Sie sind auf Seite 1von 46

Republic of the Philippines

SUPREME COURT
Manila
G.R. No. L-24332 January 31, 1978
RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS, petitioner,
vs.
FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF APPEALS, respondents.
Seno, Mendoza & Associates for petitioner.
Ramon Duterte for private respondent.

MUOZ PALMA, J.:


This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of his principal, Concepcion Rallos, sold the
latter's undivided share in a parcel of land pursuant to a power of attorney which the principal had executed in favor. The
administrator of the estate of the went to court to have the sale declared uneanforceable and to recover the disposed
share. The trial court granted the relief prayed for, but upon appeal the Court of Appeals uphold the validity of the sale and
the complaint.
Hence, this Petition for Review on certiorari.
The following facts are not disputed. Concepcion and Gerundia both surnamed Rallos were sisters and registered coowners of a parcel of land known as Lot No. 5983 of the Cadastral Survey of Cebu covered by Transfer Certificate of Title
No. 11116 of the Registry of Cebu. On April 21, 1954, the sisters executed a special power of attorney in favor of their
brother, Simeon Rallos, authorizing him to sell for and in their behalf lot 5983. On March 3, 1955, Concepcion Rallos died.
On September 12, 1955, Simeon Rallos sold the undivided shares of his sisters Concepcion and Gerundia in lot 5983 to
Felix Go Chan & Sons Realty Corporation for the sum of P10,686.90. The deed of sale was registered in the Registry of
Deeds of Cebu, TCT No. 11118 was cancelled, and a new transfer certificate of Title No. 12989 was issued in the named
of the vendee.
On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of Concepcion Rallos filed a complaint docketed
as Civil Case No. R-4530 of the Court of First Instance of Cebu, praying (1) that the sale of the undivided share of the
deceased Concepcion Rallos in lot 5983 be d unenforceable, and said share be reconveyed to her estate; (2) that the
Certificate of 'title issued in the name of Felix Go Chan & Sons Realty Corporation be cancelled and another title be
issued in the names of the corporation and the "Intestate estate of Concepcion Rallos" in equal undivided and (3) that
plaintiff be indemnified by way of attorney's fees and payment of costs of suit. Named party defendants were Felix Go
Chan & Sons Realty Corporation, Simeon Rallos, and the Register of Deeds of Cebu, but subsequently, the latter was
dropped from the complaint. The complaint was amended twice; defendant Corporation's Answer contained a crossclaim
against its co-defendant, Simon Rallos while the latter filed third-party complaint against his sister, Gerundia Rallos While
the case was pending in the trial court, both Simon and his sister Gerundia died and they were substituted by the
respective administrators of their estates.
After trial the court a quo rendered judgment with the following dispositive portion:
A. On Plaintiffs Complaint
(1) Declaring the deed of sale, Exh. "C", null and void insofar as the one-half pro-indiviso
share of Concepcion Rallos in the property in question, Lot 5983 of the Cadastral
Survey of Cebu is concerned;
(2) Ordering the Register of Deeds of Cebu City to cancel Transfer Certificate of Title No.
12989 covering Lot 5983 and to issue in lieu thereof another in the names of FELIX GO
CHAN & SONS REALTY CORPORATION and the Estate of Concepcion Rallos in the
proportion of one-half (1/2) share each pro-indiviso;
(3) Ordering Felix Go Chan & Sons Realty Corporation to deliver the possession of an
undivided one-half (1/2) share of Lot 5983 to the herein plaintiff;
(4) Sentencing the defendant Juan T. Borromeo, administrator of the Estate of Simeon
Rallos, to pay to plaintiff in concept of reasonable attorney's fees the sum of P1,000.00;
and
(5) Ordering both defendants to pay the costs jointly and severally.
B. On GO CHANTS Cross-Claim:

(1) Sentencing the co-defendant Juan T. Borromeo, administrator of the Estate of Simeon
Rallos, to pay to defendant Felix Co Chan & Sons Realty Corporation the sum of
P5,343.45, representing the price of one-half (1/2) share of lot 5983;
(2) Ordering co-defendant Juan T. Borromeo, administrator of the Estate of Simeon
Rallos, to pay in concept of reasonable attorney's fees to Felix Go Chan & Sons Realty
Corporation the sum of P500.00.
C. On Third-Party Complaint of defendant Juan T. Borromeo administrator of Estate of Simeon Rallos,
against Josefina Rallos special administratrix of the Estate of Gerundia Rallos:
(1) Dismissing the third-party complaint without prejudice to filing either a complaint against the regular
administrator of the Estate of Gerundia Rallos or a claim in the Intestate-Estate of Cerundia Rallos,
covering the same subject-matter of the third-party complaint, at bar. (pp. 98-100, Record on Appeal)
Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of Appeals from the foregoing judgment
insofar as it set aside the sale of the one-half (1/2) share of Concepcion Rallos. The appellate tribunal, as adverted to
earlier, resolved the appeal on November 20, 1964 in favor of the appellant corporation sustaining the sale in
question. 1 The appellee administrator, Ramon Rallos, moved for a reconsider of the decision but the same was denied in
a resolution of March 4, 1965. 2
What is the legal effect of an act performed by an agent after the death of his principal? Applied more particularly to the
instant case, We have the query. is the sale of the undivided share of Concepcion Rallos in lot 5983 valid although it was
executed by the agent after the death of his principal? What is the law in this jurisdiction as to the effect of the death of the
principal on the authority of the agent to act for and in behalf of the latter? Is the fact of knowledge of the death of the
principal a material factor in determining the legal effect of an act performed after such death?
Before proceedings to the issues, We shall briefly restate certain principles of law relevant to the matter tinder
consideration.
1. It is a basic axiom in civil law embodied in our Civil Code that no one may contract in the name of another without being
authorized by the latter, or unless he has by law a right to represent him. 3 A contract entered into in the name of another
by one who has no authority or the legal representation or who has acted beyond his powers, shall be unenforceable,
unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the
other contracting party. 4 Article 1403 (1) of the same Code also provides:
ART. 1403. The following contracts are unenforceable, unless they are justified:
(1) Those entered into in the name of another person by one who hi - been given no authority or legal
representation or who has acted beyond his powers; ...
Out of the above given principles, sprung the creation and acceptance of the relationship of agency whereby one party,
caged the principal (mandante), authorizes another, called the agent (mandatario), to act for and in his behalf in
transactions with third persons. The essential elements of agency are: (1) there is consent, express or implied of the
parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the
agents acts as a representative and not for himself, and (4) the agent acts within the scope of his authority. 5
Agency is basically personal representative, and derivative in nature. The authority of the agent to act emanates from the
powers granted to him by his principal; his act is the act of the principal if done within the scope of the authority. Qui facit
per alium facit se. "He who acts through another acts himself". 6
2. There are various ways of extinguishing agency, 7 but her We are concerned only with one cause death of the
principal Paragraph 3 of Art. 1919 of the Civil Code which was taken from Art. 1709 of the Spanish Civil Code provides:
ART. 1919. Agency is extinguished.
xxx xxx xxx
3. By the death, civil interdiction, insanity or insolvency of the principal or of the agent; ... (Emphasis
supplied)
By reason of the very nature of the relationship between Principal and agent, agency is extinguished by the death of the
principal or the agent. This is the law in this jurisdiction. 8
Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the rationale for the law is found in thejuridical
basis of agency which is representation Them being an in. integration of the personality of the principal integration that of
the agent it is not possible for the representation to continue to exist once the death of either is establish. Pothier agrees
with Manresa that by reason of the nature of agency, death is a necessary cause for its extinction. Laurent says that the
juridical tie between the principal and the agent is severed ipso jure upon the death of either without necessity for the
heirs of the fact to notify the agent of the fact of death of the former. 9

The same rule prevails at common law the death of the principal effects instantaneous and absolute revocation of the
authority of the agent unless the Power be coupled with an interest. 10 This is the prevalent rule in American Jurisprudence
where it is well-settled that a power without an interest confer. red upon an agent is dissolved by the principal's death, and
any attempted execution of the power afterward is not binding on the heirs or representatives of the deceased. 11
3. Is the general rule provided for in Article 1919 that the death of the principal or of the agent extinguishes the agency,
subject to any exception, and if so, is the instant case within that exception? That is the determinative point in issue in this
litigation. It is the contention of respondent corporation which was sustained by respondent court that notwithstanding the
death of the principal Concepcion Rallos the act of the attorney-in-fact, Simeon Rallos in selling the former's sham in the
property is valid and enforceable inasmuch as the corporation acted in good faith in buying the property in question.
Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule afore-mentioned.
ART. 1930. The agency shall remain in full force and effect even after the death of the principal, if it has
been constituted in the common interest of the latter and of the agent, or in the interest of a third person
who has accepted the stipulation in his favor.
ART. 1931. Anything done by the agent, without knowledge of the death of the principal or of any other
cause which extinguishes the agency, is valid and shall be fully effective with respect to third persons who
may have contracted with him in good. faith.
Article 1930 is not involved because admittedly the special power of attorney executed in favor of Simeon Rallos was not
coupled with an interest.
Article 1931 is the applicable law. Under this provision, an act done by the agent after the death of his principal is valid
and effective only under two conditions, viz: (1) that the agent acted without knowledge of the death of the principal and
(2) that the third person who contracted with the agent himself acted in good faith. Good faith here means that the third
person was not aware of the death of the principal at the time he contracted with said agent. These two requisites must
concur the absence of one will render the act of the agent invalid and unenforceable.
In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the death of his principal at the time he
sold the latter's share in Lot No. 5983 to respondent corporation. The knowledge of the death is clearly to be inferred from
the pleadings filed by Simon Rallos before the trial court. 12 That Simeon Rallos knew of the death of his sister Concepcion
is also a finding of fact of the court a quo 13 and of respondent appellate court when the latter stated that Simon Rallos
'must have known of the death of his sister, and yet he proceeded with the sale of the lot in the name of both his sisters
Concepcion and Gerundia Rallos without informing appellant (the realty corporation) of the death of the former. 14
On the basis of the established knowledge of Simon Rallos concerning the death of his principal Concepcion
Rallos, Article 1931 of the Civil Code is inapplicable. The law expressly requires for its application lack of knowledge on
the part of the agent of the death of his principal; it is not enough that the third person acted in good faith. Thus in Buason
& Reyes v. Panuyas, the Court applying Article 1738 of the old Civil rode now Art. 1931 of the new Civil Code sustained
the validity , of a sale made after the death of the principal because it was not shown that the agent knew of his principal's
demise. 15 To the same effect is the case of Herrera, et al., v. Luy Kim Guan, et al., 1961, where in the words of Justice
Jesus Barrera the Court stated:
... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs presented no proof and there is
no indication in the record, that the agent Luy Kim Guan was aware of the death of his principal at the
time he sold the property. The death 6f the principal does not render the act of an agent unenforceable,
where the latter had no knowledge of such extinguishment of the agency. (1 SCRA 406, 412)
4. In sustaining the validity of the sale to respondent consideration the Court of Appeals reasoned out that there is no
provision in the Code which provides that whatever is done by an agent having knowledge of the death of his principal is
void even with respect to third persons who may have contracted with him in good faith and without knowledge of the
death of the principal. 16
We cannot see the merits of the foregoing argument as it ignores the existence of the general rule enunciated in Article
1919 that the death of the principal extinguishes the agency. That being the general rule it follows a fortiorithat any act of
an agent after the death of his principal is void ab initio unless the same fags under the exception provided for in the
aforementioned Articles 1930 and 1931. Article 1931, being an exception to the general rule, is to be strictly construed, it
is not to be given an interpretation or application beyond the clear import of its terms for otherwise the courts will be
involved in a process of legislation outside of their judicial function.
5. Another argument advanced by respondent court is that the vendee acting in good faith relied on the power of attorney
which was duly registered on the original certificate of title recorded in the Register of Deeds of the province of Cebu, that
no notice of the death was aver annotated on said certificate of title by the heirs of the principal and accordingly they must
suffer the consequences of such omission. 17
To support such argument reference is made to a portion in Manresa's Commentaries which We quote:
If the agency has been granted for the purpose of contracting with certain persons, the revocation must
be made known to them. But if the agency is general iii nature, without reference to particular person with

whom the agent is to contract, it is sufficient that the principal exercise due diligence to make the
revocation of the agency publicity known.
In case of a general power which does not specify the persons to whom represents' on should be made, it
is the general opinion that all acts, executed with third persons who contracted in good faith, Without
knowledge of the revocation, are valid. In such case, the principal may exercise his right against the
agent, who, knowing of the revocation, continued to assume a personality which he no longer had.
(Manresa Vol. 11, pp. 561 and 575; pp. 15-16, rollo)
The above discourse however, treats of revocation by an act of the principal as a mode of terminating an agency which is
to be distinguished from revocation by operation of law such as death of the principal which obtains in this case. On page
six of this Opinion We stressed that by reason of the very nature of the relationship between principal and agent, agency
is extinguished ipso jure upon the death of either principal or agent. Although a revocation of a power of attorney to be
effective must be communicated to the parties concerned, 18 yet a revocation by operation of law, such as by death of the
principal is, as a rule, instantaneously effective inasmuch as "by legal fiction the agent's exercise of authority is regarded
as an execution of the principal's continuing will. 19With death, the principal's will ceases or is the of authority is
extinguished.
The Civil Code does not impose a duty on the heirs to notify the agent of the death of the principal What the Code
provides in Article 1932 is that, if the agent die his heirs must notify the principal thereof, and in the meantime adopt such
measures as the circumstances may demand in the interest of the latter. Hence, the fact that no notice of the death of the
principal was registered on the certificate of title of the property in the Office of the Register of Deeds, is not fatal to the
cause of the estate of the principal
6. Holding that the good faith of a third person in said with an agent affords the former sufficient protection, respondent
court drew a "parallel" between the instant case and that of an innocent purchaser for value of a land, stating that if a
person purchases a registered land from one who acquired it in bad faith even to the extent of foregoing or falsifying
the deed of sale in his favor the registered owner has no recourse against such innocent purchaser for value but only
against the forger. 20
To support the correctness of this respondent corporation, in its brief, cites the case of Blondeau, et al., v. Nano and
Vallejo, 61 Phil. 625. We quote from the brief:
In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630, one Vallejo was a co-owner of
lands with Agustin Nano. The latter had a power of attorney supposedly executed by Vallejo Nano in his
favor. Vallejo delivered to Nano his land titles. The power was registered in the Office of the Register of
Deeds. When the lawyer-husband of Angela Blondeau went to that Office, he found all in order including
the power of attorney. But Vallejo denied having executed the power The lower court sustained Vallejo
and the plaintiff Blondeau appealed. Reversing the decision of the court a quo, the Supreme Court,
quoting the ruling in the case of Eliason v. Wilborn, 261 U.S. 457, held:
But there is a narrower ground on which the defenses of the defendant- appellee must be
overruled. Agustin Nano had possession of Jose Vallejo's title papers. Without those title
papers handed over to Nano with the acquiescence of Vallejo, a fraud could not have
been perpetuated. When Fernando de la Canters, a member of the Philippine Bar and
the husband of Angela Blondeau, the principal plaintiff, searched the registration record,
he found them in due form including the power of attorney of Vallajo in favor of Nano. If
this had not been so and if thereafter the proper notation of the encumbrance could not
have been made, Angela Blondeau would not have sent P12,000.00 to the defendant
Vallejo.' An executed transfer of registered lands placed by the registered owner thereof
in the hands of another operates as a representation to a third party that the holder of the
transfer is authorized to deal with the land.
As between two innocent persons, one of whom must suffer the consequence of a breach
of trust, the one who made it possible by his act of coincidence bear the loss. (pp. 19-21)
The Blondeau decision, however, is not on all fours with the case before Us because here We are confronted with one
who admittedly was an agent of his sister and who sold the property of the latter after her death with full knowledge of
such death. The situation is expressly covered by a provision of law on agency the terms of which are clear and
unmistakable leaving no room for an interpretation contrary to its tenor, in the same manner that the ruling in Blondeau
and the cases cited therein found a basis in Section 55 of the Land Registration Law which in part provides:
xxx xxx xxx
The production of the owner's duplicate certificate whenever any voluntary instrument is presented for
registration shall be conclusive authority from the registered owner to the register of deeds to enter a new
certificate or to make a memorandum of registration in accordance with such instruments, and the new
certificate or memorandum Shall be binding upon the registered owner and upon all persons claiming
under him in favor of every purchaser for value and in good faith: Provided however, That in all cases of
registration provided by fraud, the owner may pursue all his legal and equitable remedies against the
parties to such fraud without prejudice, however, to the right, of any innocent holder for value of a
certificate of title. ... (Act No. 496 as amended)

7. One last point raised by respondent corporation in support of the appealed decision is an 1842 ruling of the Supreme
Court of Pennsylvania in Cassiday v. McKenzie wherein payments made to an agent after the death of the principal were
held to be "good", "the parties being ignorant of the death". Let us take note that the Opinion of Justice Rogers was
premised on the statement that the parties were ignorant of the death of the principal. We quote from that decision the
following:
... Here the precise point is, whether a payment to an agent when the Parties are ignorant of the death is
a good payment. in addition to the case in Campbell before cited, the same judge Lord Ellenboruogh, has
decided in 5 Esp. 117, the general question that a payment after the death of principal is not good. Thus,
a payment of sailor's wages to a person having a power of attorney to receive them, has been held void
when the principal was dead at the time of the payment. If, by this case, it is meant merely to decide the
general proposition that by operation of law the death of the principal is a revocation of the powers of the
attorney, no objection can be taken to it. But if it intended to say that his principle applies where there was
110 notice of death, or opportunity of twice I must be permitted to dissent from it.
... That a payment may be good today, or bad tomorrow, from the accident circumstance of the death of
the principal, which he did not know, and which by no possibility could he know? It would be unjust to the
agent and unjust to the debtor. In the civil law, the acts of the agent, done bona fide in ignorance of the
death of his principal are held valid and binding upon the heirs of the latter. The same rule holds in the
Scottish law, and I cannot believe the common law is so unreasonable... (39 Am. Dec. 76, 80, 81;
emphasis supplied)
To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may evoke, mention may be made that the
above represents the minority view in American jurisprudence. Thus in Clayton v. Merrett, the Court said.
There are several cases which seem to hold that although, as a general principle, death revokes an
agency and renders null every act of the agent thereafter performed, yet that where a payment has been
made in ignorance of the death, such payment will be good. The leading case so holding is that
of Cassiday v. McKenzie, 4 Watts & S. (Pa) 282, 39 Am. 76, where, in an elaborate opinion, this view ii
broadly announced. It is referred to, and seems to have been followed, in the case of Dick v. Page,17 Mo.
234, 57 AmD 267; but in this latter case it appeared that the estate of the deceased principal had received
the benefit of the money paid, and therefore the representative of the estate might well have been held to
be estopped from suing for it again. . . . These cases, in so far, at least, as they announce the doctrine
under discussion, are exceptional. The Pennsylvania Case, supra (Cassiday v. McKenzie 4 Watts & S.
282, 39 AmD 76), is believed to stand almost, if not quite, alone in announcing the principle in its broadest
scope. (52, Misc. 353, 357, cited in 2 C.J. 549)
So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out that the opinion, except so far as it
related to the particular facts, was a mere dictum, Baldwin J. said:
The opinion, therefore, of the learned Judge may be regarded more as an extrajudicial indication of his
views on the general subject, than as the adjudication of the Court upon the point in question. But
accordingly all power weight to this opinion, as the judgment of a of great respectability, it stands alone
among common law authorities and is opposed by an array too formidable to permit us to following it. (15
Cal. 12,17, cited in 2 C.J. 549)
Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in American jurisprudence, no such conflict
exists in our own for the simple reason that our statute, the Civil Code, expressly provides for two exceptions to the
general rule that death of the principal revokes ipso jure the agency, to wit: (1) that the agency is coupled with an interest
(Art 1930), and (2) that the act of the agent was executed without knowledge of the death of the principal and the third
person who contracted with the agent acted also in good faith (Art. 1931). Exception No. 2 is the doctrine followed in
Cassiday, and again We stress the indispensable requirement that the agent acted without knowledge or notice of the
death of the principal In the case before Us the agent Ramon Rallos executed the sale notwithstanding notice of the death
of his principal Accordingly, the agent's act is unenforceable against the estate of his principal.
IN VIEW OF ALL THE FOREGOING, We set aside the ecision of respondent appellate court, and We affirm en toto the
judgment rendered by then Hon. Amador E. Gomez of the Court of First Instance of Cebu, quoted in pages 2 and 3 of this
Opinion, with costs against respondent realty corporation at all instances.
So Ordered.

