THE MANILA REMNANT CO., INC., Petitioner, v.

THE HONORABLE COURT OF APPEALS and

OSCAR VENTANILLA, JR. and CARMEN GLORIA DIAZ, Respondents.

SYLLABUS

1. CIVIL LAW; AGENCY; FAILURE OF THE PRINCIPAL TO CORRECT AN IRREGULARITY DESPITE KOWLEDGE
THEREOF, DEEMED A RATIFICATION OF THE ACT OF THE AGENT. — In the case at bar, the Valencia realty
firm had clearly overstepped the bounds of its authority as agent — and for that matter, even the law —
when it undertook the double sale of the disputed lots. Such being the case, the principal, Manila Remnant,
would have been in the clear pursuant to Article 1897 of the Civil Code which states that" (t)he agent who
acts as such is not personally liable to that 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." However,
the unique relationship existing between the principal and the agent at the time of the dual sale must be
underscored. Bear in mind that the president then of both firms was Artemio U. Valencia, the individual
directly responsible for the sale scam. Hence, despite the fact that the double sale was beyond the power
of the agent, Manila Remnant as principal was chargeable with the knowledge or constructive notice of that
fact and not having done anything to correct such an irregularity was deemed to have ratified the same.
(See Art. 1910, Civil Code.)

2. ID.; ID.; PRINCIPLE OF ESTOPPEL; REASON AND EFFECT THEREOF; CASE AT BAR. — More in point, we
find that by the principle of estoppel, Manila Remnant is deemed to have allowed its agent to act as though
it had plenary powers. Article 1911 of the Civil Code provides: "Even when the agent has exceeded his
authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he
had full powers." The above-quoted article is new. It is intended to protect the rights of innocent persons.
In such a situation, both the principal and the agent may be considered as joint feasors whose liability is
joint and solidary (Verzosa v. Lim, 45 Phil. 416). Authority by estoppel has arisen in the instant case because
by its negligence, the principal, Manila Remnant, has permitted its agent, A.U. Valencia and Co., to exercise
powers not granted to it. That the principal might not have had actual knowledge of the agent’s misdeed is
of no moment.

DECISION

FERNAN, J.:

Like any other couple, Oscar Ventanilla and his wife Carmen, both faculty members of the University of the
Philippines and renting a faculty unit, dreamed of someday owning a house and lot. Instead of attaining this
dream, they became innocent victims of deceit and found themselves in the midst of an ensuing squabble
between a subdivision owner and its real estate agent.

The facts as found by the trial court and adopted by the Appellate Court are as follows:

Petitioner Manila Remnant Co., Inc. is the owner of the parcels of land situated in Quezon City covered by
Transfer Certificates of Title Nos. 26400, 26401, 30783 and 31986 and constituting the subdivision known
as Capital Homes Subdivision Nos. I and II. On July 25, 1972, Manila Remnant and A.U. Valencia & Co. Inc.
entered into a written agreement entitled "Confirmation of Land Development and Sales Contract" to
formalize an earlier verbal agreement whereby for a consideration of 17 and 1/2% fee, including sales
commission and management fee, A.U. Valencia and Co., Inc. was to develop the aforesaid subdivision with
authority to manage the sales thereof, execute contracts to sell to lot buyers and issue official receipts. 1

At that time the President of both A.U. Valencia and Co. Inc. and Manila Remnant Co., Inc. was Artemio U.
Valencia.
On March 3, 1970, Manila Remnant thru A.U. Valencia and Co. executed two "contracts to sell" covering
Lots 1 and 2 of Block 17 in favor of Oscar C. Ventanilla and Carmen Gloria Diaz for the combined contract
price of P66,571.00 payable monthly for ten years. 2 As thus agreed in the contracts to sell, the Ventanillas
paid the down payments on the two lots even before the formal contract was signed on March 3, 1970.

Ten (10) days after the signing of the contracts with the Ventanillas or on March 13, 1970, Artemio U.
Valencia, as President of Manila Remnant, and without the knowledge of the Ventanilla couple, sold Lots 1
and 2 of Block 17 again, this time in favor of Carlos Crisostomo, one of his sales agents without any
consideration. 3 Artemio Valencia then transmitted the fictitious Crisostomo contracts to Manila Remnant
while he kept in his files the contracts to sell in favor of the Ventanillas. All the amounts paid by the
Ventanillas were deposited in Valencia’s bank account.

Beginning March 13, 1970, upon orders of Artemio Valencia, the monthly payments of the Ventanillas were
remitted to Manila Remnant as payments of Crisostomo for which the former issued receipts in favor of
Crisostomo. Since Valencia kept the receipts in his files and never transmitted the same to Crisostomo, the
latter and the Ventanillas remained ignorant of Valencia’s scheme. Thus, the Ventanillas continued paying
their monthly installments.

Subsequently, the harmonious business relationship between Artemio Valencia and Manila Remnant ended.
On May 30, 1973, Manila Remnant, through its General Manager Karl Landahl, wrote Artemio Valencia
informing him that Manila Remnant was terminating its existing collection agreement with his firm on
account of the considerable amount of discrepancies and irregularities discovered in its collections and
remittances by virtue of confirmations received from lot buyers. 4 As a consequence, on June 6, 1973,
Artemio Valencia was removed as President by the Board of Directors of Manila Remnant. Therefore, from
May of 1973, Valencia stopped transmitting Ventanilla’s monthly installments which at that time had already
amounted to P17,925.40 for Lot 1 and P18,141.95 for Lot 2, (which appeared in Manila Remnant’s record
as credited in the name of Crisostomo).

On June 8, 1973, A.U. Valencia and Co. sued Manila Remnant before Branch 19 of the then Court of First
Instance of Manila 6 to impugn the abrogation of their agency agreement. On June 10 and July 10, 1973,
said court ordered all lot buyers to deposit their monthly amortizations with the court. 7 But on July 17,
1973, A.U. Valencia and Co. wrote the Ventanillas that it was still authorized by the court to collect the
monthly amortizations and requested them to continue remitting their amortizations with the assurance that
said payments would be deposited later in court. 8 On May 22, 1974, the trial court issued an order
prohibiting A.U. Valencia and Co. from collecting the monthly installments. 9 On July 22, 1974 and February
6, 1976 the same court ordered the Valencia firm to furnish the court with a complete list of all lot buyers
who had already made down payments to Manila Remnant before December 1972. 10 Valencia complied
with the court’s order on August 6, 1974 by submitting a list which excluded the name of the Ventanillas.
11

Since A.U. Valencia and Co. failed to forward its collections after May 1973, Manila Remnant caused on
August 20, 1976 the publication in the Times Journal of a notice cancelling the contracts to sell of some lot
buyers including that of Carlos Crisostomo in whose name the payments of the Ventanillas had been
credited. 12

To prevent the effective cancellation of their contracts, Artemio Valencia instigated on September 22, 1976
the filing by Carlos Crisostomo and seventeen (17) other lot vendees of a complaint for specific performance
with damages against Manila Remnant before the Court of First Instance of Quezon City. The complaint
alleged that Crisostomo had already paid a total of P17,922.40 and P18,136.85 on Lots 1 and 2, respectively.
13

It was not until March 1978 when the Ventanillas, after learning of the termination of the agency agreement
between Manila Remnant and A.U. Valencia & Co., decided to stop paying their amortizations to the latter.
The Ventanillas, believing that they had already remitted P37,007.00 for Lot 1 and P36,911.00 for Lot 2 or
a grand total, inclusive of interest, of P73,122.35 for the two lots, thereby leaving a balance of P13,531.58
for Lot 1 and P13,540.22 for Lot 2, went directly to Manila Remnant and offered to pay the entire outstanding
balance of the purchase price. 14 To their shock and utter consternation, they discovered from Gloria
Caballes, an accountant of Manila Remnant, that their names did not appear in the records of A.U. Valencia
and Co. as lot buyers. Caballes showed the Ventanillas copies of the contracts to sell in favor of Carlos
Crisostomo, duly signed by Artemio U. Valencia as President of Manila Remnant. 15 Whereupon, Manila
Remnant refused the offer of the Ventanillas to pay for the remainder of the contract price because they did
not have the personality to do so. Furthermore, they were shown the published Notice of Cancellation in the
January 29, 1978 issue of the Times Journal rescinding the contracts of delinquent buyers including
Crisostomo.

Thus, on November 21, 1978, the Ventanillas commenced an action for specific performance, annulment of
deeds and damages against Manila Remnant, A.U. Valencia and Co. and Carlos Crisostomo before the Court
of First Instance of Quezon City, Branch 17-B. 16 Crisostomo was declared in default for failure to file an
answer.

On November 17, 1980, the trial court rendered a decision 1) declaring the contracts to sell issued in favor
of the Ventanillas valid and subsisting and annulling the contracts to sell in Crisostomo’s favor; 2) ordering
Manila Remnant to execute in favor of the Ventanillas an Absolute Deed of Sale free from all liens and
encumbrances; and 3) condemning defendants A.U. Valencia and Co. Inc., Manila Remnant and Carlos
Crisostomo jointly and severally to pay the Ventanillas the amount of P100,000.00 as moral damages,
P100,000.00 as exemplary damages, and P100,000.00 as attorney’s fees. The lower court also added that
if, for any legal reason, the transfer of the lots could no longer be effected, the defendants should reimburse
jointly and severally to the Ventanillas the total amount of P73,122.35 representing the total amount paid
for the two lots plus legal interest thereon from March 1970 plus damages as aforestated. With regard to
the cross claim of Manila Remnant against Valencia, the court found that Manila Remnant could have not
been dragged into this suit without the fraudulent manipulations of Valencia. Hence, it adjudged A.U.
Valencia and Co. to pay the Manila Remnant P5,000.00 as moral damages and exemplary damages and
P5,000.00 as attorney’s fees.

Subsequently, Manila Remnant and A.U. Valencia and Co. elevated the lower court’s decision to the Court
of Appeals through separate appeals. On October 13, 1987, the Appellate Court affirmed in toto the decision
of the lower court. Reconsideration sought by petitioner Manila Remnant was denied, hence the instant
petition.

There is no question that the contracts to sell in favor of the Ventanilla spouses are valid and subsisting.
The only issue remaining is whether or not petitioner Manila Remnant should be held solidarily liable together
with A.U. Valencia and Co. and Carlos Crisostomo for the payment of moral, exemplary damages and
attorney’s fees in favor of the Ventanillas.

While petitioner Manila Remnant has not refuted the legality of the award of damages per se, it believes
that it cannot be made jointly and severally liable with its agent A.U. Valencia and Co. since it was not aware
of the illegal acts perpetrated nor did it consent or ratify said acts of its agent.

The argument is devoid of merit.

In the case at bar, the Valencia realty firm had clearly overstepped the bounds of its authority as agent —
and for that matter, even the law — when it undertook the double sale of the disputed lots. Such being the
case, the principal, Manila Remnant, would have been in the clear pursuant to Article 1897 of the Civil Code
which states that" (t)he agent who acts as such is not personally liable to that 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."
:
However, the unique relationship existing between the principal and the agent at the time of the dual sale
must be underscored. Bear in mind that the president then of both firms was Artemio U. Valencia, the
individual directly responsible for the sale scam. Hence, despite the fact that the double sale was beyond
the power of the agent, Manila Remnant as principal was chargeable with the knowledge or constructive
notice of that fact and not having done anything to correct such an irregularity was deemed to have ratified
the same.

More in point, we find that by the principle of estoppel, Manila Remnant is deemed to have allowed its agent
to act as though it had plenary powers. Article 1911 of the Civil Code provides:

"Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former
allowed the latter to act as though he had full powers." (Emphasis supplied)

The above-quoted article is new. It is intended to protect the rights of innocent persons. In such a situation,
both the principal and the agent may be considered as joint feasors whose liability is joint and solidary. 20

Authority by estoppel has arisen in the instant case because by its negligence, the principal, Manila Remnant,
has permitted its agent, A.U. Valencia and Co., to exercise powers not granted to it. That the principal might
not have had actual knowledge of the agent’s misdeed is of no moment. Consider the following
circumstances:

Firstly, Manila Remnant literally gave carte blanche to its agent A.U. Valencia and Co. in the sale and
disposition of the subdivision lots. As a disclosed principal in the contracts to sell in favor of the Ventanilla
couple, there was no doubt that they were in fact contracting with the principal. Section 7 of the Ventanillas’
contracts to sell states:

"7. That all payments whether deposits, down payment and monthly installment agreed to be made by the
vendee shall be payable to A.U. Valencia and Co., Inc. It is hereby expressly understood that unauthorized
payments made to real estate brokers or agents shall be the sole and exclusive responsibility and at the
risk of the vendee and any and all such payments shall not be recognized by the vendors unless the official
receipts therefor shall have been duly signed by the vendors’ duly authorized agent, A.U. Valencia and Co.,
Inc." (Emphasis supplied)

Indeed, once Manila Remnant had been furnished with the usual copies of the contracts to sell, its only
participation then was to accept the collections and pay the commissions to the agent. The latter had
complete control of the business arrangement.

Secondly, it is evident from the records that Manila Remnant was less than prudent in the conduct of its
business as a subdivision owner. For instance, Manila Remnant failed to take immediate steps to avert any
damage that might be incurred by the lot buyers as a result of its unilateral abrogation of the agency
contract. The publication of the cancelled contracts to sell in the Times Journal came three years after Manila
Remnant had revoked its agreement with A.U. Valencia and Co.

Moreover, Manila Remnant also failed to check the records of its agent immediately after the revocation of
the agency contract despite the fact that such revocation was due to reported anomalies in Valencia’s
collections. Altogether, as pointed out by the counsel for the Ventanillas, Manila Remnant could and should
have devised a system whereby it could monitor and require a regular accounting from A.U. Valencia and
Co., its agent. Not having done so, Manila Remnant has made itself liable to those who have relied on its
agent and the representation that such agent was clothed with sufficient powers to act on behalf of the
principal.

Even assuming that Manila Remnant was as much a victim as the other innocent lot buyers, it cannot be
gainsaid that it was precisely its negligence and laxity in the day to day operations of the real estate business
which made it possible for the agent to deceive unsuspecting vendees like the Ventanillas.

In essence, therefore, the basis for Manila Remnant’s solidary liability is estoppel which, in turn, is rooted
in the principal’s neglectfulness in failing to properly supervise and control the affairs of its agent and to
adopt the needed measures to prevent further misrepresentation. As a consequence, Manila Remnant is
considered estopped from pleading the truth that it had no direct hand in the deception employed by its
agent.

A final word. The Court cannot help but be alarmed over the reported practice of supposedly reputable real
estate brokers of manipulating prices by allowing their own agents to "buy" lots in their names in the hope
of reselling the same at a higher price to the prejudice of bona fide lot buyers, as precisely what the agent
had intended to happen in the present case. This is a serious matter that must be looked into by the
appropriate government housing authority.

WHEREFORE, in view of the foregoing, the appealed decision of the Court of Appeals dated October 13, 1987
sustaining the decision of the Quezon City trial court dated November 17, 1980 is AFFIRMED. This judgment
is immediately executory. Costs against petitioner. SO ORDERED.

SANTOS B. AREOLA and LYDIA D. AREOLA, petitioners-appellants, vs. COURT OF APPEALS and
PRUDENTIAL GUARANTEE AND ASSURANCE, INC., respondents-appellees.

ROMERO, J.:

On June 29, 1985, seven months after the issuance of petitioner Santos Areola's Personal Accident Insurance
Policy No. PA-20015, respondent insurance company unilaterally cancelled the same since company records
revealed that petitioner-insured failed to pay his premiums.

On August 3, 1985, respondent insurance company offered to reinstate same policy it had previously
cancelled and even proposed to extend its lifetime to December 17, 1985, upon a finding that the
cancellation was erroneous and that the premiums were paid in full by petitioner-insured but were not
remitted by Teofilo M. Malapit, respondent insurance company's branch manager.

These, in brief, are the material facts that gave rise to the action for damages due to breach of contract
instituted by petitioner-insured before
Branch 40 RTC, Dagupan City against respondent insurance company.

There are two issues for resolution in this case:

(1) Did the erroneous act of cancelling subject insurance policy entitle petitioner-insured to payment of
damages?

(2) Did the subsequent act of reinstating the wrongfully cancelled insurance policy by respondent insurance
company, in an effort to rectify such error, obliterate whatever liability for damages it may have to bear,
thus absolving it therefrom?

From the factual findings of the trial court, it appears that petitioner-insured, Santos Areola, a lawyer from
Dagupan City, bought, through
the Baguio City branch of Prudential Guarantee and Assurance, Inc. (hereinafter referred to as Prudential),
a personal accident insurance policy covering the one-year period between noon of November 28, 1984 and
noon of November 28, 1985. 1 Under the terms of the statement of account issued by respondent insurance
company, petitioner-insured was supposed to pay the total amount of P1,609.65 which included the
premium of P1,470.00, documentary stamp of P110.25 and 2% premium tax of P29.40. 2 At the lower left-
hand corner of the statement of account, the following is legibly printed:

This Statement of Account must not be considered a receipt. Official Receipt will be issued to
you upon payment of this account.

If payment is made to our representative, demand for a Provisional Receipt and if our Official
Receipts is (sic) not received by you within 7 days please notify us.

If payment is made to our office, demand for an OFFICIAL RECEIPT.

On December 17, 1984, respondent insurance company issued collector's provisional receipt No. 9300 to
petitioner-insured for the amount of P1,609.65 3 On the lower portion of the receipt the following is written
in capital letters:

Note: This collector's provisional receipt will be confirmed by our official receipt. If our official
receipt is not received by you within 7 days, please notify us. 4

On June 29, 1985, respondent insurance company, through its Baguio City manager, Teofilo M. Malapit,
sent petitioner-insured Endorsement
No. BG-002/85 which "cancelled flat" Policy No. PA BG-20015 "for non-payment of premium effective as of
inception dated." 5 The same endorsement also credited "a return premium of P1,609.65 plus documentary
stamps and premium tax" to the account of the insured.

Shocked by the cancellation of the policy, petitioner-insured confronted Carlito Ang, agent of respondent
insurance company, and demanded the issuance of an official receipt. Ang told petitioner-insured that the
cancellation of the policy was a mistake but he would personally see to its rectification. However, petitioner-
insured failed to receive any official receipt from Prudential.

Hence, on July 15, 1985, petitioner-insured sent respondent insurance company a letter demanding that he
be insured under the same terms and conditions as those contained in Policy No. PA-BG-20015 commencing
upon its receipt of his letter, or that the current commercial rate of increase on the payment he had made
under provisional receipt No. 9300 be returned within five days. 6 Areola also warned that should his
demands be unsatisfied, he would sue for damages.

On July 17, 1985, he received a letter from production manager Malapit informing him that the "partial
payment" of P1,000.00 he had made on the policy had been "exhausted pursuant to the provisions of the
Short Period Rate Scale" printed at the back of the policy. Malapit warned Areola that should be fail to pay
the balance, the company's liability would cease to operate. 7

In reply to the petitioner-insured's letter of July 15, 1985, respondent insurance company, through its
Assistant Vice-President Mariano M. Ampil III, wrote Areola a letter dated July 25, 1985 stating that the
company was verifying whether the payment had in fact been issued therefor. Ampil emphasized that the
official receipt should have been issued seven days from the issuance of the provisional receipt but because
no official receipt had been issued in Areola's name, there was reason to believe that no payment had been
made. Apologizing for the inconvenience, Ampil expressed the company's concern by agreeing "to hold you
cover (sic) under the terms of the referenced policy until such time that this matter is cleared." 8

On August 3, 1985, Ampil wrote Areola another letter confirming that the amount of P1,609.65 covered by
provisional receipt No. 9300 was in fact received by Prudential on December 17, 1984. Hence, Ampil
informed
Areola that Prudential was "amenable to extending PGA-PA-BG-20015 up to December 17, 1985 or one year
from the date when payment was received." Apologizing again for the inconvenience caused Areola, Ampil
exhorted him to indicate his conformity to the proposal by signing on the space provided for in the letter. 9

The letter was personally delivered by Carlito Ang to Areola on

August 13, 1985 10 but unfortunately, Areola and his wife, Lydia, as early as August 6, 1985 had filed a
complaint for breach of contract with damages before the lower court.

