EN BANC

G.R. No. L-2437 February 13, 1906

MONICA CASON,Plaintiff-Appellant,
vs. FRANCISCO WALTERIO RICKARDS, ET
AL.,Defendants-Appellees.
W.A. Kincaid for appellant.
Pillsbury and Sutro for appellees.
WILLARD, J.:
From the 1st day of November, 1895, until the
31st day of October, 1896, the defendant
Rickards was the agent at Dagupan, in the
Province of Pangasinan, of the other defendant,
Smith, Bell & Co. While he was such agent he
received from the plaintiff, as a deposit, the sum
of 2,000 pesos. When he left the employ of the
defendant company the 2,000 pesos were, by his
orders, delivered to another agent of Smith, Bell
& Co. in that province, and Smith, Bell & Co.
received ad used the same. This money was not
mingled with other money belonging either to
Richards or to Smith, Bell & Co., and at the time
of its delivery by Rickards to the other agent he
notified Smith, Bell & Co. that it was not the
money of Smith, Bell & Co., but was the money of
the plaintiff. The judgment of the court below
holding Smith, Bell & Co., responsible for this
amount was clearly right. The question as to
whether Rickards was authorized by Smith, Bell &
Co. to receive deposits of this character for third
persons is a matter of no consequence. The
identical money which he received from the
plaintiff was by him turned over to Smith, Bell &
Co., with notice that it was the money of the
plaintiff, and they now have it in their possession,
and are therefore bound to pay it to
her.chanroblesvirtualawlibrary chanrobles virtual
law library
At the trial of this case Rickards testified that a
few days after he received the 2,000 pesos from
the plaintiff, and about the 8th day of October,
1896, he received from her an order or warrant
upon the Spanish treasury for the sum of 4,200
pesos; that he wrote Smith, Bell & Co., asking if it
could be collected; that they told him to send it to
Manila. It was sent to Manila, and collected
through the Hongkong and Shanghai Bank.
Rickards testified that he received the money
from the Hongkong and Shanghai Bank, and paid
all of it out in the business of Smith, Bell & Co.;
that after he had received it he entered upon the
books of Smith, Bell & Co. at Dagupan a credit in

1 | Page

favor of the plaintiff of 4,200 pesos, less 5 per

cent commission for collection, of which
commission Smith, Bell & Co. received the
benefit. He testified that all these transactions
took place prior to the 31st day of October, 1896,
when he left the employ of Smith, Bell & Co. He
also testified that he had seen the books of
Smith, Bell & Co.; that they were in court in an
action commenced in regard to this same amount
in 1896 or 1897, and that the books which were
then produced in court by Smith, Bell & Co.
contained an entry or entries of the receipt by
Smith, Bell & Co. of this 4,200 pesos. If this
testimony is to be believed there is no doubt as
to the liability of Smith, Bell & Co. to repay to the
plaintiff the sum of 4,200 pesos, less the
commission of 5 per
cent.chanroblesvirtualawlibrary chanrobles virtual
law library
The question as to the general authority of
Rickards to receive money on deposit for Smith,
Bell & Co. has nothing to do with this cause of
action, for Rickards testified that he received
express directions in regard to this particular
transaction. Rickards in his testimony stated that
he had had several conversations with different
agents and employees of Smith, Bell & Co. in
Manila in regard to the transaction. At the trial of
this case Smith, Bell & Co. did not present as
witnesses any of these employees or agents, and
did not present any of their books which the
witness Rickards declared would corroborate his
statement, if produced, but contented
themselves with calling as a witness one who was
then a bookkeeper of the Hongkong and
Shanghai Bank. He, testifying from entries which
appeared in the books of that bank, stated that
there was received for Rickards, in November,
1896, 4,200 pesos, a part of which was credited
to his accounts in that bank, and the balance,
amounting to about 2,616 pesos, was paid in
cash. The witness could not testify to whom this
cash was paid. Although he testified that he had
some independent recollection of this transaction,
yet it is apparent that his testimony is
substantially, if not entirely, based upon the
entries made in the books of the bank, which
were in his
handwriting.chanroblesvirtualawlibrary chanroble
s virtual law library
The question in this case is this: Can the positive
testimony of Rickards, which has been set forth
above, be overcome by the testimony of the
agent of the bank in view of the fact that Smith,
Bell & Co. had it in their power to demonstrate

the falsity of the testimony of Rickards by

producing their books? No reason appears in the
case why the books were not produced. The trial
was had in Manila, where is located the main
office of Smith, Bell & Co. Rickards gave his
testimony at the opening of the trial. If it were
false its falsity could have been easily proved by
the introduction of these books, and their
production was more imperatively demanded
considering the statement of Rickards that he had
seen them, and that they did contain the entries
in regard to this amount of 4,200
pesos.chanroblesvirtualawlibrary chanrobles
virtual law library
Under these circumstances the judgment of the
court below relieving Smith, Bell & Co. of the
responsibility for this 4,200 pesos can not be
affirmed. The evidence as it stands in the record
strongly preponderates against them, and the
judgment must be
reversed.chanroblesvirtualawlibrary chanrobles
virtual law library
The question arises as to what disposition should
be made of this case; whether final judgment
should be entered in this court against Smith, Bell
& Co., or whether the case should be remanded
for further proceedings. Under the Code of Civil
Procedure we have authority, when the judgment
must be reversed, either to enter final judgment
in this court or to remand the case for a new trial
or for further proceedings. In the present case we
think that the ends of justice require that there
should be a new trial as to the 4,200 pesos.
(Regalado vs. Luchsinger & Co., 1 Phil. Rep., 619.)
If at the new trial Smith, Bell & Co. still fail to
produce their books, and no additional evidence
is offered to overcome the testimony of Rickards,
final judgment should be entered against them in
reference to this 4,200 pesos. In accordance with
the provisions of section 505 of the Code of Civil
Procedure, upon the new trial it will not be
necessary to retake any of the evidence which
has already been
taken.chanroblesvirtualawlibrary chanrobles
virtual law library
The judgment is reversed, and the case is
remanded to the court below for a new trial only
of the issue relating to the 4,200 pesos. After the
new trial judgment will, as a matter of course, be
entered for the plaintiff against Smith, Bell & Co.
in reference to the 2,000 pesos, and for or
against them in respect to the 4,200 pesos, as
the results of the new trial may require. No costs
will be allowed to either party in this court. So

2 | Page

ordered.chanroblesvirtualawlibrary chanrobles
virtual law library
Torres, Mapa, Johnson, and Carson, JJ., concur.
----o0o---Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. Nos. L-18223 and L-18224
September 30, 1963
COMMERCIAL BANK & TRUST COMPANY OF
THE PHILIPPINES, plaintiff-appellee,
vs.
REPUBLIC ARMORED CAR SERVICE
CORPORATION and DAMASO PEREZ, ET
AL., defendants-appellants.
RESOLUTION
LABRADOR, J.:
Defendant-appellant Damaso Perez has
presented a motion for new trial on the ground of
newly discovered evidence. It is claimed that
movant was not aware of the nature of the power
of attorney that Ramon Racelis used, purportedly
signed by him, to secure the loans for the
Republic Armored Car Service Corporation and
the Republic Credit Corporation. In the motion it
is claimed that a photostatic copy of the power of
attorney used by Ramon Racelis was presented at
the trial. This photostatic copy or a copy thereof
has not been submitted to us, for this reason We
cannot rule upon his claim and contention that
Ramon Racelis had no authority to bind the
movant as surety for the loans obtained from the
appellee Commercial Bank & Trust Company. Not
having before Us the supposed photostatic copy
of the power of attorney used to secure the loans,
there is no reason for Us to rule, in accordance
with his contention, that Racelis exceeded his
authority in securing the loans subject of the
present actions.
The motion for reconsideration, however,
presents a copy of a power of attorney
purportedly executed by movant on October 22,
1952. It is not expressly mentioned that this is
the precise power of attorney that Ramon Racelis
Utilized to secure the loans the collection of
which is sought in these cases. But assuming, for

the sake of argument, that the said power of

attorney incorporated in the motion for
reconsideration was the one used to obtain the
loans. We find that the movant's contention has
no merit. In accordance with the document,
Racelis was authorized to negotiate for a loan or
various loans .. with other being institution,
financing corporation, insurance companies or
investment corporations, in such sum or sums,
aforesaid Attorney-in-fact Mr. Ramon Racelis, may
deem proper and convenient to my interests, ...
and to execute any and all documents he deems
requisite and necessary in order to obtain such
loans, always having in mind best interest; ... We
hold that this general power attorney to secure
loans from any banking institute was sufficient
authority for Ramon Racelis to obtain the credits
subject of the present suits.
It will be noted furthermore that Racelis, as agent
Damaso Perez, executed the documents
evidencing the loans signing the same "Damaso
Perez by Ramon Racelis," and in the said
contracts Damaso Perez agreed jointly and
severally to be responsible for the loans. As the
document as signed makes Perez jointly and
severally responsible, there is no merit in the
contention that Perez was only being held liable
as a guarantor.1awphl.nt
Furthermore, the promissory notes evidencing the
loan are attached to the complaint in G.R. Nos. L182 and L-18224. If the movant Perez claims that
Raceli had no authority to execute the said
promissory notes, the authenticity of said
documents should have been specifically denied
under oath in defendant's answers in the lower
court. This was done; consequently Perez could
not and may not now claim that his agent did not
have authority to execute the loan agreements.
Motion for new trial is denied.
----o0o---Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 137686

February 8, 2000

RURAL BANK OF MILAOR (CAMARINES

SUR), petitioner,
vs.
FRANCISCA OCFEMIA, ROWENA BARROGO,
MARIFE O. NIO, FELICISIMO OCFEMIA,

3 | Page

RENATO OCFEMIA JR, and WINSTON

OCFEMIA, respondents.
PANGANIBAN, J.:
When a bank, by its acts and failure to act, has
clearly clothed its manager with apparent
authority to sell an acquired asset in the normal
course of business, it is legally obliged to confirm
the transaction by issuing a board resolution to
enable the buyers to register the property in their
names. It has a duty to perform necessary and
lawful acts to enable the other parties to enjoy all
benefits of the contract which it had authorized.
The Case
Before this Court is a Petition for Review
on Certiorari challenging the December 18, 1998
Decision of the Court of Appeals 1 (CA) in CA-GR
SP No. 46246, which affirmed the May 20, 1997
Decision 2 of the Regional Trial Court (RTC) of
Naga City (Branch 28). The CA disposed as
follows:
Wherefore, premises considered, the
Judgment appealed from is hereby
AFFIRMED. Costs against the respondentappellant. 3
The dispositive portion of the judgment affirmed
by the CA ruled in this wise:
WHEREFORE, in view of all the foregoing
findings, decision is hereby rendered
whereby the [petitioner] Rural Bank of
Milaor (Camarines Sur), Inc. through its
Board of Directors is hereby ordered to
immediately issue a Board Resolution
confirming the Deed of Sale it executed in
favor of Renato Ocfemia marked Exhibits
C, C-1 and C-2); to pay [respondents] the
sum of FIVE HUNDRED (P500.00) PESOS as
actual damages; TEN THOUSAND
(P10,000.00) PESOS as attorney's fees;
THIRTY THOUSAND (P30,000.00) PESOS as
moral damages; THIRTY THOUSAND
(P30,000.00) PESOS as exemplary
damages; and to pay the costs. 4
Also assailed is the February 26, 1999 CA
Resolution 5 which denied petitioner's Motion for
Reconsideration.
The Facts
The trial court's summary of the undisputed facts
was reproduced in the CA Decision as follows:
This is an action for mandamus with
damages. On April 10, 1996, [herein
petitioner] was declared in default on
motion of the [respondents] for failure to

file an answer within the reglementaryperiod after it was duly served with
summons. On April 26, 1996, [herein
petitioner] filed a motion to set aside the
order of default with objection thereto filed
by [herein respondents].
On June 17, 1996, an order was issued
denying [petitioner's] motion to set aside
the order of default. On July 10, 1996, the
defendant filed a motion for
reconsideration of the order of June 17,
1996 with objection thereto by
[respondents]. On July 12, 1996, an order
was issued denying [petitioner's] motion
for reconsideration. On July 31, 1996,
[respondents] filed a motion to set case
for hearing. A copy thereof was duly
furnished the [petitioner] but the latter did
not file any opposition and so
[respondents] were allowed to present
their evidence ex-parte. A certiorari case
was filed by the [petitioner] with the Court
of Appeals docketed as CA GR No. 41497SP but the petition was denied in a
decision rendered on March 31, 1997 and
the same is now final.
The evidence presented by the
[respondents] through the testimony of
Marife O. Nio, one of the [respondents] in
this case, show[s] that she is the daughter
of Francisca Ocfemia, a co-[respondent] in
this case, and the late Renato Ocfemia
who died on July 23, 1994. The parents of
her father, Renato Ocfemia, were Juanita
Arellano Ocfemia and Felicisimo Ocfemia.
Her other co-[respondents] Rowena O.
Barrogo, Felicisimo Ocfemia, Renato
Ocfemia, Jr. and Winston Ocfemia are her
brothers and sisters.1wphi1.nt
Marife O. Nio knows the five (5) parcels
of land described in paragraph 6 of the
petition which are located in Bombon,
Camarines Sur and that they are the ones
possessing them which [were] originally
owned by her grandparents, Juanita
Arellano Ocfemia and Felicisimo Ocfemia.
During the lifetime of her grandparents,
[respondents] mortgaged the said five (5)
parcels of land and two (2) others to the
[petitioner] Rural Bank of Milaor as shown
by the Deed of Real Estate Mortgage
(Exhs. A and A-1) and the Promissory Note
(Exh. B).
The spouses Felicisimo Ocfemia and
Juanita Arellano Ocfemia were not able to
redeem the mortgaged properties
consisting of seven (7) parcels of land and
so the mortgage was foreclosed and
thereafter ownership thereof was
transferred to the [petitioner] bank. Out of

