latter incurred in paying for and securing the release of
the mortgage on the Properties.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Quisumbing, Ynares-Santiago, and Azcuna, JJ.,
concur.

Footnotes
1

Also referred to in the records as Benjamin Bravo.

Under Rule 45 of the Rules of Civil Procedure.

Rollo, pp. 370-386. Penned by Associate Justice Bienvenido L. Reyes with


Associate Justices (now Supreme Court Associate Justice) Cancio C. Garcia and
Roberto A. Barrios concurring.
4

Ibid., pp. 322-339-A. Penned by Judge Florentino A. Tuason, Jr.

Appears in the lower courts decisions and in TCT Nos. 58999 and 59000 as
"Semona." However, the lady herself signed her name as "Simona Andaya-de
Bravo" in the GPA. "Simona Andaya" is also the name of the surviving spouse on
Mauricios death certificate.
6

Exhibit "5" to "5-C", Records, pp. 277-278. The relevant portions of the GPA
state:
xxx
That I, SIMONA ANDAYA DE BRAVO, of legal age, married to Mauricio Bravo and a
resident of 2194 Evangelista St., Makati, Rizal, Philippines, do hereby appoint,
name and constitute my husband Mauricio Bravo, of legal age, residing at the
same address, to be my true and lawful attorney to act in, manage, and conduct
all my affairs, and for that purpose in my name and on my behalf to do and
execute all or any of the following acts, deeds and things, to wit:
1. To exercise general control and supervision over my business and property of
every kind in the Philippines, and to act as my general representative and agent,
with full authority to buy, sell, negotiate and contract for me and in my behalf.
xxx
3. To buy or otherwise acquire, to hire or lease, and to pledge, mortgage or
otherwise hypothecate, sell, assign and dispose of any and all of my property,

real, personal or mixed, of any kind whatsoever and wheresoever situated, or


any interest therein, upon such terms and conditions and under such covenants
as my said attorney shall deem fit and proper, and to execute in my name any
and all papers relating thereto, and to sign, execute, acknowledge and deliver
any and all agreements or other writings therefore, or in any way connected
therewith or with my business or property.
xxx
7

Exhibits "7" and "8", ibid., pp. 280-281.

Exhibit "4", ibid., p. 276. The Deed of Sale states in part:

KNOW ALL MEN BY THESE PRESENTS:


That I, MAURICIO BRAVO, of legal age, Filipino, married to SEMONA ANDAYA, and
resident of Makati, Rizal, Philippines, for and in consideration of the amount of
ONE THOUSAND PESOS (P1,000.00), Philippine Currency, and for other valuable
considerations, received from ROLAND A. BRAVO, OFELIA A. BRAVO and
ELIZABETH BRAVO, likewise of legal age, Filipinos, single and residents of Makati,
Rizal, Philippines, to my entire satisfaction, do by these presents CEDE, SELL,
TRANSFER and CONVEY unto said ROLAND A. BRAVO, OFELIA A. BRAVO and
ELIZABETH BRAVO, all my title, rights and interests to two parcels of land, more
particularly described as follows:
T.C.T. No. 58999
xxx
T.C.T. No. 59008 (sic)
xxx
xxx
The condition of this sale is that the vendees ROLAND A. BRAVO, OFELIA A.
BRAVO and ELIZABETH BRAVO will assume the mortage debt pertaoining (sic) to
said parcels of lands with the Philippine National Bank and Development Bank of
the Philippines.
xxx
Note that the Deed of Sale mistakenly refers to T.C.T. No. 59008; the title over
the second lot is actually T.C.T. No. 59000. However, the property description
quoted under "T.C.T. No. 59008" is identical to the description of the property
under T.C.T. No. 59000. No one disputes that "T.C.T. 59008" actually pertains to
T.C.T. No. 59000 and both parties have treated this as a mere typographical
error.
9

Exhibit "6", Records, p. 279.

10

Records, p. 203.

11

Rollo, p. 339-A.

12

Ibid., p. 385.

13

Ibid., p. 443.

14

Ibid., p. 520.

15

Changco v. Court of Appeals, 429 Phil. 336 (2002).

16

Lara, et al. v. Del Rosario, Jr. 94 Phil. 778 (1954).

17

The parties and the lower courts proceeded on the assumption that the
Properties were acquired after 30 August 1950 because TCT Nos. 58999 and
59000 were indeed issued to Mauricio and Simona on 23 May 1958. However,
Mauricio and Simonas conjugal partnership began long before. By World War II,
at least one of their children, Lily Bravo Diaz, was married and with child.
18

See Isabela Colleges, Inc. v. Heirs of Nieves Tolentino-Rivera, 397 Phil. 955
(2000).
19

Vera Cruz v. Calderon, G.R. No. 160748, 14 July 2004, 434 SCRA 534; Heirs of
Ignacia Aguilar-Reyes v. Mijares, G.R. No. 143826, 28 August 2003, 410 SCRA 97;
Heirs of Christina Ayuste v. Court of Appeals, 372 Phil. 370 (1999). Note that
under the more recent Article 124 of the Family Code, the sale of conjugal
partnership property without spousal consent is considered void.
20

Maestrado v. Court of Appeals, 384 Phil. 418 (2000); Loyola v. Court of Appeals,
383 Phil. 171 (2000).
21

TSN, 15 September 1999, pp. 61-62. David Jr. testified as follows:

Atty. Paggao:
Q: Do you know when your grandparent, your grandfather Mauricio died?
Witness:
A: Yes, sir.
Atty. Paggao:
Q: When?
Witness:
A: November 20, 1973, sir.
Atty. Paggao:
Q: And after 1973, was it not a fact that you and your grandmother Semona still
did not go back to Makati and continued to rent in Pasig City?
Witness

A: Yes, sir.
22

Lim Pin v. Liao Tan, et al., 200 Phil. 685 (1982).

23

Ibid.

24

G.R. No. 102737, 21 August 1996, 260 SCRA 593.

25

Exhibit "5" to "5-C", Records, pp. 277-278.

26

Buenaventura v. Court of Appeals, G.R. No. 126376, 20 November 2003, 416


SCRA 263.
27

Civil Code, Article 1061.

28

Ramos v. Heirs of Honorio Ramos, Sr., 431 Phil. 337 (2002).

29

Civil Code, Articles 1352 and 1409.

30

Supra note 26.

31

Loyola v. Court of Appeals, 383 Phil. 171 (2000).

32

Civil Code, Article 1470.

33

Ibid., Article 1355.

34

Exhibit "C", records, p. 230.

35

Exhibit "D", ibid., p. 231.

36

Exhibit "E", ibid., p. 242.

37

Exhibit "F" to "F-8", ibid., pp. 243-251.

38

Exhibit "11", ibid., p. 308.

39

Exhibi