In its Answer, respondent insurance company admitted that the cancellation of petitioner-insured's policy
was due to the failure of Malapit to turn over the premiums collected, for which reason no official receipt
was issued to him. However, it argued that, by acknowledging the inconvenience caused on petitioner-
insured and after taking steps to rectify its omission by reinstating the cancelled policy prior to the filing of
the complaint, respondent insurance company had complied with its obligation under the contract. Hence,
it concluded that petitioner-insured no longer has a cause of action against it. It insists that it cannot be
held liable for damages arising from breach of contract, having demonstrated fully well its fulfillment of its
obligation.
The trial court, on June 30, 1987, rendered a judgment in favor of petitioner-insured, ordering respondent
insurance company to pay the former the following:

a) P1,703.65 as actual damages;

b) P200,000.00 as moral damages; and

c) P50,000.00 as exemplary damages;

2. To pay to the plaintiff, as and for attorney's fees the amount of P10,000.00; and

3. To pay the costs.

In its decision, the court below declared that respondent insurance company acted in bad faith in unilaterally
cancelling subject insurance policy, having done so only after seven months from the time that it had taken
force and effect and despite the fact of full payment of premiums and other charges on the issued insurance
policy. Cancellation from the date of the policy's inception, explained the lower court, meant that the
protection sought by petitioner-insured from the risks insured against was never extended by respondent
insurance company. Had the insured met an accident at the time, the insurance company would certainly
have disclaimed any liability because technically, the petitioner could not have been considered insured.
Consequently, the trial court held that there was breach of contract on the part of respondent insurance
company, entitling petitioner-insured to an award of the damages prayed for.

This ruling was challenged on appeal by respondent insurance company, denying bad faith on its part in
unilaterally cancelling subject insurance policy.

After consideration of the appeal, the appellate court issued a reversal of the decision of the trial court,
convinced that the latter had erred in finding respondent insurance company in bad faith for the cancellation
of petitioner-insured's policy. According to the Court of Appeals, respondent insurance company was not
motivated by negligence, malice or bad faith in cancelling subject policy. Rather, the cancellation of the
insurance policy was based on what the existing records showed, i.e., absence of an official receipt issued
to petitioner-insured confirming payment of premiums. Bad faith, said the Court of Appeals, is some motive
of self-interest or ill-will; a furtive design of ulterior purpose, proof of which must be established
convincingly. On the contrary, it further observed, the following acts indicate that respondent insurance
company did not act precipitately or willfully to inflict a wrong on petitioner-insured:
(a) the investigation conducted by Alfredo Bustamante to verify if petitioner-insured had indeed paid the
premium; (b) the letter of August 3, 1985 confirming that the premium had been paid on December 17,
1984; (c) the reinstatement of the policy with a proposal to extend its effective period to December 17,
1985; and (d) respondent insurance company's apologies for the "inconvenience" caused upon petitioner-
insured. The appellate court added that respondent insurance company even relieved Malapit, its Baguio
City manager, of his job by forcing him to resign.

Petitioner-insured moved for the reconsideration of the said decision which the Court of Appeals denied.
Hence, this petition for review on certiorari anchored on these arguments:

Respondent Court of Appeals is guilty of grave abuse of discretion and committed a serious
and reversible error in not holding Respondent Prudential liable for the cancellation of the
insurance contract which was admittedly caused by the fraudulent acts and bad faith of its
own officers.

II

Respondent Court of Appeals committed serious and reversible error and abused its discretion
in ruling that the defenses of good faith and honest mistake can co-exist with the admitted
fraudulent acts and evident bad faith.
 III

Respondent Court of Appeals committed a reversible error in not finding that even without
considering the fraudulent acts of its own officer in misappropriating the premium payment,
the act itself in cancelling the insurance policy was done with bad faith and/or gross negligence
and wanton attitude amounting to bad faith, because among others, it was
Mr. Malapit — the person who committed the fraud — who sent and signed the notice of
cancellation.

IV

Respondent Court of Appeals has decided a question of substance contrary to law and
applicable decision of the Supreme Court when it refused to award damages in favor of herein
Petitioner-Appellants.

It is petitioner-insured's submission that the fraudulent act of Malapit, manager of respondent insurance
company's branch office in Baguio, in misappropriating his premium payments is the proximate cause of the
cancellation of the insurance policy. Petitioner-insured theorized that Malapit's act of signing and even
sending the notice of cancellation himself, notwithstanding his personal knowledge of petitioner-insured's
full payment of premiums, further reinforces the allegation of bad faith. Such fraudulent act committed by
Malapit, argued petitioner-insured, is attributable to respondent insurance company, an artificial corporate
being which can act only through its officers or employees. Malapit's actuation, concludes petitioner-insured,
is therefore not separate and distinct from that of respondent-insurance company, contrary to the view held
by the Court of Appeals. It must, therefore, bear the consequences of the erroneous cancellation of subject
insurance policy caused by the non-remittance by its own employee of the premiums paid. Subsequent
reinstatement, according to petitioner-insured, could not possibly absolve respondent insurance company
from liability, there being an obvious breach of contract. After all, reasoned out petitioner-insured, damage
had already been inflicted on him and no amount of rectification could remedy the same.

Respondent insurance company, on the other hand, argues that where reinstatement, the equitable relief
sought by petitioner-insured was granted at an opportune moment, i.e. prior to the filing of the complaint,
petitioner-insured is left without a cause of action on which to predicate his claim for damages.
Reinstatement, it further explained, effectively restored petitioner-insured to all his rights under the policy.
Hence, whatever cause of action there might have been against it, no longer exists and the consequent
award of damages ordered by the lower court in unsustainable.

We uphold petitioner-insured's submission. Malapit's fraudulent act of misappropriating the premiums paid
by petitioner-insured is beyond doubt directly imputable to respondent insurance company. A corporation,
such as respondent insurance company, acts solely thru its employees. The latters' acts are considered as
its own for which it can be held to account. 11 The facts are clear as to the relationship between private
respondent insurance company and Malapit. As admitted by private respondent insurance company in its
answer, 12 Malapit was the manager of its Baguio branch. It is beyond doubt that he represented its interest
and acted in its behalf. His act of receiving the premiums collected is well within the province of his authority.
Thus, his receipt of said premiums is receipt by private respondent insurance company who, by provision of
law, particularly under Article 1910 of the Civil Code, is bound by the acts of its agent.

Article 1910 thus reads:

Art. 1910. The principal must comply with all the obligations which the agent may have
contracted within the scope of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not bound
except when he ratifies it expressly or tacitly.

Malapit's failure to remit the premiums he received cannot constitute a defense for private respondent
insurance company; no exoneration from liability could result therefrom. The fact that private respondent
insurance company was itself defrauded due to the anomalies that took place in its Baguio branch office,
such as the non-accrual of said premiums to its account, does not free the same from its obligation to
petitioner Areola. As held in Prudential Bank v. Court of Appeals 13 citing the ruling in McIntosh v. Dakota
Trust Co.: 14

A bank is liable for wrongful acts of its officers done in the interests of the bank or in the
course of dealings of the officers in their representative capacity but not for acts outside the
scope of their authority. A bank holding out its officers and agent as worthy of confidence will
not be permitted to profit by the frauds they may thus be enabled to perpetrate in the
apparent scope of their employment; nor will it be permitted to shirk its responsibility for such
frauds, even though no benefit may accrue to the bank therefrom. Accordingly, a banking
corporation is liable to innocent third persons where the representation is made in the course
of its business by an agent acting within the general scope of his authority even though, in
the particular case, the agent is secretly abusing his authority and attempting to perpetrate
a fraud upon his principal or some other person, for his own ultimate benefit.

Consequently, respondent insurance company is liable by way of damages for the fraudulent acts committed
by Malapit that gave occasion to the erroneous cancellation of subject insurance policy. Its earlier act of
reinstating the insurance policy can not obliterate the injury inflicted on petitioner-insured. Respondent
company should be reminded that a contract of insurance creates reciprocal obligations for both insurer and
insured. Reciprocal obligations are those which arise from the same cause and in which each party is both
a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the
other. 15

Under the circumstances of instant case, the relationship as creditor and debtor between the parties arose
from a common cause: i.e., by reason of their agreement to enter into a contract of insurance under whose
terms, respondent insurance company promised to extend protection to petitioner-insured against the risk
insured for a consideration in the form of premiums to be paid by the latter. Under the law governing
reciprocal obligations, particularly the second paragraph of Article 1191, 16 the injured party, petitioner-
insured in this case, is given a choice between fulfillment or rescission of the obligation in case one of the
obligors, such as respondent insurance company, fails to comply with what is incumbent upon him. However,
said article entitles the injured party to payment of damages, regardless of whether he demands fulfillment
or rescission of the obligation. Untenable then is reinstatement insurance company's argument, namely,
that reinstatement being equivalent to fulfillment of its obligation, divests petitioner-insured of a rightful
claim for payment of damages. Such a claim finds no support in our laws on obligations and contracts.

The nature of damages to be awarded, however, would be in the form of nominal damages 17 contrary to
that granted by the court below. Although the erroneous cancellation of the insurance policy constituted a
breach of contract, private respondent insurance company, within a reasonable time took steps to rectify
the wrong committed by reinstating the insurance policy of petitioner. Moreover, no actual or substantial
damage or injury was inflicted on petitioner Areola at the time the insurance policy was cancelled. Nominal
damages are "recoverable where a legal right is technically violated and must be vindicated against an
invasion that has produced no actual present loss of any kind, or where there has been a breach of contract
and no substantial injury or actual damages whatsoever have been or can be shown. 18

WHEREFORE, the petition for review on certiorari is hereby GRANTED and the decision of the Court of
Appeals in CA-G.R. No. 16902 on May 31, 1990, REVERSED. The decision of Branch 40, RTC Dagupan City,
in Civil Case No. D-7972 rendered on June 30, 1987 is hereby REINSTATED subject to the following
modifications: (a) that nominal damages amounting to P30,000.00 be awarded petitioner in lieu of the
damages adjudicated by court a quo; and (b) that in the satisfaction of the damages awarded therein,
respondent insurance company is ORDERED to pay the legal rate of interest computed from date of filing of
complaint until final payment thereof. SO ORDERED.

ADORACION LUSTAN, petitioner, vs. COURT OF APPEALS, NICOLAS PARANGAN and SOLEDAD
PARANGAN, PHILIPPINE NATIONAL BANK, respondents.

FRANCISCO, J.:
Petitioner Adoracion Lustan is the registered owner of a parcel of land otherwise known as Lot 8069 of the
Cadastral Survey of Calinog, Iloilo containing an area of 10.0057 hectares and covered by TCT No. T-561.
On February 25, 1969, petitioner leased the above described property to private respondent Nicolas
Parangan for a term of ten (10) years and an annual rent of One Thousand (P1,000.00) Pesos. During the
period of lease, Parangan was regularly extending loans in small amounts to petitioner to defray her daily
expenses and to finance her daughter's education. On July 29, 1970, petitioner executed a Special Power of
Attorney in favor of Parangan to secure an agricultural loan from private respondent Philippine National
Bank (PNB) with the aforesaid lot as collateral. On February 18, 1972, a second Special Power of Attorney
was executed by petitioner, by virtue of which, Parangan was able to secure four (4) additional loans, to
wit: the sums of P24,000.00, P38,000.00, P38,600.00 and P25,000.00 on December 15, 1975, September
6, 1976, July 2, 1979 and June 2, 1980, respectively. The last three loans were without the knowledge of
herein petitioner and all the proceeds therefrom were used by Parangan for his own benefit. 1 These
encumbrances were duly annotated on the certificate of title. On April 16, 1973, petitioner signed a Deed
of Pacto de Retro Sale2 in favor of Parangan which was superseded by the Deed of Definite Sale3 dated May
4, 1979 which petitioner signed upon Parangan's representation that the same merely evidences the loans
extended by him unto the former.

For fear that her property might be prejudiced by the continued borrowing of Parangan, petitioner demanded
the return of her certificate of title. Instead of complying with the request, Parangan asserted his rights over
the property which allegedly had become his by virtue of the aforementioned Deed of Definite Sale. Under
said document, petitioner conveyed the subject property and all the improvements thereon unto Parangan
absolutely for and in consideration of the sum of Seventy Five Thousand (P75,000.00) Pesos.

Aggrieved, petitioner filed an action for cancellation of liens, quieting of title, recovery of possession and
damages against Parangan and PNB in the Regional Trial Court of Iloilo City. After trial, the lower court
rendered judgment, disposing as follows:

WHEREFORE and in view of the foregoing, a decision is rendered as follows:

1. Ordering cancellation by the Register of Deeds of the Province of Iloilo, of the unauthorized
loans, the liens and encumbrances appearing in the Transfer Certificate of Title No. T-561,
especially entries nos. 286231; 338638; and 352794;

2. Declaring the Deed of Pacto de Retro Sale dated April 25, 1978 and the Deed of Definite
Sale dated May 6, 1979, both documents executed by Adoracion Lustan in favor of Nicolas
Parangan over Lot 8069 in TCT No. T-561 of the Register of Deeds of Iloilo, as null and void,
declaring the same to be Deeds of Equitable Mortgage;

3. Ordering defendant Nicolas Parangan to pay all the loans he secured from defendant PNB
using thereto as security TCT No. T-561 of plaintiff and defendant PNB to return TCT No. T-
561 to plaintiff;

4. Ordering defendant Nicolas Parangan to return possession of the land in question, Lot 8069
of the Calinog Cadastre, described in TCT No. T-561 of the Register of Deeds of Iloilo, to
plaintiff upon payment of the sum of P75,000.00 by plaintiff to defendant Parangan which
payment by plaintiff must be made within ninety (90) days from receipt of this decision;
otherwise, sale of the land will be ordered by the court to satisfy payment of the amount;

5. Ordering defendant Nicolas Parangan to pay plaintiff attorney's fees in the sum of
P15,000.00 and to pay the costs of the suit.

SO ORDERED.4

Upon appeal to the Court of Appeals (CA), respondent court reversed the trial court's decision. Hence this
petition contending that the CA committed the following errors:
 IN ARRIVING AT THE CONCLUSION THAT NONE OF THE CONDITIONS STATED IN ART. 1602
OF THE NEW CIVIL CODE HAS BEEN PROVEN TO EXIST BY PREPONDERANCE OF EVIDENCE;

IN CONCLUDING THAT PETITIONER SIGNED THE DEED OF SALE WITH KNOWLEDGE AS TO

THE CONTENTS THEREOF;

IN ARRIVING AT THE CONCLUSION THAT THE TESTIMONY OF WITNESS DELIA CABIAL

DESERVES FULL FAITH AND CREDIT;

IN FINDING THAT THE SPECIAL POWER OF ATTORNEY AUTHORIZING MORTGAGE FOR

"UNLIMITED" LOANS AS RELEVANT.

Two main issues confront us in this case, to wit: whether or not the Deed of Definite Sale is in reality an
equitable mortgage and whether or not petitioner's property is liable to PNB for the loans contracted by
Parangan by virtue of the special power of attorney. The lower court and the CA arrived at different factual
findings thus necessitating a review of the evidence on record. 5 After a thorough examination, we note some
errors, both in fact and in law, committed by public respondent CA.

The court a quo ruled that the Deed of Definite Sale is in reality an equitable mortgage as it was shown
beyond doubt that the intention of the parties was one of a loan secured by petitioner's land. 6 We agree.

A contract is perfected by mere consent.7 More particularly, a contract of sale is perfected at the moment
there is a meeting of minds upon the thing which is the object of the contract and upon the price. 8 This
meeting of the minds speaks of the intent of the parties in entering into the contract respecting the subject
matter and the consideration thereof. If the words of the contract appear to be contrary to the evident
intention of the parties, the latter shall prevail over the former.9 In the case at bench, the evidence is
sufficient to warrant a finding that petitioner and Parangan merely intended to consolidate the former's
indebtedness to the latter in a single instrument and to secure the same with the subject property. Even
when a document appears on its face to be a sale, the owner of the property may prove that the contract
is really a loan with mortgage by raising as an issue the fact that the document does not express the true
intent of the parties. In this case, parol evidence then becomes competent and admissible to prove that the
instrument was in truth and in fact given merely as a security for the repayment of a loan. And upon proof
of the truth of such allegations, the court will enforce the agreement or understanding in consonance with
the true intent of the parties at the time of the execution of the contract. 10

Articles 1602 and 1604 of the Civil Code respectively provide:

The contract shall be presumed to be an equitable mortgage in any of the following cases:

1) When the price of a sale with right to repurchase is unusually inadequate;

2) When the vendor remains in possession as lessor or otherwise;

3) When upon or after the expiration of the right to repurchase, another instrument extending
the period of redemption or granting a new period is executed;

4) When the vendor binds himself to pay the taxes on the thing sold;

5) When the purchaser retains for himself a part of the purchase price;

6) In any other case where it may be fairly inferred that the real intention of the parties is
that the transaction shall secure the payment of a debt or the performance of any other
obligation.

Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an
absolute sale.
From a reading of the above-quoted provisions, for a presumption of an equitable mortgage to arise, we
must first satisfy two requisites namely: that the parties entered into a contract denominated as a contract
of sale and that their intention was to secure an existing debt by way of mortgage. Under Art. 1604 of the
Civil Code, a contract purporting to be an absolute sale shall be presumed to be an equitable mortgage
should any of the conditions in Art. 1602 be present. The existence of any of the circumstances therein, not
a concurrence nor an overwhelming number of such circumstances, suffices to give rise to the presumption
that the contract is an equitable mortgage. 11

Art. 1602, (6), in relation to Art 1604 provides that a contract of sale is presumed to be an equitable
mortgage in any other case where it may be fairly inferred that the real intention of the parties is that the
transaction shall secure the payment of a debt or the performance of any other obligation. That the case
clearly falls under this category can be inferred from the circumstances surrounding the transaction as
herein set forth:

Petitioner had no knowledge that the contract 12 she signed is a deed of sale. The contents of the same were
not read nor explained to her so that she may intelligibly formulate in her mind the consequences of her
conduct and the nature of the rights she was ceding in favor of Parangan. Petitioner is illiterate and her
condition constrained her to merely rely on Parangan's assurance that the contract only evidences her
indebtedness to the latter. When one of the contracting parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must
show that the terms thereof have been fully explained to the former. 13 Settled is the rule that where a party
to a contract is illiterate or cannot read or cannot understand the language in which the contract is written,
the burden is on the party interested in enforcing the contract to prove that the terms thereof are fully
explained to the former in a language understood by him.14 To our mind, this burden has not been
satisfactorily discharged.

We do not find the testimony of Parangan and Delia Cabial that the contract was duly read and explained to
petitioner worthy of credit. The assessment by the trial court of the credibility of witnesses is entitled to
great respect and weight for having had the opportunity of observing the conduct and demeanor of the
witnesses while testifying. 15 The lower court may not have categorically declared Cabial's testimony as
doubtful but this fact is readily apparent when it ruled on the basis of petitioner's evidence in total disregard
of the positive testimony on Parangan's side. We have subjected the records to a thorough examination,
and a reading of the transcript of stenographic notes would bear out that the court a quo is correct in its
assessment. The CA committed a reversible error when it relied on the testimony of Cabial in upholding the
validity of the Deed of Definite Sale. For one, there are noted major contradictions between the testimonies
of Cabial and Judge Lebaquin, who notarized the purported Deed of Definite Sale. While the former testified
that receipts were presented before Judge Lebaquin, who in turn made an accounting to determine the price
of the land 16, the latter categorically denied the allegation. 17 This contradiction casts doubt on the
credibility of Cabial as it is ostensible that her version of the story is concocted.