4 | Page

the seven (7) parcels that were foreclosed,

five (5) of them are in the possession of
the [respondents] because these five (5)
parcels of land described in paragraph 6 of
the petition were sold by the [petitioner]
bank to the parents of Marife O. Nio as
evidenced by a Deed of Sale executed in
January 1988 (Exhs. C, C-1 and C-2).
The aforementioned five (5) parcels of
land subject of the deed of sale (Exh. C),
have not been, however transferred in the
name of the parents of Merife O. Nio after
they were sold to her parents by the
[petitioner] bank because according to the
Assessor's Office the five (5) parcels of
land, subject of the sale, cannot be
transferred in the name of the buyers as
there is a need to have the document of
sale registered with the Register of Deeds
of Camarines Sur.
In view of the foregoing, Marife O. Nio
went to the Register of Deeds of
Camarines Sur with the Deed of Sale (Exh.
C) in order to have the same registered.
The Register of Deeds, however, informed
her that the document of sale cannot be
registered without a board resolution of
the [petitioner] Bank. Marife Nio then
went to the bank, showed to if the Deed of
Sale (Exh. C), the tax declaration and
receipt of tax payments and requested the
[petitioner] for a board resolution so that
the property can be transferred to the
name of Renato Ocfemia the husband of
petitioner Francisca Ocfemia and the
father of the other [respondents] having
died already.
The [petitioner] bank refused her request
for a board resolution and made many
alibi[s]. She was told that the [petitioner]
bank ha[d] a new manager and it had no
record of the sale. She was asked and she
complied with the request of the
[petitioner] for a copy of the deed of sale
and receipt of payment. The president of
the [petitioner] bank told her to get an
authority from her parents and other
[respondents] and receipts evidencing
payment of the consideration appearing in
the deed of sale. She complied with said
requirements and after she gave all these
documents, Marife O. Nio was again told
to wait for two (2) weeks because the
[petitioner] bank would still study the
matter.
After two (2) weeks, Marife O. Nio
returned to the [petitioner] bank and she
was told that the resolution of the board
would not be released because the
[petitioner] bank ha[d] no records from the

old manager. Because of this, Marife O.

Nio brought the matter to her lawyer and
the latter wrote a letter on December 22,
1995 to the [petitioner] bank inquiring
why no action was taken by the board of
the request for the issuance of the
resolution considering that the bank was
already fully paid [for] the consideration of
the sale since January 1988 as shown by
the deed of sale itself (Exh. D and D-1 ).
On January 15, 1996 the [petitioner] bank
answered [respondents'] lawyer's letter
(Exh. D and D-1) informing the latter that
the request for board resolution ha[d]
already been referred to the board of
directors of the [petitioner] bank with
another request that the latter should be
furnished with a certified machine copy of
the receipt of payment covering the sale
between the [respondents] and the
[petitioner] (Exh. E). This request of the
[petitioner] bank was already complied
[with] by Marife O. Nio even before she
brought the matter to her lawyer.
On January 23, 1996 [respondents'] lawyer
wrote back the branch manager of the
[petitioner] bank informing the latter that
they were already furnished the receipts
the bank was asking [for] and that the
[respondents] want[ed] already to know
the stand of the bank whether the board
[would] issue the required board resolution
as the deed of sale itself already show[ed]
that the [respondents were] clearly
entitled to the land subject of the sale
(Exh. F). The manager of the [petitioner]
bank received the letter which was served
personally to him and the latter told Marife
O. Nio that since he was the one himself
who received the letter he would not sign
anymore a copy showing him as having
already received said letter (Exh. F).
After several days from receipt of the
letter (Exh. F) when Marife O. Nio went to
the [petitioner] again and reiterated her
request, the manager of the [petitioner]
bank told her that they could not issue the
required board resolution as the
[petitioner] bank ha[d] no records of the
sale. Because of this Merife O. Nio
already went to their lawyer and ha[d] this
petition filed.
The [respondents] are interested in having
the property described in paragraph 6 of
the petition transferred to their names
because their mother and co-petitioner,
Francisca Ocfemia, is very sickly and they
want to mortgage the property for the
medical expenses of Francisca Ocfemia.
The illness of Francisca Ocfemia beg[a]n

5 | Page

after her husband died and her suffering

from arthritis and pulmonary disease
already became serious before December
1995.
Marife O. Nio declared that her mother is
now in serious condition and they could
not have her hospitalized for treatment as
they do not have any money and this is
causing the family sleepless nights and
mental anguish, thinking that their mother
may die because they could not submit
her for medication as they do not have
money. 6
The trial court granted the Petition. As noted
earlier, the CA affirmed the RTC Decision.
Hence, this recourse. 7 In a Resolution dated June
23, 1999, this Court issued a Temporary
Restraining Order directing the trial court "to
refrain and desist from executing [pending
appeal] the decision dated May 20, 1997 in Civil
Case No. RTC-96-3513, effective immediately
until further orders from this Court." 8
Ruling of the Court of Appeals
The CA held that herein respondents were "able
to prove their present cause of action" against
petitioner. It ruled that the RTC had jurisdiction
over the case, because (1) the Petition involved a
matter incapable of pecuniary estimation;
(2) mandamus fell within the jurisdiction of RTC;
and (3) assuming that the action was for specific
performance as argued by the petitioner, it was
still cognizable by the said court.
Issues
In its Memorandum,
following questions:

the bank posed the

1. Question of Jurisdiction of the Regional

Trial Court. Has a Regional Trial Court
original jurisdiction over an action
involving title to real property with a total
assessed value of less than P20,000.00?
2. Question of Law. May the board of
directors of a rural banking corporation be
compelled to confirm a deed of absolute
sale of real property owned by the
corporation which deed of sale was
executed by the bank manager without
prior authority of the board of directors of
the rural banking corporation? 10
This Court's Ruling
The present Petition has no merit.

First Issue:
Jurisdiction of the Regional Trial Court
Petitioner submits that the RTC had no jurisdiction
over the case. Disputing the ruling of the
appellate court that the present action was
incapable of pecuniary estimation, petitioner
argues that the matter in fact involved title to
real property worth less than P20,000. Thus,
under RA 7691, the case should have been filed
before a metropolitan trial court, a municipal trial
court or a municipal circuit trial court.
We disagree. The well-settled rule is that
jurisdiction is determined by the allegations of
the complaint. 11 In the present case, the Petition
for Mandamus filed by respondents before the
trial court prayed that petitioner-bank be
compelled to issue a board resolution confirming
the Deed of Sale covering five parcels of
unregistered land, which the bank manager had
executed in their favor. The RTC has jurisdiction
over such action pursuant to Section 21 of BP
129, which provides:
Sec. 21. Original jurisdiction in other
cases. Regional Trial Courts shall
exercise original jurisdiction;
(1) in the issuance of writ of certiorari,
prohibition, mandamus, quo
warranto, habeas corpus and injunction
which may be enforced in any part of their
respective regions; and
(2) In actions affecting ambassadors and
other public ministers and consuls.
A perusal of the Petition shows that the
respondents did not raise any question involving
the title to the property, but merely asked that
petitioner's board of directors be directed to issue
the subject resolution. Moreover, the bank did not
controvert the allegations in the said Petition. To
repeat, the issue therein was not the title to the
property; it was respondents' right to compel the
bank to issue a board resolution confirming the
Deed of Sale.
Second Issue:
Authority of the Bank Manager
Respondents initiated the present proceedings, so
that they could transfer to their names the
subject five parcels of land; and subsequently, to
mortgage said lots and to use the loan proceeds
for the medical expenses of their ailing mother.
For the property to be transferred in their names,
however, the register of deeds required the
submission of a board resolution from the bank
confirming both the Deed of Sale and the
authority of the bank manager, Fe S. Tena, to
enter into such transaction. Petitioner refused.

6 | Page

After being given the runaround by the bank,

respondents sued in exasperation.
Allegations in the Petition for Mandamus Deemed
Admitted
Respondents based their action before the trial
court on the Deed of Sale, the substance of which
was alleged in and a copy thereof was attached
to the Petition for Mandamus. The Deed named
Fe S. Tena as the representative of the bank.
Petitioner, however, failed to specifically deny
under oath the allegations in that contract. In
fact, it filed no answer at all, for which reason it
was declared in default. Pertinent provisions of
the Rules of Court read:
Sec. 7. Action or defense based on
document. Whenever an action or
defense is based upon a written
instrument or document, the substance of
such instrument or document shall be set
forth in the pleading, and the original or a
copy thereof shall be attached to the
pleading as an exhibit, which shall be
deemed to be a part of the pleading, or
said copy may with like effect be set forth
in the pleading.
Sec. 8. How to contest genuineness of
such documents. When an action or
defense is founded upon a written
instrument, copied in or attached to the
corresponding pleading as provided in the
preceding section, the genuineness and
due execution of the instrument shall be
deemed admitted unless the adverse
party, under oath, specifically denies
them, and sets forth what he claims to be
the facts; but this provision does not apply
when the adverse party does not appear
to be a party to the instrument or when
compliance with an order for an inspection
of the original instrument is refused. 12
In failing to file its answer specifically denying
under oath the Deed of Sale, the bank admitted
the due execution of the said contract. Such
admission means that it acknowledged that Tena
was authorized to sign the Deed of Sale on its
behalf. 13 Thus, defenses that are inconsistent
with the due execution and the genuineness of
the written instrument are cut off by an
admission implied from a failure to make a
verified specific denial.
Other Acts of the Bank
In any event, the bank acknowledged, by its own
acts or failure to act, the authority of Fe S. Tena to
enter into binding contracts. After the execution
of the Deed of Sale, respondents occupied the
properties in dispute and paid the real estate
taxes due thereon. If the bank management

believed that it had title to the property, it should

have taken some measures to prevent the
infringement or invasion of its title thereto and
possession thereof.
Likewise, Tena had previously transacted business
on behalf of the bank, and the latter had
acknowledged her authority. A bank is liable to
innocent third persons where representation is
made in the course of its normal business by an
agent like Manager Tena, even though such agent
is abusing her authority. 14 Clearly, persons
dealing with her could not be blamed for
believing that she was authorized to transact
business for and on behalf of the bank. Thus, this
Court has ruled in Board of Liquidators
v. Kalaw: 15
Settled jurisprudence has it that where
similar acts have been approved by the
directors as a matter of general practice,
custom, and policy, the general manager
may bind the company without formal
authorization of the board of directors. In
varying language, existence of such
authority is established, by proof of the
course of business, the usages and
practices of the company and by the
knowledge which the board of directors
has, or must be presumed to have, of acts
and doings of its subordinates in and
about the affairs of the corporation. So
also,
. . . authority to act for and bind a
corporation may be presumed from acts of
recognition in other instances where the
power was in fact exercised.
. . . Thus, when, in the usual course of
business of a corporation, an officer has
been allowed in his official capacity to
manage its affairs, his authority to
represent the corporation may be implied
from the manner in which he has been
permitted by the directors to manage its
business.

responsible officers, no matter how regular

they should appear on their face. This
Court has observed in Ramirez
vs. Orientalist Co., 38 Phil. 634, 654-655,
that
In passing upon the liability of a
corporation in cases of this kind it
is always well to keep in mind the
situation as it presents itself to the
third party with whom the contract
is made. Naturally he can have
little or no information as to what
occurs in corporate meetings; and
he must necessarily rely upon the
external manifestation of corporate
consent. The integrity of
commercial transactions can only
be maintained by holding the
corporation strictly to the liability
fixed upon it by its agents in
accordance with law; and we would
be sorry to announce a doctrine
which would permit the property of
man in the city of Paris to be
whisked out of his hands and
carried into a remote quarter of the
earth without recourse against the
corporation whose name and
authority had been used in the
manner disclosed in this case. As
already observed, it is familiar
doctrine that if a corporation
knowingly permits one of its
officers, or any other agent, to do
acts within the scope of an
apparent authority, and thus holds
him out to the public as possessing
power to do those acts, the
corporation will, as against any one
who has in good faith dealt with
the corporation through such
agent, be estopped from denying
his authority; and where it is said
"if the corporation permits this
means the same as "if the thing is
permitted by the directing power of
the corporation." 16