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 144805 June 8, 2006


EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners,
vs.
ETERNIT CORPORATION (now ETERTON MULTI-RESOURCES CORPORATION), ETEROUTREMER, S.A. and FAR
EAST BANK & TRUST COMPANY, Respondents.
DECISION
CALLEJO, SR., J.:
On appeal via a Petition for Review on Certiorari is the Decision 1 of the Court of Appeals (CA) in CA-G.R. CV No. 51022,
which affirmed the Decision of the Regional Trial Court (RTC), Pasig City, Branch 165, in Civil Case No. 54887, as well as
the Resolution2 of the CA denying the motion for reconsideration thereof.
The Eternit Corporation (EC) is a corporation duly organized and registered under Philippine laws. Since 1950, it had
been engaged in the manufacture of roofing materials and pipe products. Its manufacturing operations were conducted on
eight parcels of land with a total area of 47,233 square meters. The properties, located in Mandaluyong City, Metro
Manila, were covered by Transfer Certificates of Title Nos. 451117, 451118, 451119, 451120, 451121, 451122, 451124 and
451125 under the name of Far East Bank & Trust Company, as trustee. Ninety (90%) percent of the shares of stocks of
EC were owned by Eteroutremer S.A. Corporation (ESAC), a corporation organized and registered under the laws of
Belgium.3 Jack Glanville, an Australian citizen, was the General Manager and President of EC, while Claude Frederick
Delsaux was the Regional Director for Asia of ESAC. Both had their offices in Belgium.
In 1986, the management of ESAC grew concerned about the political situation in the Philippines and wanted to stop its
operations in the country. The Committee for Asia of ESAC instructed Michael Adams, a member of ECs Board of
Directors, to dispose of the eight parcels of land. Adams engaged the services of realtor/broker Lauro G. Marquez so that
the properties could be offered for sale to prospective buyers. Glanville later showed the properties to Marquez.
Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo B. Litonjua, Jr. of the Litonjua &
Company, Inc. In a Letter dated September 12, 1986, Marquez declared that he was authorized to sell the properties
for P27,000,000.00 and that the terms of the sale were subject to negotiation. 4
Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to Eduardo Litonjua, Jr., and his brother
Antonio K. Litonjua. The Litonjua siblings offered to buy the property for P20,000,000.00 cash. Marquez apprised Glanville
of the Litonjua siblings offer and relayed the same to Delsaux in Belgium, but the latter did not respond. On October 28,
1986, Glanville telexed Delsaux in Belgium, inquiring on his position/ counterproposal to the offer of the Litonjua siblings. It
was only on February 12, 1987 that Delsaux sent a telex to Glanville stating that, based on the "Belgian/Swiss decision,"
the final offer was "US$1,000,000.00 and P2,500,000.00 to cover all existing obligations prior to final liquidation." 5
Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux. Litonjua, Jr. accepted the
counterproposal of Delsaux. Marquez conferred with Glanville, and in a Letter dated February 26, 1987, confirmed that
the Litonjua siblings had accepted the counter-proposal of Delsaux. He also stated that the Litonjua siblings would confirm
full payment within 90 days after execution and preparation of all documents of sale, together with the necessary
governmental clearances.6
The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security Bank & Trust Company, Ermita Branch,
and drafted an Escrow Agreement to expedite the sale. 7
Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the sale would be implemented. In a
telex dated April 22, 1987, Glanville informed Delsaux that he had met with the buyer, which had given him the impression
that "he is prepared to press for a satisfactory conclusion to the sale." 8 He also emphasized to Delsaux that the buyers
were concerned because they would incur expenses in bank commitment fees as a consequence of prolonged period of
inaction.9
Meanwhile, with the assumption of Corazon C. Aquino as President of the Republic of the Philippines, the political
situation in the Philippines had improved. Marquez received a telephone call from Glanville, advising that the sale would
no longer proceed. Glanville followed it up with a Letter dated May 7, 1987, confirming that he had been instructed by his
principal to inform Marquez that "the decision has been taken at a Board Meeting not to sell the properties on which
Eternit Corporation is situated."10
Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC Regional Office had decided not to
proceed with the sale of the subject land, to wit:
May 22, 1987
Mr. L.G. Marquez
L.G. Marquez, Inc.
334 Makati Stock Exchange Bldg.
6767 Ayala Avenue

Makati, Metro Manila


Philippines
Dear Sir:
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has decided not to proceed with the sale of the land which was proposed to
you.
The Committee for Asia of our Group met recently (meeting every six months) and examined the position as far as the
Philippines are (sic) concerned. Considering [the] new political situation since the departure of MR. MARCOS and a
certain stabilization in the Philippines, the Committee has decided not to stop our operations in Manila. In fact, production
has started again last week, and (sic) to recognize the participation in the Corporation.
We regret that we could not make a deal with you this time, but in case the policy would change at a later state, we would
consult you again.
xxx
Yours sincerely,
(Sgd.)
C.F. DELSAUX
cc. To: J. GLANVILLE (Eternit Corp.)11
When apprised of this development, the Litonjuas, through counsel, wrote EC, demanding payment for damages they had
suffered on account of the aborted sale. EC, however, rejected their demand.
The Litonjuas then filed a complaint for specific performance and damages against EC (now the Eterton Multi-Resources
Corporation) and the Far East Bank & Trust Company, and ESAC in the RTC of Pasig City. An amended complaint was
filed, in which defendant EC was substituted by Eterton Multi-Resources Corporation; Benito C. Tan, Ruperto V. Tan,
Stock Ha T. Tan and Deogracias G. Eufemio were impleaded as additional defendants on account of their purchase of
ESAC shares of stocks and were the controlling stockholders of EC.
In their answer to the complaint, EC and ESAC alleged that since Eteroutremer was not doing business in the Philippines,
it cannot be subject to the jurisdiction of Philippine courts; the Board and stockholders of EC never approved any
resolution to sell subject properties nor authorized Marquez to sell the same; and the telex dated October 28, 1986 of
Jack Glanville was his own personal making which did not bind EC.
On July 3, 1995, the trial court rendered judgment in favor of defendants and dismissed the amended complaint. 12The fallo
of the decision reads:
WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer,
S.A. is dismissed on the ground that there is no valid and binding sale between the plaintiffs and said defendants.
The complaint as against Far East Bank and Trust Company is likewise dismissed for lack of cause of action.
The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer, S.A. is also
dismissed for lack of merit.13
The trial court declared that since the authority of the agents/realtors was not in writing, the sale is void and not merely
unenforceable, and as such, could not have been ratified by the principal. In any event, such ratification cannot be given
any retroactive effect. Plaintiffs could not assume that defendants had agreed to sell the property without a clear
authorization from the corporation concerned, that is, through resolutions of the Board of Directors and stockholders. The
trial court also pointed out that the supposed sale involves substantially all the assets of defendant EC which would result
in the eventual total cessation of its operation. 14
The Litonjuas appealed the decision to the CA, alleging that "(1) the lower court erred in concluding that the real estate
broker in the instant case needed a written authority from appellee corporation and/or that said broker had no such written
authority; and (2) the lower court committed grave error of law in holding that appellee corporation is not legally bound for
specific performance and/or damages in the absence of an enabling resolution of the board of directors." 15 They averred
that Marquez acted merely as a broker or go-between and not as agent of the corporation; hence, it was not necessary for
him to be empowered as such by any written authority. They further claimed that an agency by estoppel was created
when the corporation clothed Marquez with apparent authority to negotiate for the sale of the properties. However, since it
was a bilateral contract to buy and sell, it was equivalent to a perfected contract of sale, which the corporation was obliged
to consummate.

In reply, EC alleged that Marquez had no written authority from the Board of Directors to bind it; neither were Glanville and
Delsaux authorized by its board of directors to offer the property for sale. Since the sale involved substantially all of the
corporations assets, it would necessarily need the authority from the stockholders.
On June 16, 2000, the CA rendered judgment affirming the decision of the RTC.
reconsideration, which was also denied by the appellate court.

16

The Litonjuas filed a motion for

The CA ruled that Marquez, who was a real estate broker, was a special agent within the purview of Article 1874 of the
New Civil Code. Under Section 23 of the Corporation Code, he needed a special authority from ECs board of directors to
bind such corporation to the sale of its properties. Delsaux, who was merely the representative of ESAC (the majority
stockholder of EC) had no authority to bind the latter. The CA pointed out that Delsaux was not even a member of the
board of directors of EC. Moreover, the Litonjuas failed to prove that an agency by estoppel had been created between
the parties.
In the instant petition for review, petitioners aver that
I
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PERFECTED CONTRACT OF SALE.
II
THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT MARQUEZ NEEDED A WRITTEN
AUTHORITY FROM RESPONDENT ETERNIT BEFORE THE SALE CAN BE PERFECTED.
III
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND DELSAUX HAVE THE NECESSARY
AUTHORITY TO SELL THE SUBJECT PROPERTIES, OR AT THE VERY LEAST, WERE KNOWINGLY PERMITTED BY
RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN APPARENT AUTHORITY, AND THUS HELD THEM
OUT TO THE PUBLIC AS POSSESSING POWER TO SELL THE SAID PROPERTIES. 17
Petitioners maintain that, based on the facts of the case, there was a perfected contract of sale of the parcels of land and
the improvements thereon for "US$1,000,000.00 plus P2,500,000.00 to cover obligations prior to final liquidation."
Petitioners insist that they had accepted the counter-offer of respondent EC and that before the counter-offer was
withdrawn by respondents, the acceptance was made known to them through real estate broker Marquez.
Petitioners assert that there was no need for a written authority from the Board of Directors of EC for Marquez to validly
act as broker/middleman/intermediary. As broker, Marquez was not an ordinary agent because his authority was of a
special and limited character in most respects. His only job as a broker was to look for a buyer and to bring together the
parties to the transaction. He was not authorized to sell the properties or to make a binding contract to respondent EC;
hence, petitioners argue, Article 1874 of the New Civil Code does not apply.
In any event, petitioners aver, what is important and decisive was that Marquez was able to communicate both the offer
and counter-offer and their acceptance of respondent ECs counter-offer, resulting in a perfected contract of sale.
Petitioners posit that the testimonial and documentary evidence on record amply shows that Glanville, who was the
President and General Manager of respondent EC, and Delsaux, who was the Managing Director for ESAC Asia, had the
necessary authority to sell the subject property or, at least, had been allowed by respondent EC to hold themselves out in
the public as having the power to sell the subject properties. Petitioners identified such evidence, thus:
1. The testimony of Marquez that he was chosen by Glanville as the then President and General Manager of
Eternit, to sell the properties of said corporation to any interested party, which authority, as hereinabove
discussed, need not be in writing.
2. The fact that the NEGOTIATIONS for the sale of the subject properties spanned SEVERAL MONTHS, from
1986 to 1987;
3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties to the Petitioners;
4. The GOOD FAITH of Petitioners in believing Eternits offer to sell the properties as evidenced by the
Petitioners ACCEPTANCE of the counter-offer;
5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with the Security Bank and that an
ESCROW agreement was drafted over the subject properties;
6. Glanvilles telex to Delsaux inquiring "WHEN WE (Respondents) WILL IMPLEMENT ACTION TO BUY AND
SELL";

7. More importantly, Exhibits "G" and "H" of the Respondents, which evidenced the fact that Petitioners offer was
allegedly REJECTED by both Glanville and Delsaux.18
Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-offer to petitioners offer and thereafter
reject such offer unless they were authorized to do so by respondent EC. Petitioners insist that Delsaux confirmed his
authority to sell the properties in his letter to Marquez, to wit:
Dear Sir,
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has decided not to proceed with the sale of the land which was proposed to
you.
The Committee for Asia of our Group met recently (meeting every six months) and examined the position as far as the
Philippines are (sic) concerned. Considering the new political situation since the departure of MR. MARCOS and a certain
stabilization in the Philippines, the Committee has decided not to stop our operations in Manila[.] [I]n fact production
started again last week, and (sic) to reorganize the participation in the Corporation.
We regret that we could not make a deal with you this time, but in case the policy would change at a later stage we would
consult you again.
In the meantime, I remain
Yours sincerely,
C.F. DELSAUX19
Petitioners further emphasize that they acted in good faith when Glanville and Delsaux were knowingly permitted by
respondent EC to sell the properties within the scope of an apparent authority. Petitioners insist that respondents held
themselves to the public as possessing power to sell the subject properties.
By way of comment, respondents aver that the issues raised by the petitioners are factual, hence, are proscribed by Rule
45 of the Rules of Court. On the merits of the petition, respondents EC (now EMC) and ESAC reiterate their submissions
in the CA. They maintain that Glanville, Delsaux and Marquez had no authority from the stockholders of respondent EC
and its Board of Directors to offer the properties for sale to the petitioners, or to any other person or entity for that matter.
They assert that the decision and resolution of the CA are in accord with law and the evidence on record, and should be
affirmed in toto.
Petitioners aver in their subsequent pleadings that respondent EC, through Glanville and Delsaux, conformed to the
written authority of Marquez to sell the properties. The authority of Glanville and Delsaux to bind respondent EC is
evidenced by the fact that Glanville and Delsaux negotiated for the sale of 90% of stocks of respondent EC to Ruperto Tan
on June 1, 1997. Given the significance of their positions and their duties in respondent EC at the time of the transaction,
and the fact that respondent ESAC owns 90% of the shares of stock of respondent EC, a formal resolution of the Board of
Directors would be a mere ceremonial formality. What is important, petitioners maintain, is that Marquez was able to
communicate the offer of respondent EC and the petitioners acceptance thereof. There was no time that they acted
without the knowledge of respondents. In fact, respondent EC never repudiated the acts of Glanville, Marquez and
Delsaux.
The petition has no merit.
Anent the first issue, we agree with the contention of respondents that the issues raised by petitioner in this case are
factual. Whether or not Marquez, Glanville, and Delsaux were authorized by respondent EC to act as its agents relative to
the sale of the properties of respondent EC, and if so, the boundaries of their authority as agents, is a question of fact. In
the absence of express written terms creating the relationship of an agency, the existence of an agency is a fact
question.20 Whether an agency by estoppel was created or whether a person acted within the bounds of his apparent
authority, and whether the principal is estopped to deny the apparent authority of its agent are, likewise, questions of fact
to be resolved on the basis of the evidence on record. 21 The findings of the trial court on such issues, as affirmed by the
CA, are conclusive on the Court, absent evidence that the trial and appellate courts ignored, misconstrued, or misapplied
facts and circumstances of substance which, if considered, would warrant a modification or reversal of the outcome of the
case.22
It must be stressed that issues of facts may not be raised in the Court under Rule 45 of the Rules of Court because the
Court is not a trier of facts. It is not to re-examine and assess the evidence on record, whether testimonial and
documentary. There are, however, recognized exceptions where the Court may delve into and resolve factual issues,
namely:
(1) When the conclusion is a finding grounded entirely on speculations, surmises, or conjectures; (2) when the inference
made is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in
making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and

appellee; (7) when the findings of the Court of Appeals are contrary to those of the trial court; (8) when the findings of fact
are conclusions without citation of specific evidence on which they are based; (9) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different
conclusion; and (10) when the findings of fact of the Court of Appeals are premised on the absence of evidence and are
contradicted by the evidence on record.23
We have reviewed the records thoroughly and find that the petitioners failed to establish that the instant case falls under
any of the foregoing exceptions. Indeed, the assailed decision of the Court of Appeals is supported by the evidence on
record and the law.
It was the duty of the petitioners to prove that respondent EC had decided to sell its properties and that it had empowered
Adams, Glanville and Delsaux or Marquez to offer the properties for sale to prospective buyers and to accept any counteroffer. Petitioners likewise failed to prove that their counter-offer had been accepted by respondent EC, through Glanville
and Delsaux. It must be stressed that when specific performance is sought of a contract made with an agent, the agency
must be established by clear, certain and specific proof.24
Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the Philippines, provides:
SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all business conducted and all property of such corporations
controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there is
no stock, from among the members of the corporation, who shall hold office for one (1) year and until their successors are
elected and qualified.
Indeed, a corporation is a juridical person separate and distinct from its members or stockholders and is not affected by
the personal rights,
obligations and transactions of the latter.25 It may act only through its board of directors or, when authorized either by its
by-laws or by its board resolution, through its officers or agents in the normal course of business. The general principles of
agency govern the relation between the corporation and its officers or agents, subject to the articles of incorporation, bylaws, or relevant provisions of law.26
Under Section 36 of the Corporation Code, a corporation may sell or convey its real properties, subject to the limitations
prescribed by law and the Constitution, as follows:
SEC. 36. Corporate powers and capacity. Every corporation incorporated under this Code has the power and capacity:
xxxx
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and
personal property, including securities and bonds of other corporations, as the transaction of a lawful business of the
corporation may reasonably and necessarily require, subject to the limitations prescribed by the law and the Constitution.
The property of a corporation, however, is not the property of the stockholders or members, and as such, may not be sold
without express authority from the board of directors. 27 Physical acts, like the offering of the properties of the corporation
for sale, or the acceptance of a counter-offer of prospective buyers of such properties and the execution of the deed of
sale covering such property, can be performed by the corporation only by officers or agents duly authorized for the
purpose by corporate by-laws or by specific acts of the board of directors. 28 Absent such valid delegation/authorization,
the rule is that the declarations of an individual director relating to the affairs of the corporation, but not in the course of, or
connected with, the performance of authorized duties of such director, are not binding on the corporation. 29
While a corporation may appoint agents to negotiate for the sale of its real properties, the final say will have to be with the
board of directors through its officers and agents as authorized by a board resolution or by its by-laws. 30An unauthorized
act of an officer of the corporation is not binding on it unless the latter ratifies the same expressly or impliedly by its board
of directors. Any sale of real property of a corporation by a person purporting to be an agent thereof but without written
authority from the corporation is null and void. The declarations of the agent alone are generally insufficient to establish
the fact or extent of his/her authority.31
By the contract of agency, a person binds himself to render some service or to do something in representation on behalf of
another, with the consent or authority of the latter.32 Consent of both principal and agent is necessary to create an agency.
The principal must intend that the agent shall act for him; the agent must intend to accept the authority and act on it, and
the intention of the parties must find expression either in words or conduct between them. 33
An agency may be expressed or implied from the act of the principal, from his silence or lack of action, or his failure to
repudiate the agency knowing that another person is acting on his behalf without authority. Acceptance by the agent may
be expressed, or implied from his acts which carry out the agency, or from his silence or inaction according to the
circumstances.34 Agency may be oral unless the law requires a specific form. 35 However, to create or convey real rights
over immovable property, a special power of attorney is necessary.36 Thus, when a sale of a piece of land or any portion
thereof is through an agent, the authority of the latter shall be in writing, otherwise, the sale shall be void. 37

In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution of the Board of Directors of
respondent EC empowering Marquez, Glanville or Delsaux as its agents, to sell, let alone offer for sale, for and in its
behalf, the eight parcels of land owned by respondent EC including the improvements thereon. The bare fact that Delsaux
may have been authorized to sell to Ruperto Tan the shares of stock of respondent ESAC, on June 1, 1997, cannot be
used as basis for petitioners claim that he had likewise been authorized by respondent EC to sell the parcels of land.
Moreover, the evidence of petitioners shows that Adams and Glanville acted on the authority of Delsaux, who, in turn,
acted on the authority of respondent ESAC, through its Committee for Asia, 38 the Board of Directors of respondent
ESAC,39 and the Belgian/Swiss component of the management of respondent ESAC. 40 As such, Adams and Glanville
engaged the services of Marquez to offer to sell the properties to prospective buyers. Thus, on September 12, 1986,
Marquez wrote the petitioner that he was authorized to offer for sale the property forP27,000,000.00 and the other terms
of the sale subject to negotiations. When petitioners offered to purchase the property for P20,000,000.00, through
Marquez, the latter relayed petitioners offer to Glanville; Glanville had to send a telex to Delsaux to inquire the position of
respondent ESAC to petitioners offer. However, as admitted by petitioners in their Memorandum, Delsaux was unable to
reply immediately to the telex of Glanville because Delsaux had to wait for confirmation from respondent ESAC. 41 When
Delsaux finally responded to Glanville on February 12, 1987, he made it clear that, based on the "Belgian/Swiss decision"
the final offer of respondent ESAC was US$1,000,000.00 plus P2,500,000.00 to cover all existing obligations prior to final
liquidation.42 The offer of Delsaux emanated only from the "Belgian/Swiss decision," and not the entire management or
Board of Directors of respondent ESAC. While it is true that petitioners accepted the counter-offer of respondent ESAC,
respondent EC was not a party to the transaction between them; hence, EC was not bound by such acceptance.
While Glanville was the President and General Manager of respondent EC, and Adams and Delsaux were members of its
Board of Directors, the three acted for and in behalf of respondent ESAC, and not as duly authorized agents of
respondent EC; a board resolution evincing the grant of such authority is needed to bind EC to any agreement regarding
the sale of the subject properties. Such board resolution is not a mere formality but is a condition sine qua non to bind
respondent EC. Admittedly, respondent ESAC owned 90% of the shares of stocks of respondent EC; however, the mere
fact that a corporation owns a majority of the shares of stocks of another, or even all of such shares of stocks, taken
alone, will not justify their being treated as one corporation. 43
It bears stressing that in an agent-principal relationship, the personality of the principal is extended through the facility of
the agent. In so doing, the agent, by legal fiction, becomes the principal, authorized to perform all acts which the latter
would have him do. Such a relationship can only be effected with the consent of the principal, which must not, in any way,
be compelled by law or by any court.44
The petitioners cannot feign ignorance of the absence of any regular and valid authority of respondent EC empowering
Adams, Glanville or Delsaux to offer the properties for sale and to sell the said properties to the petitioners. A person
dealing with a known agent is not authorized, under any circumstances, blindly to trust the agents; statements as to the
extent of his powers; such person must not act negligently but must use reasonable diligence and prudence to ascertain
whether the agent acts within the scope of his authority.45 The settled rule is that, persons dealing with an assumed agent
are bound at their peril, and if they would hold the principal liable, to ascertain not only the fact of agency but also the
nature and extent of authority, and in case either is controverted, the burden of proof is upon them to prove it. 46 In this
case, the petitioners failed to discharge their burden; hence, petitioners are not entitled to damages from respondent EC.
It appears that Marquez acted not only as real estate broker for the petitioners but also as their agent. As gleaned from
the letter of Marquez to Glanville, on February 26, 1987, he confirmed, for and in behalf of the petitioners, that the latter
had accepted such offer to sell the land and the improvements thereon. However, we agree with the ruling of the appellate
court that Marquez had no authority to bind respondent EC to sell the subject properties. A real estate broker is one who
negotiates the sale of real properties. His business, generally speaking, is only to find a purchaser who is willing to buy
the land upon terms fixed by the owner. He has no authority to bind the principal by signing a contract of sale. Indeed, an
authority to find a purchaser of real property does not include an authority to sell. 47
Equally barren of merit is petitioners contention that respondent EC is estopped to deny the existence of a principalagency relationship between it and Glanville or Delsaux. For an agency by estoppel to exist, the following must be
established: (1) the principal manifested a representation of the agents authority or knowlingly allowed the agent to
assume such authority; (2) the third person, in good faith, relied upon such representation; (3) relying upon such
representation, such third person has changed his position to his detriment. 48 An agency by estoppel, which is similar to
the doctrine of apparent authority, requires proof of reliance upon the representations, and that, in turn, needs proof that
the representations predated the action taken in reliance. 49 Such proof is lacking in this case. In their communications to
the petitioners, Glanville and Delsaux positively and unequivocally declared that they were acting for and in behalf of
respondent ESAC.
Neither may respondent EC be deemed to have ratified the transactions between the petitioners and respondent ESAC,
through Glanville, Delsaux and Marquez. The transactions and the various communications inter se were never submitted
to the Board of Directors of respondent EC for ratification.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioners.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION
G.R. No. 149353