On the other hand, petitioner's witness Celso Pamplona, testified that the contract was not read nor
explained to petitioner. We believe that this witness gave a more accurate account of the circumstances
surrounding the transaction. He has no motive to prevaricate or concoct a story as he witnessed the
execution of the document at the behest of Parangan himself who, at the outset, informed him that he will
witness a document consolidating petitioner's debts. He thus testified:

Q: In (sic) May 4, 1979, you remember having went (sic) to the Municipality of
Calinog?

A: Yes, sir.

Q: Who invited you to go there?

A: Parangan.

Q: You mean Nicolas Parangan?

 A: Yes, sir.

Q: What did Nicolas tell you why he invited you to go there?

A: He told me that I will witness on the indebtedness of Adoracion to Parangan.

Q: Before Adoracion Lustan signed her name in this Exh. "4", was this document
read to her?

A: No, sir.

Q: Did Nicolas Parangan right in that very room tell Adoracion what she was
signing?

A: No, sir.

xxx xxx xxx

Q: What did you have in mind when you were signing this document, Exh. "4"?

A: To show that Adoracion Lustan has debts with Nicolas

Parangan. 18

Furthermore, we note the absence of any question propounded to Judge Lebaquin to establish that the deed
of sale was read and explained by him to petitioner. When asked if witness has any knowledge whether
petitioner knows how to read or write, he answered in the negative. 19 This latter admission impresses upon
us that the contract was not at all read or explained to petitioner for had he known that petitioner is illiterate,
his assistance would not have been necessary.

The foregoing squares with the sixth instance when a presumption of equitable mortgage prevails. The
contract of definite sale, where petitioner purportedly ceded all her rights to the subject lot in favor of
Parangan, did not embody the true intention of the parties. The evidence speaks clearly of the nature of the
agreement — it was one executed to secure some loans.

Anent the issue of whether the outstanding mortgages on the subject property can be enforced against
petitioner, we rule in the affirmative.

Third persons who are not parties to a loan may secure the latter by pledging or mortgaging their own
property. 20 So long as valid consent was given, the fact that the loans were solely for the benefit of Parangan
would not invalidate the mortgage with respect to petitioner's property. In consenting thereto, even granting
that petitioner may not be assuming personal liability for the debt, her property shall nevertheless secure
and respond for the performance of the principal obligation. 21 It is admitted that petitioner is the owner of
the parcel of land mortgaged to PNB on five (5) occasions by virtue of the Special Powers of Attorney
executed by petitioner in favor of Parangan. Petitioner argues that the last three mortgages were void for
lack of authority. She totally failed to consider that said Special Powers of Attorney are a continuing one
and absent a valid revocation duly furnished to the mortgagee, the same continues to have force and effect
as against third persons who had no knowledge of such lack of authority. Article 1921 of the Civil Code
provides:

Art. 1921. If the agency has been entrusted for the purpose of contracting with specified
persons, its revocation shall not prejudice the latter if they were not given notice thereof.

The Special Power of Attorney executed by petitioner in favor of Parangan duly authorized the latter to
represent and act on behalf of the former. Having done so, petitioner clothed Parangan with authority to
deal with PNB on her behalf and in the absence of any proof that the bank had knowledge that the last three
loans were without the express authority of petitioner, it cannot be prejudiced thereby. As far as third
persons are concerned, an act is deemed to have been performed within the scope of the agent's authority
if such is within the terms of the power of attorney as written even if the agent has in fact exceeded the
limits of his authority according to the understanding between the principal and the agent. 22 The Special
Power of Attorney particularly provides that the same is good not only for the principal loan but also for
subsequent commercial, industrial, agricultural loan or credit accommodation that the attorney-in-fact may
obtain and until the power of attorney is revoked in a public instrument and a copy of which is furnished to
PNB. 23 Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if
the former allowed the latter to act as though he had full powers (Article 1911, Civil Code). 24 The mortgage
directly and immediately subjects the property upon which it is imposed. 25 The property of third persons
which has been expressly mortgaged to guarantee an obligation to which the said persons are foreign, is
directly and jointly liable for the fulfillment thereof; it is therefore subject to execution and sale for the
purpose of paying the amount of the debt for which it is liable. 26 However, petitioner has an unquestionable
right to demand proportional indemnification from Parangan with respect to the sum paid to PNB from the
proceeds of the sale of her property 27 in case the same is sold to satisfy the unpaid debts.

WHEREFORE, premises considered, the judgment of the lower court is hereby REINSTATED with the
following MODIFICATIONS:

1. DECLARING THE DEED OF DEFINITE SALE AS AN EQUITABLE MORTGAGE;

2. ORDERING PRIVATE RESPONDENT NICOLAS PARANGAN TO RETURN THE POSSESSION OF THE SUBJECT
LAND UNTO PETITIONER UPON THE LATTER'S PAYMENT OF THE SUM OF P75,000.00 WITHIN NINETY (90)
DAYS FROM RECEIPT OF THIS DECISION;

3. DECLARING THE MORTGAGES IN FAVOR OF PNB AS VALID AND SUBSISTING AND MAY THEREFORE BE
SUBJECTED TO EXECUTION SALE.

4. ORDERING PRIVATE RESPONDENT PARANGAN TO PAY PETITIONER THE AMOUNT OF P15,000.00 BY WAY
OF ATTORNEY'S FEES AND TO PAY THE COSTS OF THE SUIT. SO ORDERED.

EULOGIO DEL ROSARIO, AURELIO DEL ROSARIO, BENITO DEL ROSARIO, BERNARDO DEL
ROSARIO, ISIDRA DEL ROSARIO, DOMINGA DEL ROSARIO and CONCEPCION
BORROMEO, plaintiff-appellees, vs. PRIMITIVO ABAD and TEODORICO ABAD, defendants-appellants.

PADILLA, J.:

Appeal from a judgment rendered by the Court of First Instance of Nueva Ecija in civil case No. 1084.

The facts are undisputed, the parties having entered into an agreed statement thereof, the pertinent and
materials part of which are: The plaintiffs are the children and heirs of the late Tiburcio del Rosario. On 12
December 1936, the Secretary of Agriculture and Commerce, by authority of the President of the
Commonwealth of the Philippines, issued under the provisions of the Public Land Act (Act No. 2874)
homestead patent No. 40596 to Tiburcio del Rosario. The homestead with an area of 9 hectares, 43 ares
and 14 centares is situated in barrio San Mauricio, municipality of San Jose, province of Nueva Ecija. On 11
February 1937, the Registrar of Deeds in and for the province of Nueva Ecija issued original certificate of
title No. 4820 in the name of the homesteader (Annex A, stipulation of facts, pp. 25-30, Rec. on App.). On
24 February 1937, Tiburcio del Rosario obtained a loan from Primitivo Abad in the sum of P2,000 with
interest at the rate of 12% per annum, payable on 31 December 1941. As security for the payment thereof
he mortgaged the improvements of the parcel of land in favor of the creditor (Annex B, complaint, pp. 10-
13, Rec. on App.). On the same day, 24 February, the mortgagor executed an "irrevocable special power of
attorney coupled with interest" in favor of the mortgagee, authorizing him, among others, to sell and convey
the parcel of land (Annex A, complaint, pp. 7-9, Rec. on App.). Thereafter the mortgagor and his family
moved to Santiago, Isabela, and there established a new residence. Sometime in December 1945 the
mortgagor died leaving the mortgage debt unpaid. On 9 June 1947, Primitivo Abad, acting as attorney-in-
fact of Tiburcio del Rosario, sold the parcel of land to his son Teodorico Abad for and in consideration of the
token sum of P1.00 and the payment by the vendee of the mortgage debt of Tiburcio del Rosario to Primitivo
Abad (Annex C, complaint, pp. 13-16, Rec. on App.). The vendee took possession of the parcel of land.
Upon the filing and registration of the last deed of sale, the Registrar of Deeds in and for the province of
Nueva Ecija cancelled original certificate of title No. 4820 in the name of Tiburcio del Rosario and in lieu
thereof issued transfer certificate of title No. 1882 in favor of the vendee Teodorico Abad.

On 29 December 1952 the plaintiffs brought suit against the defendants to recover possession and ownership
of the parcel of land, damages, attorney's fees and costs. The defendants answered the complaint and
prayed for the dismissal thereof, damages, attorney's fees and costs.

On 25 October 1954, after the parties had submitted the case upon a stipulation of facts, the Court rendered
judgment, the dispositive part of which is:

WHEREFORE, the deed of sale executed by Primitivo Abad in favor of Teodorica Abad, Annex C, is
hereby declared null and void; and Teodorico Abad is hereby ordered to execute a deed of
reconveyance of the land originally with OCT No. 4820, now covered by Transfer Certificate of Title
No. 1880, in favor of the plaintiffs. No pronouncement as to costs.

The defendants appealed to the Court of Appeals, which certified the case to this Court as no question of
fact is involved.

Section 116 of the Public Land Act (Act No. 2874), under which the homestead was granted to the appellees'
father, provides:

Lands acquired under the free patent or homestead provisions shall not be subject to encumbrance
or alienation from the date of the approval of the application and for a term of five years from and
after the date of the issuance of the patent or grant, nor shall they become liable to the satisfaction
of any debt contracted prior to the expiration of said period; but the improvements or crops on the
land may be mortgaged or pledged to qualified persons, associations, or corporations.

The encumbrance or alienation of lands acquired by free patent or homestead in violation of this section is
null and void.1

There is no question that the mortgage on the improvements of the parcel of land executed by Tiburcio del
Rosario in favor of Primitivo Abad (Annex B, complaint, pp. 10-13, Rec. on App.) is valid.

The power of attorney executed by Tiburcio del Rosario in favor of Primitivo Abad (Annex A, complaint, pp.
7-9, Rec. on App.) providing, among others, that is coupled with an interest in the subject matter thereof
in favor of the said attorney and are therefore irrevocable, and . . . conferring upon my said attorney full
and ample power and authority to do and perform all things reasonably necessary and proper for the due
carrying out of the said powers according to the true tenor and purport of the same, . . ." does not create
an agency coupled with an interest nor does it clothe the agency with an irrevocable character. A mere
statement in the power of attorney that it is coupled with an interest is not enough. In what does such
interest consist must be stated in the power of attorney. The fact that Tiburcio del Rosario, the principal,
had mortgaged the improvements of the parcel of land to Primitivo Abad, the agent, (Annex B, complaint,
pp. 10-13, Rec. on App.) is not such an interest as could render irrevocable the power of attorney executed
by the principal in favor of the agent. In fact no mention of it is made in the power of attorney. The mortgage
on the improvements of the parcel of land has nothing to do with the power of attorney and may be
foreclosed by the mortgagee upon failure of the mortgagor to comply with his obligation. As the agency was
not coupled with an interest, it was terminated upon the death of Tiburcio del Rosario, the principal,
sometime in December 1945, and Primitivo Abad, the agent, could no longer validly convey the parcel of
land to Teodorico Abad on 9 June 1947. The sale, therefore, to the later was null and void. But granting that
the irrevocable power of attorney was lawful and valid it would subject the parcel of land to an encumbrance.
As the homestead patent was issued on 12 December 1936 and the power of attorney was executed on 24
February 1937, it was in violation of the law that prohibits the alienation or encumbrance of land acquired
by homestead from the date of the approval of the application and for a term of five years from and after
the issuance of the patent or grant. Appellants contend that the power of attorney was to be availed of by
the agent after the lapse of the prohibition period of five years, and that in fact Primitivo Abad sold the
parcel of land on 9 June 1947, after the lapse of such period. Nothing to that effect is found in the power of
attorney.

Appellants claim that the trial court should have directed the appellees to reimburse Teodorico Abad for
what he had paid to Primitivo Abad to discharge the mortgage in the latter's favor as part of the consideration
of the sale. As the sale to Teodorico Abad is null and void, the appellees can not be compelled to reimburse
Teodorico Abad for what he had paid to Primitivo Abad. The former's right of action is against the latter,
without prejudice to the right of Primitive Abad to foreclose the mortgage on the improvements of the parcel
of land if the mortgage debt is not paid by the appellees, as heirs and successors-in-interest of the
mortgagor.

The judgment appealed from is affirmed, with costs against the appellants.

GENEVIEVE LIM, petitioner, vs. FLORENCIO SABAN, respondents.

DECISION

TINGA, J.:

Before the Court is a Petition for Review on Certiorari assailing the Decision1 dated October 27, 2003 of the
Court of Appeals, Seventh Division, in CA-G.R. V No. 60392.2

The late Eduardo Ybañez (Ybañez), the owner of a 1,000-square meter lot in Cebu City (the "lot"), entered
into an Agreement and Authority to Negotiate and Sell (Agency Agreement) with respondent Florencio
Saban (Saban) on February 8, 1994. Under the Agency Agreement, Ybañez authorized Saban to look for a
buyer of the lot for Two Hundred Thousand Pesos (P200,000.00) and to mark up the selling price to include
the amounts needed for payment of taxes, transfer of title and other expenses incident to the sale, as well
as Saban’s commission for the sale.3

Through Saban’s efforts, Ybañez and his wife were able to sell the lot to the petitioner Genevieve Lim (Lim)
and the spouses Benjamin and Lourdes Lim (the Spouses Lim) on March 10, 1994. The price of the lot as
indicated in the Deed of Absolute Sale is Two Hundred Thousand Pesos (P200,000.00).4 It appears, however,
that the vendees agreed to purchase the lot at the price of Six Hundred Thousand Pesos (P600,000.00),
inclusive of taxes and other incidental expenses of the sale. After the sale, Lim remitted to Saban the
amounts of One Hundred Thirteen Thousand Two Hundred Fifty Seven Pesos (P113,257.00) for payment of
taxes due on the transaction as well as Fifty Thousand Pesos (P50,000.00) as broker’s commission.5 Lim
also issued in the name of Saban four postdated checks in the aggregate amount of Two Hundred Thirty Six
Thousand Seven Hundred Forty Three Pesos (P236,743.00). These checks were Bank of the Philippine
Islands (BPI) Check No. 1112645 dated June 12, 1994 for P25,000.00; BPI Check No. 1112647 dated June
19, 1994 for P18,743.00; BPI Check No. 1112646 dated June 26, 1994 for P25,000.00; and Equitable PCI
Bank Check No. 021491B dated June 20, 1994 for P168,000.00.

Subsequently, Ybañez sent a letter dated June 10, 1994 addressed to Lim. In the letter Ybañez asked Lim
to cancel all the checks issued by her in Saban’s favor and to "extend another partial payment" for the lot
in his (Ybañez’s) favor.6

After the four checks in his favor were dishonored upon presentment, Saban filed a Complaint for collection
of sum of money and damages against Ybañez and Lim with the Regional Trial Court (RTC) of Cebu City on
August 3, 1994.7 The case was assigned to Branch 20 of the RTC.

In his Complaint, Saban alleged that Lim and the Spouses Lim agreed to purchase the lot
for P600,000.00, i.e., with a mark-up of Four Hundred Thousand Pesos (P400,000.00) from the price set by
Ybañez. Of the total purchase price of P600,000.00, P200,000.00 went to Ybañez, P50,000.00 allegedly
went to Lim’s agent, and P113,257.00 was given to Saban to cover taxes and other expenses incidental to
the sale. Lim also issued four (4) postdated checks8 in favor of Saban for the remaining P236,743.00.9
Saban alleged that Ybañez told Lim that he (Saban) was not entitled to any commission for the sale since
he concealed the actual selling price of the lot from Ybañez and because he was not a licensed real estate
broker. Ybañez was able to convince Lim to cancel all four checks.

Saban further averred that Ybañez and Lim connived to deprive him of his sales commission by withholding
payment of the first three checks. He also claimed that Lim failed to make good the fourth check which was
dishonored because the account against which it was drawn was closed.

In his Answer, Ybañez claimed that Saban was not entitled to any commission because he concealed the
actual selling price from him and because he was not a licensed real estate broker.

Lim, for her part, argued that she was not privy to the agreement between Ybañez and Saban, and that she
issued stop payment orders for the three checks because Ybañez requested her to pay the purchase price
directly to him, instead of coursing it through Saban. She also alleged that she agreed with Ybañez that the
purchase price of the lot was only P200,000.00.

Ybañez died during the pendency of the case before the RTC. Upon motion of his counsel, the trial court
dismissed the case only against him without any objection from the other parties. 10

On May 14, 1997, the RTC rendered its Decision11 dismissing Saban’s complaint, declaring the four (4)
checks issued by Lim as stale and non-negotiable, and absolving Lim from any liability towards Saban.

Saban appealed the trial court’s Decision to the Court of Appeals.

On October 27, 2003, the appellate court promulgated its Decision12 reversing the trial court’s ruling. It held
that Saban was entitled to his commission amounting to P236,743.00.13

The Court of Appeals ruled that Ybañez’s revocation of his contract of agency with Saban was invalid because
the agency was coupled with an interest and Ybañez effected the revocation in bad faith in order to deprive
Saban of his commission and to keep the profits for himself.14

The appellate court found that Ybañez and Lim connived to deprive Saban of his commission. It declared
that Lim is liable to pay Saban the amount of the purchase price of the lot corresponding to his commission
because she issued the four checks knowing that the total amount thereof corresponded to Saban’s
commission for the sale, as the agent of Ybañez. The appellate court further ruled that, in issuing the checks
in payment of Saban’s commission, Lim acted as an accommodation party. She signed the checks as drawer,
without receiving value therefor, for the purpose of lending her name to a third person. As such, she is liable
to pay Saban as the holder for value of the checks.15

Lim filed a Motion for Reconsideration of the appellate court’s Decision, but her Motion was denied by the
Court of Appeals in a Resolution dated May 6, 2004.16

Not satisfied with the decision of the Court of Appeals, Lim filed the present petition.

Lim argues that the appellate court ignored the fact that after paying her agent and remitting to Saban the
amounts due for taxes and transfer of title, she paid the balance of the purchase price directly to Ybañez.17

She further contends that she is not liable for Ybañez’s debt to Saban under the Agency Agreement as she
is not privy thereto, and that Saban has no one but himself to blame for consenting to the dismissal of the
case against Ybañez and not moving for his substitution by his heirs.18

Lim also assails the findings of the appellate court that she issued the checks as an accommodation party
for Ybañez and that she connived with the latter to deprive Saban of his commission. 19
Lim prays that should she be found liable to pay Saban the amount of his commission, she should only be
held liable to the extent of one-third (1/3) of the amount, since she had two co-vendees (the Spouses Lim)
who should share such liability.20

In his Comment, Saban maintains that Lim agreed to purchase the lot for P600,000.00, which consisted of
the P200,000.00 which would be paid to Ybañez, the P50,000.00 due to her broker, the P113,257.00
earmarked for taxes and other expenses incidental to the sale and Saban’s commission as broker for Ybañez.
According to Saban, Lim assumed the obligation to pay him his commission. He insists that Lim and Ybañez
connived to unjustly deprive him of his commission from the negotiation of the sale. 21

The issues for the Court’s resolution are whether Saban is entitled to receive his commission from the sale;
and, assuming that Saban is entitled thereto, whether it is Lim who is liable to pay Saban his sales
commission.

The Court gives due course to the petition, but agrees with the result reached by the Court of Appeals.