Notwithstanding the putative authority of the

manager to bind the bank in the Deed of Sale,
petitioner has failed to file an answer to the
Petition below within the reglementary period, let
alone present evidence controverting such
authority. Indeed, when one of herein
respondents, Marife S. Nino, went to the bank to
ask for the board resolution, she was merely told
to bring the receipts. The bank failed to
categorically declare that Tena had no authority.
This Court stresses the following:

In this light, the bank is estopped from

questioning the authority of the bank manager to
enter into the contract of sale. If a corporation
knowingly permits one of its officers or any other
agent to act within the scope of an apparent
authority, it holds the agent out to the public as
possessing the power to do those acts; thus, the
corporation will, as against anyone who has in
good faith dealt with it through such agent, be
estopped from denying the agent's authority. 17

. . . Corporate transactions would speedily

come to a standstill were every person
dealing with a corporation held dutybound to disbelieve every act of its

Unquestionably, petitioner has authorized Tena to

enter into the Deed of Sale. Accordingly, it has a
clear legal duty to issue the board resolution
sought by respondent's. Having authorized her to
sell the property, it behooves the bank to confirm

7 | Page

the Deed of Sale so that the buyers may enjoy its

full use.
The board resolution is, in fact, mere paper work.
Nonetheless, it is paper work necessary in the
orderly operations of the register of deeds and
the full enjoyment of respondents' rights.
Petitioner-bank persistently and unjustifiably
refused to perform its legal duty. Worse, it was
less than candid in dealing with respondents
regarding this matter. In this light, the Court finds
it proper to assess the bank treble costs, in
addition to the award of damages.
WHEREFORE, the Petition is hereby DENIED and
the assailed Decision and Resolution AFFIRMED.
The Temporary Restraining Order issued by this
Court is hereby LIFTED. Treble costs against
petitioner.
SO ORDERED.
Melo, Purisima and Gonzaga-Reyes, JJ., concur.
Vitug, J., please see concurring opinion.
Separate Opinions
VITUG, J., concurring opinion;
I share the views expressed in
the ponencia written for the Court by our
esteemed colleague Mr. Justice Artemio V.
Panganiban. There is just a brief clarificatory
statement that I thought could be made.
The Civil Code, being a law of general application,
can be suppletory to special laws and certainly
not preclusive of those that govern commercial
transactions. Indeed, in its generic sense, civil
law can rightly be said to encompass commercial
law. Jus civile, in ancient Rome, was merely used
to distinguish it from jus gentium or the law
common to all the nations within the empire and,
at some time later, only in contrast to
international law. In more recent times, civil law is
so referred to as private law in distinction from
public law and criminal law. Today, it may not be
totally inaccurate to consider commercial law,
among some other special laws, as being a
branch of civil law.
Sec. 45 of the Corporation Code provides:
Sec. 45. Ultra vires acts of corporations.
No corporation under this Code shall
possess or exercise any corporate powers
except those conferred by this Code or by
its articles of incorporation and except
such as are necessary or incidental to the
exercise of the powers so conferred.
The language of the Code appears to confine the
term ultra vires to an act outside or beyond

8 | Page

express, implied and incidental corporate powers.

Nevertheless, the concept can also include those
acts that may ostensibly be within such powers
but are, by general or special laws, either
proscribed or declared illegal. In general,
although perhaps loosely, ultra vires has also
been used to designate those acts of the board of
directors or of corporate officers when acting
beyond their respective spheres of authority. In
the context that the law has used the term in
Article 45 of the Corporation Code, an ultra
vires act would be void and not susceptible to
ratification. 1 In determining whether or not a
corporation may perform an act, one considers
the logical and necessary relation between the
act assailed and the corporate purpose expressed
by the law or in the charter. For if the act were
one which is lawful in itself or not otherwise
prohibited and done for the purpose of serving
corporate ends or reasonably contributes to the
promotion of those ends in a substantial and not
merely in a remote and fanciful sense, it may be
fairly considered within corporate powers. 2
Sec. 23 of the Corporation Code states that the
corporate powers are to be exercised, all business
conducted, and all property of corporations
controlled and held, by the Board of Directors.
When the act of the board is within corporate
powers but it is done without the concurrence of
the shareholders as and when such approval is
required by law 3 or when the act is beyond its
competence to do, 4 the act has been described
as void 5 or, as unenforceable, 6 or as ineffective
and not legally binding. 7 These holdings
notwithstanding, the act cannot accurately be
likened to an ultra vires act of the corporation
itself defined in Section 45 of the Code. Where
the act is within corporate powers but the board
has acted without being competent to
independently do so, the action is not necessarily
and totally devoid of effects, and it may generally
be ratified expressly or impliedly. Thus, an
acceptance of benefits derived by the
shareholders from an outside investment made
by the board without the required concurrence of
the stockholders may, nonetheless, be so
considered as an effective investment. 8 It may
be said, however, that when the board resolution
is yet executory, the act should aptly be deemed
inoperative and specific performance cannot be
validly demanded but, if for any reason, the
contemplated action is carried out, such
principles as ratification or prescription when
applicable, normally unknown in void contracts,
can serve to negate a claim for the total nullity
thereof.
Corporate officers, in their case, may act on such
matters as may be authorized either expressly by
the By-laws or Board Resolutions or impliedly
such as by general practice or policy or as are
implied by express powers. When officers are
allowed to act in certain particular cases, their
acts conformably therewith can bind the

company. Hence, a corporate officer entrusted

with general management and control of the
business has the implied authority to act or
contract for the corporation which may be
necessary or appropriate to conduct the ordinary
business. 9 If the act of corporate officers comes
within corporate powers but it is done without
any express or implied authority therefor from the
by-laws, board resolutions or corporate practices,
such an act does not bind the corporation. The
Board, however, acting within its competence,
may ratify the unauthorized act of the corporate
officer. So, too, a corporation may be held in
estoppel from denying as against innocent third
persons the authority of its officers or agents who
have been clothed by it with ostensible or
apparent authority. 10

RTC Decision, p. 6; rollo, p. 49.

Rollo, pp. 36-37.

RTC Decision, pp. 1-3; rollo, pp. 44-46.

Rollo, p. 117.

The Corporation Code itself has not been that

explicit with respect to the consequences of ultra
vires acts; hence, the varied ascriptions to its
effects heretofore expressed. It may well be to
consider futile any further attempt to have these
situations bear any exact equivalence to the civil
law precepts of defective contracts. Nevertheless,
general statements could be made. Here
reiterated, while an act of the corporation which
is either illegal or outside of express, implied or
incidental powers as so provided by law or the
charter would be void under Article 511 of the Civil
Code, and the act is not susceptible to
ratification, an unauthorized act (if within
corporate powers) of the board or a corporate
officer, however, would only be unenforceable
conformably with Article 1403 12 of the Civil Code
but, if the party with whom the agent has
contracted is aware of the latter's limits of
powers, the unauthorized act is declared void by
Article 1898 13 of the same Code, although still
susceptible thereunder to ratification by the
principal. Any person dealing with corporate
boards and officers may be said to be charged
with the knowledge that the latter can only act
within their respective limits of power, and he is
put to notice accordingly. Thus, it would generally
behoove such a person to look into the extent of
the authority of corporate agents since
the onus would ordinarily be with
him.1wphi1.nt

Rollo, pp. 153-160.

The case was deemed submitted for

resolution on October 27, 1999, upon
receipt by this Court of the respective
Memoranda of the petitioner and the
respondents. The Memorandum of
Petitioner was signed by Atty. David C.
Naval, while that of respondents was
signed by Atty. Eustaquio S. Beltran.

10

Ibid., p. 154.

11

Santiago v. Guingona, 298 SCRA 756,

766, November 18, 1998; Bernate v. CA,
263 SCRA 323, October 18, 1996; Sandel
v. CA, 262 SCRA 101, September 19, 1996.
12

Rule 8 of the Rules of Court.

13

Imperial Textile Mills, Inc. v. C.A., 183

SCRA 1, March 22, 1990.
14

First Philippine International Bank v. CA,

infra, note 17.
15

20 SCRA 987, 1005, August 14, 1967,

per Sanchez, J.
16

Francisco v. GSIS, 7 SCRA 577, 583-584,

March 30, 1963, per Reyes, J.B.L., J.
17

First International Bank v. CA, 252 SCRA

259, January 24, 1996; People's Aircargo
and Warehousing Co., Inc. v. CA, 297 SCRA
170, 184-185, October 7, 1998.

VITUG, J., concurring opinion;

Footnotes
1

Special Thirteenth Division composed of

J. Renato C. Dacudao, ponente; and JJ
Salvador J. Valdez Jr. (chairman) and
Roberto A. Barrios (member), both
concurring.
2

Penned by Judge Antonio N. Gerona.

CA Decision, p. 9; rollo, p. 25.

9 | Page

Republic vs. Acoje Mining Co , Inc., 7

SCRA 361. Although in this case the
Supreme Court held that the opening of a
post office branch by a corporation falls
under its implied powers and, therefore,
not an ultra vires act, since said facility is
needed for the convenience of its
personnel and employees.
2

National Power Corporation vs. Judge

Vera, 170 SCRA 721.

Such as an the sale of all or substantially

all of the corporate assets or an
investment in another corporation outside
corporate purposes.
4

Like the removal of a director.

Pea vs. Court of Appeals, 193 SCRA 717.

Ricafort vs. Moya, 195 SCRA 247.

Natino vs. Intermediate Appellate Court,

197 SCRA 323.
8

Gokongwei, Jr. vs. Securities & Exchange

Commission, 89 SCRA 336 97 SCRA 78.
9

Board of Liquidators vs. Heirs of Kalaw,

20 SCRA 987.
10

In Yao Ka Sin Trading vs. Court of

Appeals, the Court said. The rule is, of
course settled that although an officer or
agent acts without or in excess of, his
actual authority however, if he acts within
the scope of an apparent authority with
which the corporation has clothed him by
holding him out or permitting him to
appear as having such authority, the
corporation is bound thereby in favor of a
person who deals with him in good faith in
reliance on that apparent authority, as
where an officer is allowed to exercise a
particular authority with respect to the
business, or a particular branch of it,
continuously and publicly, for a
considerable time. Also, "if a private
corporation intentionally or negligently
clothes its officers or agent with apparent
power to perform acts for it, the
corporation will be estopped to deny that
such apparent authority is real, as to
innocent third persons dealing in good
faith with such officers or agents.
(Fletcher, op, cit. 340) This "apparent
authority may result from (1) the general
manner by which the corporation holds
out an officer or agent as having power to
act or, in other words, the apparent
authority with which it clothes him to act
in general, or (2) the acquiescence in his
acts of a particular nature, with actual or
constructive knowledge thereof, whether
within or without the scope of his ordinary
powers."
11

Art. 5. Acts executed against the

provisions of mandatory or prohibitory
laws shall be void except when the law
itself authorities their validity.
12

Art. 1403. The following contracts are

unenforceable, unless they are ratified.

10 | P a g e

(1) Those entered into in the name

of another person by one who has
been given no authority or legal
representation, or who has acted
beyond his powers;
(2) Those that do not comply with
the Statute of Frauds as set forth in
this number. In the following cases
an agreement hereafter made shall
be unenforceable by action unless
the same, or some note or
memorandum thereof, be in
writing, and subscribed and by the
party charged, or by his agent;
evidence, therefore, of the
agreement cannot be received
without the writing, or a secondary
evidence of its contents:
(a) An agreement that by its terms
is not to be performed within a
year from the making thereof;
(b) A special promise to answer for
the debt, default or miscarriage of
another;
(c) An agreement made in
consideration of marriage, other
than a mutual promise to marry;
(d) An agreement for the sale of
goods, chattels or things in action,
at a price not less than five
hundred pesos, unless the buyer
accept and receive part of such
goods and chattels, or the
evidences, or some of them of such
things in action, or pay at the time
some part of the purchase money;
but when a sale is made by auction
and entry is made by the
auctioneer in his sales book, at the
time of the sale, of the amount and
kind of property sold, terms of sale,
price, names of the purchasers and
person on whose account the sale
is made, it is a sufficient
memorandum;
(e) An agreement for the leasing
for a longer period than one year,
or for the sale of real property or of
an interest therein;
(f) A representation as to the credit
of a third person;
(3) Those where both parties are
incapable of giving consent to a
contract.

13

If the agent contracts in the name of the

principal, exceeding the scope of his
authority and the principal does not ratify
the contract, it shall be void if the party
with whom the agent contracted is aware
of the limits of the powers granted by the
principal. In this case, however, the agent
is liable if he undertook to secure the
principal's ratification.
----o0o----

Republic of the Philippines

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

June 26, 2006

JOCELYN B. DOLES, Petitioner,

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

11 | P a g e

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

12 | P a g e

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 133511of the
Civil Code;12 that with respect to the arrearages of
petitioner on her monthly amortization with the
NHMFC in the sum of P26,744.09, the same shall
be deemed part of the balance of petitioners
loan with the NHMFC which respondent agreed to
assume; and that the amount of P3,000.00
representing the rental for January 1997
supposedly collected by petitioner, as well as the
claim for damages and attorneys fees, is denied
for insufficiency of evidence.13
On May 29, 2001, petitioner filed her Motion for
Reconsideration with the CA, arguing that
respondent categorically admitted in open court
that she acted only as agent or representative of
Arsenio Pua, the principal financier and, hence,
she had no legal capacity to sue petitioner; and
that the CA failed to consider the fact that
petitioners father, who co-owned the subject
property, was not impleaded as a defendant nor
was he indebted to the respondent and, hence,
she cannot be made to sign the documents to
effect the transfer of ownership over the entire
property.