June 26, 2006

JOCELYN B. DOLES, Petitioner,


vs.
MA. AURA TINA ANGELES, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
This refers to the Petition for Review on Certiorari under Rule 45 of the Rules of Court questioning the Decision 1dated
April 30, 2001 of the Court of Appeals (CA) in C.A.-G.R. CV No. 66985, which reversed the Decision dated July 29, 1998
of the Regional Trial Court (RTC), Branch 21, City of Manila; and the CA Resolution 2 dated August 6, 2001 which denied
petitioners Motion for Reconsideration.
The antecedents of the case follow:
On April 1, 1997, Ma. Aura Tina Angeles (respondent) filed with the RTC a complaint for Specific Performance with
Damages against Jocelyn B. Doles (petitioner), docketed as Civil Case No. 97-82716. Respondent alleged that petitioner
was indebted to the former in the concept of a personal loan amounting to P405,430.00 representing the principal amount
and interest; that on October 5, 1996, by virtue of a "Deed of Absolute Sale", 3 petitioner, as seller, ceded to respondent, as
buyer, a parcel of land, as well as the improvements thereon, with an area of 42 square meters, covered by Transfer
Certificate of Title No. 382532,4 and located at a subdivision project known as Camella Townhomes Sorrente in Bacoor,
Cavite, in order to satisfy her personal loan with respondent; that this property was mortgaged to National Home Mortgage
Finance Corporation (NHMFC) to secure petitioners loan in the sum of P337,050.00 with that entity; that as a condition
for the foregoing sale, respondent shall assume the undue balance of the mortgage and pay the monthly amortization
of P4,748.11 for the remainder of the 25 years which began on September 3, 1994; that the property was at that time
being occupied by a tenant paying a monthly rent of P3,000.00; that upon verification with the NHMFC, respondent
learned that petitioner had incurred arrearages amounting to P26,744.09, inclusive of penalties and interest; that upon
informing the petitioner of her arrears, petitioner denied that she incurred them and refused to pay the same; that despite
repeated demand, petitioner refused to cooperate with respondent to execute the necessary documents and other
formalities required by the NHMFC to effect the transfer of the title over the property; that petitioner collected rent over the
property for the month of January 1997 and refused to remit the proceeds to respondent; and that respondent suffered
damages as a result and was forced to litigate.
Petitioner, then defendant, while admitting some allegations in the Complaint, denied that she borrowed money from
respondent, and averred that from June to September 1995, she referred her friends to respondent whom she knew to be
engaged in the business of lending money in exchange for personal checks through her capitalist Arsenio Pua. She
alleged that her friends, namely, Zenaida Romulo, Theresa Moratin, Julia Inocencio, Virginia Jacob, and Elizabeth
Tomelden, borrowed money from respondent and issued personal checks in payment of the loan; that the checks
bounced for insufficiency of funds; that despite her efforts to assist respondent to collect from the borrowers, she could no
longer locate them; that, because of this, respondent became furious and threatened petitioner that if the accounts were
not settled, a criminal case will be filed against her; that she was forced to issue eight checks amounting to P350,000 to
answer for the bounced checks of the borrowers she referred; that prior to the issuance of the checks she informed
respondent that they were not sufficiently funded but the latter nonetheless deposited the checks and for which reason
they were subsequently dishonored; that respondent then threatened to initiate a criminal case against her for violation
of Batas Pambansa Blg. 22; that she was forced by respondent to execute an "Absolute Deed of Sale" over her property
in Bacoor, Cavite, to avoid criminal prosecution; that the said deed had no valid consideration; that she did not appear
before a notary public; that the Community Tax Certificate number on the deed was not hers and for which respondent
may be prosecuted for falsification and perjury; and that she suffered damages and lost rental as a result.
The RTC identified the issues as follows: first, whether the Deed of Absolute Sale is valid; second; if valid, whether
petitioner is obliged to sign and execute the necessary documents to effect the transfer of her rights over the property to
the respondent; and third, whether petitioner is liable for damages.
On July 29, 1998, the RTC rendered a decision the dispositive portion of which states:
WHEREFORE, premises considered, the Court hereby orders the dismissal of the complaint for insufficiency of evidence.
With costs against plaintiff.
SO ORDERED.
The RTC held that the sale was void for lack of cause or consideration: 5
Plaintiff Angeles admission that the borrowers are the friends of defendant Doles and further admission that the checks
issued by these borrowers in payment of the loan obligation negates [sic] the cause or consideration of the contract of
sale executed by and between plaintiff and defendant. Moreover, the property is not solely owned by defendant as
appearing in Entry No. 9055 of Transfer Certificate of Title No. 382532 (Annex A, Complaint), thus:

"Entry No. 9055. Special Power of Attorney in favor of Jocelyn Doles covering the share of Teodorico Doles on the parcel
of land described in this certificate of title by virtue of the special power of attorney to mortgage, executed before the
notary public, etc."
The rule under the Civil Code is that contracts without a cause or consideration produce no effect whatsoever. (Art. 1352,
Civil Code).
Respondent appealed to the CA. In her appeal brief, respondent interposed her sole assignment of error:
THE TRIAL COURT ERRED IN DISMISSING THE CASE AT BAR ON THE GROUND OF [sic] THE DEED OF SALE
BETWEEN THE PARTIES HAS NO CONSIDERATION OR INSUFFICIENCY OF EVIDENCE. 6
On April 30, 2001, the CA promulgated its Decision, the dispositive portion of which reads:
WHEREFORE, IN VIEW OF THE FOREGOING, this appeal is hereby GRANTED. The Decision of the lower court dated
July 29, 1998 is REVERSED and SET ASIDE. A new one is entered ordering defendant-appellee to execute all necessary
documents to effect transfer of subject property to plaintiff-appellant with the arrearages of the formers loan with the
NHMFC, at the latters expense. No costs.
SO ORDERED.
The CA concluded that petitioner was the borrower and, in turn, would "re-lend" the amount borrowed from the respondent
to her friends. Hence, the Deed of Absolute Sale was supported by a valid consideration, which is the sum of money
petitioner owed respondent amounting to P405,430.00, representing both principal and interest.
The CA took into account the following circumstances in their entirety: the supposed friends of petitioner never presented
themselves to respondent and that all transactions were made by and between petitioner and respondent; 7 that the money
borrowed was deposited with the bank account of the petitioner, while payments made for the loan were deposited by the
latter to respondents bank account;8 that petitioner herself admitted in open court that she was "re-lending" the money
loaned from respondent to other individuals for profit; 9 and that the documentary evidence shows that the actual
borrowers, the friends of petitioner, consider her as their creditor and not the respondent. 10
Furthermore, the CA held that the alleged threat or intimidation by respondent did not vitiate consent, since the same is
considered just or legal if made to enforce ones claim through competent authority under Article 1335 11of the Civil
Code;12 that with respect to the arrearages of petitioner on her monthly amortization with the NHMFC in the sum
of P26,744.09, the same shall be deemed part of the balance of petitioners loan with the NHMFC which respondent
agreed to assume; and that the amount of P3,000.00 representing the rental for January 1997 supposedly collected by
petitioner, as well as the claim for damages and attorneys fees, is denied for insufficiency of evidence. 13
On May 29, 2001, petitioner filed her Motion for Reconsideration with the CA, arguing that respondent categorically
admitted in open court that she acted only as agent or representative of Arsenio Pua, the principal financier and, hence,
she had no legal capacity to sue petitioner; and that the CA failed to consider the fact that petitioners father, who coowned the subject property, was not impleaded as a defendant nor was he indebted to the respondent and, hence, she
cannot be made to sign the documents to effect the transfer of ownership over the entire property.
On August 6, 2001, the CA issued its Resolution denying the motion on the ground that the foregoing matters had already
been passed upon.
On August 13, 2001, petitioner received a copy of the CA Resolution. On August 28, 2001, petitioner filed the present
Petition and raised the following issues:
I.
WHETHER OR NOT THE PETITIONER CAN BE CONSIDERED AS A DEBTOR OF THE RESPONDENT.
II.
WHETHER OR NOT AN AGENT WHO WAS NOT AUTHORIZED BY THE PRINCIPAL TO COLLECT DEBT IN
HIS BEHALF COULD DIRECTLY COLLECT PAYMENT FROM THE DEBTOR.
III.
WHETHER OR NOT THE CONTRACT OF SALE WAS EXECUTED FOR A CAUSE.14
Although, as a rule, it is not the business of this Court to review the findings of fact made by the lower courts,
jurisprudence has recognized several exceptions, at least three of which are present in the instant case, namely: when the
judgment is based on a misapprehension of facts; when the findings of facts of the courts a quo are conflicting; and when
the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, could justify
a different conclusion.15 To arrive at a proper judgment, therefore, the Court finds it necessary to re-examine the evidence
presented by the contending parties during the trial of the case.

The Petition is meritorious.


The principal issue is whether the Deed of Absolute Sale is supported by a valid consideration.
1. Petitioner argues that since she is merely the agent or representative of the alleged debtors, then she is not a party to
the loan; and that the Deed of Sale executed between her and the respondent in their own names, which was predicated
on that pre-existing debt, is void for lack of consideration.
Indeed, the Deed of Absolute Sale purports to be supported by a consideration in the form of a price certain in
money16 and that this sum indisputably pertains to the debt in issue. This Court has consistently held that a contract of
sale is null and void and produces no effect whatsoever where the same is without cause or consideration. 17 The question
that has to be resolved for the moment is whether this debt can be considered as a valid cause or consideration for the
sale.
To restate, the CA cited four instances in the record to support its holding that petitioner "re-lends" the amount borrowed
from respondent to her friends: first, the friends of petitioner never presented themselves to respondent and that all
transactions were made by and between petitioner and respondent; 18 second; the money passed through the bank
accounts of petitioner and respondent;19 third, petitioner herself admitted that she was "re-lending" the money loaned to
other individuals for profit;20 and fourth, the documentary evidence shows that the actual borrowers, the friends of
petitioner, consider her as their creditor and not the respondent. 21
On the first, third, and fourth points, the CA cites the testimony of the petitioner, then defendant, during her crossexamination:22
Atty. Diza:
q. You also mentioned that you were not the one indebted to the plaintiff?
witness:
a. Yes, sir.
Atty. Diza:
q. And you mentioned the persons[,] namely, Elizabeth Tomelden, Teresa Moraquin, Maria Luisa Inocencio,
Zenaida Romulo, they are your friends?
witness:
a. Inocencio and Moraquin are my friends while [as to] Jacob and Tomelden[,] they were just referred.
Atty. Diza:
q. And you have transact[ed] with the plaintiff?
witness:
a. Yes, sir.
Atty. Diza:
q. What is that transaction?
witness:
a. To refer those persons to Aura and to refer again to Arsenio Pua, sir.
Atty. Diza:
q. Did the plaintiff personally see the transactions with your friends?
witness:
a. No, sir.
Atty. Diza:
q. Your friends and the plaintiff did not meet personally?

witness:
a. Yes, sir.
Atty. Diza:
q. You are intermediaries?
witness:
a. We are both intermediaries. As evidenced by the checks of the debtors they were deposited to the name of
Arsenio Pua because the money came from Arsenio Pua.
xxxx
Atty. Diza:
q. Did the plaintiff knew [sic] that you will lend the money to your friends specifically the one you mentioned [a]
while ago?
witness:
a. Yes, she knows the money will go to those persons.
Atty. Diza:
q. You are re-lending the money?
witness:
a. Yes, sir.
Atty. Diza:
q. What profit do you have, do you have commission?
witness:
a. Yes, sir.
Atty. Diza:
q. How much?
witness:
a. Two percent to Tomelden, one percent to Jacob and then Inocencio and my friends none, sir.
Based on the foregoing, the CA concluded that petitioner is the real borrower, while the respondent, the real
lender.
But as correctly noted by the RTC, respondent, then plaintiff, made the following admission during her cross
examination:23
Atty. Villacorta:
q. Who is this Arsenio Pua?
witness:
a. Principal financier, sir.
Atty. Villacorta:
q. So the money came from Arsenio Pua?
witness:

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


Other portions of the testimony of respondent must likewise be considered: 24
Atty. Villacorta:
q. So it is not actually your money but the money of Arsenio Pua?
witness:
a. Yes, sir.
Court:
q. It is not your money?
witness:
a. Yes, Your Honor.
Atty. Villacorta:
q. Is it not a fact Ms. Witness that the defendant borrowed from you to accommodate somebody, are you aware of
that?
witness:
a. I am aware of that.
Atty. Villacorta:
q. More or less she [accommodated] several friends of the defendant?
witness:
a. Yes, sir, I am aware of that.
xxxx
Atty. Villacorta:
q. And these friends of the defendant borrowed money from you with the assurance of the defendant?
witness:
a. They go direct to Jocelyn because I dont know them.
xxxx
Atty. Villacorta:
q. And is it not also a fact Madam witness that everytime that the defendant borrowed money from you her friends
who [are] in need of money issued check[s] to you? There were checks issued to you?
witness:
a. Yes, there were checks issued.
Atty. Villacorta:
q. By the friends of the defendant, am I correct?
witness:
a. Yes, sir.
Atty. Villacorta:

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

With respect to the second point, particularly, the finding of the CA that the disbursements and payments for the loan were
made through the bank accounts of petitioner and respondent,
suffice it to say that in the normal course of commercial dealings and for reasons of convenience and practical utility it can
be reasonably expected that the facilities of the agent, such as a bank account, may be employed, and that a sub-agent
be appointed, such as the bank itself, to carry out the task, especially where there is no stipulation to the contrary. 32
In view of the two agency relationships, petitioner and respondent are not privy to the contract of loan between their
principals. Since the sale is predicated on that loan, then the sale is void for lack of consideration.
2. A further scrutiny of the record shows, however, that the sale might have been backed up by another consideration that
is separate and distinct from the debt: respondent averred in her complaint and testified that the parties had agreed that
as a condition for the conveyance of the property the respondent shall assume the balance of the mortgage loan which
petitioner allegedly owed to the NHMFC. 33 This Court in the recent past has declared that an assumption of a mortgage
debt may constitute a valid consideration for a sale. 34
Although the record shows that petitioner admitted at the time of trial that she owned the property described in the
TCT,35 the Court must stress that the Transfer Certificate of Title No. 382532 36 on its face shows that the owner of the
property which admittedly forms the subject matter of the Deed of Absolute Sale refers neither to the petitioner nor to her
father, Teodorico Doles, the alleged co-owner. Rather, it states that the property is registered in the name of "Household
Development Corporation." Although there is an entry to the effect that the petitioner had been granted a special power of
attorney "covering the shares of Teodorico Doles on the parcel of land described in this certificate," 37 it cannot be inferred
from this bare notation, nor from any other evidence on the record, that the petitioner or her father held any direct interest
on the property in question so as to validly constitute a mortgage thereon 38 and, with more reason, to effect the delivery of
the object of the sale at the consummation stage.39 What is worse, there is a notation that the TCT itself has been
"cancelled."40
In view of these anomalies, the Court cannot entertain the
possibility that respondent agreed to assume the balance of the mortgage loan which petitioner allegedly owed to the
NHMFC, especially since the record is bereft of any factual finding that petitioner was, in the first place, endowed with any
ownership rights to validly mortgage and convey the property. As the complainant who initiated the case, respondent
bears the burden of proving the basis of her complaint. Having failed to discharge such burden, the Court has no choice
but to declare the sale void for lack of cause. And since the sale is void, the Court finds it unnecessary to dwell on the
issue of whether duress or intimidation had been foisted upon petitioner upon the execution of the sale.
Moreover, even assuming the mortgage validly exists, the Court notes respondents allegation that the mortgage with the
NHMFC was for 25 years which began September 3, 1994. Respondent filed her Complaint for Specific Performance in
1997. Since the 25 years had not lapsed, the prayer of respondent to compel petitioner to execute necessary documents
to effect the transfer of title is premature.
WHEREFORE, the petition is granted. The Decision and Resolution of the Court of Appeals are REVERSED andSET
ASIDE. The complaint of respondent in Civil Case No. 97-82716 is DISMISSED.
SO ORDERED.

SECOND DIVISION
[G.R. No. 117356. June 19, 2000]
VICTORIAS MILLING CO., INC., petitioner, vs. COURT OF APPEALS and CONSOLIDATED SUGAR
CORPORATION, respondents.

DECISION
QUISUMBING, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the decision of the
Court of Appeals dated February 24, 1994, in CA-G.R. CV No. 31717, as well as the respondent court's resolution
of September 30, 1994 modifying said decision. Both decision and resolution amended the judgment dated
February 13, 1991, of the Regional Trial Court of Makati City, Branch 147, in Civil Case No. 90-118.
The facts of this case as found by both the trial and appellate courts are as follows:
St. Therese Merchandising (hereafter STM) regularly bought sugar from petitioner Victorias Milling Co., Inc.,
(VMC). In the course of their dealings, petitioner issued several Shipping List/Delivery Receipts (SLDRs) to STM
as proof of purchases. Among these was SLDR No. 1214M, which gave rise to the instant case. Dated October
16, 1989, SLDR No. 1214M covers 25,000 bags of sugar. Each bag contained 50 kilograms and priced at
P638.00 per bag as "per sales order VMC Marketing No. 042 dated October 16, 1989." [1] The transaction it
covered was a "direct sale."[2] The SLDR also contains an additional note which reads: "subject for (sic) availability
of a (sic) stock at NAWACO (warehouse)."[3]
On October 25, 1989, STM sold to private respondent Consolidated Sugar Corporation (CSC) its rights in SLDR
No. 1214M for P 14,750,000.00. CSC issued one check dated October 25, 1989 and three checks postdated
November 13, 1989 in payment. That same day, CSC wrote petitioner that it had been authorized by STM to
withdraw the sugar covered by SLDR No. 1214M. Enclosed in the letter were a copy of SLDR No. 1214M and a
letter of authority from STM authorizing CSC "to withdraw for and in our behalf the refined sugar covered by
Shipping List/Delivery Receipt-Refined Sugar (SDR) No. 1214 dated October 16, 1989 in the total quantity of
25,000 bags."[4]
On October 27, 1989, STM issued 16 checks in the total amount of P31,900,000.00 with petitioner as payee. The
latter, in turn, issued Official Receipt No. 33743 dated October 27, 1989 acknowledging receipt of the said checks
in payment of 50,000 bags. Aside from SLDR No. 1214M, said checks also covered SLDR No. 1213.
Private respondent CSC surrendered SLDR No. 1214M to the petitioner's NAWACO warehouse and was allowed
to withdraw sugar. However, after 2,000 bags had been released, petitioner refused to allow further withdrawals of
sugar against SLDR No. 1214M. CSC then sent petitioner a letter dated January 23, 1990 informing it that SLDR
No. 1214M had been "sold and endorsed" to it but that it had been refused further withdrawals of sugar from
petitioner's warehouse despite the fact that only 2,000 bags had been withdrawn. [5] CSC thus inquired when it
would be allowed to withdraw the remaining 23,000 bags.
On January 31, 1990, petitioner replied that it could not allow any further withdrawals of sugar against SLDR No.
1214M because STM had already dwithdrawn all the sugar covered by the cleared checks. [6]
On March 2, 1990, CSC sent petitioner a letter demanding the release of the balance of 23,000 bags.
Seven days later, petitioner reiterated that all the sugar corresponding to the amount of STM's cleared checks had
been fully withdrawn and hence, there would be no more deliveries of the commodity to STM's account. Petitioner
also noted that CSC had represented itself to be STM's agent as it had withdrawn the 2,000 bags against SLDR
No. 1214M "for and in behalf" of STM.
On April 27, 1990, CSC filed a complaint for specific performance, docketed as Civil Case No. 90-1118.
Defendants were Teresita Ng Sy (doing business under the name of St. Therese Merchandising) and herein
petitioner. Since the former could not be served with summons, the case proceeded only against the latter. During
the trial, it was discovered that Teresita Ng Go who testified for CSC was the same Teresita Ng Sy who could not
be reached through summons.[7] CSC, however, did not bother to pursue its case against her, but instead used
her as its witness.
CSC's complaint alleged that STM had fully paid petitioner for the sugar covered by SLDR No. 1214M. Therefore,
the latter had no justification for refusing delivery of the sugar. CSC prayed that petitioner be ordered to deliver the
23,000 bags covered by SLDR No. 1214M and sought the award of P1,104,000.00 in unrealized profits,
P3,000,000.00 as exemplary damages, P2,200,000.00 as attorney's fees and litigation expenses.
Petitioner's primary defense a quo was that it was an unpaid seller for the 23,000 bags. [8] Since STM had already
drawn in full all the sugar corresponding to the amount of its cleared checks, it could no longer authorize further
delivery of sugar to CSC. Petitioner also contended that it had no privity of contract with CSC.
Petitioner explained that the SLDRs, which it had issued, were not documents of title, but mere delivery receipts
issued pursuant to a series of transactions entered into between it and STM. The SLDRs prescribed delivery of
the sugar to the party specified therein and did not authorize the transfer of said party's rights and interests.
Petitioner also alleged that CSC did not pay for the SLDR and was actually STM's co-conspirator to defraud it
through a misrepresentation that CSC was an innocent purchaser for value and in good faith. Petitioner then
prayed that CSC be ordered to pay it the following sums: P10,000,000.00 as moral damages; P10,000,000.00 as