The Court affirms the appellate court’s finding that the agency was not revoked since Ybañez requested that
Lim make stop payment orders for the checks payable to Saban only after the consummation of the sale on
March 10, 1994. At that time, Saban had already performed his obligation as Ybañez’s agent when, through
his (Saban’s) efforts, Ybañez executed the Deed of Absolute Sale of the lot with Lim and the Spouses Lim.

To deprive Saban of his commission subsequent to the sale which was consummated through his efforts
would be a breach of his contract of agency with Ybañez which expressly states that Saban would be entitled
to any excess in the purchase price after deducting the P200,000.00 due to Ybañez and the transfer taxes
and other incidental expenses of the sale.22

In Macondray & Co. v. Sellner,23 the Court recognized the right of a broker to his commission for finding a
suitable buyer for the seller’s property even though the seller himself consummated the sale with the
buyer.24 The Court held that it would be in the height of injustice to permit the principal to terminate the
contract of agency to the prejudice of the broker when he had already reaped the benefits of the broker’s
efforts.

In Infante v. Cunanan, et al.,25 the Court upheld the right of the brokers to their commissions although the
seller revoked their authority to act in his behalf after they had found a buyer for his properties and
negotiated the sale directly with the buyer whom he met through the brokers’ efforts. The Court ruled that
the seller’s withdrawal in bad faith of the brokers’ authority cannot unjustly deprive the brokers of their
commissions as the seller’s duly constituted agents.

The pronouncements of the Court in the aforecited cases are applicable to the present case, especially
considering that Saban had completely performed his obligations under his contract of agency with Ybañez
by finding a suitable buyer to preparing the Deed of Absolute Sale between Ybañez and Lim and her co-
vendees. Moreover, the contract of agency very clearly states that Saban is entitled to the excess of the
mark-up of the price of the lot after deducting Ybañez’s share of P200,000.00 and the taxes and other
incidental expenses of the sale.

However, the Court does not agree with the appellate court’s pronouncement that Saban’s agency was one
coupled with an interest. Under Article 1927 of the Civil Code, an agency cannot be revoked if a bilateral
contract depends upon it, or if it is the means of fulfilling an obligation already contracted, or if a partner is
appointed manager of a partnership in the contract of partnership and his removal from the management
is unjustifiable. Stated differently, an agency is deemed as one coupled with an interest where it is
established for the mutual benefit of the principal and of the agent, or for the interest of the principal and
of third persons, and it cannot be revoked by the principal so long as the interest of the agent or of a third
person subsists. In an agency coupled with an interest, the agent’s interest must be in the subject matter
of the power conferred and not merely an interest in the exercise of the power because it entitles him to
compensation. When an agent’s interest is confined to earning his agreed compensation, the agency is not
one coupled with an interest, since an agent’s interest in obtaining his compensation as such agent is an
ordinary incident of the agency relationship.26
Saban’s entitlement to his commission having been settled, the Court must now determine whether Lim is
the proper party against whom Saban should address his claim.

Saban’s right to receive compensation for negotiating as broker for Ybañez arises from the Agency
Agreement between them. Lim is not a party to the contract. However, the record reveals that she had
knowledge of the fact that Ybañez set the price of the lot at P200,000.00 and that the P600,000.00—the
price agreed upon by her and Saban—was more than the amount set by Ybañez because it included the
amount for payment of taxes and for Saban’s commission as broker for Ybañez.

According to the trial court, Lim made the following payments for the lot: P113,257.00 for taxes, P50,000.00
for her broker, and P400.000.00 directly to Ybañez, or a total of Five Hundred Sixty Three Thousand Two
Hundred Fifty Seven Pesos (P563,257.00).27 Lim, on the other hand, claims that on March 10, 1994, the
date of execution of the Deed of Absolute Sale, she paid directly to Ybañez the amount of One Hundred
Thousand Pesos (P100,000.00) only, and gave to Saban P113,257.00 for payment of taxes and P50,000.00
as his commission,28 and One Hundred Thirty Thousand Pesos (P130,000.00) on June 28, 1994,29 or a total
of Three Hundred Ninety Three Thousand Two Hundred Fifty Seven Pesos (P393,257.00). Ybañez, for his
part, acknowledged that Lim and her co-vendees paid him P400,000.00 which he said was the full amount
for the sale of the lot.30 It thus appears that he received P100,000.00 on March 10, 1994, acknowledged
receipt (through Saban) of the P113,257.00 earmarked for taxes and P50,000.00 for commission, and
received the balance of P130,000.00 on June 28, 1994. Thus, a total of P230,000.00 went directly to Ybañez.
Apparently, although the amount actually paid by Lim was P393,257.00, Ybañez rounded off the amount
to P400,000.00 and waived the difference.

Lim’s act of issuing the four checks amounting to P236,743.00 in Saban’s favor belies her claim that she
and her co-vendees did not agree to purchase the lot at P600,000.00. If she did not agree thereto, there
would be no reason for her to issue those checks which is the balance of P600,000.00 less the amounts
of P200,000.00 (due to Ybañez), P50,000.00 (commission), and the P113,257.00 (taxes). The only logical
conclusion is that Lim changed her mind about agreeing to purchase the lot at P600,000.00 after talking to
Ybañez and ultimately realizing that Saban’s commission is even more than what Ybañez received as his
share of the purchase price as vendor. Obviously, this change of mind resulted to the prejudice of Saban
whose efforts led to the completion of the sale between the latter, and Lim and her co-vendees. This the
Court cannot countenance.

The ruling of the Court in Infante v. Cunanan, et al., cited earlier, is enlightening for the facts therein are
similar to the circumstances of the present case. In that case, Consejo Infante asked Jose Cunanan and
Juan Mijares to find a buyer for her two lots and the house built thereon for Thirty Thousand Pesos
(P30,000.00) . She promised to pay them five percent (5%) of the purchase price plus whatever overprice
they may obtain for the property. Cunanan and Mijares offered the properties to Pio Noche who in turn
expressed willingness to purchase the properties. Cunanan and Mijares thereafter introduced Noche to
Infante. However, the latter told Cunanan and Mijares that she was no longer interested in selling the
property and asked them to sign a document stating that their written authority to act as her agents for the
sale of the properties was already cancelled. Subsequently, Infante sold the properties directly to Noche for
Thirty One Thousand Pesos (P31,000.00). The Court upheld the right of Cunanan and Mijares to their
commission, explaining that—

…[Infante] had changed her mind even if respondent had found a buyer who was willing to close the
deal, is a matter that would not give rise to a legal consequence if [Cunanan and Mijares] agreed to
call off the transaction in deference to the request of [Infante]. But the situation varies if one of the
parties takes advantage of the benevolence of the other and acts in a manner that would promote
his own selfish interest. This act is unfair as would amount to bad faith. This act cannot be sanctioned
without according the party prejudiced the reward which is due him. This is the situation in which
[Cunanan and Mijares] were placed by [Infante]. [Infante] took advantage of the services rendered
by [Cunanan and Mijares], but believing that she could evade payment of their commission, she
made use of a ruse by inducing them to sign the deed of cancellation….This act of subversion cannot
be sanctioned and cannot serve as basis for [Infante] to escape payment of the commission agreed
upon.31
The appellate court therefore had sufficient basis for concluding that Ybañez and Lim connived to deprive
Saban of his commission by dealing with each other directly and reducing the purchase price of the lot and
leaving nothing to compensate Saban for his efforts.

Considering the circumstances surrounding the case, and the undisputed fact that Lim had not yet paid the
balance of P200,000.00 of the purchase price of P600,000.00, it is just and proper for her to pay Saban the
balance of P200,000.00.

Furthermore, since Ybañez received a total of P230,000.00 from Lim, or an excess of P30,000.00 from his
asking price of P200,000.00, Saban may claim such excess from Ybañez’s estate, if that remedy is still
available,32 in view of the trial court’s dismissal of Saban’s complaint as against Ybañez, with Saban’s express
consent, due to the latter’s demise on November 11, 1994.33

The appellate court however erred in ruling that Lim is liable on the checks because she issued them as an
accommodation party. Section 29 of the Negotiable Instruments Law defines an accommodation party as a
person "who has signed the negotiable instrument as maker, drawer, acceptor or indorser, without receiving
value therefor, for the purpose of lending his name to some other person." The accommodation party is
liable on the instrument to a holder for value even though the holder at the time of taking the instrument
knew him or her to be merely an accommodation party. The accommodation party may of course seek
reimbursement from the party accommodated.34

As gleaned from the text of Section 29 of the Negotiable Instruments Law, the accommodation party is one
who meets all these three requisites, viz: (1) he signed the instrument as maker, drawer, acceptor, or
indorser; (2) he did not receive value for the signature; and (3) he signed for the purpose of lending his
name to some other person. In the case at bar, while Lim signed as drawer of the checks she did not satisfy
the two other remaining requisites.

The absence of the second requisite becomes pellucid when it is noted at the outset that Lim issued the
checks in question on account of her transaction, along with the other purchasers, with Ybañez which was
a sale and, therefore, a reciprocal contract. Specifically, she drew the checks in payment of the balance of
the purchase price of the lot subject of the transaction. And she had to pay the agreed purchase price in
consideration for the sale of the lot to her and her co-vendees. In other words, the amounts covered by the
checks form part of the cause or consideration from Ybañez’s end, as vendor, while the lot represented the
cause or consideration on the side of Lim, as vendee. 35 Ergo, Lim received value for her signature on the
checks.

Neither is there any indication that Lim issued the checks for the purpose of enabling Ybañez, or any other
person for that matter, to obtain credit or to raise money, thereby totally debunking the presence of the
third requisite of an accommodation party.

WHEREFORE, in view of the foregoing, the petition is DISMISSED. SO ORDERED.

REPUBLIC OF THE PHILIPPINES, represented by LT. GEN. JOSE M. CALIMLIM, in his capacity as
former Chief of the Intelligence Service, Armed Forces of the Philippines (ISAFP), and former
Commanding General, Presidential Security Group (PSG), and MAJ. DAVID B. DICIANO, in his
capacity as an Officer of ISAFP and former member of the PSG, Petitioners, vs. HON. VICTORINO
EVANGELISTA, in his capacity as Presiding Judge, Regional Trial Court, Branch 223, Quezon City,
and DANTE LEGASPI, represented by his attorney-in-fact, Paul Gutierrez, Respondent.

DECISION

PUNO, J.:

The case at bar stems from a complaint for damages, with prayer for the issuance of a writ of preliminary
injunction, filed by private respondent Dante Legaspi, through his attorney-in-fact Paul Gutierrez, against
petitioners Gen. Jose M. Calimlim, Ciriaco Reyes and Maj. David Diciano before the Regional Trial Court
(RTC) of Quezon City.1
The Complaint alleged that private respondent Legaspi is the owner of a land located in Bigte, Norzagaray,
Bulacan. In November 1999, petitioner Calimlim, representing the Republic of the Philippines, and as then
head of the Intelligence Service of the Armed Forces of the Philippines and the Presidential Security Group,
entered into a Memorandum of Agreement (MOA) with one Ciriaco Reyes. The MOA granted Reyes a permit
to hunt for treasure in a land in Bigte, Norzagaray, Bulacan. Petitioner Diciano signed the MOA as a
witness.2 It was further alleged that thereafter, Reyes, together with petitioners, started, digging, tunneling
and blasting works on the said land of Legaspi. The complaint also alleged that petitioner Calimlim assigned
about 80 military personnel to guard the area and encamp thereon to intimidate Legaspi and other occupants
of the area from going near the subject land.

On February 15, 2000, Legaspi executed a special power of attorney (SPA) appointing his nephew, private
respondent Gutierrez, as his attorney-in-fact. Gutierrez was given the power to deal with the treasure
hunting activities on Legaspi’s land and to file charges against those who may enter it without the latter’s
authority.3 Legaspi agreed to give Gutierrez 40% of the treasure that may be found in the land.

On February 29, 2000, Gutierrez filed a case for damages and injunction against petitioners for illegally
entering Legaspi’s land. He hired the legal services of Atty. Homobono Adaza. Their contract provided that
as legal fees, Atty. Adaza shall be entitled to 30% of Legaspi’s share in whatever treasure may be found in
the land. In addition, Gutierrez agreed to pay Atty. Adaza ₱5,000.00 as appearance fee per court hearing
and defray all expenses for the cost of the litigation.4 Upon the filing of the complaint, then Executive Judge
Perlita J. Tria Tirona issued a 72-hour temporary restraining order (TRO) against petitioners.

The case5 was subsequently raffled to the RTC of Quezon City, Branch 223, then presided by public
respondent Judge Victorino P. Evangelista. On March 2, 2000, respondent judge issued another 72-hour
TRO and a summary hearing for its extension was set on March 7, 2000.

On March 14, 2000, petitioners filed a Motion to Dismiss6 contending: first, there is no real party-in-interest
as the SPA of Gutierrez to bring the suit was already revoked by Legaspi on March 7, 2000, as evidenced
by a Deed of Revocation,7 and, second, Gutierrez failed to establish that the alleged armed men guarding
the area were acting on orders of petitioners. On March 17, 2000, petitioners also filed a Motion for
Inhibition8 of the respondent judge on the ground of alleged partiality in favor of private respondent.

On March 23, 2000, the trial court granted private respondent’s application for a writ of preliminary
injunction on the following grounds: (1) the diggings and blastings appear to have been made on the land
of Legaspi, hence, there is an urgent need to maintain the status quo to prevent serious damage to Legaspi’s
land; and, (2) the SPA granted to Gutierrez continues to be valid. 9 The trial court ordered thus:

WHEREFORE, in view of all the foregoing, the Court hereby resolves to GRANT plaintiff’s application for a
writ of preliminary injunction. Upon plaintiff’s filing of an injunction bond in the amount of ONE HUNDRED
THOUSAND PESOS (₱100,000.00), let a Writ of Preliminary Injunction issue enjoining the defendants as
well as their associates, agents or representatives from continuing to occupy and encamp on the land of the
plaintiff LEGASPI as well as the vicinity thereof; from digging, tunneling and blasting the said land of plaintiff
LEGASPI; from removing whatever treasure may be found on the said land; from preventing and threatening
the plaintiffs and their representatives from entering the said land and performing acts of ownership; from
threatening the plaintiffs and their representatives as well as plaintiffs’ lawyer.

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

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

Hence this petition, with the following assigned errors:

WHETHER THE CONTRACT OF AGENCY BETWEEN LEGASPI AND PRIVATE RESPONDENT GUTIERREZ HAS
BEEN EFFECTIVELY REVOKED BY LEGASPI.
II

WHETHER THE COMPLAINT AGAINST PETITIONERS SHOULD BE DISMISSED.

III

WHETHER RESPONDENT JUDGE OUGHT TO HAVE INHIBITED HIMSELF FROM FURTHER PROCEEDING WITH
THE CASE.

We find no merit in the petition.

On the first issue, petitioners claim that the special power of attorney of Gutierrez to represent Legaspi has
already been revoked by the latter. Private respondent Gutierrez, however, contends that the unilateral
revocation is invalid as his agency is coupled with interest.

We agree with private respondent.

Art. 1868 of the Civil Code provides that by the contract of agency, an agent binds himself to render some
service or do something in representation or on behalf of another, known as the principal, with the consent
or authority of the latter.13

A contract of agency is generally revocable as it is a personal contract of representation based on trust and
confidence reposed by the principal on his agent. As the power of the agent to act depends on the will and
license of the principal he represents, the power of the agent ceases when the will or permission is withdrawn
by the principal. Thus, generally, the agency may be revoked by the principal at will.14

However, an exception to the revocability of a contract of agency is when it is coupled with interest, i.e., if
a bilateral contract depends upon the agency. 15 The reason for its irrevocability is because the agency
becomes part of another obligation or agreement. It is not solely the rights of the principal but also that of
the agent and third persons which are affected. Hence, the law provides that in such cases, the agency
cannot be revoked at the sole will of the principal.

In the case at bar, we agree with the finding of the trial and appellate courts that the agency granted by
Legaspi to Gutierrez is coupled with interest as a bilateral contract depends on it. It is clear from the records
that Gutierrez was given by Legaspi, inter alia, the power to manage the treasure hunting
activities in the subject land; to file any case against anyone who enters the land without
authority from Legaspi; to engage the services of lawyers to carry out the agency; and, to dig for
any treasure within the land and enter into agreements relative thereto. It was likewise agreed
upon that Gutierrez shall be entitled to 40% of whatever treasure may be found in the land.
Pursuant to this authority and to protect Legaspi’s land from the alleged illegal entry of petitioners, agent
Gutierrez hired the services of Atty. Adaza to prosecute the case for damages and injunction against
petitioners. As payment for legal services, Gutierrez agreed to assign to Atty. Adaza 30% of
Legaspi’s share in whatever treasure may be recovered in the subject land. It is clear that the
treasure that may be found in the land is the subject matter of the agency; that under the SPA, Gutierrez
can enter into contract for the legal services of Atty. Adaza; and, thus Gutierrez and Atty. Adaza have an
interest in the subject matter of the agency, i.e., in the treasures that may be found in the land. This bilateral
contract depends on the agency and thus renders it as one coupled with interest, irrevocable at the sole will
of the principal Legaspi.16 When an agency is constituted as a clause in a bilateral contract, that is, when
the agency is inserted in another agreement, the agency ceases to be revocable at the pleasure of the
principal as the agency shall now follow the condition of the bilateral agreement. 17 Consequently, the Deed
of Revocation executed by Legaspi has no effect. The authority of Gutierrez to file and continue with the
prosecution of the case at bar is unaffected.

On the second issue, we hold that the issuance of the writ of preliminary injunction is justified. A writ of
preliminary injunction is an ancilliary or preventive remedy that is resorted to by a litigant to protect or
preserve his rights or interests and for no other purpose during the pendency of the principal action. 18 It is
issued by the court to prevent threatened or continuous irremediable injury to the applicant before his claim
can be thoroughly studied and adjudicated.19 Its aim is to preserve the status quo ante until the merits of
the case can be heard fully, upon the applicant’s showing of two important conditions, viz.: (1) the right to
be protected prima facie exists; and, (2) the acts sought to be enjoined are violative of that right.20

Section 3, Rule 58 of the 1997 Rules of Civil Procedure provides that a writ of preliminary injunction may
be issued when it is established:

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

(b) that the commission, continuance or non-performance of the act or acts complained of during the
litigation would probably work injustice to the applicant; or

(c) that a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or
suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the
subject of the action or proceeding, and tending to render the judgment ineffectual.

It is crystal clear that at the hearing for the issuance of a writ of preliminary injunction, mere prima
facie evidence is needed to establish the applicant’s rights or interests in the subject matter of the main
action.21 It is not required that the applicant should conclusively show that there was a violation of his
rights as this issue will still be fully litigated in the main case. 22 Thus, an applicant for a writ is required
only to show that he has an ostensible right to the final relief prayed for in his complaint. 23

In the case at bar, we find that respondent judge had sufficient basis to issue the writ of preliminary
injunction. It was established, prima facie, that Legaspi has a right to peaceful possession of his
land, pendente lite. Legaspi had title to the subject land. It was likewise established that the diggings
were conducted by petitioners in the enclosed area of Legaspi’s land. Whether the land fenced by
Gutierrez and claimed to be included in the land of Legaspi covered an area beyond that which
is included in the title of Legaspi is a factual issue still subject to litigation and proof by the
parties in the main case for damages. It was necessary for the trial court to issue the writ of preliminary
injunction during the pendency of the main case in order to preserve the rights and interests of private
respondents Legaspi and Gutierrez.

On the third issue, petitioners charge that the respondent judge lacked the neutrality of an impartial judge.
They fault the respondent judge for not giving credence to the testimony of their surveyor that the diggings
were conducted outside the land of Legaspi. They also claim that respondent judge’s rulings on objections
raised by the parties were biased against them.