On August 6, 2001, the CA issued its Resolution

denying the motion on the ground that the
foregoing matters had already been passed upon.
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.

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 "relends" the amount borrowed from respondent to
her friends: first, the friends of petitioner never
presented themselves to respondent and that all
transactions were made by and between
petitioner and respondent;18 second; the money
passed through the bank accounts of petitioner
and respondent;19 third, petitioner herself
admitted that she was "re-lending" the money
loaned to other individuals for profit;20 and fourth,
the documentary evidence shows that the actual
borrowers, the friends of petitioner, consider her
as their creditor and not the respondent.21
On the first, third, and fourth points, the CA cites
the testimony of the petitioner, then defendant,
during her cross-examination:22
Atty. Diza:
q. You also mentioned that you were not
the one indebted to the plaintiff?
witness:
a. Yes, sir.
Atty. Diza:
q. And you mentioned the persons[,]
namely, Elizabeth Tomelden, Teresa
Moraquin, Maria Luisa Inocencio, Zenaida
Romulo, they are your friends?
witness:
a. Inocencio and Moraquin are my friends
while [as to] Jacob and Tomelden[,] they
were just referred.
Atty. Diza:

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.

q. And you have transact[ed] with the

plaintiff?

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

Atty. Diza:

13 | P a g e

witness:
a. Yes, sir.

q. What is that transaction?

witness:

a. To refer those persons to Aura and to

refer again to Arsenio Pua, sir.
Atty. Diza:

a. Yes, sir.
Atty. Diza:
q. How much?

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. 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.

a. Yes, sir.

But as correctly noted by the RTC,

respondent, then plaintiff, made the
following admission during her cross
examination:23

Atty. Diza:

Atty. Villacorta:

q. You are intermediaries?

q. Who is this Arsenio Pua?

witness:

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.

a. Principal financier, sir.

xxxx

witness:

Atty. Diza:

a. Yes, because I am only representing

him, sir.

witness:

Atty. Villacorta:
q. So the money came from Arsenio Pua?

q. Did the plaintiff knew [sic] that you will

lend the money to your friends specifically
the one you mentioned [a] while ago?

Other portions of the testimony of

respondent must likewise be considered:24

witness:

Atty. Villacorta:

a. Yes, she knows the money will go to

those persons.

q. So it is not actually your money but the

money of Arsenio Pua?

Atty. Diza:

witness:

q. You are re-lending the money?

a. Yes, sir.

witness:

Court:

a. Yes, sir.

q. It is not your money?

Atty. Diza:

witness:

q. What profit do you have, do you have

commission?

a. Yes, Your Honor.

Atty. Villacorta:

witness:

14 | P a g e

q. Is it not a fact Ms. Witness that the

defendant borrowed from you to
accommodate somebody, are you aware
of that?
witness:

witness:
a. Yes, sir.
Atty. Villacorta:

a. I am aware of that.

q. So that occasion lasted for more than a

year?

Atty. Villacorta:

witness:

q. More or less she [accommodated]

several friends of the defendant?

a. Yes, sir.

witness:
a. Yes, sir, I am aware of that.

Atty. Villacorta:
q. And some of the checks that were
issued by the friends of the defendant
bounced, am I correct?

xxxx
Atty. Villacorta:

witness:
a. Yes, sir.

q. And these friends of the defendant

borrowed money from you with the
assurance of the defendant?

Atty. Villacorta:

witness:

q. And because of that Arsenio Pua got

mad with you?

a. They go direct to Jocelyn because I

dont know them.

witness:

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?

15 | P a g e

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

16 | P a g e

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.
38253236 on its face shows that the owner of the
property which admittedly forms the subject
matter of the Deed of Absolute Sale refers
neither to the petitioner nor to her father,
Teodorico Doles, the alleged co-owner. Rather, it
states that the property is registered in the name
of "Household Development Corporation."
Although there is an entry to the effect that the
petitioner had been granted a special power of
attorney "covering the shares of Teodorico Doles
on the parcel of land described in this
certificate,"37 it cannot be inferred from this bare
notation, nor from any other evidence on the
record, that the petitioner or her father held any
direct interest on the property in question so as
to validly constitute a mortgage thereon38 and,
with more reason, to effect the delivery of the
object of the sale at the consummation
stage.39 What is worse, there is a notation that
the TCT itself has been "cancelled."40
In view of these anomalies, the Court cannot
entertain the
possibility that respondent agreed to assume the
balance of the mortgage loan which petitioner
allegedly owed to the NHMFC, especially since
the record is bereft of any factual finding that
petitioner was, in the first place, endowed with
any ownership rights to validly mortgage and
convey the property. As the complainant who
initiated the case, respondent bears the burden
of proving the basis of her complaint. Having
failed to discharge such burden, the Court has no

choice but to declare the sale void for lack of

cause. And since the sale is void, the Court finds
it unnecessary to dwell on the issue of whether
duress or intimidation had been foisted upon
petitioner upon the execution of the sale.
Moreover, even assuming the mortgage validly
exists, the Court notes respondents allegation
that the mortgage with the NHMFC was for 25
years which began September 3, 1994.
Respondent filed her Complaint for Specific
Performance in 1997. Since the 25 years had not
lapsed, the prayer of respondent to compel
petitioner to execute necessary documents to
effect the transfer of title is premature.
WHEREFORE, the petition is granted. The
Decision and Resolution of the Court of Appeals
are REVERSED andSET ASIDE. The complaint of
respondent in Civil Case No. 97-82716
is DISMISSED.
SO ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
WE CONCUR:

DECISION
NACHURA, J.:
For our resolution is a petition for review on
certiorari assailing the April 23, 2003
Decision1 and October 8, 2003 Resolution2 of the
Court of Appeals (CA) in CA-G.R. CV No. 59426.
The appellate court, in the said decision and
resolution, reversed and set aside the January 14,
1998 Decision3 of the Regional Trial Court (RTC),
which ruled in favor of petitioners.
The dispute stemmed from the following facts.

ARTEMIO V. PANGANIBAN
Chief Justice
Chairperson
CONSUELO
ROMEO J. CALLEJO,
YNARES-SANTIAGO
SR.
Associate Justice
Asscociate Justice
MINITA V. CHICO-NAZARIO
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the
Constitution, it is hereby certified that the
conclusions in the above Decision were reached
in consultation before the case was assigned to
the writer of the opinion of the Courts Division.
ARTEMIO V. PANGANIBAN
Chief Justice
----o0o---Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 160346

17 | P a g e

PURITA PAHUD, SOLEDAD PAHUD, and IAN

LEE CASTILLA (represented by Mother and
Attorney-in-Fact VIRGINIA
CASTILLA), Petitioners,
vs.
COURT OF APPEALS, SPOUSES ISAGANI
BELARMINO and LETICIA OCAMPO, EUFEMIA
SAN AGUSTIN-MAGSINO, ZENAIDA SAN
AGUSTIN-McCRAE, MILAGROS SAN AGUSTINFORTMAN, MINERVA SAN AGUSTINATKINSON, FERDINAND SAN AGUSTIN, RAUL
SAN AGUSTIN, ISABELITA SAN AGUSTINLUSTENBERGER and VIRGILIO SAN
AGUSTIN, Respondents.

August 25, 2009

During their lifetime, spouses Pedro San Agustin

and Agatona Genil were able to acquire a 246square meter parcel of land situated in Barangay
Anos, Los Baos, Laguna and covered by Original
Certificate of Title (OCT) No. O-(1655) 015.4 Agatona Genil died on September 13, 1990
while Pedro San Agustin died on September 14,
1991. Both died intestate, survived by their eight
(8) children: respondents Eufemia, Raul,
Ferdinand, Zenaida, Milagros, Minerva, Isabelita
and Virgilio.
Sometime in 1992, Eufemia, Ferdinand and Raul
executed a Deed of Absolute Sale of Undivided
Shares5conveying in favor of petitioners (the
Pahuds, for brevity) their respective shares from
the lot they inherited from their deceased parents
for P525,000.00.6 Eufemia also signed the deed
on behalf of her four (4) other co-heirs, namely:
Isabelita on the basis of a special power of
attorney executed on September 28, 1991,7 and
also for Milagros, Minerva, and Zenaida but
without their apparent written authority.8 The
deed of sale was also not notarized.9
On July 21, 1992, the Pahuds paid P35,792.31 to
the Los Baos Rural Bank where the subject
property was mortgaged.10 The bank issued a
release of mortgage and turned over the owners
copy of the OCT to the Pahuds.11 Over the
following months, the Pahuds made more
payments to Eufemia and her siblings totaling
toP350,000.00.12 They agreed to use the
remaining P87,500.0013 to defray the payment for

taxes and the expenses in transferring the title of

the property.14 When Eufemia and her co-heirs
drafted an extra-judicial settlement of estate to
facilitate the transfer of the title to the Pahuds,
Virgilio refused to sign it.15
On July 8, 1993, Virgilios co-heirs filed a
complaint16 for judicial partition of the subject
property before the RTC of Calamba, Laguna. On
November 28, 1994, in the course of the
proceedings for judicial partition, a Compromise
Agreement17 was signed with seven (7) of the coheirs agreeing to sell their undivided shares to
Virgilio for P700,000.00. The compromise
agreement was, however, not approved by the
trial court because Atty. Dimetrio Hilbero, lawyer
for Eufemia and her six (6) co-heirs, refused to
sign the agreement because he knew of the
previous sale made to the Pahuds.18lawphil.net
On December 1, 1994, Eufemia acknowledged
having received P700,000.00 from
Virgilio.19 Virgilio then sold the entire property to
spouses Isagani Belarmino and Leticia Ocampo
(Belarminos) sometime in 1994. The Belarminos
immediately constructed a building on the
subject property.
Alarmed and bewildered by the ongoing
construction on the lot they purchased, the
Pahuds immediately confronted Eufemia who
confirmed to them that Virgilio had sold the
property to the Belarminos.20 Aggrieved, the
Pahuds filed a complaint in intervention21 in the
pending case for judicial partition.1avvphil
After trial, the RTC upheld the validity of the sale
to petitioners. The dispositive portion of the
decision reads:
WHEREFORE, the foregoing considered, the Court
orders:
1. the sale of the 7/8 portion of the
property covered by OCT No. O (1655) O15 by the plaintiffs as heirs of deceased
Sps. Pedro San Agustin and Agatona Genil
in favor of the Intervenors-Third Party
plaintiffs as valid and enforceable, but
obligating the Intervenors-Third Party
plaintiffs to complete the payment of the
purchase price of P437,500.00 by paying
the balance of P87,500.00 to defendant Fe
(sic) San Agustin Magsino. Upon receipt of
the balance, the plaintiff shall formalize
the sale of the 7/8 portion in favor of the
Intervenor[s]-Third Party plaintiffs;
2. declaring the document entitled
"Salaysay sa Pagsang-ayon sa Bilihan"
(Exh. "2-a") signed by plaintiff Eufemia
San Agustin attached to the unapproved
Compromise Agreement (Exh. "2") as not

18 | P a g e

a valid sale in favor of defendant Virgilio

San Agustin;
3. declaring the sale (Exh. "4") made by
defendant Virgilio San Agustin of the
property covered by OCT No. O (1655)-O15 registered in the names of Spouses
Pedro San Agustin and Agatona Genil in
favor of Third-party defendant Spouses
Isagani and Leticia Belarmino as not a
valid sale and as inexistent;
4. declaring the defendant Virgilio San
Agustin and the Third-Party defendants
spouses Isagani and Leticia Belarmino as
in bad faith in buying the portion of the
property already sold by the plaintiffs in
favor of the Intervenors-Third Party
Plaintiffs and the Third-Party Defendant
Sps. Isagani and Leticia Belarmino in
constructing the two-[storey] building in
(sic) the property subject of this case; and
5. declaring the parties as not entitled to
any damages, with the parties shouldering
their respective responsibilities regarding
the payment of attorney[]s fees to their
respective lawyers.
No pronouncement as to costs.
SO ORDERED.22
Not satisfied, respondents appealed the decision
to the CA arguing, in the main, that the sale
made by Eufemia for and on behalf of her other
co-heirs to the Pahuds should have been declared
void and inexistent for want of a written authority
from her co-heirs. The CA yielded and set aside
the findings of the trial court. In disposing the
issue, the CA ruled:
WHEREFORE, in view of the foregoing, the
Decision dated January 14, 1998, rendered by the
Regional Trial Court of Calamba, Laguna, Branch
92 in Civil Case No. 2011-93-C for Judicial
Partition is hereby REVERSED and SET ASIDE, and
a new one entered, as follows:
(1) The case for partition among the
plaintiffs-appellees and appellant Virgilio is
now considered closed and terminated;
(2) Ordering plaintiffs-appellees to return
to intervenors-appellees the total amount
they received from the latter, plus an
interest of 12% per annum from the time
the complaint [in] intervention was filed
on April 12, 1995 until actual payment of
the same;
(3) Declaring the sale of appellant Virgilio
San Agustin to appellants spouses, Isagani

and Leticia Belarmino[,] as valid and

binding;

explained in Cosmic Lumber Corporation v. Court

of Appeals:26

(4) Declaring appellants-spouses as

buyers in good faith and for value and are
the owners of the subject property.