exemplary damages; and P1,500,000.00 as attorney's fees. Petitioner also prayed that cross-defendant STM be
ordered to pay it P10,000,000.00 in exemplary damages, and P1,500,000.00 as attorney's fees.
Since no settlement was reached at pre-trial, the trial court heard the case on the merits.
As earlier stated, the trial court rendered its judgment favoring private respondent CSC, as follows:
"WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the plaintiff and
against defendant Victorias Milling Company:
"1) Ordering defendant Victorias Milling Company to deliver to the plaintiff 23,000 bags of refined sugar
due under SLDR No. 1214;
"2) Ordering defendant Victorias Milling Company to pay the amount of P920,000.00 as unrealized profits,
the amount of P800,000.00 as exemplary damages and the amount of P1,357,000.00, which is 10% of
the acquisition value of the undelivered bags of refined sugar in the amount of P13,570,000.00, as
attorney's fees, plus the costs.
"SO ORDERED."[9]
It made the following observations:
"[T]he testimony of plaintiff's witness Teresita Ng Go, that she had fully paid the purchase price of
P15,950,000.00 of the 25,000 bags of sugar bought by her covered by SLDR No. 1214 as well as the
purchase price of P15,950,000.00 for the 25,000 bags of sugar bought by her covered by SLDR No. 1213
on the same date, October 16, 1989 (date of the two SLDRs) is duly supported by Exhibits C to C-15
inclusive which are post-dated checks dated October 27, 1989 issued by St. Therese Merchandising in
favor of Victorias Milling Company at the time it purchased the 50,000 bags of sugar covered by SLDR
No. 1213 and 1214. Said checks appear to have been honored and duly credited to the account of
Victorias Milling Company because on October 27, 1989 Victorias Milling Company issued official receipt
no. 34734 in favor of St. Therese Merchandising for the amount of P31,900,000.00 (Exhibits B and B-1).
The testimony of Teresita Ng Go is further supported by Exhibit F, which is a computer printout of
defendant Victorias Milling Company showing the quantity and value of the purchases made by St.
Therese Merchandising, the SLDR no. issued to cover the purchase, the official reciept no. and the status
of payment. It is clear in Exhibit 'F' that with respect to the sugar covered by SLDR No. 1214 the same
has been fully paid as indicated by the word 'cleared' appearing under the column of 'status of payment.'
"On the other hand, the claim of defendant Victorias Milling Company that the purchase price of the
25,000 bags of sugar purchased by St. Therese Merchandising covered by SLDR No. 1214 has not been
fully paid is supported only by the testimony of Arnulfo Caintic, witness for defendant Victorias Milling
Company. The Court notes that the testimony of Arnulfo Caintic is merely a sweeping barren assertion
that the purchase price has not been fully paid and is not corroborated by any positive evidence. There is
an insinuation by Arnulfo Caintic in his testimony that the postdated checks issued by the buyer in
payment of the purchased price were dishonored. However, said witness failed to present in Court any
dishonored check or any replacement check. Said witness likewise failed to present any bank record
showing that the checks issued by the buyer, Teresita Ng Go, in payment of the purchase price of the
sugar covered by SLDR No. 1214 were dishonored." [10]
Petitioner appealed the trial courts decision to the Court of Appeals.
On appeal, petitioner averred that the dealings between it and STM were part of a series of transactions involving
only one account or one general contract of sale. Pursuant to this contract, STM or any of its authorized agents
could withdraw bags of sugar only against cleared checks of STM. SLDR No. 21214M was only one of 22 SLDRs
issued to STM and since the latter had already withdrawn its full quota of sugar under the said SLDR, CSC was
already precluded from seeking delivery of the 23,000 bags of sugar.
Private respondent CSC countered that the sugar purchases involving SLDR No. 1214M were separate and
independent transactions and that the details of the series of purchases were contained in a single statement with
a consolidated summary of cleared check payments and sugar stock withdrawals because this a more convenient
system than issuing separate statements for each purchase.
The appellate court considered the following issues: (a) Whether or not the transaction between petitioner and
STM involving SLDR No. 1214M was a separate, independent, and single transaction; (b) Whether or not CSC
had the capacity to sue on its own on SLDR No. 1214M; and (c) Whether or not CSC as buyer from STM of the
rights to 25,000 bags of sugar coveredby SLDR No. 1214M could compel petitioner to deliver 23,000
bags allegedly unwithdrawn.
On February 24, 1994, the Court of Appeals rendered its decision modifying the trial court's judgment, to wit:
"WHEREFORE, the Court hereby MODIFIES the assailed judgment and orders defendant-appellant to:

"1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by SLDR No. 1214M;
" 2) Pay to plaintiff-appellee P792,918.00 which is 10% of the value of the undelivered bags of refined
sugar, as attorneys fees;
"3) Pay the costs of suit.
"SO ORDERED."[11]
Both parties then seasonably filed separate motions for reconsideration.
In its resolution dated September 30, 1994, the appellate court modified its decision to read:
"WHEREFORE, the Court hereby modifies the assailed judgment and orders defendant-appellant to:
"(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar under SLDR No. 1214M;
"(2) Pay costs of suit.
"SO ORDERED."[12]
The appellate court explained the rationale for the modification as follows:
"There is merit in plaintiff-appellee's position.
"Exhibit F' We relied upon in fixing the number of bags of sugar which remained undelivered as 12,586
cannot be made the basis for such a finding. The rule is explicit that courts should consider the evidence
only for the purpose for which it was offered. (People v. Abalos, et al, 1 CA Rep 783). The rationale for
this is to afford the party against whom the evidence is presented to object thereto if he deems it
necessary. Plaintiff-appellee is, therefore, correct in its argument that Exhibit F' which was offered to
prove that checks in the total amount of P15,950,000.00 had been cleared. (Formal Offer of Evidence for
Plaintiff, Records p. 58) cannot be used to prove the proposition that 12,586 bags of sugar remained
undelivered.
"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October 1990, p. 33] and Marianito L. Santos
[TSN, 17 October 1990, pp. 16, 18, and 36]) presented by plaintiff-appellee was to the effect that it had
withdrawn only 2,000 bags of sugar from SLDR after which it was not allowed to withdraw anymore.
Documentary evidence (Exhibit I, Id., p. 78, Exhibit K, Id., p. 80) show that plaintiff-appellee had sent
demand letters to defendant-appellant asking the latter to allow it to withdraw the remaining 23,000 bags
of sugar from SLDR 1214M. Defendant-appellant, on the other hand, alleged that sugar delivery to the
STM corresponded only to the value of cleared checks; and that all sugar corresponded to cleared checks
had been withdrawn. Defendant-appellant did not rebut plaintiff-appellee's assertions. It did not present
evidence to show how many bags of sugar had been withdrawn against SLDR No. 1214M, precisely
because of its theory that all sales in question were a series of one single transaction and withdrawal of
sugar depended on the clearing of checks paid therefor.
"After a second look at the evidence, We see no reason to overturn the findings of the trial court on this
point."[13]
Hence, the instant petition, positing the following errors as grounds for review:
"1. The Court of Appeals erred in not holding that STM's and private respondent's specially informing
petitioner that respondent was authorized by buyer STM to withdraw sugar against SLDR No. 1214M "for
and in our (STM) behalf," (emphasis in the original) private respondent's withdrawing 2,000 bags of sugar
for STM, and STM's empowering other persons as its agents to withdraw sugar against the same SLDR
No. 1214M, rendered respondent like the other persons, an agent of STM as held in Rallos v. Felix Go
Chan & Realty Corp., 81 SCRA 252, and precluded it from subsequently claiming and proving being an
assignee of SLDR No. 1214M and from suing by itself for its enforcement because it was conclusively
presumed to be an agent (Sec. 2, Rule 131, Rules of Court) and estopped from doing so. (Art. 1431, Civil
Code).
" 2. The Court of Appeals erred in manifestly and arbitrarily ignoring and disregarding certain relevant and
undisputed facts which, had they been considered, would have shown that petitioner was not liable,
except for 69 bags of sugar, and which would justify review of its conclusion of facts by this Honorable
Court.
" 3. The Court of Appeals misapplied the law on compensation under Arts. 1279, 1285 and 1626 of the
Civil Code when it ruled that compensation applied only to credits from one SLDR or contract and not to
those from two or more distinct contracts between the same parties; and erred in denying petitioner's right
to setoff all its credits arising prior to notice of assignment from other sales or SLDRs against private
respondent's claim as assignee under SLDR No. 1214M, so as to extinguish or reduce its liability to 69

bags, because the law on compensation applies precisely to two or more distinct contracts between the
same parties (emphasis in the original).
"4. The Court of Appeals erred in concluding that the settlement or liquidation of accounts in Exh. F
between petitioner and STM, respondent's admission of its balance, and STM's acquiescence thereto by
silence for almost one year did not render Exh. `F' an account stated and its balance binding.
"5. The Court of Appeals erred in not holding that the conditions of the assigned SLDR No. 1214, namely,
(a) its subject matter being generic, and (b) the sale of sugar being subject to its availability at the
Nawaco warehouse, made the sale conditional and prevented STM or private respondent from acquiring
title to the sugar; and the non-availability of sugar freed petitioner from further obligation.
"6. The Court of Appeals erred in not holding that the "clean hands" doctrine precluded respondent from
seeking judicial reliefs (sic) from petitioner, its only remedy being against its assignor." [14]
Simply stated, the issues now to be resolved are:
(1)....Whether or not the Court of Appeals erred in not ruling that CSC was an agent of STM and hence,
estopped to sue upon SLDR No. 1214M as an assignee.
(2)....Whether or not the Court of Appeals erred in applying the law on compensation to the transaction
under SLDR No. 1214M so as to preclude petitioner from offsetting its credits on the other SLDRs.
(3)....Whether or not the Court of Appeals erred in not ruling that the sale of sugar under SLDR No.
1214M was a conditional sale or a contract to sell and hence freed petitioner from further obligations.
(4)....Whether or not the Court of Appeals committed an error of law in not applying the "clean hands
doctrine" to preclude CSC from seeking judicial relief.
The issues will be discussed in seriatim.
Anent the first issue, we find from the records that petitioner raised this issue for the first time on appeal. It is
settled that an issue which was not raised during the trial in the court below could not be raised for the first time
on appeal as to do so would be offensive to the basic rules of fair play, justice, and due process. [15] Nonetheless,
the Court of Appeals opted to address this issue, hence, now a matter for our consideration.
Petitioner heavily relies upon STM's letter of authority allowing CSC to withdraw sugar against SLDR No. 1214M
to show that the latter was STM's agent. The pertinent portion of said letter reads:
"This is to authorize Consolidated Sugar Corporation or its representative to withdraw for and in our
behalf (stress supplied) the refined sugar covered by Shipping List/Delivery Receipt = Refined Sugar
(SDR) No. 1214 dated October 16, 1989 in the total quantity of 25, 000 bags." [16]
The Civil Code defines a contract of agency as follows:
"Art. 1868. By the contract of agency a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter."
It is clear from Article 1868 that the basis of agency is representation. [17] On the part of the principal, there must be
an actual intention to appoint[18] or an intention naturally inferable from his words or actions; [19] and on the part of
the agent, there must be an intention to accept the appointment and act on it, [20] and in the absence of such intent,
there is generally no agency.[21]One factor which most clearly distinguishes agency from other legal concepts is
control; one person - the agent - agrees to act under the control or direction of another - the principal. Indeed, the
very word "agency" has come to connote control by the principal. [22] The control factor, more than any other, has
caused the courts to put contracts between principal and agent in a separate category.[23] The Court of Appeals, in
finding that CSC, was not an agent of STM, opined:
"This Court has ruled that where the relation of agency is dependent upon the acts of the parties, the law
makes no presumption of agency, and it is always a fact to be proved, with the burden of proof resting
upon the persons alleging the agency, to show not only the fact of its existence, but also its nature and
extent (Antonio vs. Enriquez [CA], 51 O.G. 3536]. Here, defendant-appellant failed to sufficiently establish
the existence of an agency relation between plaintiff-appellee and STM. The fact alone that it (STM) had
authorized withdrawal of sugar by plaintiff-appellee "for and in our (STM's) behalf" should not be eyed as
pointing to the existence of an agency relation ...It should be viewed in the context of all the
circumstances obtaining. Although it would seem STM represented plaintiff-appellee as being its agent by
the use of the phrase "for and in our (STM's) behalf" the matter was cleared when on 23 January 1990,
plaintiff-appellee informed defendant-appellant that SLDFR No. 1214M had been "sold and endorsed" to it
by STM (Exhibit I, Records, p. 78). Further, plaintiff-appellee has shown that the 25, 000 bags of sugar
covered by the SLDR No. 1214M were sold and transferred by STM to it ...A conclusion that there was a
valid sale and transfer to plaintiff-appellee may, therefore, be made thus capacitating plaintiff-appellee to
sue in its own name, without need of joining its imputed principal STM as co-plaintiff." [24]

In the instant case, it appears plain to us that private respondent CSC was a buyer of the SLDFR form, and not an
agent of STM. Private respondent CSC was not subject to STM's control. The question of whether a contract is
one of sale or agency depends on the intention of the parties as gathered from the whole scope and effect of the
language employed.[25] That the authorization given to CSC contained the phrase "for and in our (STM's) behalf"
did not establish an agency. Ultimately, what is decisive is the intention of the parties. [26] That no agency was
meant to be established by the CSC and STM is clearly shown by CSC's communication to petitioner that SLDR
No. 1214M had been "sold and endorsed" to it.[27] The use of the words "sold and endorsed" means that STM and
CSC intended a contract of sale, and not an agency. Hence, on this score, no error was committed by the
respondent appellate court when it held that CSC was not STM's agent and could independently sue petitioner.
On the second issue, proceeding from the theory that the transactions entered into between petitioner and STM
are but serial parts of one account, petitioner insists that its debt has been offset by its claim for STM's unpaid
purchases, pursuant to Article 1279 of the Civil Code. [28] However, the trial court found, and the Court of Appeals
concurred, that the purchase of sugar covered by SLDR No. 1214M was a separate and independent transaction;
it was not a serial part of a single transaction or of one account contrary to petitioner's insistence. Evidence on
record shows, without being rebutted, that petitioner had been paid for the sugar purchased under SLDR No.
1214M. Petitioner clearly had the obligation to deliver said commodity to STM or its assignee. Since said sugar
had been fully paid for, petitioner and CSC, as assignee of STM, were not mutually creditors and debtors of each
other. No reversible error could thereby be imputed to respondent appellate court when, it refused to apply Article
1279 of the Civil Code to the present case.
Regarding the third issue, petitioner contends that the sale of sugar under SLDR No. 1214M is a conditional sale
or a contract to sell, with title to the sugar still remaining with the vendor. Noteworthy, SLDR No. 1214M contains
the following terms and conditions:
"It is understood and agreed that by payment by buyer/trader of refined sugar and/or receipt of this
document by the buyer/trader personally or through a representative, title to refined sugar is transferred
to buyer/trader and delivery to him/it is deemed effected and completed (stress supplied) and buyer/trader
assumes full responsibility therefore"[29]
The aforequoted terms and conditions clearly show that petitioner transferred title to the sugar to the buyer or his
assignee upon payment of the purchase price. Said terms clearly establish a contract of sale, not a contract to
sell. Petitioner is now estopped from alleging the contrary. The contract is the law between the contracting parties.
[30]
And where the terms and conditions so stipulated are not contrary to law, morals, good customs, public policy
or public order, the contract is valid and must be upheld.[31] Having transferred title to the sugar in question,
petitioner is now obliged to deliver it to the purchaser or its assignee.
As to the fourth issue, petitioner submits that STM and private respondent CSC have entered into a conspiracy to
defraud it of its sugar. This conspiracy is allegedly evidenced by: (a) the fact that STM's selling price to CSC was
below its purchasing price; (b) CSC's refusal to pursue its case against Teresita Ng Go; and (c) the authority given
by the latter to other persons to withdraw sugar against SLDR No. 1214M after she had sold her rights under said
SLDR to CSC. Petitioner prays that the doctrine of "clean hands" should be applied to preclude CSC from seeking
judicial relief. However, despite careful scrutiny, we find here the records bare of convincing evidence whatsoever
to support the petitioner's allegations of fraud. We are now constrained to deem this matter purely speculative,
bereft of concrete proof.
WHEREFORE, the instant petition is DENIED for lack of merit. Costs against petitioner.
SO ORDERED.

Republic of the Philippines


SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 115838

July 18, 2002

CONSTANTE AMOR DE CASTRO and CORAZON AMOR DE CASTRO, petitioners,


vs.
COURT OF APPEALS and FRANCISCO ARTIGO, respondents.
CARPIO, J.:
The Case
Before us is a Petition for Review on Certiorari1 seeking to annul the Decision of the Court of Appeals2 dated May 4, 1994
in CA-G.R. CV No. 37996, which affirmed in toto the decision3 of the Regional Trial Court of Quezon City, Branch 80, in
Civil Case No. Q-89-2631. The trial court disposed as follows:
"WHEREFORE, the Court finds defendants Constante and Corazon Amor de Castro jointly and solidarily liable to
plaintiff the sum of:
a) P303,606.24 representing unpaid commission;
b) P25,000.00 for and by way of moral damages;
c) P45,000.00 for and by way of attorney's fees;
d) To pay the cost of this suit.
Quezon City, Metro Manila, December 20, 1991."
The Antecedent Facts
On May 29, 1989, private respondent Francisco Artigo ("Artigo" for brevity) sued petitioners Constante A. De Castro
("Constante" for brevity) and Corazon A. De Castro ("Corazon" for brevity) to collect the unpaid balance of his broker's
commission from the De Castros.4 The Court of Appeals summarized the facts in this wise:
"x x x. Appellants5 were co-owners of four (4) lots located at EDSA corner New York and Denver Streets in Cubao,
Quezon City. In a letter dated January 24, 1984 (Exhibit "A-1, p. 144, Records), appellee 6 was authorized by
appellants to act as real estate broker in the sale of these properties for the amount ofP23,000,000.00, five
percent (5%) of which will be given to the agent as commission. It was appellee who first found Times Transit
Corporation, represented by its president Mr. Rondaris, as prospective buyer which desired to buy two (2) lots
only, specifically lots 14 and 15. Eventually, sometime in May of 1985, the sale of lots 14 and 15 was
consummated. Appellee received from appellants P48,893.76 as commission.
It was then that the rift between the contending parties soon emerged. Appellee apparently felt short changed
because according to him, his total commission should be P352,500.00 which is five percent (5%) of the agreed
price of P7,050,000.00 paid by Times Transit Corporation to appellants for the two (2) lots, and that it was he who
introduced the buyer to appellants and unceasingly facilitated the negotiation which ultimately led to the
consummation of the sale. Hence, he sued below to collect the balance of P303,606.24 after having
received P48,893.76 in advance.1wphi1.nt
On the other hand, appellants completely traverse appellee's claims and essentially argue that appellee is
selfishly asking for more than what he truly deserved as commission to the prejudice of other agents who were
more instrumental in the consummation of the sale. Although appellants readily concede that it was appellee who
first introduced Times Transit Corp. to them, appellee was not designated by them as their exclusive real estate
agent but that in fact there were more or less eighteen (18) others whose collective efforts in the long run dwarfed
those of appellee's, considering that the first negotiation for the sale where appellee took active participation failed
and it was these other agents who successfully brokered in the second negotiation. But despite this and out of
appellants' "pure liberality, beneficence and magnanimity", appellee nevertheless was given the largest cut in the
commission (P48,893.76), although on the principle of quantum meruit he would have certainly been entitled to
less. So appellee should not have been heard to complain of getting only a pittance when he actually got the lion's
share of the commission and worse, he should not have been allowed to get the entire commission. Furthermore,
the purchase price for the two lots was only P3.6 million as appearing in the deed of sale and not P7.05 million as
alleged by appellee. Thus, even assuming that appellee is entitled to the entire commission, he would only be
getting 5% of the P3.6 million, or P180,000.00."
Ruling of the Court of Appeals
The Court of Appeals affirmed in toto the decision of the trial court.
First. The Court of Appeals found that Constante authorized Artigo to act as agent in the sale of two lots in Cubao,
Quezon City. The handwritten authorization letter signed by Constante clearly established a contract of agency between
Constante and Artigo. Thus, Artigo sought prospective buyers and found Times Transit Corporation ("Times Transit" for
brevity). Artigo facilitated the negotiations which eventually led to the sale of the two lots. Therefore, the Court of Appeals
decided that Artigo is entitled to the 5% commission on the purchase price as provided in the contract of agency.