We have carefully examined the records and we find no sufficient basis to hold that respondent judge should
have recused himself from hearing the case. There is no discernible pattern of bias on the rulings of the
respondent judge. Bias and partiality can never be presumed. Bare allegations of partiality will not suffice
in an absence of a clear showing that will overcome the presumption that the judge dispensed justice without
fear or favor.24 It bears to stress again that a judge’s appreciation or misappreciation of the sufficiency of
evidence adduced by the parties, or the correctness of a judge’s orders or rulings on the objections of
counsels during the hearing, without proof of malice on the part of respondent judge, is not sufficient to
show bias or partiality. As we held in the case of Webb vs. People,25 the adverse and erroneous rulings of
a judge on the various motions of a party do not sufficiently prove bias and prejudice to disqualify him. To
be disqualifying, it must be shown that the bias and prejudice stemmed from an extrajudicial source and
result in an opinion on the merits on some basis other than what the judge learned from his participation in
the case. Opinions formed in the course of judicial proceedings, although erroneous, as long as based on
the evidence adduced, do not prove bias or prejudice. We also emphasized that repeated rulings against a
litigant, no matter how erroneously, vigorously and consistently expressed, do not amount to bias and
prejudice which can be a bases for the disqualification of a judge.
Finally, the inhibition of respondent judge in hearing the case for damages has become moot and academic
in view of the latter’s death during the pendency of the case. The main case for damages shall now be heard
and tried before another judge.

IN VIEW WHEREOF, the impugned Orders of the trial court in Civil Case No. Q-00-40115, dated March 23
and April 4, 2000, are AFFIRMED. The presiding judge of the Regional Trial Court of Quezon City to whom
Civil Case No. Q-00-40115 was assigned is directed to proceed with dispatch in hearing the main case for
damages. No pronouncement as to costs.

VICENTE M. COLEONGCO, plaintiff-appellant, vs. EDUARDO L. CLAPAROLS, defendant-appellee.

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

Appeal by plaintiff Vicente Coleongco from a decision of the Court of First Instance of Negros Occidental (in
its Civil Case No. 4170) dismissing plaintiff's action for damages, and ordering him to pay defendant Eduardo
Claparols the amount of P81,387.27 plus legal interest from the filing of the counterclaim till payment
thereof; P50,000 as moral and compensatory damages suffered by defendant; and costs.

A writ of preliminary attachment for the sum of P100,000 was subsequently issued against plaintiff's
properties in spite of opposition thereto.

Plaintiff Coleongco, not being in conformity with the judgment appealed to this Court directly, the claims
involved being in excess of P200,000.

The antecedent facts as found by the trial court and shown by the records, are as follows:

Since 1951, defendant-appellee, Eduardo L. Claparols, operated a factory for the manufacture of nails in
Talisay, Occidental Negros, under the style of "Claparols Steel & Nail Plant". The raw material, nail wire, was
imported from foreign sources, specially from Belgium; and Claparols had a regular dollar allocation therefor,
granted by the Import Control Commission and the Central Bank. The marketing of the nails was handled
by the "ABCD Commercial" of Bacolod, which was owned by a Chinaman named Kho To.1äwphï1.ñët

Losses compelled Claparols in 1953 to look for someone to finance his imports of nail wires. At first, Kho To
agreed to do the financing, but on April 25, 1953, the Chinaman introduced his compadre, appellant Vicente
Coleongco, to the appellee, recommending said appellant to be the financier in the stead of Kho To. Claparols
agreed, and on April 25 of that year a contract (Exhibit B) was perfected between them whereby Coleongco
undertook to finance and put up the funds required for the importation of the nail wire, which Claparols
bound himself to convert into nails at his plant. It was agreed that Coleongco would have the exclusive
distribution of the product, and the "absolute care in the marketing of these nails and the promotion of sales
all over the Philippines", except the Davao Agency; that Coleongco would "share the control of all the cash"
from sales or deposited in banks; that he would have a representative in the management; that all contracts
and transactions should be jointly approved by both parties; that proper books would be kept and annual
accounts rendered; and that profits and losses would be shared "on a 50-50 basis". The contract was
renewed from one year to year until 1958, and Coleongco's share subsequently increased by 5% of the net
profit of the factory (Exhibits D, E, F).

Two days after the execution of the basic agreement, Exhibit "B", on April 27, 1953, Claparols executed in
favor of Coleongco, at the latter's behest a special power of attorney (Exhibit C) to open and negotiate
letters of credit, to sign contracts, bills of lading, invoices, and papers covering transactions; to represent
appellee and the nail factory; and to accept payments and cash advances from dealers and distributors.
Thereafter, Coleongco also became the assistant manager of the factory, and took over its business
transactions, while Claparols devoted most of his time to the nail manufacture processes.

Around mid-November of 1956, appellee Claparols was disagreeably surprised by service of an alias writ of
execution to enforce a judgment obtained against him by the Philippine National Bank, despite the fact that
on the preceding September he had submitted an amortization plan to settle the account. Worried and
alarmed, Claparols immediately left for Manila to confer with the bank authorities. Upon arrival, he learned
to his dismay that the execution had been procured because of derogatory information against appellee that
had reached the bank from his associate, appellant Coleongco. On July 6, 1956, the latter, without appellee's
knowledge, had written to the bank —

in connection with the verbal offer — for the acquisition by me of the whole interest of Mr. Eduardo
L. Claparols in the Claparols Steel & Nail Plant and the Claparols Hollow Blocks Factory" (Exhibit 36);

and later, on October 29, 1956, Coleongco had written again the bank another letter (Exhibit 35), also
behind the back of appellee, wherein Coleongco charged Claparols with taking machines mortgaged to the
bank, and added - .

In my humble personal opinion I presume that Mr. Eduardo L. Claparols is not serious in meeting his
obligations with your bank, otherwise he had not taken these machines and equipments a sign of
bad faith since the factory is making a satisfactory profit of my administration.

Fortunately, Claparols managed to arrange matters with the bank and to have the execution levy lifted.
Incensed at what he regarded as disloyalty of his attorney-in-fact, he consulted lawyers. The upshot was
that appellee revoked the power of attorney (Exhibit "C"), and informed Coleongco thereof (Exhibits T, T-
1), by registered mail, demanding a full accounting at the same time. Coleongco, as could be expected,
protested these acts of Claparols, but the latter insisted, and on the first of January, 1957 wrote a letter to
Coleongco dismissing him as assistant manager of the plant and asked C. Miller & Company, auditors, to go
over the books and records of the business with a view to adjusting the accounts of the associates. These
last steps were taken in view of the revelation made by his machinery superintendent, Romulo Agsam, that
in the course of the preceding New Year celebrations Coleongco had drawn Agsam aside and proposed that
the latter should pour acid on the machinery to paralyze the factory. The examination by the auditors,
summarized in Exhibits 80 and 87, found that Coleongco owed the Claparols Nail Factory the amount of
P87,387.37, as of June 30, 1957.

In the meantime, Claparols had found in the factory files certain correspondence in February, 1955 between
Coleongco and the nail dealer Kho To whereby the former proposed to Kho that the latter should cut his
monthly advances to Claparols from P2,000 to P1,000 a month, because —

I think it is time that we do our plan to take advantage of the difficulties of Eddie with the banks for
our benefit. If we can squeeze him more. I am sure that we can extend our contract with him before
it ends next year, and perhaps on better terms. If we play well our cards we might yet own his
factory (Exhibit 32);

and conformably to Coleongco's proposal, Kho To had written to Claparols that "due to present business
conditions" the latter could only be allowed to draw P1,000 a month beginning April, 1955 (Exhibit 33).

As the parties could not amicably settle their accounts, Coleongco filed a suit against Claparols charging
breach of contract, asking for accounting, and praying for P528,762.19 as damages, and attorney's fees, to
which Claparols answered, denying the charge, and counter-claiming for the rescission of the agreement
with Coleongco for P561,387.99 by way of damages. After trial, the court rendered judgment, as stated at
the beginning of this opinion.

In this appeal, it is first contended by the appellant Coleongco that the power of attorney (Exhibit "C") was
made to protect his interest under the financing agreement (Exhibit "B") and was one coupled with an
interest that the appellee Claparols had no legal power to revoke. This point can not be sustained. The
financing agreement itself already contained clauses for the protection of appellant's interest, and did not
call for the execution of any power of attorney in favor of Coleongco. But granting appellant's view, it must
not be forgotten that a power of attorney can be made irrevocable by contract only in the sense that the
principal may not recall it at his pleasure; but coupled with interest or not, the authority certainly can be
revoked for a just cause, such as when the attorney-in-fact betrays the interest of the principal, as happened
in this case. It is not open to serious doubt that the irrevocability of the power of attorney may not be used
to shield the perpetration of acts in bad faith, breach of confidence, or betrayal of trust, by the agent for
that would amount to holding that a power coupled with an interest authorizes the agent to commit frauds
against the principal.

Our new Civil Code, in Article 1172, expressly provides the contrary in prescribing that responsibility arising
from fraud is demandable in all obligations, and that any waiver of action for future fraud is void. It is also
on this principle that the Civil Code, in its Article 1800, declares that the powers of a partner, appointed as
manager, in the articles of co-partnership are irrevocable without just or lawful cause; and an agent with
power coupled with an interest can not stand on better ground than such a partner in so far as irrevocability
of the power is concerned.

That the appellee Coleongco acted in bad faith towards his principal Claparols is, on the record,
unquestionable. His letters to the Philippine National Bank (Exhibits 35 and 36) attempting to undermine
the credit of the principal and to acquire the factory of the latter, without the principal's knowledge;
Coleongco's letter to his cousin, Kho To (Exhibit 32), instructing the latter to reduce to one-half the usual
monthly advances to Claparols on account of nail sales in order to squeeze said appellee and compel him to
extend the contract entitling Coleongco to share in the profits of the nail factory on better terms, and
ultimately "own his factory", a plan carried out by Kho's letter, Exhibit 33, reducing the advances to
Claparols; Coleongco's attempt to, have Romulo Agsam pour acid on the machinery; his illegal diversion of
the profits of the factory to his own benefit; and the surreptitious disposition of the Yates band resaw
machine in favor of his cousin's Hong Shing Lumber Yard, made while Claparols was in Baguio in July and
August of 1956, are plain acts of deliberate sabotage by the agent that fully justified the revocation of the
power of attorney (Exhibit "C") by Claparols and his demand for an accounting from his agent Coleongco.

Appellant attempts to justify his letter to the Philippine National Bank (Exhibits 35 and 36), claiming that
Claparols' mal-administration of the business endangered the security for the advances that he had made
under the financing contract (Exhibit "B"). But if that were the case, it is to be expected that Coleongco
would have first protested to Claparols himself, which he never did. Appellant likewise denies the authorship
of the letter to Kho (Exhibit 32) as well as the attempt to induce Agsam to damage the machinery of the
factory. Between the testimony of Agsam and Claparols and that of Coleongco, the court below whose to
believe the former, and we see no reason to alter the lower court's conclusion on the value of the evidence
before it, considering that Kho's letter to Claparols (Exhibit 33) plainly corroborates and dovetails with the
plan outlined in Coleongco's own letter (Exhibit 32), signed by him, and that the credibility of Coleongco is
affected adversely by his own admission of his having been previously convicted of estafa (t.s.n., pp. 139,
276), a crime that implies moral turpitude. Even disregarding Coleongco's letter to his son-in-law (Exhibit
82) that so fully reveals Coleongco's lack of business scruples, the clear preponderance of evidence is against
appellant.

The same remarks apply to the finding of the trial court that it was appellant Coleongco, and not Claparols,
who disposed of the band resawing equipment, since said machine was received in July, 1956 and sold in
August of that year to the Hong Shing Lumber Co., managed by appellant's cousin Vicente Kho. The untruth
of Coleongco's charge that Claparols, upon his return from Baguio in September, 1956, admitted having
sold the machine behind his associate's back is further evidenced by (a) Coleongco's letter, Exhibit "V",
dated October 29, 1956, inquiring the whereabouts of the resaw equipment from Claparols (an inquiry
incompatible with Claparols' previous admission); (b) by the undenied fact that the appellee was in Baguio
and Coleongco was acting for him during the months of July and August when the machine was received
and sold; and (c) the fact that as between the two it is Coleongco who had a clear interest in selling the
sawing machine to his cousin Kho To's lumber yard. If Claparols wished to sell the machine without
Coleongco's knowledge, he would not have picked the latter's cousin for a buyer.

The action of plaintiff-appellant for damages and lost profits due to the discontinuance of the financing
agreement, Exhibit "B", may not prosper, because the record shows that the appellant likewise breached
his part of the contract. It will be recalled that paragraph 2 of the contract, Exhibit "B", it was stipulated:

That the Party of the Second Part (Coleongco) has agreed to finance and put up all the necessary
money which may be needed to pay for the importation of the raw materials needed by such nail
factory and allocated by the ICC from time to time, either in cash of with whatever suitable means
which the Party of the Second Part may be able to make by suitable arrangements with any well-
known banking institution recognized by the Central Bank of the Philippines.
Instead of putting up all the necessary money needed to finance the imports of raw material, Coleongco
merely advanced 25% in cash on account of the price and had the balance covered by surety agreements
executed by Claparols and others as solidary, (joint and several) guarantors (see Exhibits G, H, I). The
upshot of this arrangement was that Claparols was made to shoulder 3/4 of the payment for the imports,
contrary to the financing agreement. Paragraph 11 of the latter expressly denied Coleongco any power or
authority to bind Claparols without previous consultation and authority. When the balances for the cost of
the importations became due, Coleongco, in some instances, paid it with the dealers' advances to the nail
factory against future sales without the knowledge of Claparols (Exhibits "K" to K-11, K-13). Under
paragraphs 8 and 11 of the financing agreement, Coleongco was to give preference to the operating
expenses before sharing profits, so that until the operating costs were provided for, Coleongco had no right
to apply the factory's income to pay his own obligations.

Again, the examination of the books by accountant Atienza of C. Miller and Co., showed that from 1954
onwards Coleongco (who had the control of the factory's cash and bank deposits, under Paragraph 11 of
Exhibit "B") never liquidated and paid in full to Claparols his half of the profits, so that by the end of 1956
there was due to Claparols P38,068.41 on this account (Exhibit 91). For 1957 to 1958 Claparols financed
the imports of nail wire without the help of appellant, and in view of the latter's infringement of his
obligations, his acts of disloyalty previously discussed, and his diversions of factory funds (he even bought
two motor vehicles with them), we find no justification for his insistence in sharing in the factory's profit for
those years, nor for the restoration of the revoked power of attorney.

The accountant's reports and testimony (specially Exhibits 80 to 87) prove that as of June 30, 1957,
Coleongco owed to Claparols the sum of P83,466.34 that after some adjustment was reduced to P81,387.37,
practically accepted even by appellant's auditor. The alleged discrepancies between the general ledger and
the result thus arrived at was satisfactorily explained by accountant Atienza in his testimony (t.s.n., 1173-
1178).

No error was, therefore, committed by the trial court in declaring the financing contract (Exh. B) properly
resolved by Claparols or in rendering judgment against appellant in favor of appellee for the said amount of
P81,387.37. The basic rule of contracts requires parties to act loyally toward each other in the pursuit of
the common end, and appellant clearly violated the rule of good faith prescribed by Art. 1315 of the new
Civil Code.

The lower court also allowed Claparols P50,000 for damages, material, moral, and exemplary, caused by
the appellant Coleongco's acts in maliciously undermining appellee's credit that led the Philippine National
Bank to secure a writ of execution against Claparols. Undeniably, the attempts of Coleongco to discredit and
"squeeze" Claparols out of his own factory and business could not but cause the latter mental anguish and
serious anxiety, as found by the court below, for which he is entitled to compensation; and the malevolence
that lay behind appellee's actions justified also the imposition of exemplary or deterrent damages (Civ.
Code, Art. 2232). While the award could have been made larger without violating the canons of justice, the
discretion in fixing such damages primarily lay in the trial court, and we feel that the same should be
respected.

IN VIEW OF THE FOREGOING, the decision appealed from is affirmed. Costs against appellant Vicente
Coleongco. SO ORDERED.

CMS LOGGING, INC., petitioner, vs. THE COURT OF APPEALS and D.R. AGUINALDO
CORPORATION, respondents.

NOCON, J.:

This is a petition for review on certiorari from the decision dated July 31, 1975 of the Court of Appeals in
CA-G.R. No. 47763-R which affirmed in toto the decision of the Court of First Instance of Manila, Branch
VII, in Civil Case No. 56355 dismissing the complaint filed by petitioner CMS Logging, Inc. (CMS, for brevity)
against private respondent D.R. Aguinaldo Corporation (DRACOR, for brevity) and ordering the former to
pay the latter attorney's fees in the amount of P1,000.00 and the costs.
The facts of the case are as follows: Petitioner CMS is a forest concessionaire engaged in the logging
business, while private respondent DRACOR is engaged in the business of exporting and selling logs and
lumber. On August 28, 1957, CMS and DRACOR entered into a contract of agency 1 whereby the former
appointed the latter as its exclusive export and sales agent for all logs that the former may produce, for a
period of five (5) years. The pertinent portions of the agreement, which was drawn up by DRACOR, 2 are as
follows:

1. SISON [CMS] hereby appoints DRACOR as his sole and exclusive export sales agent with
full authority, subject to the conditions and limitations hereinafter set forth, to sell and export
under a firm sales contract acceptable to SISON, all logs produced by SISON for a period of
five (5) years commencing upon the execution of the agreement and upon the terms and
conditions hereinafter provided and DRACOR hereby accepts such appointment;

xxx xxx xxx

3. It is expressly agreed that DRACOR shall handle exclusively all negotiations of all export
sales of SISON with the buyers and arrange the procurement and schedules of the vessel or
vessels for the shipment of SISON's logs in accordance with SISON's written requests, but
DRACOR shall not in anyway [sic] be liable or responsible for any delay, default or failure of
the vessel or vessels to comply with the schedules agreed upon;

xxx xxx xxx

9. It is expressly agreed by the parties hereto that DRACOR shall receive five (5%) per cent
commission of the gross sales of logs of SISON based on F.O.B. invoice value which
commission shall be deducted from the proceeds of any and/or all moneys received by
DRACOR for and in behalf and for the account of SISON;

By virtue of the aforesaid agreement, CMS was able to sell through DRACOR a total of 77,264,672 board
feet of logs in Japan, from September 20, 1957 to April 4, 1962.

About six months prior to the expiration of the agreement, while on a trip to Tokyo, Japan, CMS's president,
Atty. Carlos Moran Sison, and general manager and legal counsel, Atty. Teodoro R. Dominguez, discovered
that DRACOR had used Shinko Trading Co., Ltd. (Shinko for brevity) as agent, representative or liaison
officer in selling CMS's logs in Japan for which Shinko earned a commission of U.S. $1.00 per 1,000 board
feet from the buyer of the logs. Under this arrangement, Shinko was able to collect a total of U.S.
$77,264.67. 3

CMS claimed that this commission paid to Shinko was in violation of the agreement and that it (CMS) is
entitled to this amount as part of the proceeds of the sale of the logs. CMS contended that since DRACOR
had been paid the 5% commission under the agreement, it is no longer entitled to the additional commission
paid to Shinko as this tantamount to DRACOR receiving double compensation for the services it rendered.

After this discovery, CMS sold and shipped logs valued at U.S. $739,321.13 or P2,883,351.90, 4
directly to
several firms in Japan without the aid or intervention of DRACOR.