[T]he authority of an agent to execute a contract

[of] sale of real estate must be conferred in
writing and must give him specific authority,
either to conduct the general business of the
principal or to execute a binding contract
containing terms and conditions which are in the
contract he did execute. A special power of
attorney is necessary to enter into any contract
by which the ownership of an immovable is
transmitted or acquired either gratuitously or for
a valuable consideration. The express mandate
required by law to enable an appointee of an
agency (couched) in general terms to sell must
be one that expressly mentions a sale or that
includes a sale as a necessary ingredient of the
act mentioned. For the principal to confer the
right upon an agent to sell real estate, a power of
attorney must so express the powers of the agent
in clear and unmistakable language. When there
is any reasonable doubt that the language so
used conveys such power, no such construction
shall be given the document.27

No pronouncement as to costs.
SO ORDERED.23
Petitioners now come to this Court raising the
following arguments:
I. The Court of Appeals committed grave
and reversible error when it did not apply
the second paragraph of Article 1317 of
the New Civil Code insofar as ratification is
concerned to the sale of the 4/8 portion of
the subject property executed by
respondents San Agustin in favor of
petitioners;
II. The Court of Appeals committed grave
and reversible error in holding that
respondents spouses Belarminos are in
good faith when they bought the subject
property from respondent Virgilio San
Agustin despite the findings of fact by the
court a quo that they were in bad faith
which clearly contravenes the presence of
long line of case laws upholding the task
of giving utmost weight and value to the
factual findings of the trial court during
appeals; [and]
III. The Court of Appeals committed grave
and reversible error in holding that
respondents spouses Belarminos have
superior rights over the property in
question than petitioners despite the fact
that the latter were prior in possession
thereby misapplying the provisions of
Article 1544 of the New Civil Code.24
The focal issue to be resolved is the status of the
sale of the subject property by Eufemia and her
co-heirs to the Pahuds. We find the transaction to
be valid and enforceable.
Article 1874 of the Civil Code plainly provides:
Art. 1874. When a sale of a piece of land or any
interest therein is through an agent, the authority
of the latter shall be in writing; otherwise, the
sale shall be void.
Also, under Article 1878,25 a special power of
attorney is necessary for an agent to enter into a
contract by which the ownership of an immovable
property is transmitted or acquired, either
gratuitously or for a valuable consideration. Such
stringent statutory requirement has been

19 | P a g e

In several cases, we have repeatedly held that

the absence of a written authority to sell a piece
of land is, ipso jure, void,28 precisely to protect
the interest of an unsuspecting owner from being
prejudiced by the unwarranted act of another.
Based on the foregoing, it is not difficult to
conclude, in principle, that the sale made by
Eufemia, Isabelita and her two brothers to the
Pahuds sometime in 1992 should be valid only
with respect to the 4/8 portion of the subject
property. The sale with respect to the 3/8 portion,
representing the shares of Zenaida, Milagros, and
Minerva, is void because Eufemia could not
dispose of the interest of her co-heirs in the said
lot absent any written authority from the latter,
as explicitly required by law. This was, in fact, the
ruling of the CA.
Still, in their petition, the Pahuds argue that the
sale with respect to the 3/8 portion of the land
should have been deemed ratified when the three
co-heirs, namely: Milagros, Minerva, and Zenaida,
executed their respective special power of
attorneys29 authorizing Eufemia to represent
them in the sale of their shares in the subject
property.30
While the sale with respect to the 3/8 portion is
void by express provision of law and not
susceptible to ratification,31 we nevertheless
uphold its validity on the basis of the common
law principle of estoppel.
Article 1431 of the Civil Code provides:
Art. 1431. Through estoppel an admission or
representation is rendered conclusive upon the

person making it, and cannot be denied or

disproved as against the person relying thereon.
True, at the time of the sale to the Pahuds,
Eufemia was not armed with the requisite special
power of attorney to dispose of the 3/8 portion of
the property. Initially, in their answer to the
complaint in intervention,32 Eufemia and her
other co-heirs denied having sold their shares to
the Pahuds. During the pre-trial conference,
however, they admitted that they had indeed
sold 7/8 of the property to the Pahuds sometime
in 1992.33 Thus, the previous denial was
superseded, if not accordingly amended, by their
subsequent admission.34 Moreover, in their
Comment,35 the said co-heirs again admitted the
sale made to petitioners.36
Interestingly, in no instance did the three (3)
heirs concerned assail the validity of the
transaction made by Eufemia to the Pahuds on
the basis of want of written authority to sell. They
could have easily filed a case for annulment of
the sale of their respective shares against
Eufemia and the Pahuds. Instead, they opted to
remain silent and left the task of raising the
validity of the sale as an issue to their co-heir,
Virgilio, who is not privy to the said transaction.
They cannot be allowed to rely on Eufemia, their
attorney-in-fact, to impugn the validity of the first
transaction because to allow them to do so would
be tantamount to giving premium to their sisters
dishonest and fraudulent deed. Undeniably,
therefore, the silence and passivity of the three
co-heirs on the issue bar them from making a
contrary claim.
It is a basic rule in the law of agency that a
principal is subject to liability for loss caused to
another by the latters reliance upon a deceitful
representation by an agent in the course of his
employment (1) if the representation is
authorized; (2) if it is within the implied authority
of the agent to make for the principal; or (3) if it
is apparently authorized, regardless of whether
the agent was authorized by him or not to make
the representation.37
By their continued silence, Zenaida, Milagros and
Minerva have caused the Pahuds to believe that
they have indeed clothed Eufemia with the
authority to transact on their behalf. Clearly, the
three co-heirs are now estopped from impugning
the validity of the sale from assailing the
authority of Eufemia to enter into such
transaction.
Accordingly, the subsequent sale made by the
seven co-heirs to Virgilio was void because they
no longer had any interest over the subject
property which they could alienate at the time of
the second transaction.38 Nemo dat quod non
habet. Virgilio, however, could still alienate his
1/8 undivided share to the Belarminos.

20 | P a g e

The Belarminos, for their part, cannot argue that

they purchased the property from Virgilio in good
faith. As a general rule, a purchaser of a real
property is not required to make any further
inquiry beyond what the certificate of title
indicates on its face.39 But the rule excludes those
who purchase with knowledge of the defect in the
title of the vendor or of facts sufficient to induce a
reasonable and prudent person to inquire into the
status of the property.40 Such purchaser cannot
close his eyes to facts which should put a
reasonable man on guard, and later claim that he
acted in good faith on the belief that there was no
defect in the title of the vendor. His mere refusal
to believe that such defect exists, or his obvious
neglect by closing his eyes to the possibility of
the existence of a defect in the vendors title, will
not make him an innocent purchaser for value, if
afterwards it turns out that the title was, in fact,
defective. In such a case, he is deemed to have
bought the property at his own risk, and any
injury or prejudice occasioned by such
transaction must be borne by him.41
In the case at bar, the Belarminos were fully
aware that the property was registered not in the
name of the immediate transferor, Virgilio, but
remained in the name of Pedro San Agustin and
Agatona Genil.42 This fact alone is sufficient
impetus to make further inquiry and, thus, negate
their claim that they are purchasers for value in
good faith.43 They knew that the property was still
subject of partition proceedings before the trial
court, and that the compromise agreement
signed by the heirs was not approved by the RTC
following the opposition of the counsel for
Eufemia and her six other co-heirs.44 The
Belarminos, being transferees pendente lite, are
deemed buyers in mala fide, and they stand
exactly in the shoes of the transferor and are
bound by any judgment or decree which may be
rendered for or against the
transferor.45 Furthermore, had they verified the
status of the property by asking the neighboring
residents, they would have been able to talk to
the Pahuds who occupy an adjoining business
establishment46 and would have known that a
portion of the property had already been sold. All
these existing and readily verifiable facts are
sufficient to suggest that the Belarminos knew
that they were buying the property at their own
risk.
WHEREFORE, premises considered, the April 23,
2003 Decision of the Court of Appeals as well as
its October 8, 2003 Resolution in CA-G.R. CV No.
59426, are REVERSED and SET ASIDE.
Accordingly, the January 14, 1998 Decision of
Branch 92 of the Regional Trial Court of Calamba,
Laguna is REINSTATED with the MODIFICATION
that the sale made by respondent Virgilio San
Agustin to respondent spouses Isagani Belarmino
and Leticia Ocampo is valid only with respect to
the 1/8 portion of the subject property. The trial

court is ordered to proceed with the partition of

the property with dispatch.
SO ORDERED.
ANTONIO EDUARDO B. NACHURA
Associate Justice
WE CONCUR:
CONCHITA CARPIO MORALES
Associate Justice
MINITA V. CHICONAZARIO
Associate Justice

PRESBITERO J.
VELASCO, JR.
Associate Justice

DIOSDADO M. PERALTA
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision
were reached in consultation before the case was
assigned to the writer of the opinion of the
Courts Division.
**

MINITA V. CHICO-NAZARIO
Associate Justice
Acting Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the
Constitution and the Division Acting Chairperson's
Attestation, I certify that the conclusions in the
above Decision had been reached in consultation
before the case was assigned to the writer of the
opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice
CONCURRING AND DISSENTING OPINION
CARPIO MORALES, J.:
The ponencia reinstates the trial courts Decision
of January 14, 1998 with the modification that
"the sale made by respondent Virgilio San Agustin
to respondent spouses Isagani Belarmino and
Leticia Ocampo is valid only with respect to the
1/8 portion of the subject property."1
I submit that the validity of the sale to spouses
Belarmino extends to 4/8 or one-half of the
property, inclusive of the combined 3/8 share of
respondents-sisters Zenaida, Milagros and
Minerva, all bearing the maiden surname of San
Agustin, thus leaving only one-half of the

21 | P a g e

property to petitioners Purita Pahud, et al. who

earlier purchased from Eufemia San Agustin
(Eufemia) the property including the 3/8 portion
over which no written authority from the three
sisters was secured. The ponente, Justice
Nachura, in fact, agrees to this proposition "in
principle."2
The ponencia even rejects petitioners contention
that the special power of attorney subsequently
executed by Zenaida, Milagros and Minerva in
favor of Eufemia effectively ratified their earlier
purchase of the property insofar as the 3/8
portion is concerned, for the established reason
that void contracts or the illegal terms
thereof3 are not susceptible to ratification. The
subsequent execution by the three sisters of the
respective special powers of attorney only means
that they considered the previous sale null and
recognized the salability of their 3/8 portion, thus
paving the way for its transfer to Virgilio San
Agustin and its eventual sale to the spouses
Belarmino.
Indeed, as the ponencia elucidates, Articles 1874
and 1878 of the Civil Code clearly provide that a
special power of attorney is necessary for an
agent to "enter into any contract by which the
ownership of an immovable is transmitted or
acquired either gratuitously or for a valuable
consideration" and that specifically in cases of
sale of a piece of land or any interest therein
through an agent, "the authority of the latter
shall be in writing; otherwise the sale shall
be void."
The ponencia takes one step further, however, in
upholding the validity of the sale of the 3/8
portion belonging to the 3 sisters to petitioner
notwithstanding the want of a written authority to
sell, by applying the principle of estoppel. It
ratiocinates:
While the sale with respect to the 3/8 portion is
void by express provision of law and not
susceptible to ratification, we nevertheless
uphold its validity on the basis of the common
law principle of estoppel.
Article 1431 of the Civil Code provides:
Art. 1431. Through estoppel an admission or
representation is rendered conclusive upon the
person making it, and cannot be denied or
disproved as against the person relying thereon

True, at the time of the sale to the Pahuds,

Eufemia was not armed with the requisite special
power of attorney to dispose of the 3/8 portion of
the property. Initially, in their answer to the
complaint in intervention, Eufemia and her other
co-heirs denied having sold their shares to the
Pahuds. During the pre-trial conference, however,
they admitted that they had indeed sold 7/8 of
the property to the Pahuds sometime in 1992.
Thus, the previous denial was superseded, if not
accordingly amended, by their subsequent
admission. Moreover, in their Comment, the said
co-heirs again admitted the sale made to
petitioners.

Equity cannot supplant or contravene the law.5

Interestingly, in no instance did the three (3)

heirs concerned assail the validity of the
transaction made by Eufemia to the Pahuds on
the basis of want of written authority to sell. They
could have easily filed a case for annulment of
the sale of their respective shares against
Eufemia and the Pahuds. Instead, they opted to
remain silent and left the task of raising the
validity of the sale as an issue to their co-heir,
Virgilio, who is not privy to the said transaction.
They cannot be allowed to rely on Eufemia, their
attorney-in-fact, to impugn the validity of the first
transaction because to allow them to do so would
be tantamount to giving premium to their sisters
dishonest and fraudulent deed. Undeniably,
therefore, the silence and passivity of the three
co-heirs on the issue bar them from making a
contrary claim.