Second. The Court of Appeals ruled that Artigo's complaint is not dismissible for failure to implead as indispensable
parties the other co-owners of the two lots. The Court of Appeals explained that it is not necessary to implead the other
co-owners since the action is exclusively based on a contract of agency between Artigo and Constante.
Third. The Court of Appeals likewise declared that the trial court did not err in admitting parol evidence to prove the true
amount paid by Times Transit to the De Castros for the two lots. The Court of Appeals ruled that evidencealiunde could be
presented to prove that the actual purchase price was P7.05 million and not P3.6 million as appearing in the deed of sale.
Evidence aliunde is admissible considering that Artigo is not a party, but a mere witness in the deed of sale between the
De Castros and Times Transit. The Court of Appeals explained that, "the rule that oral evidence is inadmissible to vary the
terms of written instruments is generally applied only in suits between parties to the instrument and strangers to the
contract are not bound by it." Besides, Artigo was not suing under the deed of sale, but solely under the contract of
agency. Thus, the Court of Appeals upheld the trial court's finding that the purchase price was P7.05 million and not P3.6
million.
Hence, the instant petition.
The Issues
According to petitioners, the Court of Appeals erred in I. NOT ORDERING THE DISMISSAL OF THE COMPLAINT FOR FAILURE TO IMPLEAD INDISPENSABLE
PARTIES-IN-INTEREST;
II. NOT ORDERING THE DISMISSAL OF THE COMPLAINT ON THE GROUND THAT ARTIGO'S CLAIM HAS
BEEN EXTINGUISHED BY FULL PAYMENT, WAIVER, OR ABANDONMENT;
III. CONSIDERING INCOMPETENT EVIDENCE;
IV. GIVING CREDENCE TO PATENTLY PERJURED TESTIMONY;
V. SANCTIONING AN AWARD OF MORAL DAMAGES AND ATTORNEY'S FEES;
VI. NOT AWARDING THE DE CASTRO'S MORAL AND EXEMPLARY DAMAGES, AND ATTORNEY'S FEES.
The Court's Ruling
The petition is bereft of merit.
First Issue: whether the complaint merits dismissal for failure to implead other co-owners as indispensable
parties
The De Castros argue that Artigo's complaint should have been dismissed for failure to implead all the co-owners of the
two lots. The De Castros claim that Artigo always knew that the two lots were co-owned by Constante and Corazon with
their other siblings Jose and Carmela whom Constante merely represented. The De Castros contend that failure to
implead such indispensable parties is fatal to the complaint since Artigo, as agent of all the four co-owners, would be paid
with funds co-owned by the four co-owners.
The De Castros' contentions are devoid of legal basis.
An indispensable party is one whose interest will be affected by the court's action in the litigation, and without whom no
final determination of the case can be had.7 The joinder of indispensable parties is mandatory and courts cannot proceed
without their presence.8 Whenever it appears to the court in the course of a proceeding that an indispensable party has
not been joined, it is the duty of the court to stop the trial and order the inclusion of such party. 9
However, the rule on mandatory joinder of indispensable parties is not applicable to the instant case.
There is no dispute that Constante appointed Artigo in a handwritten note dated January 24, 1984 to sell the properties of
the De Castros for P23 million at a 5 percent commission. The authority was on a first come, first serve basis. The
authority reads in full:
"24 Jan. 84
To Whom It May Concern:
This is to state that Mr. Francisco Artigo is authorized as our real estate broker in connection with the sale of our
property located at Edsa Corner New York & Denver, Cubao, Quezon City.
Asking price P 23,000,000.00 with 5% commission as agent's fee.

C.C. de Castro
owner & representing
co-owners
This authority is on a first-come
First serve basis CAC"
Constante signed the note as owner and as representative of the other co-owners. Under this note, a contract of agency
was clearly constituted between Constante and Artigo. Whether Constante appointed Artigo as agent, in Constante's
individual or representative capacity, or both, the De Castros cannot seek the dismissal of the case for failure to implead
the other co-owners as indispensable parties. The De Castros admit that the other co-owners are solidarily liable
under the contract of agency,10 citing Article 1915 of the Civil Code, which reads:
Art. 1915. If two or more persons have appointed an agent for a common transaction or undertaking, they shall be
solidarily liable to the agent for all the consequences of the agency.
The solidary liability of the four co-owners, however, militates against the De Castros' theory that the other co-owners
should be impleaded as indispensable parties. A noted commentator explained Article 1915 thus
"The rule in this article applies even when the appointments were made by the principals in separate acts,
provided that they are for the same transaction. The solidarity arises from the common interest of the
principals, and not from the act of constituting the agency. By virtue of this solidarity, the agent can
recover from any principal the whole compensation and indemnity owing to him by the others. The parties,
however, may, by express agreement, negate this solidary responsibility. The solidarity does not disappear by the
mere partition effected by the principals after the accomplishment of the agency.
If the undertaking is one in which several are interested, but only some create the agency, only the latter are
solidarily liable, without prejudice to the effects of negotiorum gestio with respect to the others. And if the power
granted includes various transactions some of which are common and others are not, only those interested in
each transaction shall be liable for it."11
When the law expressly provides for solidarity of the obligation, as in the liability of co-principals in a contract of agency,
each obligor may be compelled to pay the entire obligation. 12 The agent may recover the whole compensation from any
one of the co-principals, as in this case.
Indeed, Article 1216 of the Civil Code provides that a creditor may sue any of the solidary debtors. This article reads:
Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them
simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently
be directed against the others, so long as the debt has not been fully collected.
Thus, the Court has ruled in Operators Incorporated vs. American Biscuit Co., Inc.13 that
"x x x solidarity does not make a solidary obligor an indispensable party in a suit filed by the creditor.
Article 1216 of the Civil Code says that the creditor `may proceed against anyone of the solidary debtors or some
or all of them simultaneously'." (Emphasis supplied)
Second Issue: whether Artigo's claim has been extinguished by full payment, waiver or abandonment
The De Castros claim that Artigo was fully paid on June 14, 1985, that is, Artigo was given "his proportionate share and no
longer entitled to any balance." According to them, Artigo was just one of the agents involved in the sale and entitled to a
"proportionate share" in the commission. They assert that Artigo did absolutely nothing during the second negotiation but
to sign as a witness in the deed of sale. He did not even prepare the documents for the transaction as an active real
estate broker usually does.
The De Castros' arguments are flimsy.
A contract of agency which is not contrary to law, public order, public policy, morals or good custom is a valid contract, and
constitutes the law between the parties.14 The contract of agency entered into by Constante with Artigo is the law between
them and both are bound to comply with its terms and conditions in good faith.
The mere fact that "other agents" intervened in the consummation of the sale and were paid their respective commissions
cannot vary the terms of the contract of agency granting Artigo a 5 percent commission based on the selling price. These
"other agents" turned out to be employees of Times Transit, the buyer Artigo introduced to the De Castros. This prompted
the trial court to observe:
"The alleged `second group' of agents came into the picture only during the so-called `second negotiation' and it
is amusing to note that these (sic) second group, prominent among whom are Atty. Del Castillo and Ms.
Prudencio, happened to be employees of Times Transit, the buyer of the properties. And their efforts were limited

to convincing Constante to 'part away' with the properties because the redemption period of the foreclosed
properties is around the corner, so to speak. (tsn. June 6, 1991).
xxx
To accept Constante's version of the story is to open the floodgates of fraud and deceit. A seller could always
pretend rejection of the offer and wait for sometime for others to renew it who are much willing to accept a
commission far less than the original broker. The immorality in the instant case easily presents itself if one
has to consider that the alleged `second group' are the employees of the buyer, Times Transit and they
have not bettered the offer secured by Mr. Artigo for P7 million.
It is to be noted also that while Constante was too particular about the unrenewed real estate broker's license of
Mr. Artigo, he did not bother at all to inquire as to the licenses of Prudencio and Castillo. (tsn, April 11, 1991, pp.
39-40)."15 (Emphasis supplied)
In any event, we find that the 5 percent real estate broker's commission is reasonable and within the standard practice in
the real estate industry for transactions of this nature.
The De Castros also contend that Artigo's inaction as well as failure to protest estops him from recovering more than what
was actually paid him. The De Castros cite Article 1235 of the Civil Code which reads:
Art. 1235. When the obligee accepts the performance, knowing its incompleteness and irregularity, and without
expressing any protest or objection, the obligation is deemed fully complied with.
The De Castros' reliance on Article 1235 of the Civil Code is misplaced. Artigo's acceptance of partial payment of his
commission neither amounts to a waiver of the balance nor puts him in estoppel. This is the import of Article 1235 which
was explained in this wise:
"The word accept, as used in Article 1235 of the Civil Code, means to take as satisfactory or sufficient, or agree
to an incomplete or irregular performance. Hence, the mere receipt of a partial payment is not equivalent to
the required acceptance of performance as would extinguish the whole obligation." 16(Emphasis supplied)
There is thus a clear distinction between acceptance and mere receipt. In this case, it is evident that Artigo merely
received the partial payment without waiving the balance. Thus, there is no estoppel to speak of.
The De Castros further argue that laches should apply because Artigo did not file his complaint in court until May 29,
1989, or almost four years later. Hence, Artigo's claim for the balance of his commission is barred by laches.
Laches means the failure or neglect, for an unreasonable and unexplained length of time, to do that which by exercising
due diligence could or should have been done earlier. It is negligence or omission to assert a right within a reasonable
time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to assert it. 17
Artigo disputes the claim that he neglected to assert his rights. He was appointed as agent on January 24, 1984. The two
lots were finally sold in June 1985. As found by the trial court, Artigo demanded in April and July of 1985 the payment of
his commission by Constante on the basis of the selling price of P7.05 million but there was no response from
Constante.18 After it became clear that his demands for payment have fallen on deaf ears, Artigo decided to sue on May
29, 1989.
Actions upon a written contract, such as a contract of agency, must be brought within ten years from the time the right of
action accrues.19 The right of action accrues from the moment the breach of right or duty occurs. From this moment, the
creditor can institute the action even as the ten-year prescriptive period begins to run. 20
The De Castros admit that Artigo's claim was filed within the ten-year prescriptive period. The De Castros, however, still
maintain that Artigo's cause of action is barred by laches. Laches does not apply because only four years had lapsed from
the time of the sale in June 1985. Artigo made a demand in July 1985 and filed the action in court on May 29, 1989, well
within the ten-year prescriptive period. This does not constitute an unreasonable delay in asserting one's right. The Court
has ruled, "a delay within the prescriptive period is sanctioned by law and is not considered to be a delay that
would bar relief."21 In explaining that laches applies only in the absence of a statutory prescriptive period, the Court has
stated "Laches is recourse in equity. Equity, however, is applied only in the absence, never in contravention, of
statutory law. Thus, laches, cannot, as a rule, be used to abate a collection suit filed within the
prescriptive period mandated by the Civil Code."22
Clearly, the De Castros' defense of laches finds no support in law, equity or jurisprudence.
Third issue: whether the determination of the purchase price was made in violation of the Rules on Evidence
The De Castros want the Court to re-examine the probative value of the evidence adduced in the trial court to determine
whether the actual selling price of the two lots was P7.05 million and not P3.6 million. The De Castros contend that it is
erroneous to base the 5 percent commission on a purchase price of P7.05 million as ordered by the trial court and the

appellate court. The De Castros insist that the purchase price is P3.6 million as expressly stated in the deed of sale, the
due execution and authenticity of which was admitted during the trial.
The De Castros believe that the trial and appellate courts committed a mistake in considering incompetent evidence and
disregarding the best evidence and parole evidence rules. They claim that the Court of Appeals erroneously affirmed sub
silentio the trial court's reliance on the various correspondences between Constante and Times Transit which were mere
photocopies that do not satisfy the best evidence rule. Further, these letters covered only the first negotiations between
Constante and Times Transit which failed; hence, these are immaterial in determining the final purchase price.
The De Castros further argue that if there was an undervaluation, Artigo who signed as witness benefited therefrom, and
being equally guilty, should be left where he presently stands. They likewise claim that the Court of Appeals erred in
relying on evidence which were not offered for the purpose considered by the trial court. Specifically, Exhibits "B", "C", "D"
and "E" were not offered to prove that the purchase price was P7.05 Million. Finally, they argue that the courts a quo erred
in giving credence to the perjured testimony of Artigo. They want the entire testimony of Artigo rejected as a falsehood
because he was lying when he claimed at the outset that he was a licensed real estate broker when he was not.
Whether the actual purchase price was P7.05 Million as found by the trial court and affirmed by the Court of Appeals,
or P3.6 Million as claimed by the De Castros, is a question of fact and not of law. Inevitably, this calls for an inquiry into the
facts and evidence on record. This we can not do.
It is not the function of this Court to re-examine the evidence submitted by the parties, or analyze or weigh the evidence
again.23 This Court is not the proper venue to consider a factual issue as it is not a trier of facts. In petitions for review on
certiorari as a mode of appeal under Rule 45, a petitioner can only raise questions of law. Our pronouncement in the case
of Cormero vs. Court of Appeals24 bears reiteration:
"At the outset, it is evident from the errors assigned that the petition is anchored on a plea to review the factual
conclusion reached by the respondent court. Such task however is foreclosed by the rule that in petitions for
certiorari as a mode of appeal, like this one, only questions of law distinctly set forth may be raised. These
questions have been defined as those that do not call for any examination of the probative value of the evidence
presented by the parties. (Uniland Resources vs. Development Bank of the Philippines, 200 SCRA 751 [1991]
citing Goduco vs. Court of appeals, et al., 119 Phil. 531; Hernandez vs. Court of Appeals, 149 SCRA 67). And
when this court is asked to go over the proof presented by the parties, and analyze, assess and weigh them to
ascertain if the trial court and the appellate court were correct in according superior credit to this or that piece of
evidence and eventually, to the totality of the evidence of one party or the other, the court cannot and will not do
the same. (Elayda vs. Court of Appeals, 199 SCRA 349 [1991]). Thus, in the absence of any showing that the
findings complained of are totally devoid of support in the record, or that they are so glaringly erroneous as to
constitute serious abuse of discretion, such findings must stand, for this court is not expected or required to
examine or contrast the oral and documentary evidence submitted by the parties. (Morales vs. Court of Appeals,
197 SCRA 391 [1991] citing Santa Ana vs. Hernandez, 18 SCRA 973 [1966])."
We find no reason to depart from this principle. The trial and appellate courts are in a much better position to evaluate
properly the evidence. Hence, we find no other recourse but to affirm their finding on the actual purchase
price.1wphi1.nt
Fourth Issue: whether award of moral damages and attorney's fees is proper
The De Castros claim that Artigo failed to prove that he is entitled to moral damages and attorney's fees. The De Castros,
however, cite no concrete reason except to say that they are the ones entitled to damages since the case was filed to
harass and extort money from them.
Law and jurisprudence support the award of moral damages and attorney's fees in favor of Artigo. The award of damages
and attorney's fees is left to the sound discretion of the court, and if such discretion is well exercised, as in this case, it will
not be disturbed on appeal.25 Moral damages may be awarded when in a breach of contract the defendant acted in bad
faith, or in wanton disregard of his contractual obligation.26 On the other hand, attorney's fees are awarded in instances
where "the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and
demandable claim."27 There is no reason to disturb the trial court's finding that "the defendants' lack of good faith and
unkind treatment of the plaintiff in refusing to give his due commission deserve censure." This warrants the award
of P25,000.00 in moral damages and P 45,000.00 in attorney's fees. The amounts are, in our view, fair and reasonable.
Having found a buyer for the two lots, Artigo had already performed his part of the bargain under the contract of agency.
The De Castros should have exercised fairness and good judgment in dealing with Artigo by fulfilling their own part of the
bargain - paying Artigo his 5 percent broker's commission based on the actual purchase price of the two lots.
WHEREFORE, the petition is denied for lack of merit. The Decision of the Court of Appeals dated May 4, 1994 in CA-G.R.
CV No. 37996 is AFFIRMED in toto.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 94753. April 7, 1993.


MANOTOK BROTHERS, INC., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, THE HONORABLE JUDGE OF THE REGIONAL TRIAL COURT OF MANILA
(Branch VI), and SALVADOR SALIGUMBA, respondents.
Antonio C. Ravelo for petitioner.
Remigio M. Trinidad for private respondent.
SYLLABUS
1. CIVIL LAW; AGENCY; AGENT'S COMMISSION; WHEN ENTITLED' RULE; APPLICATION IN CASE AT BAR. In an
earlier case, this Court ruled that when there is a close, proximate and causal connection between the agent's efforts and
labor and the principal's sale of his property, the agent is entitled to a commission. We agree with respondent Court that
the City of Manila ultimately became the purchaser of petitioner's property mainly through the efforts of private
respondent. Without discounting the fact that when Municipal Ordinance No. 6603 was signed by the City Mayor on May
17, 1968, private respondent's authority had already expired, it is to be noted that the ordinance was approved on April 26,
1968 when private respondent's authorization was still in force. Moreover, the approval by the City Mayor came only three
days after the expiration of private respondent's authority. It is also worth emphasizing that from the records, the only party
given a written authority by petitioner to negotiate the sale from July 5, 1966 to May 14, 1968 was private respondent.
DECISION
CAMPOS, JR., J p:
Petitioner Manotok Brothers., Inc., by way of the instant Petition docketed as G.R. No. 94753 sought relief from this
Court's Resolution dated May 3, 1989, which reads:
"G.R. No. 78898 (Manotok Brothers, Inc. vs. Salvador Saligumba and Court of Appeals). Considering the manifestation
of compliance by counsel for petitioner dated April 14, 1989 with the resolution of March 13, 1989 which required the
petitioner to locate private respondent and to inform this Court of the present address of said private respondent, the
Court Resolved to DISMISS this case, as the issues cannot be joined as private respondent's and counsel's addresses
cannot be furnished by the petitioner to this court." 1
In addition, petitioner prayed for the issuance of a preliminary injunction to prevent irreparable injury to itself pending
resolution by this Court of its cause. Petitioner likewise urged this Court to hold in contempt private respondent for
allegedly adopting sinister ploy to deprive petitioner of its constitutional right to due process.
Acting on said Petition, this Court in a Resolution 2 dated October 1, 1990 set aside the entry of judgment made on May
3, 1989 in case G.R. No. 78898; admitted the amended petition; and issued a temporary restraining order to restrain the
execution of the judgment appealed from.
The amended petition 3 admitted, by this Court sought relief from this Court's Resolution abovequoted. In the alternative,
petitioner begged leave of court to re-file its Petition for Certiorari 4 (G.R. No. 78898) grounded on the allegation that
petitioner was deprived of its opportunity to be heard.
The facts as found by the appellate court, revealed that petitioner herein (then defendant-appellant) is the owner of a
certain parcel of land and building which were formerly leased by the City of Manila and used by the Claro M. Recto High
School, at M.F. Jhocson Street, Sampaloc Manila.
By means of a letter 5 dated July 5, 1966, petitioner authorized herein private respondent Salvador Saligumba to
negotiate with the City of Manila the sale of the aforementioned property for not less than P425,000.00. In the same
writing, petitioner agreed to pay private respondent a five percent (5%) commission in the event the sale is finally
consummated and paid.
Petitioner, on March 4, 1967, executed another letter 6 extending the authority of private respondent for 120 days.
Thereafter, another extension was granted to him for 120 more days, as evidenced by another letter 7 dated June 26,
1967.
Finally, through another letter 8 dated November 16, 1967, the corporation with Rufino Manotok, its President, as
signatory, authorized private respondent to finalize and consummate the sale of the property to the City of Manila for not
less than P410,000.00. With this letter came another extension of 180 days.
The Municipal Board of the City of Manila eventually, on April 26, 1968, passed Ordinance No. 6603, appropriating the
sum of P410,816.00 for the purchase of the property which private respondent was authorized to sell. Said ordinance