CMS sued DRACOR for the commission received by Shinko and for moral and exemplary damages, while
DRACOR counterclaimed for its commission, amounting to P144,167.59, from the sales made by CMS of
logs to Japanese firms. In its reply, CMS averred as a defense to the counterclaim that DRACOR had retained
the sum of P101,167.59 as part of its commission for the sales made by CMS. 5 Thus, as its counterclaim to
DRACOR's counterclaim, CMS demanded DRACOR return the amount it unlawfully retained. DRACOR later
filed an amended counterclaim, alleging that the balance of its commission on the sales made by CMS was
P42,630.82, 6 thus impliedly admitting that it retained the amount alleged by CMS.

In dismissing the complaint, the trial court ruled that no evidence was presented to show that Shinko
received the commission of U.S. $77,264.67 arising from the sale of CMS's logs in Japan, though the trial
court stated that "Shinko was able to collect the total amount of $77,264.67 US Dollars (Exhs. M and M-
1)." 7 The counterclaim was likewise dismissed, as it was shown that DRACOR had waived its rights to the
balance of its commission in a letter dated February 2, 1963 to Atty. Carlos Moran Sison, president of
CMS. 8 From said decision, only CMS appealed to the Court of Appeals.

The Court of Appeals, in a 3 to 2 decision, 9 affirmed the dismissal of the complaint since "[t]he trial court
could not have made a categorical finding that Shinko collected commissions from the buyers of Sison's logs
in Japan, and could not have held that Sison is entitled to recover from Dracor the amount collected by
Shinko as commissions, plaintiff-appellant having failed to prove by competent evidence its claims." 10

Moreover, the appellate court held:

There is reason to believe that Shinko Trading Co. Ltd., was paid by defendant-appellee out
of its own commission of 5%, as indicated in the letter of its president to the president of
Sison, dated February 2, 1963 (Exhibit "N"), and in the Agreement between Aguinaldo
Development Corporation (ADECOR) and Shinko Trading Co., Ltd. (Exhibit "9"). Daniel R.
Aguinaldo stated in his said letter:

. . . , I informed you that if you wanted to pay me for the service, then it would be no more
than at the standard rate of 5% commission because in our own case, we pay our Japanese
agents 2-1/2%. Accordingly, we would only add a similar amount of 2-1/2% for the service
which we would render you in the Philippines. 11

Aggrieved, CMS appealed to this Court by way of a petition for review on certiorari, alleging (1) that the
Court of Appeals erred in not making a complete findings of fact; (2) that the testimony of Atty. Teodoro R.
Dominguez, regarding the admission by Shinko's president and director that it collected a commission of
U.S. $1.00 per 1,000 board feet of logs from the Japanese buyers, is admissible against DRACOR; (3) that
the statement of DRACOR's chief legal counsel in his memorandum dated May 31, 1965, Exhibit "K", is an
admission that Shinko was able to collect the commission in question; (4) that the fact that Shinko received
the questioned commissions is deemed admitted by DRACOR by its silence under Section 23, Rule 130 of
the Rules of Court when it failed to reply to Atty. Carlos Moran Sison's letter dated February 6, 1962; (5)
that DRACOR is not entitled to its 5% commission arising from the direct sales made by CMS to buyers in
Japan; and (6) that DRACOR is guilty of fraud and bad faith in its dealings with CMS.

With regard to CMS's arguments concerning whether or not Shinko received the commission in question,
We find the same unmeritorious.

To begin with, these arguments question the findings of fact made by the Court of Appeals, which are final
and conclusive and can not be reviewed on appeal to the Supreme Court. 12

Moreover, while it is true that the evidence adduced establishes the fact that Shinko is DRACOR's agent or
liaison in Japan, 13 there is no evidence which established the fact that Shinko did receive the amount of
U.S. $77,264.67 as commission arising from the sale of CMS's logs to various Japanese firms.

The fact that Shinko received the commissions in question was not established by the testimony of Atty.
Teodoro R. Dominguez to the effect that Shinko's president and director told him that Shinko received a
commission of U.S. $1.00 for every 1,000 board feet of logs sold, since the same is hearsay. Similarly, the
letter of Mr. K. Shibata of Toyo Menka Kaisha, Ltd. 14 is also hearsay since Mr. Shibata was not presented
to testify on his letter.

CMS's other evidence have little or no probative value at all. The statements made in the memorandum of
Atty. Simplicio R. Ciocon to DRACOR dated May 31, 1965, 15 the letter dated February 2, 1963 of Daniel
R. Aguinaldo, 16 president of DRACOR, and the reply-letter dated January 9, 1964 17 by DRACOR's counsel
Atty. V. E. Del Rosario to CMS's demand letter dated September 25, 1963 can not be categorized as
admissions that Shinko did receive the commissions in question.

The alleged admission made by Atty. Ciocon, to wit —

 Furthermore, as per our records, our shipment of logs to Toyo Menka Kaisha, Ltd., is only for
a net volume of 67,747,732 board feet which should enable Shinko to collect a commission
of US $67,747.73 only

can not be considered as such since the statement was made in the context of questioning CMS's
tally of logs delivered to various Japanese firms.

Similarly, the statement of Daniel R. Aguinaldo, to wit —

. . . Knowing as we do that Toyo Menka is a large and reputable company, it is obvious that
they paid Shinko for certain services which Shinko must have satisfactorily performed for
them in Japan otherwise they would not have paid Shinko

and that of Atty. V. E. Del Rosario,

. . . It does not seem proper, therefore, for CMS Logging, Inc., as principal, to concern itself
with, much less question, the right of Shinko Trading Co., Ltd. with which our client debt
directly, to whatever benefits it might have derived form the ultimate consumer/buyer of
these logs, Toyo Menka Kaisha, Ltd. There appears to be no justification for your client's
contention that these benefits, whether they can be considered as commissions paid by Toyo
Menka Kaisha to Shinko Trading, are to be regarded part of the gross sales.

can not be considered admissions that Shinko received the questioned commissions since neither
statements declared categorically that Shinko did in fact receive the commissions and that these
arose from the sale of CMS's logs.

As correctly stated by the appellate court:

It is a rule that "a statement is not competent as an admission where it does not, under a
reasonable construction, appear to admit or acknowledge the fact which is sought to be
proved by it". An admission or declaration to be competent must have been expressed in
definite, certain and unequivocal language (Bank of the Philippine Islands vs. Fidelity & Surety
Co., 51 Phil. 57, 64). 18

CMS's contention that DRACOR had admitted by its silence the allegation that Shinko received the
commissions in question when it failed to respond to Atty. Carlos Moran Sison's letter dated February 6,
1963, is not supported by the evidence. DRACOR did in fact reply to the letter of Atty. Sison, through the
letter dated March 5, 1963 of F.A. Novenario, 19 which stated:

This is to acknowledge receipt of your letter dated February 6, 1963, and addressed to Mr. D.
R. Aguinaldo, who is at present out of the country.

xxx xxx xxx

We have no record or knowledge of any such payment of commission made by Toyo Menka
to Shinko. If the payment was made by Toyo Menka to Shinko, as stated in your letter, we
knew nothing about it and had nothing to do with it.

The finding of fact made by the trial court, i.e., that "Shinko was able to collect the total amount of
$77,264.67 US Dollars," can not be given weight since this was based on the summary prepared by CMS
itself, Exhibits "M" and "M-1".

Moreover, even if it was shown that Shinko did in fact receive the commissions in question, CMS is not
entitled thereto since these were apparently paid by the buyers to Shinko for arranging the sale. This is
therefore not part of the gross sales of CMS's logs.
However, We find merit in CMS's contention that the appellate court erred in holding that DRACOR was
entitled to its commission from the sales made by CMS to Japanese firms.

The principal may revoke a contract of agency at will, and such revocation may be express, or implied, 20 and
may be availed of even if the period fixed in the contract of agency as not yet expired. 21 As the principal
has this absolute right to revoke the agency, the agent can not object thereto; neither may he claim
damages arising from such revocation, 22 unless it is shown that such was done in order to evade the
payment of agent's commission. 23

In the case at bar, CMS appointed DRACOR as its agent for the sale of its logs to Japanese firms. Yet, during
the existence of the contract of agency, DRACOR admitted that CMS sold its logs directly to several Japanese
firms. This act constituted an implied revocation of the contract of agency under Article 1924 of the Civil
Code, which provides:

Art. 1924 The agency is revoked if the principal directly manages the business entrusted to
the agent, dealing directly with third persons.

In New Manila Lumber Company, Inc. vs. Republic of the Philippines, 24 this Court ruled that the act of a
contractor, who, after executing powers of attorney in favor of another empowering the latter to collect
whatever amounts may be due to him from the Government, and thereafter demanded and collected from
the government the money the collection of which he entrusted to his attorney-in-fact, constituted
revocation of the agency in favor of the attorney-in-fact.

Since the contract of agency was revoked by CMS when it sold its logs to Japanese firms without the
intervention of DRACOR, the latter is no longer entitled to its commission from the proceeds of such sale
and is not entitled to retain whatever moneys it may have received as its commission for said transactions.
Neither would DRACOR be entitled to collect damages from CMS, since damages are generally not awarded
to the agent for the revocation of the agency, and the case at bar is not one falling under the exception
mentioned, which is to evade the payment of the agent's commission.

Regarding CMS's contention that the Court of Appeals erred in not finding that DRACOR had committed acts
of fraud and bad faith, We find the same unmeritorious. Like the contention involving Shinko and the
questioned commissions, the findings of the Court of Appeals on the matter were based on its appreciation
of the evidence, and these findings are binding on this Court.

In fine, We affirm the ruling of the Court of Appeals that there is no evidence to support CMS's contention
that Shinko earned a separate commission of U.S. $1.00 for every 1,000 board feet of logs from the buyer
of CMS's logs. However, We reverse the ruling of the Court of Appeals with regard to DRACOR's right to
retain the amount of P101,536.77 as part of its commission from the sale of logs by CMS, and hold that
DRACOR has no right to its commission. Consequently, DRACOR is hereby ordered to remit to CMS the
amount of P101,536.77.

WHEREFORE, the decision appealed from is hereby MODIFIED as stated in the preceding paragraph.
Costs de officio. SO ORDERED.

ARTURO P. VALENZUELA and HOSPITALITA N. VALENZUELA, petitioners, vs. THE HONORABLE

COURT OF APPEALS, BIENVENIDO M. ARAGON, ROBERT E. PARNELL, CARLOS K. CATOLICO and
THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., respondents.

GUTIERREZ, JR., J.:

This is a petition for review of the January 29, 1988 decision of the Court of Appeals and the April 27, 1988
resolution denying the petitioners' motion for reconsideration, which decision and resolution reversed the
decision dated June 23,1986 of the Court of First Instance of Manila, Branch 34 in Civil Case No. 121126
upholding the petitioners' causes of action and granting all the reliefs prayed for in their complaint against
private respondents.
The antecedent facts of the case are as follows:

Petitioner Arturo P. Valenzuela (Valenzuela for short) is a General Agent of private respondent Philippine
American General Insurance Company, Inc. (Philamgen for short) since 1965. As such, he was authorized
to solicit and sell in behalf of Philamgen all kinds of non-life insurance, and in consideration of services
rendered was entitled to receive the full agent's commission of 32.5% from Philamgen under the scheduled
commission rates (Exhibits "A" and "1"). From 1973 to 1975, Valenzuela solicited marine insurance from
one of his clients, the Delta Motors, Inc. (Division of Electronics Airconditioning and Refrigeration) in the
amount of P4.4 Million from which he was entitled to a commission of 32% (Exhibit "B"). However,
Valenzuela did not receive his full commission which amounted to P1.6 Million from the P4.4 Million insurance
coverage of the Delta Motors. During the period 1976 to 1978, premium payments amounting to
P1,946,886.00 were paid directly to Philamgen and Valenzuela's commission to which he is entitled
amounted to P632,737.00.

In 1977, Philamgen started to become interested in and expressed its intent to share in the commission due
Valenzuela (Exhibits "III" and "III-1") on a fifty-fifty basis (Exhibit "C"). Valenzuela refused (Exhibit "D").

On February 8, 1978 Philamgen and its President, Bienvenido M. Aragon insisted on the sharing of the
commission with Valenzuela (Exhibit E). This was followed by another sharing proposal dated June 1, 1978.
On June 16,1978, Valenzuela firmly reiterated his objection to the proposals of respondents stating that: "It
is with great reluctance that I have to decline upon request to signify my conformity to your alternative
proposal regarding the payment of the commission due me. However, I have no choice for to do otherwise
would be violative of the Agency Agreement executed between our goodselves." (Exhibit B-1)

Because of the refusal of Valenzuela, Philamgen and its officers, namely: Bienvenido Aragon, Carlos Catolico
and Robert E. Parnell took drastic action against Valenzuela. They: (a) reversed the commission due him by
not crediting in his account the commission earned from the Delta Motors, Inc. insurance (Exhibit "J" and
"2"); (b) placed agency transactions on a cash and carry basis; (c) threatened the cancellation of policies
issued by his agency (Exhibits "H" to "H-2"); and (d) started to leak out news that Valenzuela has a
substantial account with Philamgen. All of these acts resulted in the decline of his business as insurance
agent (Exhibits "N", "O", "K" and "K-8"). Then on December 27, 1978, Philamgen terminated the General
Agency Agreement of Valenzuela (Exhibit "J", pp. 1-3, Decision Trial Court dated June 23, 1986, Civil Case
No. 121126, Annex I, Petition).

The petitioners sought relief by filing the complaint against the private respondents in the court a
quo (Complaint of January 24, 1979, Annex "F" Petition). After due proceedings, the trial court found:

xxx xxx xxx

Defendants tried to justify the termination of plaintiff Arturo P. Valenzuela as one of defendant
PHILAMGEN's General Agent by making it appear that plaintiff Arturo P. Valenzuela has a
substantial account with defendant PHILAMGEN particularly Delta Motors, Inc.'s Account,
thereby prejudicing defendant PHILAMGEN's interest (Exhibits 6,"11","11- "12- A"and"13-A").

Defendants also invoked the provisions of the Civil Code of the Philippines (Article 1868) and
the provisions of the General Agency Agreement as their basis for terminating plaintiff Arturo
P. Valenzuela as one of their General Agents.

That defendants' position could have been justified had the termination of plaintiff Arturo P.
Valenzuela was (sic) based solely on the provisions of the Civil Code and the conditions of the
General Agency Agreement. But the records will show that the principal cause of the
termination of the plaintiff as General Agent of defendant PHILAMGEN was his refusal to share
his Delta commission.

That it should be noted that there were several attempts made by defendant Bienvenido M.
Aragon to share with the Delta commission of plaintiff Arturo P. Valenzuela. He had
persistently pursued the sharing scheme to the point of terminating plaintiff Arturo P.
 Valenzuela, and to make matters worse, defendants made it appear that plaintiff Arturo P.
Valenzuela had substantial accounts with defendant PHILAMGEN.

Not only that, defendants have also started (a) to treat separately the Delta Commission of
plaintiff Arturo P. Valenzuela, (b) to reverse the Delta commission due plaintiff Arturo P.
Valenzuela by not crediting or applying said commission earned to the account of plaintiff
Arturo P. Valenzuela, (c) placed plaintiff Arturo P. Valenzuela's agency transactions on a "cash
and carry basis", (d) sending threats to cancel existing policies issued by plaintiff Arturo P.
Valenzuela's agency, (e) to divert plaintiff Arturo P. Valenzuela's insurance business to other
agencies, and (f) to spread wild and malicious rumors that plaintiff Arturo P. Valenzuela has
substantial account with defendant PHILAMGEN to force plaintiff Arturo P. Valenzuela into
agreeing with the sharing of his Delta commission." (pp. 9-10, Decision, Annex 1, Petition).

xxx xxx xxx

These acts of harrassment done by defendants on plaintiff Arturo P. Valenzuela to force him
to agree to the sharing of his Delta commission, which culminated in the termination of
plaintiff Arturo P. Valenzuela as one of defendant PHILAMGEN's General Agent, do not justify
said termination of the General Agency Agreement entered into by defendant PHILAMGEN
and plaintiff Arturo P. Valenzuela.

That since defendants are not justified in the termination of plaintiff Arturo P. Valenzuela as
one of their General Agents, defendants shall be liable for the resulting damage and loss of
business of plaintiff Arturo P. Valenzuela. (Arts. 2199/2200, Civil Code of the Philippines).
(Ibid, p. 11)

The court accordingly rendered judgment, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against defendants
ordering the latter to reinstate plaintiff Arturo P. Valenzuela as its General Agent, and to pay
plaintiffs, jointly and severally, the following:

1. The amount of five hundred twenty-one thousand nine hundred sixty four and 16/100
pesos (P521,964.16) representing plaintiff Arturo P. Valenzuela's Delta Commission with
interest at the legal rate from the time of the filing of the complaint, which amount shall be
adjusted in accordance with Article 1250 of the Civil Code of the Philippines;

2. The amount of seventy-five thousand pesos (P75,000.00) per month as compensatory

damages from 1980 until such time that defendant Philamgen shall reinstate plaintiff Arturo
P. Valenzuela as one of its general agents;

3. The amount of three hundred fifty thousand pesos (P350,000.00) for each plaintiff as moral
damages;

4. The amount of seventy-five thousand pesos (P75,000.00) as and for attorney's fees;

5. Costs of the suit. (Ibid., P. 12)

From the aforesaid decision of the trial court, Bienvenido Aragon, Robert E. Parnell, Carlos K.
Catolico and PHILAMGEN respondents herein, and defendants-appellants below, interposed
an appeal on the following:

ASSIGNMENT OF ERRORS

I
 THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF ARTURO P. VALENZUELA HAD NO
OUTSTANDING ACCOUNT WITH DEFENDANT PHILAMGEN AT THE TIME OF THE TERMINATION
OF THE AGENCY.

II

THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF ARTURO P. VALENZUELA IS

ENTITLED TO THE FULL COMMISSION OF 32.5% ON THE DELTA ACCOUNT.

III

THE LOWER COURT ERRED IN HOLDING THAT THE TERMINATION OF PLAINTIFF ARTURO P.
VALENZUELA WAS NOT JUSTIFIED AND THAT CONSEQUENTLY DEFENDANTS ARE LIABLE FOR
ACTUAL AND MORAL DAMAGES, ATTORNEYS FEES AND COSTS.

IV

ASSUMING ARGUENDO THAT THE AWARD OF DAMAGES AGAINST DEFENDANT PHILAMGEN

WAS PROPER, THE LOWER COURT ERRED IN AWARDING DAMAGES EVEN AGAINST THE
INDIVIDUAL DEFENDANTS WHO ARE MERE CORPORATE AGENTS ACTING WITHIN THE SCOPE
OF THEIR AUTHORITY.

ASSUMING ARGUENDO THAT THE AWARD OF DAMAGES IN FAVOR OF PLAINTIFF ARTURO P.

VALENZUELA WAS PROPER, THE LOWER COURT ERRED IN AWARDING DAMAGES IN FAVOR
OF HOSPITALITA VALENZUELA, WHO, NOT BEING THE REAL PARTY IN INTEREST IS NOT TO
OBTAIN RELIEF.

On January 29, 1988, respondent Court of Appeals promulgated its decision in the appealed case. The
dispositive portion of the decision reads:

WHEREFORE, the decision appealed from is hereby modified accordingly and judgment is
hereby rendered ordering:

1. Plaintiff-appellee Valenzuela to pay defendant-appellant Philamgen the sum of one million

nine hundred thirty two thousand five hundred thirty-two pesos and seventeen centavos
(P1,902,532.17), with legal interest thereon from the date of finality of this judgment until
fully paid.

2. Both plaintiff-appellees to pay jointly and severally defendants-appellants the sum of fifty
thousand pesos (P50,000.00) as and by way of attorney's fees.