Moreover, the evident purpose of the legal

requirement of such written authority is not only
to safeguard the interest of an unsuspecting
owner from being prejudiced by the unauthorized
act of another, but also to caution the buyer to
assure himself of the specific authorization of the
putative agent. In other words, the drafters of the
law already saw the risky predicament of selling
lands through agents which, in the absence of a
specific law, would otherwise ultimately depend
on equity to resolve disputes such as the present
case. The law undoubtedly seeks to prevent the
following confusion:

It is a basic rule in the law of agency that a

principal is subject to liability for loss caused to
another by the lattersreliance upon a deceitful
representation by an agent in the course of his
employment (1) if the representation is
authorized; (2) if it is within the implied authority
of the agent to make for the principal; or (3) if it
is apparently authorized, regardless of whether
the agent was authorized by him or not to make
the representation.
By their continued silence, Zenaida, Milagros and
Minerva have caused the Pahuds to believe that
they have indeed clothed Eufemia with the
authority to transact on their behalf. Clearly, the
three co-heirs are now estopped from impugning
the validity of the sale from assailing the
authority of Eufemia to enter such
transaction.4(Emphasis and underscoring
supplied)
It is from this aspect of the ponencia that I
respectfully dissent.

22 | P a g e

Article 1432 of the Civil Code expressly states

that the principles of estoppel are adopted
"insofar as they are not in conflict with the
provisions of this Code," among other laws.
Indeed, estoppel, being a principle in equity,
cannot be applied in the presence of a law clearly
applicable to the case. The Court is first and
foremost a court of law. While equity might tilt on
the side of one party, the same cannot be
enforced so as to overrule positive provisions of
law in favor of the other.6

Case law tells us that the elements of estoppel

are: "first, the actor who usually must have
knowledge, notice or suspicion of the true facts,
communicates something to another in a
misleading way, either by words, conduct or
silence; second, the other in fact relies, and relies
reasonably or justifiably, upon that
communication; third, the other would be harmed
materially if the actor is later permitted to assert
any claim inconsistent with his earlier conduct;
and fourth, the actor knows, expects or foresees
that the other would act upon the information
given or that a reasonable person in the actor's
position would expect or foresee such action."7
The depicted scenario is precisely the
misunderstanding between parties to such type
of sale which the lawmakers sought to avoid in
prescribing the conditions for the validity of such
sale of land. The present case is a classic
example of a tedious litigation which had ensued
as a result of such misunderstanding. This is what
the law endeavors to avert.8 It is not for the Court
to suspend the application of the law and revert
to equitable grounds in resolving the present
dispute.

Assuming arguendo that estoppel can contradict

positive law, I submit that Article 1431 of the Civil
Code does not apply since it speaks of ones prior
admission or representation, without which the
other person could not have relied on it before
acting accordingly.
The ponencia cites acts or omissions on the part
of the three sisters which came after the fact
such as their "admission" and "continued silence"
which, however, could not retroact to the time of
the previous sale as to consider petitioners to
have accordingly relied on such admission or
representation before buying the property from
Eufemia. The application of the principle of
estoppel is proper and timely in heading off
shrewd efforts at renouncing ones previous acts
to the prejudice of another who had dealt
honestly and in good faith.9 It is thus erroneous to
conclude that Zenaida, Milagros and Minerva
have caused petitioners to believe that they have
clothed Eufemia with the authority to transact on
their behalf.
Could the three sisters ratify the previous sale
through their subsequent acts or omissions? I
opine they cannot. The ponencia concedes that
"the sale with respect to the 3/8 portion is void by
express provision of law and not susceptible to
ratification."

statement of fact12 that the sale took place, but

not to the conclusion of law that the sale was
valid, precisely because the validity of the sales
transaction is at issue as it was contested by the
parties.
Further, the textbook citation of the rule involving
a principals responsibility for an agents
misrepresentation within the scope of an agents
authority as annotated by the cited author under
Article 1900 of the Civil Code is inapplicable. The
qualifying phrase "in the course of his
employment" presupposes that an agency
relationship is existing. The quoted rule clearly
recites that a principal is held liable if the
"deceitful representation" (not the agency
relationship) is authorized either expressly,
impliedly, or apparently. In this case, there was
no agency relationship to speak of.
I, therefore, vote to reinstate the trial courts
January 14, 1998 Decision with modification that
the sale made by respondent Virgilio San Agustin
to respondent spouses Isagani Belarmino and
Leticia Ocampo is valid with respect to the 4/8
portion of the subject property.
CONCHITA CARPIO MORALES
Associate Justice
----o0o----

The previous sale being violative of an express

mandate of law, such cannot be ratified by
estoppel. Estoppel cannot give validity to an act
that is prohibited by law or one that is against
public policy. Neither can the defense of illegality
be waived.10 An action or defense for the
declaration of the inexistence of a contract does
not prescribe.11 Amid the confusion from
the double dealing made by their sibling Eufemia,
the three sisters expectedly kept mum about it.
Succinctly, their "continued silence" cannot be
taken against them. Bargaining away a provision
of law should not be countenanced.
Neither can their "admission" to a question of
law bind them. The ponencia highlights the
admission made by Eufemia and her co-heirs
during the pre-trial conference before the trial
court and in their Comment on the present
petition that they had earlier sold 7/8 of the
property to petitioners. These statements could
not mean, however, as an admission in
petitioners favor that Zenaida, Milagros and
Minerva validly sold their respective shares to
petitioners. They could only admit to the

23 | P a g e

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-20145

November 15, 1923

VICENTE VERZOSA and RUIZ, REMENTERIA Y

CIA., S. en C., plaintiffs-appellants,
vs.
SILVINO LIM and SIY CONG BIENG and
COMPANY, INC., defendants-appellants.
Ramon Sotelo for plaintiffs-appellants.
Gabriel La O for defendants-appellants.

STREET, J.:
This action was instituted in the Court of first
Instance of the City of Manila by Vicente Versoza
and Ruiz, Rementeria y Compania, as owners of
the coastwise vessel Perla, against Silvino Lim
and Siy Cong Bieng & Company, Inc., as owner
and agent, respectively, of the vessel Ban Yek, for

the purpose of recovering a sum of money

alleged to be the damages resulting to the
plaintiffs from a collision which occurred on March
9, 1921, between the two vessels mentioned, it
being alleged that said collision was due to the
experience, carelessness and lack of skill on the
part of the captain of the Ban Yek and to his
failure to observe the rules of navigation
appropriate to the case. The defendants
answered with a general denial, and by way of
special defense asserted, among other things,
that the collision was due exclusively to the
inexperience and carelessness of the captain and
officers of the steamship Perla; for which reason
the defendants in turn, by way of counterclaim,
prayed judgment for the damages suffered by
the Ban Yek from the same collision. At the
hearing the trial judge absolved the defendants
from the complaint and likewise absolved the
plaintiffs from the defendants' counterclaim. From
this judgment both parties appealed.
It appears in evidence that at about five o'clock in
the afternoon of March 9, 1921, the coastwise
steamer Ban Yekleft the port of Naga on the Bicol
River, in the Province of Camarines Sur, with
destination to the City of Manila. At the time of
her departure from said port the sea was
approaching to high tide but the current was still
running in through the Bicol River, with the result
that the Ban Yek had the current against her. As
the ship approached the Malbong bend of the
Bicol River, in the municipality of Gainza, another
vessel, the Perla, was sighted coming up the river
on the way to Naga. While the boats were yet
more than a kilometer apart, the Ban Yek gave
two blasts with her whistle, thus indicating an
intention to pass on the left, or to her own port
side. In reply to this signal thePerla gave a single
blast, thereby indicating that she disagreed with
the signal given by the Ban Yek and would
maintain her position on the right, that is, would
keep to the starboard. The Ban Yek made no reply
to this signal. As the Perla was navigating with
the current, then running in from the sea, this
vessel, under paragraph 163 of Customs Marine
Circular No. 53, had the right of way over the Ban
Yek, and the officers of the Perla interpreted the
action of the Ban Yek in not replying to
the Perla's signal as an indication of acquiescene
of the officers of theBan Yek in the determination
of the Perla to keep to the starboard.
The river at this point is about two hundred and
fifty feet wide, and the courses thus being
respectively pursued by the two vessels
necessarily tended to bring them into a head-on
collision. When the danger of such an occurrence
became imminent, Captain Garrido of the Perla,
seeing that he was shut off by the Ban Yek from
passing to the right, put his vessel to port,
intending to avoid collision or minimize its impact
by getting farther out into the stream. An
additional reason for this maneuver, as stated by
Captain Carrido, is that the captain of theBan

24 | P a g e

Yek waived his hand to Garrido, indicating that

the latter should turn his vessel towards the
middle of the stream. At about the same time
that the Perla was thus deflected from her course
the engine on the Ban Yek was reversed and
three blasts were given by this vessel to indicate
that she was backing.
Now, it appears that when the engine is reversed,
a vessel swings to the right or left in accordance
with the direction in which the blades of the
propeller are set; and as the Ban Yek began to
back, her bow was thrown out into the stream, a
movement which was assisted by the current of
the river. By this means the Ban Yek was brought
to occupy an oblique position across the stream
at the moment the Perla was passing; and the
bow of theBan Yek crashed into the starboard
bumpers of the Perla, carrying away external
parts of the ship and inflicting material damage
on the hull. To effect the repairs thus made
necessary to the Perla cost her owners the sum of
P17,827, including expenses of survey.
The first legal point presented in the case has
reference to the sufficiency of the protest. In this
connection it appears that within twenty-four
hours after the arrival of the Perla at the port of
Naga, Captain Garrido appeared before Vicente
Rodi, the auxiliary justice of the peace of the
municipality of Naga, and made before that
officer the sworn protest which is in evidence as
Exhibit B. This protest is sufficient in our opinion
to answer all the requirements of article 835 of
the Code of Commerce. A regular justice of the
peace would without doubt be competent to take
a marine protest, and the same authority must be
conceded to the auxiliary justice in the absence
of any showing in the record to the effect that the
justice of the peace himself was acting at the
time in the municipality (Adm. Code, sec. 211;
sec. 334, Code of Civ. Proc., subsecs. 14, 15). We
note that in his certificate to this protest Vicente
Rodi added to the appellation of auxiliary justice
of the peace, following his name, the additional
designation "notary public ex-officio." However,
under subsection (c) of section 242 of the
Administrative Code, it is plain that an auxiliary
justice of the peace is not an ex-officio notary
public. It results that the taking of this protest
must be ascribed to the officer in his character as
auxiliary justice of the peace and not in the
character of notary public ex-officio. It is hardly
necessary to add that this court takes judicial
notice of the fact that Naga is not a port of entry
and that no customs official of rank is there
stationed who could have taken cognizance of
this protest.
Upon the point of responsibility for the collision
we have no hesitancy in finding that the fault is
to be attributed exclusively to the negligence and
inattention of the captain and pilot in charge of
the Ban Yek. The Perlaundoubtedly had the right
of way, since this vessel was navigating with the

current, and the officers in charge of

the Perla were correct in assuming, from the
failure of the Ban Yek to respond to the single
blast of the Perla, that the officers in charge of
the Ban Yek recognized that the Perla had a right
of way and acquiesced in her resolution to keep
to the right. The excuse urged for the Ban Yek is
that this vessel is somewhat larger than
the Perla and that it was desirable for the Ban
Yek to keep on the side of the long arc of the
curve of the river; and in this connection it is
suggested that the river is deeper on the outer
edge of the bend than on the inner edge. It is also
stated that on a certain previous occasion
the Ban Yek on coming out from this port had
gotten stuck in the mud in this bend by keeping
too far to the right. Moreover, it is said to be the
practice of ships in navigating this stream to keep
nearer the outside than to the inside of the bend.
These suggestions are by no means convincing. It
appears in evidence that the river bottom here is
composed of mud and silt, and as the tide at the
time of this incident was nearly at its flood, there
was ample depth of water to have
accommodated the Ban Yek if she had kept to
that part of the stream which it was proper for
her to occupy. We may further observe that the
disparity in the size of the vessels was not such
as to dominate the situation and deprive
the Perla of the right of way under the conditions
stated. Blame for the collision must therefore, as
already stated, be attributed to the Ban Yek.
On the other hand no fault can be attributed to
the officers navigating the Perla either in
maintaining the course which had been
determined upon for that vessel in conformity
with the marine regulations applicable to the case
or in deflecting the vessel towards the middle of
the stream after the danger of collision became
imminent. The trial judge suggests in his opinion
that when Captain Garrido saw that the Ban
Yek was holding her course to the left, he
(Garrido) should have changed the course of
the Perla to port more promptly. The validity of
this criticism cannot be admitted. Among rules
applicable to navigation none is better founded
on reason and experience than that which
requires the navigating officers of any vessel to
assume that an approaching vessel will observe
the regulations prescribed for navigation (G.
Urrutia & Co. vs. Baco River Plantation Co., 26
Phil., 632, 637). Any other rule would introduce
guess work into the control of ships and produce
uncertainty in the operation of the regulations.
Our conclusion is that his Honor, the trial judge,
was in error in not awarding damages to
the Perla; but no error was committed in
absolving the plaintiffs from the defendants'
cross-complaint.
The sum of P17,827 in our opinion represents the
limit of the plaintiffs' right of recovery. In the
original complaint recovery is sought for an