however, was signed by the City Mayor only on May 17, 1968, one hundred eighty three (183) days after the last letter of
authorization.
On January 14, 1969, the parties signed the deed of sale of the subject property. The initial payment of P200,000.00
having been made, the purchase price was fully satisfied with a second payment on April 8, 1969 by a check in the
amount of P210,816.00.
Notwithstanding the realization of the sale, private respondent never received any commission, which should have
amounted to P20,554.50. This was due to the refusal of petitioner to pay private respondent said amount as the former
does not recognize the latter's role as agent in the transaction.
Consequently, on June 29, 1969, private respondent filed a complaint against petitioner, alleging that he had successfully
negotiated the sale of the property. He claimed that it was because of his efforts that the Municipal Board of Manila
passed Ordinance No. 6603 which appropriated the sum for the payment of the property subject of the sale.
Petitioner claimed otherwise. It denied the claim of private respondent on the following grounds: (1) private respondent
would be entitled to a commission only if the sale was consummated and the price paid within the period given in the
respective letters of authority; and (2) private respondent was not the person responsible for the negotiation and
consummation of the sale, instead it was Filomeno E. Huelgas, the PTA president for 1967-1968 of the Claro M. Recto
High School. As a counterclaim, petitioner (then defendant-appellant) demanded the sum of P4,000.00 as attorney's fees
and for moral damages.
Thereafter, trial ensued. Private respondent, then plaintiff, testified as to the efforts undertaken by him to ensure the
consummation of the sale. He recounted that it first began at a meeting with Rufino Manotok at the office of Fructuoso
Ancheta, principal of C.M. Recto High School. Atty. Dominador Bisbal, then president of the PTA, was also present. The
meeting was set precisely to ask private respondent to negotiate the sale of the school lot and building to the City of
Manila. Private respondent then went to Councilor Mariano Magsalin, the author of the Ordinance which appropriated the
money for the purchase of said property, to present the project. He also went to the Assessor's Office for appraisal of the
value of the property. While these transpired and his letters of authority expired, Rufino Manotok always renewed the
former's authorization until the last was given, which was to remain in force until May 14, 1968. After securing the report of
the appraisal committee, he went to the City Mayor's Office, which indorsed the matter to the Superintendent of City
Schools of Manila. The latter office approved the report and so private respondent went back to the City Mayor's Office,
which thereafter indorsed the same to the Municipal Board for appropriation. Subsequently, on April 26, 1968, Ordinance
No. 6603 was passed by the Municipal Board for the appropriation of the sum corresponding to the purchase price.
Petitioner received the full payment of the purchase price, but private respondent did not receive a single centavo as
commission.
Fructuoso Ancheta and Atty. Dominador Bisbal both testified acknowledging the authority of private respondent regarding
the transaction.
Petitioner presented as its witnesses Filomeno Huelgas and the petitioner's President, Rufino Manotok.
Huelgas testified to the effect that after being inducted as PTA president in August, 1967 he followed up the sale from the
start with Councilor Magsalin until after it was approved by the Mayor on May 17, 1968. He. also said that he came to
know Rufino Manotok only in August, 1968, at which meeting the latter told him that he would be given a "gratification" in
the amount of P20,000.00 if the sale was expedited.
Rufino Manotok confirmed that he knew Huelgas and that there was an agreement between the two of them regarding the
"gratification".
On rebuttal, Atty. Bisbal said that Huelgas was present in the PTA meetings from 1965 to 1967 but he never offered to
help in the acquisition of said property. Moreover, he testified that Huelgas was aware of the fact that it was private
respondent who was negotiating the sale of the subject property.
Thereafter, the then Court of First Instance (now, Regional Trial Court) rendered judgment sentencing petitioner and/or
Rufino Manotok to pay unto private respondent the sum of P20,540.00 by way of his commission fees with legal interest
thereon from the date of the filing of the complaint until payment. The lower court also ordered petitioner to pay private
respondent the amount of P4,000.00 as and for attorney's fees. 9
Petitioner appealed said decision, but to no avail. Respondent Court of Appeals affirmed the said ruling of the trial court.
10
Its Motion for Reconsideration having been denied by respondent appellate court in a Resolution dated June 22, 1987,
petitioner seasonably elevated its case on Petition for Review on Certiorari on August 10, 1987 before this Court,
docketed as G.R. No. 78898.
Acting on said Petition, this Court issued a Minute Resolution 11 dated August 31, 1987 ordering private respondent to
comment on said Petition.
It appearing that the abovementioned Resolution was returned unserved with the postmaster's notation "unclaimed", this
Court in another Resolution 12 dated March 13, 1989, required petitioner to locate private respondent and to inform this

Court of the present address of private respondent within ten (10) days from notice. As petitioner was unsuccessful in its
efforts to locate private respondent, it opted to manifest that private respondent's last address was the same as that
address to which this. Court's Resolution was forwarded.
Subsequently, this Court issued a Resolution dated May 3, 1989 dismissing petitioner's case on the ground that the issues
raised in the case at bar cannot be joined. Thus, the above-entitled case became final and executory by the entry of
judgment on May 3, 1989.
Thereafter, on January 9, 1990 private respondent filed a Motion to Execute the said judgment before the court of origin.
Upon discovery of said development, petitioner verified with the court of origin the circumstances by which private
respondent obtained knowledge of the resolution of this Court. Sensing a fraudulent scheme employed by private
respondent, petitioner then instituted this instant Petition for Relief, on August 30, 1990. On September 13, 1990, said
petition was amended to include, in the alternative, its petition to re-file its Petition for Certiorari (G.R. No. 78898).
The sole issue to be addressed in this petition is whether or not private respondent is entitled to the five percent (5%)
agent's commission.
It is petitioner's contention that as a broker, private respondent's job is to bring together the parties to a transaction.
Accordingly, if the broker does not succeed in bringing the minds of the purchaser and the vendor to an agreement with
respect to the sale, he is not entitled to a commission.
Private respondent, on the other hand, opposes petitioner's position maintaining that it was because of his efforts that a
purchase actually materialized between the parties.
We rule in favor of private respondent.
At first sight, it would seem that private respondent is not entitled to any commission as he was not successful in
consummating the sale between the parties, for the sole reason that when the Deed of Sale was finally executed, his
extended authority had already expired. By this alone, one might be misled to believe that this case squarely falls within
the ambit of the established principle that a broker or agent is not entitled to any commission until he has successfully
done the job given to him. 13
Going deeper however into the case would reveal that it is within the coverage of the exception rather than of the general
rule, the exception being that enunciated in the case of Prats vs. Court of Appeals. 14 In the said case, this Court ruled in
favor of claimant-agent, despite the expiration of his authority, when a sale was finally consummated.
In its decision in the abovecited case, this Court said, that while it was respondent court's (referring to the Court of
Appeals) factual findings that petitioner Prats (claimant-agent) was not the efficient procuring cause in bringing about the
sale (prescinding from the fact of expiration of his exclusive authority), still petitioner was awarded compensation for his
services. And We quote:
"In equity, however, the Court notes that petitioner had diligently taken steps to bring back together respondent Doronila
and the SSS,.
xxx xxx xxx
The court has noted on the other hand that Doronila finally sold the property to the Social Security System at P3.25 per
square meter which was the very same price counter-offered by the Social Security System and accepted by him in July,
1967 when he alone was dealing exclusively with the said buyer long before Prats came into the picture but that on the
other hand Prats' efforts somehow were instrumental in bringing them together again and finally consummating the
transaction at the same price of P3.25 per square meter, although such finalization was after the expiration of Prats'
extended exclusive authority.
xxx xxx xxx
Under the circumstances, the Court grants in equity the sum of One hundred Thousand Pesos (P100,000.00) by way of
compensation for his efforts and assistance in the transaction, which however was finalized and consummated after the
expiration of his exclusive authority . . ." 15 (Emphasis supplied.).
From the foregoing, it follows then that private respondent herein, with more reason, should be paid his commission,
While in Prats vs. Court of Appeals, the agent was not even the efficient procuring cause in bringing about the sale, unlike
in the case at bar, it was still held therein that the agent was entitled to compensation. In the case at bar, private
respondent is the efficient procuring cause for without his efforts, the municipality would not have anything to pass and the
Mayor would not have anything to approve.
In an earlier case, 16 this Court ruled that when there is a close, proximate and causal connection between the agent's
efforts and labor and the principal's sale of his property, the agent is entitled to a commission.
We agree with respondent Court that the City of Manila ultimately became the purchaser of petitioner's property mainly
through the efforts of private respondent. Without discounting the fact that when Municipal Ordinance No. 6603 was
signed by the City Mayor on May 17, 1968, private respondent's authority had already expired, it is to be noted that the

ordinance was approved on April 26, 1968 when private respondent's authorization was still in force. Moreover, the
approval by the City Mayor came only three days after the expiration of private respondent's authority. It is also worth
emphasizing that from the records, the only party given a written authority by petitioner to negotiate the sale from July 5,
1966 to May 14, 1968 was private respondent.
Contrary to what petitioner advances, the case of Danon vs. Brimo, 17 on which it heavily anchors its justification for the
denial of private respondent's claim, does not apply squarely to the instant petition. Claimant-agent in said case fully
comprehended the possibility that he may not realize the agent's commission as he was informed that another agent was
also negotiating the sale and thus, compensation will pertain to the one who finds a purchaser and eventually effects the
sale. Such is not the case herein. On the contrary, private respondent pursued with his goal of seeing that the parties
reach an agreement, on the belief that he alone was transacting the business with the City Government as this was what
petitioner made it to appear.
While it may be true that Filomeno Huelgas followed up the matter with Councilor Magsalin, the author of Municipal
Ordinance No. 6603 and Mayor Villegas, his intervention regarding the purchase came only after the ordinance had
already been passed when the buyer has already agreed to the purchase and to the price for which said property is to
be paid. Without the efforts of private respondent then, Mayor Villegas would have nothing to approve in the first place. It
was actually private respondent's labor that had set in motion the intervention of the third party that produced the sale,
hence he should be amply compensated.
WHEREFORE, in the light of the foregoing and finding no reversible error committed by respondent Court, the decision of
the Court of Appeals is hereby AFFIRMED. The temporary restraining order issued by this Court in its Resolution dated
October 1, 1990 is hereby lifted.
SO ORDERED.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. L-18058

January 16, 1923

FABIOLA SEVERINO, plaintiff-appellee,


vs.
GUILLERMO SEVERINO, defendant-appellant.
FELICITAS VILLANUEVA, intervenor-appellee.
Serafin P. Hilado and A. P. Seva for appellant.
Jose Ma. Arroyo, Jose Lopez Vito, and Fisher and DeWitt for appellees.
OSTRAND, J.:
This is an action brought by the plaintiff as the alleged natural daughter and sole heir of one Melecio Severino, deceased,
to compel the defendant Guillermo Severino to convey to her four parcels of land described in the complaint, or in default
thereof to pay her the sum of P800,000 in damages for wrongfully causing said land to be registered in his own name.
Felicitas Villanueva, in her capacity as administratrix of the estate of Melecio Severino, has filed a complaint in
intervention claiming in the same relief as the original plaintiff, except in so far as she prays that the conveyance be made,
or damages paid, to the estate instead of to the plaintiff Fabiola Severino. The defendant answered both complaints with a
general denial.
The lower court rendered a judgment recognizing the plaintiff Fabiola Severino as the acknowledged natural child of the
said Melecio Severino and ordering the defendant to convey 428 hectares of the land in question to the intervenor as
administratrix of the estate of the said Melecio Severino, to deliver to her the proceeds in his possession of a certain
mortgage placed thereon by him and to pay the costs. From this judgment only the defendant appeals.
The land described in the complaint forms one continuous tract and consists of lots Nos. 827, 828, 834, and 874 of the
cadaster of Silay, Province of Occidental Negros, which measure, respectively, 61 hectares, 74 ares, and 79 centiares; 76
hectares, 34 ares, and 79 centiares; 52 hectares, 86 ares, and 60 centiares and 608 hectares, 77 ares and 28 centiares,
or a total of 799 hectares, 75 ares, and 46 centiares.
The evidence shows that Melecio Severino died on the 25th day of May, 1915; that some 428 hectares of the land were
recorded in the Mortgage Law Register in his name in the year 1901 by virtue of possessory information proceedings
instituted on the 9th day of May of that year by his brother Agapito Severino in his behalf; that during the lifetime of
Melecio Severino the land was worked by the defendant, Guillermo Severino, his brother, as administrator for and on
behalf of the said Melecio Severino; that after Melecio's death, the defendant Guillermo Severino continued to occupy the
land; that in 1916 a parcel survey was made of the lands in the municipality of Silay, including the land here in question,
and cadastral proceedings were instituted for the registration of the lands titles within the surveyed area; that in the
cadastral proceedings the land here in question was described as four separate lots numbered as above stated; that
Roque Hofilea, as lawyer for Guillermo Severino, filed answers in behalf of the latter in said proceedings claiming the lots
mentioned as the property of his client; that no opposition was presented in the proceedings to the claims of Guillermo
Severino and the court therefore decreed the title in his favor, in pursuance of which decree certificates of title were issued
to him in the month of March, 1917.
It may be further observed that at the time of the cadastral proceedings the plaintiff Fabiola Severino was a minor; that
Guillermo Severino did not appear personally in the proceedings and did not there testify; that the only testimony in
support of his claims was that of his attorney Hofilea, who swore that he knew the land and that he also knew that
Guillermo Severino inherited the land from his father and that he, by himself, and through his predecessors in interest,
had possessed the land for thirty years.
The appellant presents the following nine assignments of error:
1. The trial court erred in admitting the evidence that was offered by plaintiff in order to establish the fact that said
plaintiff was the legally acknowledged natural child of the deceased Melecio Severino.
2. The trial court erred in finding that, under the evidence presented, plaintiff was the legally acknowledged natural
child of Melecio Severino.
3. The trial court erred in rejecting the evidence offered by defendant to establish the absence of fraud on his part
in securing title to the lands in Nacayao.
4. The trial court erred in concluding that the evidence adduced by plaintiff and intervenor established that
defendant was guilty of fraud in procuring title to the lands in question in his name.
5. The trial court erred in declaring that the land that was formerly placed in the name of Melecio Severino had an
extent of either 434 or 428 hectares at the time of his death.
6. The trial court erred in declaring that the value of the land in litigation is P500 per hectare.
7. The trial court erred in granting the petition of the plaintiff for an attachment without first giving the defendant an
opportunity to be heard.
8. The trial court erred in ordering the conveyance of 428 hectares of land by defendant to the administratrix.

9. The trial court erred in failing or refusing to make any finding as to the defendant's contention that the petition
for attachment was utterly devoid of any reasonable ground.
In regard to the first two assignments of error, we agree with the appellant that the trial court erred in making a declaration
in the present case as to the recognition of Fabiola Severino as the natural child of Melecio Severino. We have held in the
case of Briz vs. Briz and Remigio (43 Phil., 763), that "The legitimate heirs or kin of a deceased person who would be
prejudiced by a declaration that another person is entitled to recognition as the natural child of such decedent, are
necessary and indispensable parties to any action in which a judgment declaring the right to recognition is sought." In the
present action only the widow, the alleged natural child, and one of the brothers of the deceased are parties; the other
potential heirs have not been included. But, inasmuch as the judgment appealed from is in favor of the intervenor and not
of the plaintiff, except to the extent of holding that the latter is a recognized natural child of the deceased, this question is,
from the view we take of the case, of no importance in its final disposition. We may say, however, in this connection, that
the point urged in appellant's brief that it does not appear affirmatively from the evidence that, at the time of the
conception of Fabiola, her mother was a single woman, may be sufficiently disposed of by a reference to article 130 of the
Civil Code and subsection 1 of section 334 of the Code of Civil Procedure which create the presumption that a child born
out of wedlock is natural rather than illegitimate. The question of the status of the plaintiff Fabiola Severino and her right to
share in the inheritance may, upon notice to all the interested parties, be determined in the probate proceedings for the
settlement of the estate of the deceased.
The fifth assignment of error relates to the finding of the trial court that the land belonging to Melecio Severino had an
area of 428 hectares. The appellant contends that the court should have found that there were only 324 hectares
inasmuch as one hundred hectares of the original area were given to Melecio's brother Donato during the lifetime of the
father Ramon Severino. As it appears that Ramon Severino died in 1896 and that the possessory information
proceedings, upon which the finding of the trial court as to the area of the land is principally based, were not instituted until
the year 1901, we are not disposed to disturb the conclusions of the trial court on this point. Moreover, in the year 1913,
the defendant Guillermo Severino testified under oath, in the case of Montelibano vs. Severino, that the area of the land
owned by Melecio Severino and of which he (Guillermo) was the administrator, embraced an area of 424 hectares. The
fact that Melecio Severino, in declaring the land for taxation in 1906, stated that the area was only 324 hectares and 60
ares while entitled to some weight is not conclusive and is not sufficient to overcome the positive statement of the
defendant and the recitals in the record of the possessory information proceedings.
The sixth assignment of error is also of minor importance in view of the fact that in the dispositive part of the decision of
the trial court, the only relief given is an order requiring the appellant to convey to the administratrix the land in question,
together with such parts of the proceeds of the mortgage thereon as remain in his hands. We may say further that the
court's estimate of the value of the land does not appear unreasonable and that, upon the evidence before us, it will not
be disturbed.
The seventh and within assignments of error relate to the ex parte granting by the trial court of a preliminary attachment in
the case and the refusal of the court to dissolve the same. We find no merit whatever in these assignments and a detailed
discussion of them is unnecessary.
The third, fourth, and eight assignments of error involve the vital points in the case, are inter-related and may be
conveniently considered together.
The defendant argues that the gist of the instant action is the alleged fraud on his part in causing the land in question to
be registered in his name; that the trial court therefore erred in rejecting his offer of evidence to the effect that the land
was owned in common by all the heirs of Ramon Severino and did not belong to Melecio Severino exclusively; that such
evidence, if admitted, would have shown that he did not act with fraudulent intent in taking title to the land; that the trial
court erred in holding him estopped from denying Melecio's title; that more than a year having elapsed since the entry of
the final decree adjudicating the land to the defendant, said decree cannot now be reopened; that the ordering of the
defendant to convey the decreed land to the administratrix is, for all practical purposes, equivalent to the reopening of the
decree of registration; that under section 38 of the Land Registration Act the defendant has an indefeasible title to the
land; and that the question of ownership of the land being thus judicially settled, the question as to the previous relations
between the parties cannot now be inquired into.
Upon no point can the defendant's contentions be sustained. It may first be observed that this is not an action under
section 38 of the Land Registration Act to reopen or set aside a decree; it is an action in personam against an agent to
compel him to return, or retransfer, to the heirs or the estate of its principal, the property committed to his custody as such
agent, to execute the necessary documents of conveyance to effect such retransfer or, in default thereof, to pay damages.
That the defendant came into the possession of the property here in question as the agent of the deceased Melecio
Severino in the administration of the property, cannot be successfully disputed. His testimony in the case of Montelibano
vs. Severino (civil case No. 902 of the Court of First Instance of Occidental Negros and which forms a part of the evidence
in the present case) is, in fact, conclusive in this respect. He there stated under oath that from the year 1902 up to the
time the testimony was given, in the year 1913, he had been continuously in charge and occupation of the land as
the encargado or administrator of Melecio Severino; that he had always known the land as the property of Melecio
Severino; and that the possession of the latter had been peaceful, continuous, and exclusive. In his answer filed in the
same case, the same defendant, through his attorney, disclaimed all personal interest in the land and averred that it was
wholly the property of his brother Melecio.
Neither is it disputed that the possession enjoyed by the defendant at the time of obtaining his decree was of the same
character as that held during the lifetime of his brother, except in so far as shortly before the trial of the cadastral case the

defendant had secured from his brothers and sisters a relinguishment in his favor of such rights as they might have in the
land.
The relations of an agent to his principal are fiduciary and it is an elementary and very old rule that in regard to property
forming the subject-matter of the agency, he is estopped from acquiring or asserting a title adverse to that of the principal.
His position is analogous to that of a trustee and he cannot consistently, with the principles of good faith, be allowed to
create in himself an interest in opposition to that of his principal or cestui que trust. Upon this ground, and substantially in
harmony with the principles of the Civil Law (see sentence of the supreme court of Spain of May 1, 1900), the English
Chancellors held that in general whatever a trustee does for the advantage of the trust estate inures to the benefit of
the cestui que trust. (Greenlaw vs. King, 5 Jur., 18; Ex parte Burnell, 7 Jur., 116; Ex parte Hughes, 6 Ves., 617; Ex
parte James, 8 Ves., 337; Oliver vs. Court, 8 Price, 127.) The same principle has been consistently adhered to in so many
American cases and is so well established that exhaustive citations of authorities are superfluous and we shall therefore
limit ourselves to quoting a few of the numerous judicial expressions upon the subject. The principle is well stated in the
case of Gilbert vs. Hewetson (79 Minn., 326):
A receiver, trustee, attorney, agent, or any other person occupying fiduciary relations respecting property or
persons, is utterly disabled from acquiring for his own benefit the property committed to his custody for
management. This rule is entirely independent of the fact whether any fraud has intervened. No fraud in fact need
be shown, and no excuse will be heard from the trustee. It is to avoid the necessity of any such inquiry that the
rule takes so general a form. The rule stands on the moral obligation to refrain from placing one's self in positions
which ordinarily excite conflicts between self-interest and integrity. It seeks to remove the temptation that might
arise out of such a relation to serve one's self-interest at the expense of one's integrity and duty to another, by
making it impossible to profit by yielding to temptation. It applies universally to all who come within its principle.
In the case of Massie vs. Watts (6 Cranch, 148), the United States Supreme Court, speaking through Chief Justice
Marshall, said:
But Massie, the agent of Oneale, has entered and surveyed a portion of that land for himself and obtained a
patent for it in his own name. According to the clearest and best established principles of equity, the agent who so
acts becomes a trustee for his principal. He cannot hold the land under an entry for himself otherwise than as
trustee for his principal.
In the case of Felix vs. Patrick (145 U. S., 317), the United States Supreme Court, after examining the authorities, said:
The substance of these authorities is that, wherever a person obtains the legal title to land by any artifice or
concealment, or by making use of facilities intended for the benefit of another, a court of equity will impress upon
the land so held by him a trust in favor of the party who is justly entitled to them, and will order the trust executed
by decreeing their conveyance to the party in whose favor the trust was created. (Citing Bank of
Metropolis vs. Guttschlick, 14 Pet., 19, 31; Moses vs. Murgatroyd, 1 Johns. Ch., 119; Cumberland vs.Codrington,
3 Johns. Ch., 229, 261; Neilson vs. Blight, 1 Johns. Cas., 205; Weston vs. Barker, 12 Johns., 276.)
The same doctrine has also been adopted in the Philippines. In the case of Uy Aloc vs. Cho Jan Ling (19 Phil., 202), the
facts are stated by the court as follows:
From the facts proven at the trial it appears that a number of Chinese merchants raised a fund by voluntary
subscription with which they purchased a valuable tract of land and erected a large building to be used as a sort
of club house for the mutual benefit of the subscribers to the fund. The subscribers organized themselves into an
irregular association, which had no regular articles of association, and was not incorporated or registered in the
commercial registry or elsewhere. The association not having any existence as a legal entity, it was agreed to
have the title to the property placed in the name of one of the members, the defendant, Cho Jan Ling, who on his
part accepted the trust, and agreed to hold the property as the agent of the members of the association. After the
club building was completed with the funds of the members of the association, Cho Jan Ling collected some
P25,000 in rents for which he failed and refused to account, and upon proceedings being instituted to compel him
to do so, he set up title in himself to the club property as well as to the rents accruing therefrom, falsely alleging
that he had bought the real estate and constructed the building with his own funds, and denying the claims of the
members of the association that it was their funds which had been used for that purpose.
The decree of the court provided, among other things, for the conveyance of the club house and the land on which it stood
from the defendant, Cho Jan Ling, in whose name it was registered, to the members of the association. In affirming the
decree, this court said:
In the case at bar the legal title of the holder of the registered title is not questioned; it is admitted that the
members of the association voluntarily obtained the inscription in the name of Cho Jan Ling, and that they had no
right to have that inscription cancelled; they do not seek such cancellation, and on the contrary they allege and
prove that the duly registered legal title to the property is in Cho Jan Ling, but they maintain, and we think that
they rightly maintain, that he holds it under an obligation, both express and implied, to deal with it exclusively for
the benefit of the members of the association, and subject to their will.
In the case of Camacho vs. Municipality of Baliuag (28 Phil., 466), the plaintiff, Camacho, took title to the land in his own
name, while acting as agent for the municipality. The court said:

There have been a number of cases before this court in which a title to real property was acquired by a person in
his own name, while acting under a fiduciary capacity, and who afterwards sought to take advantage of the
confidence reposed in him by claiming the ownership of the property for himself. This court has invariably held
such evidence competent as between the fiduciary and the cestui que trust.
xxx

xxx

xxx

What judgment ought to be entered in this case? The court below simply absolved the defendant from the
complaint. The defendant municipality does not ask for a cancellation of the deed. On the contrary, the deed is
relied upon the supplement the oral evidence showing that the title to the land is in the defendant. As we have
indicated in Consunji vs. Tison, 15 Phil., 81, and Uy Aloc vs. Cho Jan Ling, 19 Phil., 202, the proper procedure in
such a case, so long as the rights of innocent third persons have not intervened, is to compel a conveyance to the
rightful owner. This ought and can be done under the issues raised and the proof presented in the case at bar.
The case of Sy-Juco and Viardo vs. Sy-Juco (40 Phil., 634) is also in point.
As will be seen from the authorities quoted, and agent is not only estopped from denying his principal's title to the
property, but he is also disable from acquiring interests therein adverse to those of his principal during the term of the
agency. But the defendant argues that his title has become res adjudicata through the decree of registration and cannot
now be disturbed.
This contention may, at first sight, appear to possess some force, but on closer examination it proves untenable. The
decree of registration determined the legal title to the land as the date of the decree; as to that there is no question. That,
under section 38 of the Land Registration Act, this decree became conclusive after one year from the date of the entry is
not disputed and no one attempts to disturb the decree or the proceedings upon which it is based; the plaintiff in
intervention merely contends that in equity the legal title so acquired inured to the benefit of the estate of Melecio
Severino, the defendant's principal and cestui que trust and asks that this superior equitable right be made effective by
compelling the defendant, as the holder of the legal title, to transfer it to the estate.
We have already shown that before the issuance of the decree of registration it was the undoubted duty of the defendant
to restore the property committed to his custody to his principal, or to the latter's estate, and that the principal had a right
of action in personam to enforce the performance of this duty and to compel the defendant to execute the necessary
conveyance to that effect. The only question remaining for consideration is, therefore, whether the decree of registration
extinguishing this personal right of action.
In Australia and New Zealand, under statutes in this respect similar to ours, courts of equity exercise general jurisdiction in
matters of fraud and error with reference to Torrens registered lands, and giving attention to the special provisions of the
Torrens acts, will issue such orders and direction to all the parties to the proceedings as may seem just and proper under
the circumstances. They may order parties to make deeds of conveyance and if the order is disobeyed, they may cause
proper conveyances to be made by a Master in Chancery or Commissioner in accordance with the practice in equity
(Hogg, Australian Torrens System, p. 847).
In the Untied States courts have even gone so far in the exercise of their equity jurisdiction as to set aside final decrees
after the expiration of the statutory period of limitation for the reopening of such decrees (Baart vs. Martin, 99 Minn., 197).
But, considering that equity follows the law and that our statutes expressly prohibit the reopening of a decree after one
year from the date of its entry, this practice would probably be out of question here, especially so as the ends of justice
may be attained by other equally effective, and less objectionable means.
Turning to our own Land Registration Act, we find no indication there of an intention to cut off, through the issuance of a
decree of registration, equitable rights or remedies such as those here in question. On the contrary, section 70 of the Act
provides:
Registered lands and ownership therein, shall in all respects be subject to the same burdens and incidents
attached by law to unregistered land. Nothing contained in this Act shall in any way be construed to relieve
registered land or the owners thereof from any rights incident to the relation of husband and wife, or from liability
to attachment on mesne process or levy on execution, or from liability to any lien of any description established by
law on land and the buildings thereon, or the interest of the owner in such land or buildings, or to change the laws
of descent, or the rights of partition between coparceners, joint tenants and other cotenants, or the right to take
the same by eminent domain, or to relieve such land from liability to be appropriated in any lawful manner for the
payment of debts, or to change or affect in any other way any other rights or liabilities created by law and
applicable to unregistered land, except as otherwise expressly provided in this Act or in the amendments hereof.
Section 102 of the Act, after providing for actions for damages in which the Insular Treasurer, as the Custodian of the
Assurance Fund is a party, contains the following proviso:
Provided, however, That nothing in this Act shall be construed to deprive the plaintiff of any action which he may
have against any person for such loss or damage or deprivation of land or of any estate or interest therein without
joining the Treasurer of the Philippine Archipelago as a defendant therein.
That an action such as the present one is covered by this proviso can hardly admit of doubt. Such was also the view taken
by this court in the case of Medina Ong-Quingco vs. Imaz and Warner, Barnes & Co. (27 Phil., 314), in which the plaintiff
was seeking to take advantage of his possession of a certificate of title to deprive the defendant of land included in that

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

Republic of the Philippines


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

August 31, 1954

DOMINGO DE LA CRUZ, plaintiff-appellant,


vs.
NORTHERN THEATRICAL ENTERPRISES INC., ET AL., defendants-appellees.
Conrado Rubio for appellant.
Ruiz, Ruiz, Ruiz, Ruiz, and Benjamin Guerrero for appellees.
MONTEMAYOR, J.:
The facts in this case based on an agreed statement of facts are simple. In the year 1941 the Northern Theatrical
Enterprises Inc., a domestic corporation operated a movie house in Laoag, Ilocos Norte, and among the persons
employed by it was the plaintiff DOMINGO DE LA CRUZ, hired as a special guard whose duties were to guard the main
entrance of the cine, to maintain peace and order and to report the commission of disorders within the premises. As such
guard he carried a revolver. In the afternoon of July 4, 1941, one Benjamin Martin wanted to crash the gate or entrance of
the movie house. Infuriated by the refusal of plaintiff De la Cruz to let him in without first providing himself with a ticket,
Martin attacked him with a bolo. De la Cruz defendant himself as best he could until he was cornered, at which moment to
save himself he shot the gate crasher, resulting in the latter's death.
For the killing, De la Cruz was charged with homicide in Criminal Case No. 8449 of the Court of First Instance of Ilocos
Norte. After a re-investigation conducted by the Provincial Fiscal the latter filed a motion to dismiss the complaint, which
was granted by the court in January 1943. On July 8, 1947, De la Cruz was again accused of the same crime of homicide,
in Criminal Case No. 431 of the same Court. After trial, he was finally acquitted of the charge on January 31, 1948. In both
criminal cases De la Cruz employed a lawyer to defend him. He demanded from his former employer reimbursement of
his expenses but was refused, after which he filed the present action against the movie corporation and the three
members of its board of directors, to recover not only the amounts he had paid his lawyers but also moral damages said
to have been suffered, due to his worry, his neglect of his interests and his family as well in the supervision of the
cultivation of his land, a total of P15,000. On the basis of the complaint and the answer filed by defendants wherein they
asked for the dismissal of the complaint, as well as the agreed statement of facts, the Court of First Instance of Ilocos
Norte after rejecting the theory of the plaintiff that he was an agent of the defendants and that as such agent he was
entitled to reimbursement of the expenses incurred by him in connection with the agency (Arts. 1709-1729 of the old Civil
Code), found that plaintiff had no cause of action and dismissed the complaint without costs. De la Cruz appealed directly
to this Tribunal for the reason that only questions of law are involved in the appeal.
We agree with the trial court that the relationship between the movie corporation and the plaintiff was not that of principal
and agent because the principle of representation was in no way involved. Plaintiff was not employed to represent the
defendant corporation in its dealings with third parties. He was a mere employee hired to perform a certain specific duty or
task, that of acting as special guard and staying at the main entrance of the movie house to stop gate crashers and to
maintain peace and order within the premises. The question posed by this appeal is whether an employee or servant who
in line of duty and while in the performance of the task assigned to him, performs an act which eventually results in his
incurring in expenses, caused not directly by his master or employer or his fellow servants or by reason of his
performance of his duty, but rather by a third party or stranger not in the employ of his employer, may recover said
damages against his employer.
The learned trial court in the last paragraph of its decision dismissing the complaint said that "after studying many laws or
provisions of law to find out what law is applicable to the facts submitted and admitted by the parties, has found none and
it has no other alternative than to dismiss the complaint." The trial court is right. We confess that we are not aware of any
law or judicial authority that is directly applicable to the present case, and realizing the importance and far-reaching effect
of a ruling on the subject-matter we have searched, though vainly, for judicial authorities and enlightenment. All the laws
and principles of law we have found, as regards master and servants, or employer and employee, refer to cases of
physical injuries, light or serious, resulting in loss of a member of the body or of any one of the senses, or permanent
physical disability or even death, suffered in line of duty and in the course of the performance of the duties assigned to the
servant or employee, and these cases are mainly governed by the Employer's Liability Act and the Workmen's
Compensation Act. But a case involving damages caused to an employee by a stranger or outsider while said employee
was in the performance of his duties, presents a novel question which under present legislation we are neither able nor
prepared to decide in favor of the employee.
In a case like the present or a similar case of say a driver employed by a transportation company, who while in the course
of employment runs over and inflicts physical injuries on or causes the death of a pedestrian; and such driver is later
charged criminally in court, one can imagine that it would be to the interest of the employer to give legal help to and
defend its employee in order to show that the latter was not guilty of any crime either deliberately or through negligence,
because should the employee be finally held criminally liable and he is found to be insolvent, the employer would be
subsidiarily liable. That is why, we repeat, it is to the interest of the employer to render legal assistance to its employee.
But we are not prepared to say and to hold that the giving of said legal assistance to its employees is a legal obligation.
While it might yet and possibly be regarded as a normal obligation, it does not at present count with the sanction of manmade laws.
If the employer is not legally obliged to give, legal assistance to its employee and provide him with a lawyer, naturally said
employee may not recover the amount he may have paid a lawyer hired by him.
Viewed from another angle it may be said that the damage suffered by the plaintiff by reason of the expenses incurred by
him in remunerating his lawyer, is not caused by his act of shooting to death the gate crasher but rather by the filing of the
charge of homicide which made it necessary for him to defend himself with the aid of counsel. Had no criminal charge
been filed against him, there would have been no expenses incurred or damage suffered. So the damage suffered by

plaintiff was caused rather by the improper filing of the criminal charge, possibly at the instance of the heirs of the
deceased gate crasher and by the State through the Fiscal. We say improper filing, judging by the results of the court
proceedings, namely, acquittal. In other words, the plaintiff was innocent and blameless. If despite his innocence and
despite the absence of any criminal responsibility on his part he was accused of homicide, then the responsibility for the
improper accusation may be laid at the door of the heirs of the deceased and the State, and so theoretically, they are the
parties that may be held responsible civilly for damages and if this is so, we fail to see now this responsibility can be
transferred to the employer who in no way intervened, much less initiated the criminal proceedings and whose only
connection or relation to the whole affairs was that he employed plaintiff to perform a special duty or task, which task or
duty was performed lawfully and without negligence.
Still another point of view is that the damages incurred here consisting of the payment of the lawyer's fee did not flow
directly from the performance of his duties but only indirectly because there was an efficient, intervening cause, namely,
the filing of the criminal charges. In other words, the shooting to death of the deceased by the plaintiff was not the
proximate cause of the damages suffered but may be regarded as only a remote cause, because from the shooting to the
damages suffered there was not that natural and continuous sequence required to fix civil responsibility.
In view of the foregoing, the judgment of the lower court is affirmed. No costs.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. L-10918

March 4, 1916

WILLIAM FRESSEL, ET AL., plaintiffs-appellants,


vs.
MARIANO UY CHACO SONS & COMPANY, defendant-appellee.

Rohde and Wright for appellants.


Gilbert, Haussermann, Cohn and Fisher for appellee.
TRENT, J.:
This is an appeal from a judgment sustaining the demurrer on the ground that the complaint does not state a cause of
action, followed by an order dismissing the case after the plaintiffs declined to amend.
The complaint, omitting the caption, etc., reads:
2. That during the latter part of the year 1913, the defendant entered into a contract with one E. Merritt, whereby
the said Merritt undertook and agreed with the defendant to build for the defendant a costly edifice in the city of
Manila at the corner of Calle Rosario and Plaza del Padre Moraga. In the contract it was agreed between the
parties thereto, that the defendant at any time, upon certain contingencies, before the completion of said edifice
could take possession of said edifice in the course of construction and of all the materials in and about said
premises acquired by Merritt for the construction of said edifice.
3. That during the month of August land past, the plaintiffs delivered to Merritt at the said edifice in the course of
construction certain materials of the value of P1,381.21, as per detailed list hereto attached and marked Exhibit A,
which price Merritt had agreed to pay on the 1st day of September, 1914.
4. That on the 28th day of August, 1914, the defendant under and by virtue of its contract with Merritt took
possession of the incomplete edifice in course of construction together with all the materials on said premises
including the materials delivered by plaintiffs and mentioned in Exhibit A aforesaid.
5. That neither Merritt nor the defendant has paid for the materials mentioned in Exhibit A, although payment has
been demanded, and that on the 2d day of September, 1914, the plaintiffs demanded of the defendant the return
or permission to enter upon said premises and retake said materials at the time still unused which was refused by
defendant.
6. That in pursuance of the contract between Merritt and the defendant, Merritt acted as the agent for defendant in
the acquisition of the materials from plaintiffs.
The appellants insist that the above quoted allegations show that Merritt acted as the agent of the defendant in
purchasing the materials in question and that the defendant, by taking over and using such materials, accepted and
ratified the purchase, thereby obligating itself to pay for the same. Or, viewed in another light, if the defendant took over
the unfinished building and all the materials on the ground and then completed the structure according to the plans,
specifications, and building permit, it became in fact the successor or assignee of the first builder, and as successor or
assignee, it was as much bound legally to pay for the materials used as was the original party. The vendor can enforce his
contract against the assignee as readily as against the assignor. While, on the other hand, the appellee contends that
Merritt, being "by the very terms of the contract" an independent contractor, is the only person liable for the amount
claimed.
It is urged that, as the demurrer admits the truth of all the allegations of fact set out in the complaint, the allegation in
paragraph 6 to the effect that Merritt "acted as the agent for defendant in the acquisition of the materials from plaintiffs,"
must be, at this stage of the proceedings, considered as true. The rule, as thus broadly stated, has many limitations and
restrictions.
A more accurate statement of the rule is that a demurrer admits the truth of all material and relevant facts which
are well pleaded. . . . .The admission of the truth of material and relevant facts well pleaded does not extend to
render a demurrer an admission of inferences or conclusions drawn therefrom, even if alleged in the pleading; nor
mere inferences or conclusions from facts not stated; nor conclusions of law. (Alzua and Arnalot vs. Johnson, 21
Phil. Rep., 308, 350.)
Upon the question of construction of pleadings, section 106 of the Code of Civil Procedure provides that:
In the construction of a pleading, for the purpose of determining its effects, its allegations shall be liberally
construed, with a view of substantial justice between the parties.
This section is essentially the same as section 452 of the California Code of Civil Procedure. "Substantial justice," as used
in the two sections, means substantial justice to be ascertained and determined by fixed rules and positive statutes.
(Stevens vs. Ross, 1 Cal. 94, 95.) "Where the language of a pleading is ambiguous, after giving to it a reasonable
intendment, it should be resolved against the pleader. This is especially true on appeal from a judgment rendered after
refusal to amend; where a general and special demurrer to a complaint has been sustained, and the plaintiff had refused
to amend, all ambiguities and uncertainties must be construed against him." (Sutherland on Code Pleading, vol. 1, sec.
85, and cases cited.)
The allegations in paragraphs 1 to 5, inclusive, above set forth, do not even intimate that the relation existing between
Merritt and the defendant was that of principal and agent, but, on the contrary, they demonstrate that Merritt was an
independent contractor and that the materials were purchased by him as such contractor without the intervention of the
defendant. The fact that "the defendant entered into a contract with one E. Merritt, where by the said Merritt undertook

and agreed with the defendant to build for the defendant a costly edifice" shows that Merritt was authorized to do the work
according to his own method and without being subject to the defendant's control, except as to the result of the work. He
could purchase his materials and supplies from whom he pleased and at such prices as he desired to pay. Again, the
allegations that the "plaintiffs delivered the Merritt . . . . certain materials (the materials in question) of the value of
P1,381.21, . . . . which price Merritt agreed to pay," show that there were no contractual relations whatever between the
sellers and the defendant. The mere fact that Merritt and the defendant had stipulated in their building contract that the
latter could, "upon certain contingencies," take possession of the incompleted building and all materials on the ground, did
not change Merritt from an independent contractor to an agent. Suppose that, at the time the building was taken over
Merritt had actually used in the construction thus far P100,000 worth of materials and supplies which he had purchased
on a credit, could those creditors maintain an action against the defendant for the value of such supplies? Certainly not.
The fact that the P100,000 worth of supplies had been actually used in the building would place those creditors in no
worse position to recover than that of the plaintiffs, although the materials which the plaintiffs sold to Merritt had not
actually gone into the construction. To hold that either group of creditors can recover would have the effect of compelling
the defendants to pay, as we have indicated, just such prices for materials as Merritt and the sellers saw fit to fix. In the
absence of a statute creating what is known as mechanics' liens, the owner of a building is not liable for the value of
materials purchased by an independent contractor either as such owner or as the assignee of the contractor.
The allegation in paragraph 6 that Merritt was the agent of the defendant contradicts all the other allegations and is a
mere conclusion drawn from them. Such conclusion is not admitted, as we have said, by the demurrer.
The allegations in the complaint not being sufficient to constitute a cause of action against the defendant, the judgment
appealed from is affirmed, with costs against the appellants. So ordered.

Republic of the Philippines


SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 75198 October 18, 1988
SCHMID & OBERLY, INC., petitioner,
vs.
RJL MARTINEZ FISHING CORPORATION, respondent.

Sycip Salazar Hernandez & Gatmaitan Law Office for petitioner.


Siguion Reyna, Montecillo & Ongsiako Law Office for respondent.