No pronouncement is made as to costs. (p. 44, Rollo)

There is in this instance irreconcilable divergence in the findings and conclusions of the Court of Appeals, vis-
a-vis those of the trial court particularly on the pivotal issue whether or not Philamgen and/or its officers
can be held liable for damages due to the termination of the General Agency Agreement it entered into with
the petitioners. In its questioned decision the Court of Appeals observed that:

In any event the principal's power to revoke an agency at will is so pervasive, that the
Supreme Court has consistently held that termination may be effected even if the principal
acts in bad faith, subject only to the principal's liability for damages (Danon v. Antonio A.
Brimo & Co., 42 Phil. 133; Reyes v. Mosqueda, 53 O.G. 2158 and Infante V. Cunanan, 93
Phil. 691, cited in Paras, Vol. V, Civil Code of the Philippines Annotated [1986] 696).
 The lower court, however, thought the termination of Valenzuela as General Agent improper
because the record will show the principal cause of the termination of the plaintiff as General
Agent of defendant Philamgen was his refusal to share his Delta commission. (Decision, p. 9;
p. 13, Rollo, 41)

Because of the conflicting conclusions, this Court deemed it necessary in the interest of substantial justice
to scrutinize the evidence and records of the cases. While it is an established principle that the factual
findings of the Court of Appeals are final and may not be reviewed on appeal to this Court, there are however
certain exceptions to the rule which this Court has recognized and accepted, among which, are when the
judgment is based on a misapprehension of facts and when the findings of the appellate court, are contrary
to those of the trial court (Manlapaz v. Court of Appeals, 147 SCRA 236 [1987]); Guita v. Court of Appeals,
139 SCRA 576 [1986]). Where the findings of the Court of Appeals and the trial court are contrary to each
other, this Court may scrutinize the evidence on record (Cruz v. Court of Appeals, 129 SCRA 222 [1984];
Mendoza v. Court of Appeals, 156 SCRA 597 [1987]; Maclan v. Santos, 156 SCRA 542 [1987]). When the
conclusion of the Court of Appeals is grounded entirely on speculation, surmises or conjectures, or when the
inference made is manifestly mistaken, absurd or impossible, or when there is grave abuse of discretion, or
when the judgment is based on a misapprehension of facts, and when the findings of facts are conflict the
exception also applies (Malaysian Airline System Bernad v. Court of Appeals, 156 SCRA 321 [1987]).

After a painstaking review of the entire records of the case and the findings of facts of both the court a
quo and respondent appellate court, we are constrained to affirm the trial court's findings and rule for the
petitioners.

We agree with the court a quo that the principal cause of the termination of Valenzuela as General Agent of
Philamgen arose from his refusal to share his Delta commission. The records sustain the conclusions of the
trial court on the apparent bad faith of the private respondents in terminating the General Agency
Agreement of petitioners. It is axiomatic that the findings of fact of a trial judge are entitled to great weight
(People v. Atanacio, 128 SCRA 22 [1984]) and should not be disturbed on appeal unless for strong and
cogent reasons, because the trial court is in a better position to examine the evidence as well as to observe
the demeanor of the witnesses while testifying (Chase v. Buencamino, Sr., 136 SCRA 365 [1985]; People
v. Pimentel, 147 SCRA 25 [1987]; and Baliwag Trans., Inc. v. Court of Appeals, 147 SCRA 82 [1987]). In
the case at bar, the records show that the findings and conclusions of the trial court are supported by
substantial evidence and there appears to be no cogent reason to disturb them (Mendoza v. Court of
Appeals. 156 SCRA 597 [1987]).

As early as September 30,1977, Philamgen told the petitioners of its desire to share the Delta Commission
with them. It stated that should Delta back out from the agreement, the petitioners would be charged
interests through a reduced commission after full payment by Delta.

On January 23, 1978 Philamgen proposed reducing the petitioners' commissions by 50% thus giving them
an agent's commission of 16.25%. On February 8, 1978, Philamgen insisted on the reduction scheme
followed on June 1, 1978 by still another insistence on reducing commissions and proposing two alternative
schemes for reduction. There were other pressures. Demands to settle accounts, to confer and thresh out
differences regarding the petitioners' income and the threat to terminate the agency followed. The
petitioners were told that the Delta commissions would not be credited to their account (Exhibit "J"). They
were informed that the Valenzuela agency would be placed on a cash and carry basis thus removing the 60-
day credit for premiums due. (TSN., March 26, 1979, pp. 54-57). Existing policies were threatened to be
cancelled (Exhibits "H" and "14"; TSN., March 26, 1979, pp. 29-30). The Valenzuela business was threatened
with diversion to other agencies. (Exhibit "NNN"). Rumors were also spread about alleged accounts of the
Valenzuela agency (TSN., January 25, 1980, p. 41). The petitioners consistently opposed the pressures to
hand over the agency or half of their commissions and for a treatment of the Delta account distinct from
other accounts. The pressures and demands, however, continued until the agency agreement itself was
finally terminated.

It is also evident from the records that the agency involving petitioner and private respondent is one
"coupled with an interest," and, therefore, should not be freely revocable at the unilateral will of the latter.
In the insurance business in the Philippines, the most difficult and frustrating period is the solicitation and
persuasion of the prospective clients to buy insurance policies. Normally, agents would encounter much
embarrassment, difficulties, and oftentimes frustrations in the solicitation and procurement of the insurance
policies. To sell policies, an agent exerts great effort, patience, perseverance, ingenuity, tact, imagination,
time and money. In the case of Valenzuela, he was able to build up an Agency from scratch in 1965 to a
highly productive enterprise with gross billings of about Two Million Five Hundred Thousand Pesos
(P2,500,000.00) premiums per annum. The records sustain the finding that the private respondent started
to covet a share of the insurance business that Valenzuela had built up, developed and nurtured to
profitability through over thirteen (13) years of patient work and perseverance. When Valenzuela refused
to share his commission in the Delta account, the boom suddenly fell on him.

The private respondents by the simple expedient of terminating the General Agency Agreement appropriated
the entire insurance business of Valenzuela. With the termination of the General Agency Agreement,
Valenzuela would no longer be entitled to commission on the renewal of insurance policies of clients sourced
from his agency. Worse, despite the termination of the agency, Philamgen continued to hold Valenzuela
jointly and severally liable with the insured for unpaid premiums. Under these circumstances, it is clear that
Valenzuela had an interest in the continuation of the agency when it was unceremoniously terminated not
only because of the commissions he should continue to receive from the insurance business he has solicited
and procured but also for the fact that by the very acts of the respondents, he was made liable to Philamgen
in the event the insured fail to pay the premiums due. They are estopped by their own positive averments
and claims for damages. Therefore, the respondents cannot state that the agency relationship between
Valenzuela and Philamgen is not coupled with interest. "There may be cases in which an agent has been
induced to assume a responsibility or incur a liability, in reliance upon the continuance of the authority under
such circumstances that, if the authority be withdrawn, the agent will be exposed to personal loss or liability"
(See MEC 569 p. 406).

Furthermore, there is an exception to the principle that an agency is revocable at will and that is when the
agency has been given not only for the interest of the principal but for the interest of third persons or for
the mutual interest of the principal and the agent. In these cases, it is evident that the agency ceases to be
freely revocable by the sole will of the principal (See Padilla, Civil Code Annotated, 56 ed., Vol. IV p. 350).
The following citations are apropos:

The principal may not defeat the agent's right to indemnification by a termination of the
contract of agency (Erskine v. Chevrolet Motors Co. 185 NC 479, 117 SE 706, 32 ALR 196).

Where the principal terminates or repudiates the agent's employment in violation of the
contract of employment and without cause ... the agent is entitled to receive either the
amount of net losses caused and gains prevented by the breach, or the reasonable value of
the services rendered. Thus, the agent is entitled to prospective profits which he would have
made except for such wrongful termination provided that such profits are not conjectural, or
speculative but are capable of determination upon some fairly reliable basis. And a principal's
revocation of the agency agreement made to avoid payment of compensation for a result
which he has actually accomplished (Hildendorf v. Hague, 293 NW 2d 272; Newhall v. Journal
Printing Co., 105 Minn 44,117 NW 228; Gaylen Machinery Corp. v. Pitman-Moore Co. [C.A. 2
NY] 273 F 2d 340)

If a principal violates a contractual or quasi-contractual duty which he owes his agent, the
agent may as a rule bring an appropriate action for the breach of that duty. The agent may
in a proper case maintain an action at law for compensation or damages ... A wrongfully
discharged agent has a right of action for damages and in such action the measure and
element of damages are controlled generally by the rules governing any other action for the
employer's breach of an employment contract. (Riggs v. Lindsay, 11 US 500, 3L Ed 419; Tiffin
Glass Co. v. Stoehr, 54 Ohio 157, 43 NE 2798)

At any rate, the question of whether or not the agency agreement is coupled with interest is helpful to the
petitioners' cause but is not the primary and compelling reason. For the pivotal factor rendering Philamgen
and the other private respondents liable in damages is that the termination by them of the General Agency
Agreement was tainted with bad faith. Hence, if a principal acts in bad faith and with abuse of right in
terminating the agency, then he is liable in damages. This is in accordance with the precepts in Human
Relations enshrined in our Civil Code that "every person must in the exercise of his rights and in the
performance of his duties act with justice, give every one his due, and observe honesty and good faith: (Art.
19, Civil Code), and every person who, contrary to law, wilfully or negligently causes damages to another,
shall indemnify the latter for the same (Art. 20, id). "Any person who wilfully causes loss or injury to another
in a manner contrary to morals, good customs and public policy shall compensate the latter for the damages"
(Art. 21, id.).

As to the issue of whether or not the petitioners are liable to Philamgen for the unpaid and uncollected
premiums which the respondent court ordered Valenzuela to pay Philamgen the amount of One Million Nine
Hundred Thirty-Two Thousand Five Hundred Thirty-Two and 17/100 Pesos (P1,932,532,17) with legal
interest thereon until fully paid (Decision-January 20, 1988, p. 16; Petition, Annex "A"), we rule that the
respondent court erred in holding Valenzuela liable. We find no factual and legal basis for the award. Under
Section 77 of the Insurance Code, the remedy for the non-payment of premiums is to put an end to and
render the insurance policy not binding —

Sec. 77 ... [N]otwithstanding any agreement to the contrary, no policy or contract of

insurance is valid and binding unless and until the premiums thereof have been paid except
in the case of a life or industrial life policy whenever the grace period provision applies (P.D.
612, as amended otherwise known as the Insurance Code of 1974)

In Philippine Phoenix Surety and Insurance, Inc. v. Woodworks, Inc. (92 SCRA 419 [1979]) we held that
the non-payment of premium does not merely suspend but puts an end to an insurance contract since the
time of the payment is peculiarly of the essence of the contract. And in Arce v. The Capital Insurance and
Surety Co. Inc. (117 SCRA 63, [1982]), we reiterated the rule that unless premium is paid, an insurance
contract does not take effect. Thus:

It is to be noted that Delgado (Capital Insurance & Surety Co., Inc. v. Delgado, 9 SCRA 177
[1963] was decided in the light of the Insurance Act before Sec. 72 was amended by the
underscored portion. Supra. Prior to the Amendment, an insurance contract was effective
even if the premium had not been paid so that an insurer was obligated to pay indemnity in
case of loss and correlatively he had also the right to sue for payment of the premium. But
the amendment to Sec. 72 has radically changed the legal regime in that unless the premium
is paid there is no insurance. " (Arce v. Capitol Insurance and Surety Co., Inc., 117 SCRA 66;
Emphasis supplied)

In Philippine Phoenix Surety case, we held:

Moreover, an insurer cannot treat a contract as valid for the purpose of collecting premiums
and invalid for the purpose of indemnity. (Citing Insurance Law and Practice by John Alan
Appleman, Vol. 15, p. 331; Emphasis supplied)

The foregoing findings are buttressed by Section 776 of the insurance Code (Presidential
Decree No. 612, promulgated on December 18, 1974), which now provides that no contract
of Insurance by an insurance company is valid and binding unless and until the premium
thereof has been paid, notwithstanding any agreement to the contrary (Ibid., 92 SCRA 425)

Perforce, since admittedly the premiums have not been paid, the policies issued have lapsed. The insurance
coverage did not go into effect or did not continue and the obligation of Philamgen as insurer ceased. Hence,
for Philamgen which had no more liability under the lapsed and inexistent policies to demand, much less
sue Valenzuela for the unpaid premiums would be the height of injustice and unfair dealing. In this instance,
with the lapsing of the policies through the nonpayment of premiums by the insured there were no more
insurance contracts to speak of. As this Court held in the Philippine Phoenix Surety case, supra "the non-
payment of premiums does not merely suspend but puts an end to an insurance contract since the time of
the payment is peculiarly of the essence of the contract."
The respondent appellate court also seriously erred in according undue reliance to the report of Banaria and
Banaria and Company, auditors, that as of December 31, 1978, Valenzuela owed Philamgen P1,528,698.40.
This audit report of Banaria was commissioned by Philamgen after Valenzuela was almost through with the
presentation of his evidence. In essence, the Banaria report started with an unconfirmed and unaudited
beginning balance of account of P1,758,185.43 as of August 20, 1976. But even with that unaudited and
unconfirmed beginning balance of P1,758,185.43, Banaria still came up with the amount of P3,865.49 as
Valenzuela's balance as of December 1978 with Philamgen (Exh. "38-A-3"). In fact, as of December 31,
1976, and December 31, 1977, Valenzuela had no unpaid account with Philamgen (Ref: Annexes "D", "D-
1", "E", Petitioner's Memorandum). But even disregarding these annexes which are records of Philamgen
and addressed to Valenzuela in due course of business, the facts show that as of July 1977, the beginning
balance of Valenzuela's account with Philamgen amounted to P744,159.80. This was confirmed by Philamgen
itself not only once but four (4) times on different occasions, as shown by the records.

On April 3,1978, Philamgen sent Valenzuela a statement of account with a beginning balance of P744,159-
80 as of July 1977.

On May 23, 1978, another statement of account with exactly the same beginning balance was sent to
Valenzuela.

On November 17, 1978, Philamgen sent still another statement of account with P744,159.80 as the
beginning balance.

And on December 20, 1978, a statement of account with exactly the same figure was sent to Valenzuela.

It was only after the filing of the complaint that a radically different statement of accounts surfaced in court.
Certainly, Philamgen's own statements made by its own accountants over a long period of time and covering
examinations made on four different occasions must prevail over unconfirmed and unaudited statements
made to support a position made in the course of defending against a lawsuit.

It is not correct to say that Valenzuela should have presented its own records to refute the unconfirmed and
unaudited finding of the Banaria auditor. The records of Philamgen itself are the best refutation against
figures made as an afterthought in the course of litigation. Moreover, Valenzuela asked for a meeting where
the figures would be reconciled. Philamgen refused to meet with him and, instead, terminated the agency
agreement.

After off-setting the amount of P744,159.80, beginning balance as of July 1977, by way of credits
representing the commission due from Delta and other accounts, Valenzuela had overpaid Philamgen the
amount of P530,040.37 as of November 30, 1978. Philamgen cannot later be heard to complain that it
committed a mistake in its computation. The alleged error may be given credence if committed only once.
But as earlier stated, the reconciliation of accounts was arrived at four (4) times on different occasions
where Philamgen was duly represented by its account executives. On the basis of these admissions and
representations, Philamgen cannot later on assume a different posture and claim that it was mistaken in its
representation with respect to the correct beginning balance as of July 1977 amounting to P744,159.80.
The Banaria audit report commissioned by Philamgen is unreliable since its results are admittedly based on
an unconfirmed and unaudited beginning balance of P1,758,185.43 as of August 20,1976.

As so aptly stated by the trial court in its decision:

Defendants also conducted an audit of accounts of plaintiff Arturo P. Valenzuela after the
controversy has started. In fact, after hearing plaintiffs have already rested their case.

The results of said audit were presented in Court to show plaintiff Arturo P. Valenzuela's
accountability to defendant PHILAMGEN. However, the auditor, when presented as witness in
this case testified that the beginning balance of their audit report was based on an unaudited
amount of P1,758,185.43 (Exhibit 46-A) as of August 20, 1976, which was unverified and
merely supplied by the officers of defendant PHILAMGEN.
 Even defendants very own Exhibit 38- A-3, showed that plaintiff Arturo P. Valenzuela's balance
as of 1978 amounted to only P3,865.59, not P826,128.46 as stated in defendant Bienvenido
M. Aragon's letter dated December 20,1978 (Exhibit 14) or P1,528,698.40 as reflected in
defendant's Exhibit 46 (Audit Report of Banaria dated December 24, 1980).

These glaring discrepancy (sic) in the accountability of plaintiff Arturo P. Valenzuela to

defendant PHILAMGEN only lends credence to the claim of plaintiff Arturo P. Valenzuela that
he has no outstanding account with defendant PHILAMGEN when the latter, thru defendant
Bienvenido M. Aragon, terminated the General Agency Agreement entered into by plaintiff
(Exhibit A) effective January 31, 1979 (see Exhibits "2" and "2-A"). Plaintiff Arturo P.
Valenzuela has shown that as of October 31, 1978, he has overpaid defendant PHILAMGEN in
the amount of P53,040.37 (Exhibit "EEE", which computation was based on defendant
PHILAMGEN's balance of P744,159.80 furnished on several occasions to plaintiff Arturo P.
Valenzuela by defendant PHILAMGEN (Exhibits H-1, VV, VV-1, WW, WW-1 , YY , YY-2 , ZZ
and , ZZ-2).

Prescinding from the foregoing, and considering that the private respondents terminated Valenzuela with
evident mala fide it necessarily follows that the former are liable in damages. Respondent Philamgen has
been appropriating for itself all these years the gross billings and income that it unceremoniously took away
from the petitioners. The preponderance of the authorities sustain the preposition that a principal can be
held liable for damages in cases of unjust termination of agency. In Danon v. Brimo, 42 Phil. 133 [1921]),
this Court ruled that where no time for the continuance of the contract is fixed by its terms, either party is
at liberty to terminate it at will, subject only to the ordinary requirements of good faith. The right of the
principal to terminate his authority is absolute and unrestricted, except only that he may not do so in bad
faith.

The trial court in its decision awarded to Valenzuela the amount of Seventy Five Thousand Pesos
(P75,000,00) per month as compensatory damages from June 1980 until its decision becomes final and
executory. This award is justified in the light of the evidence extant on record (Exhibits "N", "N-10", "0", "0-
1", "P" and "P-1") showing that the average gross premium collection monthly of Valenzuela over a period
of four (4) months from December 1978 to February 1979, amounted to over P300,000.00 from which he
is entitled to a commission of P100,000.00 more or less per month. Moreover, his annual sales production
amounted to P2,500,000.00 from where he was given 32.5% commissions. Under Article 2200 of the new
Civil Code, "indemnification for damages shall comprehend not only the value of the loss suffered, but also
that of the profits which the obligee failed to obtain."

The circumstances of the case, however, require that the contractual relationship between the parties shall
be terminated upon the satisfaction of the judgment. No more claims arising from or as a result of the
agency shall be entertained by the courts after that date.

ACCORDINGLY, the petition is GRANTED. The impugned decision of January 29, 1988 and resolution of April
27, 1988 of respondent court are hereby SET ASIDE. The decision of the trial court dated January 23, 1986
in Civil Case No. 121126 is REINSTATED with the MODIFICATIONS that the amount of FIVE HUNDRED
TWENTY ONE THOUSAND NINE HUNDRED SIXTY-FOUR AND 16/100 PESOS (P521,964.16) representing the
petitioners Delta commission shall earn only legal interests without any adjustments under Article 1250 of
the Civil Code and that the contractual relationship between Arturo P. Valenzuela and Philippine American
General Insurance Company shall be deemed terminated upon the satisfaction of the judgment as modified.
SO ORDERED.

FEDERICO VALERA, plaintiff-appellant, vs. MIGUEL VELASCO, defendant-appellee.