CORTES, J.:
Petitioner seeks reversal of the decision and the resolution of the Court of Appeals, ordering Schmid & Oberly Inc.
(hereafter to be referred to simply as "SCHMID") to refund the purchase price paid by RJL Martinez Fishing Corporation
(hereafter to be referred to simply as "RJL MARTINEZ") to D. Nagata Co., Ltd. of Japan (hereafter to be referred to simply
as NAGATA CO.") for twelve (12) defective "Nagata"-brand generators, plus consequential damages, and attorneys fees.
The facts as found by the Court of Appeals, are as follows:
The findings of facts by the trial court (Decision, pp. 21-28, Record on Appeal) shows: that the plaintiff
RJL Martinez Fishing Corporation is engaged in deep-sea fishing, and in the course of its business,
needed electrical generators for the operation of its business; that the defendant sells electrical
generators with the brand of "Nagata", a Japanese product; that the supplier is the manufacturer, the D.
Nagata Co. Ltd., of Japan, that the defendant Schmid & Oberly Inc. advertised the 12 Nagata generators
for sale; that the plaintiff purchased 12 brand new Nagata generators, as advertised by herein defendant;
that through an irrevocable line of credit, the D. Nagata Co., Ltd., shipped to the plaintiff 12 electric
generators, and the latter paid the amount of the purchase price; that the 12 generators were found to be
factory defective; that the plaintiff informed the defendant herein that it shall return the 12 generators as in
fact three of the 12 were actually returned to the defendant; that the plaintiff sued the defendant on the
warranty; asking for rescission of the contract; that the defendant be ordered to accept the generators and
be ordered to pay back the purchase money; and that the plaintiff asked for damages. (Record on Appeal,
pp. 27-28) [CA Decision, pp. 34; Rollo, pp. 47-48.]
On the basis thereof, the Court of Appeals affirmed the decision of the trial court ordering petitioner to refund to private
respondent the purchase price for the twelve (12) generators and to accept delivery of the same and to pay s and
attorney's fees, with a slight modification as to the amount to be refunded. In its resolution of the motion for
reconsideration, the Court of Appeals further modified the trial courts decision as to the award of consequential damages.
Ordinarily, the Court will not disturb the findings of fact of the Court of Appeals in petitions to review the latter's decisions
under Rule 45 of the Revised Rules of Court, the scope of the Court's inquiry being limited to a review of the imputed
errors of law [Chan v. Court of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 77; Tiongco v. De la Merced, G.R.
No. L-24426, July 25, 1974, 58 SCRA 89; Corona v. Court of Appeals, G.R. No. 62482, April 28, 1983, 121 SCRA 865;
Baniqued v. Court of Appeals, G.R. No.
L-47531, January 30, 1984, 127 SCRA 596.] However, when, as in this case, it is the petitioner's position that the
appealed judgment is premised on a misapprehension of
facts, * the Court is compelled to review the Court of Appeal's factual findings [De la Cruz v. Sosing, 94 Phil. 26 (1953);
Castillo v. Court of Appeals, G.R. No. I,48290, September 29, 1983, 124 SCRA 808.]
Considering the sketchiness of the respondent court's narration of facts, whether or not the Court of Appeals indeed
misapprehended the facts could not be determined without a thorough review of the records.
Thus, after a careful scrutiny of the records, the Court has found the appellate court's narration of facts incomplete. It
failed to include certain material facts.
The facts are actually as follows:
RJL MARTINEZ is engaged in the business of deep-sea fishing. As RJL MARTINEZ needed electric generators for some
of its boats and SCHMIID sold electric generators of different brands, negotiations between them for the acquisition
thereof took place. The parties had two separate transactions over "Nagata"-brand generators.
The first transaction was the sale of three (3) generators. In this transaction, it is not disputed that SCHMID was the
vendor of the generators. The company supplied the generators from its stockroom; it was also SCHMID which invoiced
the sale.
The second transaction, which gave rise to the present controversy, involves twelve (12) "Nagata"-brand generators.
'These are the facts surrounding this particular transaction:
As RJL MARTINEZ was canvassing for generators, SC gave RJL MARTINEZ its Quotation dated August 19, 1975 [Exhibit
'A"] for twelve (12) "Nagata'-brand generators with the following specifications:
"NAGATA" Single phase AC Alternators, 110/220 V, 60 cycles, 1800 rpm, unity power factor, rectifier type
and radio suppressor,, 5KVA (5KW) $546.75 @
It was stipulated that payment would be made by confirming an irrevocable letter of credit in favor of NAGATA CO.
Furthermore, among the General Conditions of Sale appearing on the dorsal side of the Quotation is the following:

Buyer will, upon request, promptly open irrevocable Letter of Credit in favor of seller, in the amount stated
on the face of this memorandum, specifying shipment from any Foreign port to Manila or any safe
Philippine port, permitting partial shipments and providing that in the event the shippers are unable to ship
within the specified period due to strikes, lack of shipping space or other circumstances beyond their
reasonable control, Buyer agrees to extend the said Letter of Credit for later shipment. The Letter of
Credit shall otherwise be subject to the conditions stated in this memorandum of contract. [Emphasis
supplied.]
Agreeing with the terms of the Quotation, RJL MARTINEZ opened a letter of credit in favor of NAGATA CO. Accordingly,
on November 20,1975, SCHMID transmitted to NAGATA CO. an order [Exhibit "4"] for the twelve (12) generators to be
shipped directly to RJL MARTINEZ. NAGATA CO. thereafter sent RJL MARTINEZ the bill of lading and its own invoice
(Exhibit "B") and, in accordance with the order, shipped the generators directly to RJL MARTINEZ. The invoice states that
"one (1) case of 'NAGATA' AC Generators" consisting of twelve sets wasbought by order and for account risk of Messrs.
RJL Martinez Fishing Corporation.
For its efforts, SCHMID received from NAGATA CO. a commission of $1,752.00 for the sale of the twelve generators to
RJL MARTINEZ. [Exhibits "9", "9-A", "9-B" and "9-C".]
All fifteen (15) generators subject of the two transactions burned out after continuous use. RJL MARTINEZ informed
SCHMID about this development. In turn, SCHMID brought the matter to the attention of NAGATA CO. In July 1976,
NAGATA CO. sent two technical representatives who made an ocular inspection and conducted tests on some of the
burned out generators, which by then had been delivered to the premises of SCHMID.
The tests revealed that the generators were overrated. As indicated both in the quotation and in the invoice, the capacity
of a generator was supposed to be 5 KVA (kilovolt amperes). However, it turned out that the actual capacity was only 4
KVA.
SCHMID replaced the three (3) generators subject of the first sale with generators of a different brand.
As for the twelve (12) generators subject of the second transaction, the Japanese technicians advised RJL MARTINEZ to
ship three (3) generators to Japan, which the company did. These three (3) generators were repaired by NAGATA CO.
itself and thereafter returned to RJL MARTINEZ; the remaining nine (9) were neither repaired nor replaced. NAGATA CO.,
however, wrote SCHMID suggesting that the latter check the generators, request for spare parts for replacement free of
charge, and send to NAGATA CO. SCHMID's warranty claim including the labor cost for repairs [Exhibit "I".] In its reply
letter, SCHMID indicated that it was not agreeable to these terms [Exhibit "10".]
As not all of the generators were replaced or repaired, RJL MARTINEZ formally demanded that it be refunded the cost of
the generators and paid damages. SCHMID in its reply maintained that it was not the seller of the twelve (12) generators
and thus refused to refund the purchase price therefor. Hence, on February 14, 1977, RJL MARTINEZ brought suit
against SCHMID on the theory that the latter was the vendor of the twelve (12) generators and, as such vendor, was liable
under its warranty against hidden defects.
Both the trial court and the Court of Appeals upheld the contention of RJL MARTINEZ that SCHMID was the vendor in the
second transaction and was liable under its warranty. Accordingly, the courts a quo rendered judgment in favor of RJL
MARTINEZ. Hence, the instant recourse to this Court.
In this petition for review, SCHMID seeks reversal on the following grounds:
(i) Schmid was merely the indentor in the sale [of the twelve (12) generators] between Nagata Co., the
exporter and RJL Martinez, the importer;
(ii) as mere indentor, Schmid is not liable for the seller's implied warranty against hidden defects, Schmid
not having personally assumed any such warranty.
(iii) in any event, conformably with Article 1563 of the Civil Code, there was no implied warranty against
hidden defects in the sale of these twelve (12) generators because these were sold under their trade
name "Nagata"; and
(iv) Schmid, accordingly, is not liable for the reimbursement claimed by RJL Martinez nor for the latter's
unsubstantiated claim of PI 10.33 operational losses a day nor for exemplary damages, attorney's fees
and costs. [Petition, p. 6.]
1. As may be expected, the basic issue confronting this Court is whether the second transaction between the parties was
a sale or an indent transaction. SCHMID maintains that it was the latter; RJL MARTINEZ claims that it was a sale.
At the outset, it must be understood that a contract is what the law defines it to be, considering its essential elements, and
not what it is caged by the contracting parties [Quiroga v. Parsons Hardware Co., 38 Phil. 501 (1918).]
The Civil Code defines a contract of sale, thus:

ART. 458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership
of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its
equivalent.
It has been said that the essence of the contract of sale is transfer of title or agreement to transfer it for a price paid or
promised [Commissioner of Internal Revenue v. Constantino, G.R. No. L-25926, February 27, 1970, 31 SCRA 779, 785,
citing Salisbury v. Brooks, 94 SE 117,118-19.] "If such transfer puts the transferee in the attitude or position of an owner
and makes him liable to the transferor as a debtor for the agreed price, and not merely as an agent who must account for
the proceeds of a resale, the transaction is, a sale." [Ibid.]
On the other hand, there is no statutory definition of "indent" in this jurisdiction. However, the Rules and Regulations to
Implement Presidential Decree No. 1789 (the Omnibus Investments Code) lumps "indentors" together with "commercial
brokers" and "commission merchants" in this manner:
... A foreign firm which does business through the middlemen acting in their own names, such
asindentors, commercial brokers or commission merchants, shall not be deemed doing business in the
Philippines. But such indentors, commercial brokers or commission merchants shall be the ones deemed
to be doing business in the Philippines [Part I, Rule I, Section 1, par. g (1).]
Therefore, an indentor is a middlemen in the same class as commercial brokers and commission merchants. To get an
Idea of what an indentor is, a look at the definition of those in his class may prove helpful.
A broker is generally defined as one who is engaged, for others, on a commission, negotiating contracts
relative to property with the custody of which he has no concern; the negotiator between other parties,
never acting in his own name but in the name of those who employed him; he is strictly a middleman and
for some purpose the agent of both parties. (1 9 Cyc 186; Henderson vs. The State, 50 Ind., 234; Black's
Law Dictionary.) A broker is one whose occupation it is to bring parties together to bargain, or to bargain
for them, in matters of trade, commerce or navigation. Mechem on Agency, sec. 13; Wharton on Agency,
sec. 695.) Judge Storey, in his work on Agency, defines a broker as an agent employed to make bargains
and contracts between other persons, in matters of trade, commerce or navigation, for compensation
commonly called brokerage. (Storey on Agency, sec. 28.) [Behn Meyer and Co., Ltd. v. Nolting and
Garcia, 35 Phil. 274, 279-80 (1916).]
A commission merchant is one engaged in the purchase or sale for another of personal property which,
for this purpose, is placed in his possession and at his disposal. He maintains a relation not only with his
principal and the purchasers or vendors, but also with the property which is subject matter of the
transaction. [Pacific Commercial Co. v. Yatco, 68 Phil. 398, 401 (1939).]
Thus, the chief feature of a commercial broker and a commercial merchant is that in effecting a sale, they are merely
intermediaries or middle-men, and act in a certain sense as the agent of both parties to the transaction.
Webster defines an indent as "a purchase order for goods especially when sent from a foreign country." [Webster's Ninth
New Collegiate Dictionary 612 (1986).] It would appear that there are three parties to an indent transaction, namely, the
buyer, the indentor, and the supplier who is usually a non-resident manufacturer residing in the country where the goods
are to be bought [Commissioner of Internal Revenue v. Cadwallader Pacific Company, G.R. No. L-20343, September 29,
1976, 73 SCRA 59.] An indentor may therefore be best described as one who, for compensation, acts as a middleman in
bringing about a purchase and sale of goods between a foreign supplier and a local purchaser.
Coming now to the case at bar, the admissions of the parties and the facts appearing on record more than suffice to
warrant the conclusion that SCHMID was not a vendor, but was merely an indentor, in the second transaction.
In its complaint, RJL MARTINEZ admitted that the generators were purchased "through indent order" [Record on Appeal,
p. 6.] In the same vein, it admitted in its demand letter previously sent to SCHMID that twelve (12) of en (15) Nagatabrand generators "were purchased through your company (SCHMID), by indent order and three (3) by direct purchase."
[Exhibit "D".] The evidence also show that RJL MARTINEZ paid directly NAGATA CO, for the generators, and that the
latter company itself invoiced the sale [Exhibit "B"], and shipped the generators directly to the former. The only
participation of SCHMID was to act as an intermediary or middleman between NAGATA CO. and RJL MARTINEZ, by
procuring an order from RJL MARTINEZ and forwarding the same to NAGATA CO. for which the company received a
commission from NAGATA CO. [Exhibits "9", "9-A", "9-B" and "9-C".]
The above transaction is significantly different from the first transaction wherein SCHMID delivered the goods from its own
stock (which it had itself imported from NAGATA CO.), issued its own invoice, and collected payment directly from the
purchaser.
These facts notwithstanding, RJL MARTINEZ insists that SCHMID was the vendor of the twelve generators on the
following grounds:
First, it is contended that the Quotation and the General Conditions of Sale on the dorsal side thereof do not necessarily
lead to the conclusion that NAGATA CO., and not SCHMID, was the real seller in the case of the twelve (12) generators in
that:

(i) the signing of the quotation, which was under SCHMID's letter-head, perfected the contract of sale
(impliedly, as between the signatories theretoi.e., RJL MARTINEZ and SCHMID);
(ii) the qualification that the letter of credit shall be in favor of NAGATA CO. constituted simply the manner
of payment requested by SCHMID (implying that SCHMID, as seller, merely chose to waive direct
payment, stipulating delivery of payment instead to NAGATA CO. as supplier);
Second, it is asserted that the acts of SCHMID after it was informed of the defect in the generators were indicative of its
awareness that it was the vendor and acknowledgment of its liability as such vendor. Attention is called to these facts:
When RJL MARTINEZ complained to SCHMID that the generators were defective, SCHMID immediately asked RJL
MARTINEZ to send the defective generators to its shop to determine what was wrong. SCHMID likewise informed
NAGATA CO. about the complaint of RJL MARTINEZ. When the Japanese technicians arrived, SCHMID made available
its technicians, its shop and its testing equipment. After the generators were found to have factory defects, SCHMID
facilitated the shipment of three (3) generators to Japan and, after their repair, back to the Philippines [Memorandum for
the Respondent, p. 8.]
Third, it is argued that the contents of the letter from NAGATA CO. to SCHMID regarding the repair of the generators
indicated that the latter was "within the purview of a seller." [Ibid.]
Fourth, it is argued that if SCHMID is considered as a mere agent of NAGATA CO., a foreign corporation not licensed to
do business in the Philippines, then the officers and employees of the former may be penalized for violation of the old
Corporation Law which provided:
Sec. 69 ... Any officer or agent of the corporation or any person transacting business for any foreign
corporation not having the license prescribed shall be punished by imprisonment for not less than six
months nor more than two years or by a fine 'of not less than two hundred pesos nor more than one
thousand pesos or both such imprisonment and fine, in the discretion of the Court.
The facts do not bear out these contentions.
The first contention disregards the circumstances surrounding the second transaction as distinguished from those
surrounding the first transaction, as noted above.
Neither does the solicitous manner by which SCHMID responded to RJL MARTINEZ's complaint prove that the former
was the seller of the generators. As aptly stated by counsel, no indentor will just fold its hands when a client complains
about the goods it has bought upon the indentor's mediation. In its desire to promote the product of the seller and to retain
the goodwill of the buyer, a prudent indentor desirous of maintaining his business would have to act considerably. towards
his clients.
Note that in contrast to its act of replacing the three (3) generators subject of the first transaction, SCHMID did not replace
any of the twelve (12) generators, but merely rendered assistance to both RJL TINES and NAGATA CO. so that the latter
could repair the defective generators.
The proposal of NAGATA CO. rejected by SCHMID that the latter undertake the repair of the nine (9) other defective
generators, with the former supplying the replacement parts free of charge and subsequently reimbursing the latter for
labor costs [Exhibit "I"], cannot support the conclusion that SCHMID is vendor of the generators of the second transaction
or was acting "within the purview of a seller."
Finally, the afore-quoted penal provision in the Corporation Law finds no application to SCHMID and its officers and
employees relative to the transactions in the instant case. What the law seeks to prevent, through said provision, is the
circumvention by foreign corporations of licensing requirements through the device of employing local representatives. An
indentor, acting in his own name, is not, however, covered by the above-quoted provision. In fact, the provision of the
Rules and Regulations implementing the Omnibus Investments Code quoted above, which was copied from the Rules
implementing Republic Act No. 5455, recognizes the distinct role of an indentor, such that when a foreign corporation
does business through such indentor, the foreign corporation is not deemed doing business in the Philippines.
In view of the above considerations, this Court rules that SCHMID was merely acting as an indentor in the purchase and
sale of the twelve (12) generators subject of the second transaction. Not being the vendor, SCHMID cannot be held liable
for the implied warranty for hidden defects under the Civil Code [Art. 1561, et seq.]
2. However, even as SCHMID was merely an indentor, there was nothing to prevent it from voluntarily warranting that
twelve (12) generators subject of the second transaction are free from any hidden defects. In other words, SCHMID may
be held answerable for some other contractual obligation, if indeed it had so bound itself. As stated above, an indentor is
to some extent an agent of both the vendor and the vendee. As such agent, therefore, he may expressly obligate himself
to undertake the obligations of his principal (See Art. 1897, Civil Code.)
The Court's inquiry, therefore, shifts to a determination of whether or not SCHMID expressly bound itself to warrant that
the twelve (12) generators are free of any hidden defects.
Again, we consider the facts.

The Quotation (Exhibit A is in writing. It is the repository of the contract between RJL MARTINEZ and SCHMID. Notably,
nowhere is it stated therein that SCHMID did bind itself to answer for the defects of the things sold. There being no
allegation nor any proof that the Quotation does not express the true intent and agreement of the contracting parties,
extrinsic parol evidence of warranty will be to no avail [See Rule 123, Sec. 22.]
The trial court, however, relied on the testimony of Patrocinio Balagtas, the head of the Electrical Department of RJL
MARTINEZ, to support the finding that SCHMID did warrant the twelve (12) generators against defects.
Upon careful examination of Balagtas' testimony, what is at once apparent is that Balagtas failed to disclose the nature or
terms and conditions of the warranty allegedly given by SC Was it a warranty that the generators would be fit for the
fishing business of the buyer? Was it a warranty that the generators to be delivered would meet the specifications
indicated in the Quotation? Considering the different kinds of warranties that may be contracted, unless the nature or
terms and conditions of the warranty are known, it would not be possible to determine whether there has been a breach
thereof.
Moreover, a closer examination of the statements allegedly made by the representative of SCHMID reveals that they
merely constituted an expression of opinion which cannot by any means be construed as a warranty [See Art. 1546, Civil
Code.]
We quote from Balagtas' testimony:
Atty. CATRAL:
Q Did you not say at the start of your cross examination, Mr. Balagtas, that the only
participation you had in the acquisition of those twelve (12) units [of] generators was your
having issued a purchase order to your own company for the purchase of the units?
ATTY. AQUINO:
Misleading, your Honor.
Atty. CATRAL:
I am asking the witness.
COURT:
He has the right to ask that question because he is on cross. Moreover, if I remember, he
mentioned something like that. Witness may answer.
A Yes, sir. Before I submitted that, we negotiated with Schmid and Oberly the beat
generators they can recommend because we are looking for generators. The
representative of Schmid and Oberly said that Nagata is very good. That is why I
recommended that to the management. [t.s.n., October 14, 1977, pp. 23-25.]
At any rate, when asked where SCHMID's warranty was contained, Balagtas testified initially that it was in the receipts
covering the sale. (At this point, it may be stated that the invoice [Exhibit "B-l"] was issued by NAGATA CO. and nowhere
is it stated therein that SCHMID warranted the generators against defects.) When confronted with a copy of the invoice
issued by NAGATA CO., he changed his assertion and claimed that what he meant was that the date of the
commencement of the period of SCHMID's warranty would be based on the date of the invoice. On further examination,
he again changed his mind and asserted that the warranty was given verbally [TSN, October 14, 1977, pp. 19-22.] But
then again, as stated earlier, the witness failed to disclose the nature or terms and conditions of the warranty allegedly
given by SCHMID.
On the other hand, Hernan Adad SCHMID's General Manager, was categorical that the company does not warrant goods
bought on indent and that the company warrants only the goods bought directly from it, like the three generators earlier
bought by RJL MARTINEZ itself [TSN, December 19, 1977, pp. 63-64.] It must be recalled that SCHMID readily replaced
the three generators from its own stock. In the face of these conflicting testimonies, this Court is of the view that RJL has
failed to prove that SCHMID had given a warranty on the twelve (12) generators subject of the second transaction. Even
assuming that a warranty was given, there is no way to determine whether there has been a breach thereof, considering
that its nature or terms and conditions have not been shown.
3. In view of the foregoing, it becomes unnecessary to pass upon the other issues.
WHEREFORE, finding the Court of Appeals to have committed a reversible error, the petition is GRANTED and the
appealed Decision and Resolution of the Court of Appeals are REVERSED. The complaint of RJL Martinez Fishing
Corporation is hereby DISMISSED. No costs.
SO ORDERED.