VILLA-REAL, J.:

This is an appeal taken by Federico Valera from the judgment of the Court of First Instance of Manila
dismissing his complaint against Miguel Velasco, on the ground that he has not satisfactorily proven his right
of action.
In support of his appeal, the appellant assigns the following alleged as committed by the trial court in its
judgment, to wit: (1) The lower court erred in holding that one of the ways of terminating an agency is by
the express or tacit renunciation of the agent; (2) the lower court erred in holding that the institution of a
civil action and the execution of the judgment obtained by the agent against his principal is but renunciation
of the powers conferred on the agent; (3) the lower erred in holding that, even if the sale by Eduardo
Hernandez to the plaintiff Federico Valera be declared void, such a declaration could not prevail over the
rights of the defendant Miguel Velasco inasmuch as the right redemption was exercised by neither Eduardo
Hernandez nor the plaintiff Federico Valera; (4) the lower court erred in not finding that the defendant
Miguel Velasco was, and at present is, an authorized representative of the plaintiff Federico Valera; (5) the
lower court erred in not annulling the sale made by the sheriff at public auction to defendant Miguel Velasco,
Exhibit K; (6) the lower court erred in failing to annul the sale executed by Eduardo Hernandez to the plaintiff
Federico Valera, Exhibit C; (7) the lower court erred in not annulling Exhibit L, that is, the sale at public
auction of the right to repurchase the land in question to Salvador Vallejo; (8) the lower court erred in not
declaring Exhibit M null and void, which is the sale by Salvador Vallejo to defendant Miguel Velasco; (9) the
lower court erred in not ordering the defendant Miguel Velasco to liquidate his accounts as agent of the
plaintiff Federico Valera; (10) the lower court erred in not awarding plaintiff the P5,000 damages prayed
for.

The pertinent facts necessary for the solution of the questions raised by the above quoted assignments of
error are contained in the decision appealed from and are as follows:

By virtue of the powers of attorney, Exhibits X and Z, executed by the plaintiff on April 11, 1919,
and on August 8, 1922, the defendant was appointed attorney-in-fact of the said plaintiff with
authority to manage his property in the Philippines, consisting of the usufruct of a real property
located of Echague Street, City of Manila.

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

The liquidation of accounts revealed that the plaintiff owed the defendant P1,100, and as
misunderstanding arose between them, the defendant brought suit against the plaintiff, civil case
No. 23447 of this court. Judgment was rendered in his favor on March 28, 1923, and after the writ
of execution was issued, the sheriff levied upon the plaintiff's right of usufruct, sold it at public auction
and adjudicated it to the defendant in payment of all of his claim.

Subsequently, on May 11, 1923, the plaintiff sold his right of redemption to one Eduardo Hernandez,
for the sum of P200 (Exhibit A). On September 4, 1923, this purchaser conveyed the same right of
redemption, for the sum of P200, to the plaintiff himself, Federico Valera (Exhibit C).

After the plaintiff had recovered his right of redemption, one Salvador Vallejo, who had an execution
upon a judgment against the plaintiff rendered in a civil case against the latter, levied upon said right
of redemption, which was sold by the sheriff at public auction to Salvador Vallejo for P250 and was
definitely adjudicated to him. Later, he transferred said right of redemption to the defendant Velasco.
This is how the title to the right of usufruct to the aforementioned property later came to vest the
said defendant.

As the first two assignments of error are very closely related to each other, we will consider them jointly.

Article 1732 of the Civil Code reads as follows:

Art. 1732. Agency is terminated:

1. By revocation;

2. By the withdrawal of the agent;

 3. By the death, interdiction, bankruptcy, or insolvency of the principal or of the agent.

And article 1736 of the same Code provides that:

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

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

1. AGENCY; ADMINISTRATION OF PROPERTY; IMPLIED AGENCY. — When the agent and

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

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

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

If, as we have found, the defendant-appellee Miguel Velasco, in adopting a hostile attitude towards his
principal, suing him for the collection of the balance in his favor, resulting from the liquidation of the agency
accounts, ceased ipso facto to be the agent of the plaintiff-appellant, said agent's purchase of the aforesaid
principal's right of usufruct at public auction held by virtue of an execution issued upon the judgment
rendered in favor of the former and against the latter, is valid and legal, and the lower court did not commit
the fourth and fifth assignments of error attributed to it by the plaintiff-appellant.

In regard to the third assignment of error, it is deemed unnecessary to discuss the validity of the sale made
by Federico Valera to Eduardo Hernandez of his right of redemption in the sale of his usufructuary right
made by the sheriff by virtue of the execution of the judgment in favor of Miguel Velasco and against the
said Federico Valera; and the same thing is true as to the validity of the resale of the same right of
redemption made by Eduardo Hernandez to Federico Valera; inasmuch as Miguel Velasco's purchase at
public auction held by virtue of an execution of Federico Valera's usufructuary right is valid and legal, and
as neither the latter nor Eduardo Hernandez exercised his right of redemption within the legal period, the
purchaser's title became absolute.

Moreover, the defendant-appellee, Miguel Velasco, having acquired Federico Valera's right of redemption
from Salvador Vallejo, who had acquired it at public auction by virtue of a writ of execution issued upon the
judgment obtained by the said Vallejo against the said Valera, the latter lost all right to said usufruct.

And even supposing that Eduardo Hernandez had been tricked by Miguel Velasco into selling Federico
Valera's right of repurchase to the latter so that Salvador Vallejo might levy an execution on it, and even
supposing that said resale was null for lack of consideration, yet, inasmuch as Eduardo Hernandez did not
present a third party claim when the right was levied upon for the execution of the judgment obtained by
Vallejo against Federico Vallera, nor did he file a complaint to recover said right before the period of
redemption expired, said Eduardo Hernandez, and much less Federico Valera, cannot now contest the
validity of said resale, for the reason that the one-year period of redemption has already elapsed.

Neither did the trial court err in not ordering Miguel Velasco to render a liquidation of accounts from March
31, 1923, inasmuch as he had acquired the rights of the plaintiff by purchase at the execution sale, and as
purchaser, he was entitled to receive the rents from the date of the sale until the date of the repurchase,
considering them as part of the redemption price; but not having exercised the right repurchase during the
legal period, and the title of the repurchaser having become absolute, the latter did not have to account for
said rents.

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

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

NATIVIDAD HERRERA, assisted by her husband EMIGDIO SALAZAR, plaintiffs-appellants, vs. LUY
KIM GUAN and LINO BANGAYAN, defendants-appellees.

BARRERA, J.:

This is an appeal from the decision of the Court of First Instance of Zamboanga City (a) dismissing plaintiff-
appellant's complaint for the recovery of three (3) parcels of land and their produce in the sum of
P320,000.00; and (b) instead, sentencing plaintiff to pay P2,000.00 for attorney's fees and P1,000.00 for
expenses of litigation, to defendant Lino Bangayan, and P2,000.00 as attorney's fees and P500.00 as
expenses of litigation, to the other defendant Luy Kim Guan.

The pertinent facts as found by the trial court and upon which its decision was predicated are set forth in
the following portion of the decision appealed from:

The Plaintiff Natividad Herrera is the legitimate daughter of Luis Herrera, now deceased and who
died in China sometime after he went to that country in the last part of 1931 or early part of 1932.
The said Luis Herrera in his lifetime was the owner of three (3) parcels of land and their
improvements, known as Lots 1740, 4465 and 4467 of Expediente No. 5, G.L.R.O. Record 477 and
the area, nature, improvements and bound of each and every of these three (3) lots are sufficiently
described in the complaint filed by the plaintiffs.

Before leaving for China, however, Luis Herrera executed on December 1, 1931, a deed of General
Power of Attorney, Exhibit 'B', which authorized and empowered the defendant Kim Guan, among
others to administer and sell the properties of said Luis Herrera.
 Lot 1740 was originally covered by Original Certificate Title 8601 registered in the name of Luis
Herrera, married to GO Bang. This lot was sold by the defendant Luy Kim in his capacity as attorney-
in-fact of the deceased Luis Her to Luy Chay on September 11, 1939, as shown in Exhibit "2",
corresponding deed of sale. Transfer Certificate of Title 3162, Exhibit "3", was issued to Luy Chay by
virtue of deed of sale. On August 28, 1941, to secure a loan of P2,00 a deed of mortgage to the
Zamboanga Mutual Building and Association was executed by Luy Chay, Exhibit "4". On January 31,
1947, the said Luy Chay executed a deed of sale, Exhibit "E", in favor of Lino Bangayan. By virtue of
this Transfer Certificate of Title T-2567 was issued to Lino Bangayan on June 24, 1949, Exhibit "1":

Lots 4465 and 4467 were originally registered in the of Luis Herrera, married to Go Bang, under
Original Certificate of Title No. 0-14360, Exhibit "5". On December 1, 1931, Luis Herrera sold one-
half (½) undivided share and to Herrera and Go Bang, the other half (½), as shown by Exhibit "12"
and Exhibit "12-A", the latter an annotation made the Register of Deeds of the City of Zamboanga,
in which stated as follows:

Cancelado el presente Certificado en virtud de una escritura de traspaso y en su lugar se ha expedido

el Certificado de T No. 494-(T-13045) del Tomo 2 del Libro de Certificado de Transferencias.

(Fdo) R. D. MACROHON
Registrador de Titulos
Ciudad de Zamboanga

On July 23, 1937, Luis Herrera thru his attorney-in-fact Luy Kim Guan, one of the defendants, sold
to Nicomedes Salazar his one half (½) participation in these two (2) lots, as shown in Exhibit "C",
the corresponding deed of sale for P3,000.00 Transfer Certificate of Title No. T-494-(T-13045) was
is to Nicomedes Salazar and to the defendant Luy Kim Guan, Exhibit '7'. On August 4, 1937, the
defendant Luy Kim Guan Nicomedes Salazar executed a deed of mortgage in favor of Bank of the
Philippine Islands to secure a loan of P3,500.00, Exhibit '6'. On August 17, 1937, the defendant Luy
Kim Guan and Nicomedes Salazar sold Lot 4465 to Carlos Eijansantos for the sum of P100.00 as
shown in Exhibit "9", the corresponding deed of sale, and Transfer Certificate of Title No. T-2653 was
issued on September 7, 1939 to Carlos Eijansantos, Exhibit "10". Nicomedes Salazar sold his one
half (½) interest on Lot 4467 to the defendant Lino Bangayan for P3,000.00 on February 22, 1949,
Exhibit 'B', and the corresponding Transfer Certificate of Title T-2654 was issued to Lino Bangayan
and to Luy Kim Guan, both are co-owners in equal shares, Exhibit "8". Opinion of the City Attorney,
Exhibit "p", and an affidavit of Atty. Jose T. Atilano, Exhibit "O", state that Lino Bangayan is a Filipino
citizen.

As admitted by both parties (plaintiffs and defendants), Luis Herrera is now deceased, but as to the
specific and precise date of his death the evidence of both parties failed to show.

It is the contention of plaintiff-appellant that all the transactions mentioned in the preceding quoted portion
of the decision were fraudulent and were executed after the death of Luis Herrera and, consequently, when
the power of attorney was no longer operative. It is also claimed that the defendants Lino Bangayan and
Luy Kim Guan who now claim to be the owners of Lots Nos. 1740 and 4467 are Chinese by nationality and,
therefore, are disqualified to acquire real properties. Plaintiff-appellant, in addition, questions the supposed
deed of sale allegedly executed by Luis Herrera on December 1, 1931 in favor of defendant Luy Kim Guan,
conveying one-half interest on the two lots, Nos. 4465 and 4467, asserting that what was actually executed
on that date, jointly with the general power of attorney, was a lease contract over the same properties for
a period of 20 years for which Luy Kim Guan paid the sum of P2,000.00.

We find all the contentions of plaintiff-appellant untenable. Starting with her claim that the second deed
executed on December 1, 1931 by Luis Herrera was a lease contract instead of a deed of sale as asserted
by defendant Luy Kim Guan, we find that the only evidence in support of her contention is her own testimony
and that of her husband to the effect that the deceased Luis Herrera showed the said document to them,
and they remembered the same to be a lease contract on the three properties for a period of 20 years in
consideration of P2,000.00. Their testimony was sought to be corroborated by the declaration of the clerk
of Atty. Enrique A. Fernandez, who allegedly notarized the document. Outside of this oral testimony, given
more than 23 years after the supposed instrument was read by them, no other evidence was adduced. On
the other hand, defendant Luy Kim Gua produced in evidence a certification 1 signed by the Register of Deeds
of Dipolog, Zamboanga (Exh. 11) to the effect that a deed of sale, dated December 1, 1931, was execute
by Luis Herrera in favor of Luy Kim Guan and entered in the Primary Book No. 4 as duly registered on
September 30, 1936 under Original Certificate of Title No. 14360. It is to be noted that the deed of sale was
registered shortly after the issuance in the name of Luis Herrera of Origin Certificate of Title No. 14360
pursuant to Decree No. 59093, covering the two lots, Nos. 4465 and 4467 (Exh. 5) dated April 7, 1936. In
virtue of said deed of sale of December 1, 1931, Original Certificate of Title No. 1436 was cancelled and
Transfer Certificate of Title No. 1304 (Exh. 12) in the names of the conjugal partnership of the spouses Luis
Herrera and Go Bang, one-half share, an Luy Kim Guan, single, one-half share, was issued on September
30, 1936. Later, or on July 23, 1937, Luy Kim Guan, in his capacity as attorney-in-fact of Luis Herrera, sold
the half interest of the latter in the two parcels o land, in favor of Nicomedes Salazar, whereupon TCT No.
13045 was cancelled and TCT No. RT-657 (494-T-13045 (Exh. 7) was issued in the names of Luy Kim Guan
an Nicomedes Salazar in undivided equal shares. On August 4, 1937, both Luy Kim Guan and Nicomedes
Salazar mortgaged the two parcels in favor of the Bank of the Philippine Islands for the sum of P3,500.00
(Exh. 6). On August 17, 1937, Nicomedes Salazar and Luy Kim Gua sold their respective shares in Lot No.
4465 to Carlo Eijansantos (Exh. 9), subject to the mortgage, resulting in the issuance of TCT No. 2653 (Exh.
10) covering the entire lot No. 4465 in the name of said Carlos Eijansantos. On February 23, 1949,
Nicomedes Salazar sold his shall share in Lot No. 4467 to Lino Bangayan, as a consequence of which, TCT
No. 2654 (Exh. B) was issued covering said Lot No. 4467 in the names of Luy Kim Guan and Lino Bangayan
in undivided equal shares.

With respect to Lot No. 1740, the same was sold by Luy Kim Guan, in his capacity as attorney-in-fact of
Luis Herrera, on September 11, 1939 to Luy Chay (See Exh. 2) who, in August, 1941, mortgaged the same
(Exh. 4) to the Zamboanga Mutual Loan and Building Association (See TCT No. 3162 [Exh. 3] issued in the
name of Luy Chay). Later on, Luy Chay sold the entire lot to defendant Lino Bangayan by virtue of the deed
of sale dated January 31, 1947 (Exh. E), and as a consequence thereof, TCT No. 2567 was issued in the
name of said vendee. (See Exh. 1). As a result of these various transactions, duly recorded in the
corresponding office of the Register of Deeds, and covered by appropriate transfer certificates of title, the
properties are now registered in the following manner: Lot No. 1740, in the name of Lino Bangayan; Lot
No. 4465, in the name of Carlos Eijansantos; and Lot No. 4467, in the names of Lino Bangayan and Luy Kim
Guan in undivided equal shares.

In the face of these documentary evidence presented by the defendants, the trial court correctly upheld the
contention of the defendants as against that of plaintiff-appellant who claims that the second deed executed
by Luis Herrera in 1931 was a lease contract. It is pertinent to note what the lower court stated in this
regard, that is, if the second deed executed by Luis Herrera was a lease contract covering, the 3 lots in
question for a period of twenty (20) years, there would have been no purpose for him to constitute Luy Kim
Guan as. his attorney-in-fact to administer and take charge of the same properties already covered by the
lease contract.

Coming now to the contention that these transactions are null and void and of no effect because they were
executed by the attorney-in-fact after the death of his Principal, suffice it to say that as found by the lower
court, the date of death of Luis Herrera has not been satisfactorily proven. The only evidence presented by
the Plaintiff-appellant in this respect is a supposed letter received from a certain "Candi", dated at Amoy in
November, 1936, purporting to give information that Luis Herrera (without mentioning his name) had died
in August of that year. This piece of evidence was properly rejected by the lower court for lack of
identification. the other hand, we have the testimony of the witness Chung Lian to the effect that when he
was in Amoy the year 1940, Luis Herrera visited him and had a conversation with him, showing that the
latter was still alive at the time. Since the documents had been executed the attorney-in-fact one in 1937
and the other in 1939, it is evident, if we are to believe this testimony, that the documents were executed
during the lifetime of the principal. Be that as it may, even granting arguendo that Luis Herrera did die in
1936, plaintiffs presented no proof and there is no indication in the record, that the age Luy Kim Guan was
aware of the death of his prince at the time he sold the property. The death of the principal does not render
the act of an agent unenforceable, where the latter had no knowledge of such extinguishment the agency. 2

Appellants also raise the question of the legality of the titles acquired by Luy Chay and Lino Bangayan, on
ground that they are disqualified to acquire real properties in the Philippines. This point is similarly without
me because there is no evidence to support the claim. In fact, in the deed of sale as well as in TCT No. 3162
issued to Luy Chay, the latter was referred to as a citizen of the Philippines. Nevertheless, the lower court
acknowledged the probability that Luy Chay could have been actually a Chinese citizens. 3 At any rate, the
property was subsequently purchased by Lino Bangayan, as a result which TCT No. 3162 in the name of Luy
Chay was cancelled and another certificate (TCT No. T-2567) was issued in favor of said vendee.

As to Bangayan's qualification, the lower court held that said defendant had sufficiently established his
Philippine citizenship through Exhibit P, concurred in by the Secretary of Justice. We find no reason to disturb
such ruling.

With respect to Luy Kim Guan, while it is true that he is a Chinese citizen, nevertheless, inasmuch as he
acquired his one-half share in Lot No. 4467 in 1931, long before the Constitution was adopted, his ownership
can not be attacked on account of his citizenship.

Appellants, in this appeal, contest the judgment of the court a quo awarding defendants Lino Bangayan and
Luy Kim Guan attorney's fees in the sum of P2,000.00 each, and expenses of litigation in the amounts of
P1,000.00 and P500.00, respectively. We agree with the appellant in this regard.

This Court has laid down the rule that in the absence of stipulation, a winning party may be awarded
attorney's fees only in case plaintiff's action or defendant's stand is so untenable as to amount to gross and
evident bad faith.4 The same thing however, can not be said of the case at bar. As a matter of fact, the trial
court itself declared that the complaint was filed in good faith. Attorney's fees, therefore, can not be awarded
to defendants simply because the judgment was favorable to them and adverse to plaintiff, for it may
amount to imposing a premium on the right to redress grievances in court. And so with expenses of litigation.
A winning party may be entitled to expenses of litigation only where he, by reason of plaintiff's clearly
unjustifiable claims or defendant's unreasonable refusal to his demands, was compelled to incur said
expenditures. Evidently, the facts of this case do not warrant the granting of such litigation expenses to
defendants. In the absence of proof that the action was intended for reasons other than honest, we may
agree with the trial court that the same must have been instituted by plaintiffs in their belief that they have
a valid cause against the defendants.

WHEREFORE, and with the above modification, the decision appealed from is hereby affirmed in all other
respects without prejudice to appellants' right to demand from the agent (Luy Kim Guan) an accounting of
proceeds of the agency, if such right is still available. No costs. So ordered.