25 | P a g e

additional amount of P18,000, most of which

consists of damages supposed to have been
incurred from the inability of the Perla to maintain
her regular schedule while laid up in the dock
undergoing repairs. The damages thus claimed,
in addition to being somewhat of a speculative
nature, are in our opinion not sufficiently proved
to warrant the court in allowing the
same. lawphil.net
Having determined the amount which the
plaintiffs are entitled to recover, it becomes
necessary to consider the person, or persons,
who must respond for these damages. Upon this
point we note that Silvino Lim is impleaded as
owner; and Siy Cong Bieng & Co. is impleaded as
the shipping agent (casa naviera), or person in
responsible control of the Ban Yek at the time of
the accident. We note further that in article 826
of the Code of Commerce it is declared that
the owner of any vessel shall be liable for the
indemnity due to any other vessel injured by the
fault, negligence, or lack of skill of the captain of
the first. We say "owner," which is the word used
in the current translation of this article in the
Spanish Code of Commerce. It is to be observed,
however, that the Spanish text itself uses the
word naviero; and there is some ambiguity in the
use of said word in this article, owing to the fact
that naviero in Spanish has several meanings.
The author of the article which appears under the
word naviero in the Enciclopedia Juridica
Espaola tells us that in Spanish it may mean
either owner, outfitter, charterer, or agent,
though he says that the fundamental and correct
meaning of the word is that of "owner."
That naviero, as used in the Spanish text of
article 826, means owner is further to be inferred
from article 837, which limits the civil liability
expressed in article 826 to the value of the vessel
with all her appurtenances and all the freight
earned during the voyage. There would have
been no propriety in limiting liability to the value
of the vessel unless the owner were understood
to be the person liable. It is therefore clear that
by special provision of the Code of Commerce the
owner is made responsible for the damage
caused by an accident of the kind under
consideration in this case; and in more than one
case this court has held the owner liable, when
sued alone (Philippine Shipping Co. vs.Garcia
Vergara, 6 Phil., 281; G. Urrutia & Co. vs. Baco
River Plantation Co., 26 Phil., 632).
But while it is thus demonstrated that Silvino Lim
is liable for these damages in the character of
owner, it does not necessarily follows that Siy
Cong Bieng & Co., as character or agent (casa
naviera), is exempt from liability; and we are of
the opinion that both the owner and agent can be
held responsible where both are impleaded
together. In Philippine Shipping Co., vs. Garcia
Vergara (6 Phil., 281), it seems to have been
accepted as a matter of course that both owner
and agent of the offending vessel are liable for

the damage done; and this must, we think, be

true. The liability of the naviero, in the sense of
charterer or agent, if not expressed in article 826
of the Code of Commerce, is clearly deducible
from the general doctrine of jurisprudence stated
in article 1902 of the Civil Code, and it is also
recognized, but more especially as regards
contractual obligations, in article 586 of the Code
of Commerce. Moreover, we are of the opinion
that both the owner and agent (naviero) should
be declared to be jointly and severally liable,
since the obligation which is the subject of this
action had its origin in a tortious act and did not
arise from contract. Article 1137 of the Civil Code,
declaring that joint obligations shall be
apportionable unless otherwise provided, has no
application to obligation arising from tort.
For the reasons stated the judgment appealed
from will be affirmed in so far as it absolves the
plaintiffs from the defendants' cross-complaint
but will be reversed in so far as it absolves the
defendants from the plaintiffs' complaint; and
judgment will be entered for the plaintiffs to
recover jointly and severally from the defendants
Silvino Lim and Siy Cong Bieng & Co. the sum of
seventeen thousand eight hundred and twentyseven pesos (P17,827), with interest from the
date of the institution of the action, without
special pronouncement as to costs of either
instance. So ordered.
Separate Opinions
JOHNS, J., concurring and dissenting:
I concur in all of that portion of the majority
opinion which holds that the defendant Silvino
Lim, as owner, is liable for the damages in
question, and I dissent from all of that portion of
the opinion which holds that the defendant Siy
Cong Bieng & Company, Inc., as charterer, is
liable.
Under the pleadings here, the owner of the vessel
only is liable.
----o0o---Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 83122 October 19, 1990
ARTURO P. VALENZUELA and HOSPITALITA N.
VALENZUELA, petitioners,
vs.
THE HONORABLE COURT OF APPEALS,
BIENVENIDO M. ARAGON, ROBERT E.

26 | P a g e

PARNELL, CARLOS K. CATOLICO and THE

PHILIPPINE AMERICAN GENERAL INSURANCE
COMPANY, INC., respondents.
Albino B. Achas for petitioners.
Angara, Abello, Concepcion, Regala & Cruz for
private respondents.

GUTIERREZ, JR., J.:

This is a petition for review of the January 29,
1988 decision of the Court of Appeals and the
April 27, 1988 resolution denying the petitioners'
motion for reconsideration, which decision and
resolution reversed the decision dated June
23,1986 of the Court of First Instance of Manila,
Branch 34 in Civil Case No. 121126 upholding the
petitioners' causes of action and granting all the
reliefs prayed for in their complaint against
private respondents.
The antecedent facts of the case are as follows:
Petitioner Arturo P. Valenzuela (Valenzuela for
short) is a General Agent of private respondent
Philippine American General Insurance Company,
Inc. (Philamgen for short) since 1965. As such, he
was authorized to solicit and sell in behalf of
Philamgen all kinds of non-life insurance, and in
consideration of services rendered was entitled to
receive the full agent's commission of 32.5% from
Philamgen under the scheduled commission rates
(Exhibits "A" and "1"). From 1973 to 1975,
Valenzuela solicited marine insurance from one of
his clients, the Delta Motors, Inc. (Division of
Electronics Airconditioning and Refrigeration) in
the amount of P4.4 Million from which he was
entitled to a commission of 32% (Exhibit "B").
However, Valenzuela did not receive his full
commission which amounted to P1.6 Million from
the P4.4 Million insurance coverage of the Delta
Motors. During the period 1976 to 1978, premium
payments amounting to P1,946,886.00 were paid
directly to Philamgen and Valenzuela's
commission to which he is entitled amounted to
P632,737.00.
In 1977, Philamgen started to become interested
in and expressed its intent to share in the
commission due Valenzuela (Exhibits "III" and "III1") on a fifty-fifty basis (Exhibit "C"). Valenzuela
refused (Exhibit "D").

On February 8, 1978 Philamgen and its President,

Bienvenido M. Aragon insisted on the sharing of
the commission with Valenzuela (Exhibit E). This
was followed by another sharing proposal dated
June 1, 1978. On June 16,1978, Valenzuela firmly
reiterated his objection to the proposals of
respondents stating that: "It is with great
reluctance that I have to decline upon request to
signify my conformity to your alternative proposal
regarding the payment of the commission due
me. However, I have no choice for to do
otherwise would be violative of the Agency
Agreement executed between our goodselves."
(Exhibit B-1)
Because of the refusal of Valenzuela, Philamgen
and its officers, namely: Bienvenido Aragon,
Carlos Catolico and Robert E. Parnell took drastic
action against Valenzuela. They: (a) reversed the
commission due him by not crediting in his
account the commission earned from the Delta
Motors, Inc. insurance (Exhibit "J" and "2"); (b)
placed agency transactions on a cash and carry
basis; (c) threatened the cancellation of policies
issued by his agency (Exhibits "H" to "H-2"); and
(d) started to leak out news that Valenzuela has a
substantial account with Philamgen. All of these
acts resulted in the decline of his business as
insurance agent (Exhibits "N", "O", "K" and "K-8").
Then on December 27, 1978, Philamgen
terminated the General Agency Agreement of
Valenzuela (Exhibit "J", pp. 1-3, Decision Trial
Court dated June 23, 1986, Civil Case No. 121126,
Annex I, Petition).
The petitioners sought relief by filing the
complaint against the private respondents in the
court a quo (Complaint of January 24, 1979,
Annex "F" Petition). After due proceedings, the
trial court found:
xxx xxx xxx
Defendants tried to justify the termination
of plaintiff Arturo P. Valenzuela as one of
defendant PHILAMGEN's General Agent by
making it appear that plaintiff Arturo P.
Valenzuela has a substantial account with
defendant PHILAMGEN particularly Delta
Motors, Inc.'s Account, thereby prejudicing
defendant PHILAMGEN's interest (Exhibits
6,"11","11- "12- A"and"13-A").
Defendants also invoked the provisions of
the Civil Code of the Philippines (Article
1868) and the provisions of the General
Agency Agreement as their basis for

27 | P a g e

terminating plaintiff Arturo P. Valenzuela

as one of their General Agents.
That defendants' position could have been
justified had the termination of plaintiff
Arturo P. Valenzuela was (sic) based solely
on the provisions of the Civil Code and the
conditions of the General Agency
Agreement. But the records will show that
the principal cause of the termination of
the plaintiff as General Agent of defendant
PHILAMGEN was his refusal to share his
Delta commission.
That it should be noted that there were
several attempts made by defendant
Bienvenido M. Aragon to share with the
Delta commission of plaintiff Arturo P.
Valenzuela. He had persistently pursued
the sharing scheme to the point of
terminating plaintiff Arturo P. Valenzuela,
and to make matters worse, defendants
made it appear that plaintiff Arturo P.
Valenzuela had substantial accounts with
defendant PHILAMGEN.
Not only that, defendants have also
started (a) to treat separately the Delta
Commission of plaintiff Arturo P.
Valenzuela, (b) to reverse the Delta
commission due plaintiff Arturo P.
Valenzuela by not crediting or applying
said commission earned to the account of
plaintiff Arturo P. Valenzuela, (c) placed
plaintiff Arturo P. Valenzuela's agency
transactions on a "cash and carry basis",
(d) sending threats to cancel existing
policies issued by plaintiff Arturo P.
Valenzuela's agency, (e) to divert plaintiff
Arturo P. Valenzuela's insurance business
to other agencies, and (f) to spread wild
and malicious rumors that plaintiff Arturo
P. Valenzuela has substantial account with
defendant PHILAMGEN to force plaintiff
Arturo P. Valenzuela into agreeing with the
sharing of his Delta commission." (pp. 910, Decision, Annex 1, Petition).
xxx xxx xxx
These acts of harrassment done by
defendants on plaintiff Arturo P. Valenzuela
to force him to agree to the sharing of his
Delta commission, which culminated in the
termination of plaintiff Arturo P. Valenzuela
as one of defendant PHILAMGEN's General
Agent, do not justify said termination of

the General Agency Agreement entered

into by defendant PHILAMGEN and plaintiff
Arturo P. Valenzuela.
That since defendants are not justified in
the termination of plaintiff Arturo P.
Valenzuela as one of their General Agents,
defendants shall be liable for the resulting
damage and loss of business of plaintiff
Arturo P. Valenzuela. (Arts. 2199/2200,
Civil Code of the Philippines). (Ibid, p. 11)
The court accordingly rendered judgment, the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered
in favor of the plaintiffs and against
defendants ordering the latter to reinstate
plaintiff Arturo P. Valenzuela as its General
Agent, and to pay plaintiffs, jointly and
severally, the following:
1. The amount of five hundred twenty-one
thousand nine hundred sixty four and
16/100 pesos (P521,964.16) representing
plaintiff Arturo P. Valenzuela's Delta
Commission with interest at the legal rate
from the time of the filing of the
complaint, which amount shall be adjusted
in accordance with Article 1250 of the Civil
Code of the Philippines;
2. The amount of seventy-five thousand
pesos (P75,000.00) per month as
compensatory damages from 1980 until
such time that defendant Philamgen shall
reinstate plaintiff Arturo P. Valenzuela as
one of its general agents;
3. The amount of three hundred fifty
thousand pesos (P350,000.00) for each
plaintiff as moral damages;
4. The amount of seventy-five thousand
pesos (P75,000.00) as and for attorney's
fees;
5. Costs of the suit. (Ibid., P. 12)
From the aforesaid decision of the trial
court, Bienvenido Aragon, Robert E.
Parnell, Carlos K. Catolico and PHILAMGEN
respondents herein, and defendantsappellants below, interposed an appeal on
the following:

28 | P a g e

ASSIGNMENT OF ERRORS
I
THE LOWER COURT ERRED IN HOLDING
THAT PLAINTIFF ARTURO P. VALENZUELA
HAD NO OUTSTANDING ACCOUNT WITH
DEFENDANT PHILAMGEN AT THE TIME OF
THE TERMINATION OF THE AGENCY.
II
THE LOWER COURT ERRED IN HOLDING
THAT PLAINTIFF ARTURO P. VALENZUELA IS
ENTITLED TO THE FULL COMMISSION OF
32.5% ON THE DELTA ACCOUNT.
III
THE LOWER COURT ERRED IN HOLDING
THAT THE TERMINATION OF PLAINTIFF
ARTURO P. VALENZUELA WAS NOT
JUSTIFIED AND THAT CONSEQUENTLY
DEFENDANTS ARE LIABLE FOR ACTUAL
AND MORAL DAMAGES, ATTORNEYS FEES
AND COSTS.
IV
ASSUMING ARGUENDO THAT THE AWARD
OF DAMAGES AGAINST DEFENDANT
PHILAMGEN WAS PROPER, THE LOWER
COURT ERRED IN AWARDING DAMAGES
EVEN AGAINST THE INDIVIDUAL
DEFENDANTS WHO ARE MERE CORPORATE
AGENTS ACTING WITHIN THE SCOPE OF
THEIR AUTHORITY.
V
ASSUMING ARGUENDO THAT THE AWARD
OF DAMAGES IN FAVOR OF PLAINTIFF
ARTURO P. VALENZUELA WAS PROPER,
THE LOWER COURT ERRED IN AWARDING
DAMAGES IN FAVOR OF HOSPITALITA
VALENZUELA, WHO, NOT BEING THE REAL
PARTY IN INTEREST IS NOT TO OBTAIN
RELIEF.
On January 29, 1988, respondent Court of
Appeals promulgated its decision in the appealed
case. The dispositive portion of the decision
reads:

WHEREFORE, the decision appealed from is

hereby modified accordingly and judgment
is hereby rendered ordering:
1. Plaintiff-appellee Valenzuela to pay
defendant-appellant Philamgen the sum of
one million nine hundred thirty two
thousand five hundred thirty-two pesos and
seventeen centavos (P1,902,532.17), with
legal interest thereon from the date of
finality of this judgment until fully paid.
2. Both plaintiff-appellees to pay jointly and
severally defendants-appellants the sum of
fifty thousand pesos (P50,000.00) as and
by way of attorney's fees.
No pronouncement is made as to costs. (p.
44, Rollo)
There is in this instance irreconcilable divergence
in the findings and conclusions of the Court of
Appeals, vis-a-visthose of the trial court
particularly on the pivotal issue whether or not
Philamgen and/or its officers can be held liable for
damages due to the termination of the General
Agency Agreement it entered into with the
petitioners. In its questioned decision the Court of
Appeals observed that:
In any event the principal's power to
revoke an agency at will is so pervasive,
that the Supreme Court has consistently
held that termination may be effected
even if the principal acts in bad faith,
subject only to the principal's liability for
damages (Danon v. Antonio A. Brimo &
Co., 42 Phil. 133; Reyes v. Mosqueda, 53
O.G. 2158 and Infante V. Cunanan, 93 Phil.
691, cited in Paras, Vol. V, Civil Code of the
Philippines Annotated [1986] 696).
The lower court, however, thought the
termination of Valenzuela as General
Agent improper because the record will
show the principal cause of the
termination of the plaintiff as General
Agent of defendant Philamgen was his
refusal to share his Delta commission.
(Decision, p. 9; p. 13, Rollo, 41)
Because of the conflicting conclusions, this Court
deemed it necessary in the interest of substantial
justice to scrutinize the evidence and records of
the cases. While it is an established principle that
the factual findings of the Court of Appeals are
final and may not be reviewed on appeal to this

29 | P a g e

Court, there are however certain exceptions to

the rule which this Court has recognized and
accepted, among which, are when the judgment
is based on a misapprehension of facts and when
the findings of the appellate court, are contrary to
those of the trial court (Manlapaz v. Court of
Appeals, 147 SCRA 236 [1987]); Guita v. Court of
Appeals, 139 SCRA 576 [1986]). Where the
findings of the Court of Appeals and the trial
court are contrary to each other, this Court may
scrutinize the evidence on record (Cruz v. Court of
Appeals, 129 SCRA 222 [1984]; Mendoza v. Court
of Appeals, 156 SCRA 597 [1987]; Maclan v.
Santos, 156 SCRA 542 [1987]). When the
conclusion of the Court of Appeals is grounded
entirely on speculation, surmises or conjectures,
or when the inference made is manifestly
mistaken, absurd or impossible, or when there is
grave abuse of discretion, or when the judgment
is based on a misapprehension of facts, and when
the findings of facts are conflict the exception
also applies (Malaysian Airline System Bernad v.
Court of Appeals, 156 SCRA 321 [1987]).
After a painstaking review of the entire records of
the case and the findings of facts of both the
court a quo and respondent appellate court, we
are constrained to affirm the trial court's findings
and rule for the petitioners.
We agree with the court a quo that the principal
cause of the termination of Valenzuela as General
Agent of Philamgen arose from his refusal to
share his Delta commission. The records sustain
the conclusions of the trial court on the
apparent bad faith of the private respondents in
terminating the General Agency Agreement of
petitioners. It is axiomatic that the findings of fact
of a trial judge are entitled to great weight
(People v. Atanacio, 128 SCRA 22 [1984]) and
should not be disturbed on appeal unless for
strong and cogent reasons, because the trial
court is in a better position to examine the
evidence as well as to observe the demeanor of
the witnesses while testifying (Chase v.
Buencamino, Sr., 136 SCRA 365 [1985]; People v.
Pimentel, 147 SCRA 25 [1987]; and Baliwag
Trans., Inc. v. Court of Appeals, 147 SCRA 82
[1987]). In the case at bar, the records show that
the findings and conclusions of the trial court are
supported by substantial evidence and there
appears to be no cogent reason to disturb them
(Mendoza v. Court of Appeals. 156 SCRA 597
[1987]).
As early as September 30,1977, Philamgen told
the petitioners of its desire to share the Delta

Commission with them. It stated that should

Delta back out from the agreement, the
petitioners would be charged interests through a
reduced commission after full payment by Delta.
On January 23, 1978 Philamgen proposed
reducing the petitioners' commissions by 50%
thus giving them an agent's commission of
16.25%. On February 8, 1978, Philamgen insisted
on the reduction scheme followed on June 1, 1978
by still another insistence on reducing
commissions and proposing two alternative
schemes for reduction. There were other
pressures. Demands to settle accounts, to confer
and thresh out differences regarding the
petitioners' income and the threat to terminate
the agency followed. The petitioners were told
that the Delta commissions would not be credited
to their account (Exhibit "J"). They were informed
that the Valenzuela agency would be placed on a
cash and carry basis thus removing the 60-day
credit for premiums due. (TSN., March 26, 1979,
pp. 54-57). Existing policies were threatened to
be cancelled (Exhibits "H" and "14"; TSN., March
26, 1979, pp. 29-30). The Valenzuela business
was threatened with diversion to other agencies.
(Exhibit "NNN"). Rumors were also spread about
alleged accounts of the Valenzuela agency (TSN.,
January 25, 1980, p. 41). The petitioners
consistently opposed the pressures to hand over
the agency or half of their commissions and for a
treatment of the Delta account distinct from other
accounts. The pressures and demands, however,
continued until the agency agreement itself was
finally terminated.
It is also evident from the records that the agency
involving petitioner and private respondent is one
"coupled with an interest," and, therefore, should
not be freely revocable at the unilateral will of the
latter.
In the insurance business in the Philippines, the
most difficult and frustrating period is the
solicitation and persuasion of the prospective
clients to buy insurance policies. Normally,
agents would encounter much embarrassment,
difficulties, and oftentimes frustrations in the
solicitation and procurement of the insurance
policies. To sell policies, an agent exerts great
effort, patience, perseverance, ingenuity, tact,
imagination, time and money. In the case of
Valenzuela, he was able to build up an Agency
from scratch in 1965 to a highly productive
enterprise with gross billings of about Two Million
Five Hundred Thousand Pesos (P2,500,000.00)
premiums per annum. The records sustain the

30 | P a g e

finding that the private respondent started to

covet a share of the insurance business that
Valenzuela had built up, developed and nurtured
to profitability through over thirteen (13) years of
patient work and perseverance. When Valenzuela
refused to share his commission in the Delta
account, the boom suddenly fell on him.
The private respondents by the simple expedient
of terminating the General Agency Agreement
appropriated the entire insurance business of
Valenzuela. With the termination of the General
Agency Agreement, Valenzuela would no longer
be entitled to commission on the renewal of
insurance policies of clients sourced from his
agency. Worse, despite the termination of the
agency, Philamgen continued to hold Valenzuela
jointly and severally liable with the insured for
unpaid premiums. Under these circumstances, it
is clear that Valenzuela had an interest in the
continuation of the agency when it was
unceremoniously terminated not only because of
the commissions he should continue to receive
from the insurance business he has solicited and
procured but also for the fact that by the very
acts of the respondents, he was made liable to
Philamgen in the event the insured fail to pay the
premiums due. They are estopped by their own
positive averments and claims for damages.
Therefore, the respondents cannot state that the
agency relationship between Valenzuela and
Philamgen is not coupled with interest. "There
may be cases in which an agent has been
induced to assume a responsibility or incur a
liability, in reliance upon the continuance of the
authority under such circumstances that, if the
authority be withdrawn, the agent will be
exposed to personal loss or liability" (See MEC
569 p. 406).
Furthermore, there is an exception to the
principle that an agency is revocable at will and
that is when the agency has been given not only
for the interest of the principal but for the interest
of third persons or for the mutual interest of the
principal and the agent. In these cases, it is
evident that the agency ceases to be freely
revocable by the sole will of the principal (See
Padilla, Civil Code Annotated, 56 ed., Vol. IV p.
350). The following citations are apropos:
The principal may not defeat the agent's
right to indemnification by a termination
of the contract of agency (Erskine v.
Chevrolet Motors Co. 185 NC 479, 117 SE
706, 32 ALR 196).

Where the principal terminates or

repudiates the agent's employment in
violation of the contract of employment
and without cause ... the agent is entitled
to receive either the amount of net losses
caused and gains prevented by the
breach, or the reasonable value of the
services rendered. Thus, the agent is
entitled to prospective profits which he
would have made except for such wrongful
termination provided that such profits are
not conjectural, or speculative but are
capable of determination upon some fairly
reliable basis. And a principal's revocation
of the agency agreement made to avoid
payment of compensation for a result
which he has actually accomplished
(Hildendorf v. Hague, 293 NW 2d 272;
Newhall v. Journal Printing Co., 105 Minn
44,117 NW 228; Gaylen Machinery Corp. v.
Pitman-Moore Co. [C.A. 2 NY] 273 F 2d
340)
If a principal violates a contractual or
quasi-contractual duty which he owes his
agent, the agent may as a rule bring an
appropriate action for the breach of that
duty. The agent may in a proper case
maintain an action at law for
compensation or damages ... A wrongfully
discharged agent has a right of action for
damages and in such action the measure
and element of damages are controlled
generally by the rules governing any other
action for the employer's breach of an
employment contract. (Riggs v. Lindsay,
11 US 500, 3L Ed 419; Tiffin Glass Co. v.
Stoehr, 54 Ohio 157, 43 NE 2798)
At any rate, the question of whether or not the
agency agreement is coupled with interest is
helpful to the petitioners' cause but is not the
primary and compelling reason. For the pivotal
factor rendering Philamgen and the other private
respondents liable in damages is that the
termination by them of the General Agency
Agreement was tainted with bad faith. Hence, if a
principal acts in bad faith and with abuse of right
in terminating the agency, then he is liable in
damages. This is in accordance with the precepts
in Human Relations enshrined in our Civil Code
that "every person must in the exercise of his
rights and in the performance of his duties act
with justice, give every one his due, and observe
honesty and good faith: (Art. 19, Civil Code), and
every person who, contrary to law, wilfully or
negligently causes damages to another, shall

31 | P a g e

indemnify the latter for the same (Art. 20, id).

"Any person who wilfully causes loss or injury to
another in a manner contrary to morals, good
customs and public policy shall compensate the
latter for the damages" (Art. 21, id.).
As to the issue of whether or not the petitioners
are liable to Philamgen for the unpaid and
uncollected premiums which the respondent
court ordered Valenzuela to pay Philamgen the
amount of One Million Nine Hundred Thirty-Two
Thousand Five Hundred Thirty-Two and 17/100
Pesos (P1,932,532,17) with legal interest thereon
until fully paid (Decision-January 20, 1988, p. 16;
Petition, Annex "A"), we rule that the respondent
court erred in holding Valenzuela liable. We find
no factual and legal basis for the award. Under
Section 77 of the Insurance Code, the remedy for
the non-payment of premiums is to put an end to
and render the insurance policy not binding
Sec. 77 ... [N]otwithstanding any
agreement to the contrary, no policy or
contract of insurance is valid and binding
unless and until the premiums thereof
have been paid except in the case of a life
or industrial life policy whenever the grace
period provision applies (P.D. 612, as
amended otherwise known as the
Insurance Code of 1974)
In Philippine Phoenix Surety and Insurance, Inc. v.
Woodworks, Inc. (92 SCRA 419 [1979]) we held
that the non-payment of premium does not
merely suspend but puts an end to an insurance
contract since the time of the payment is
peculiarly of the essence of the contract. And
in Arce v. The Capital Insurance and Surety Co.
Inc.(117 SCRA 63, [1982]), we reiterated the rule
that unless premium is paid, an insurance
contract does not take effect. Thus:
It is to be noted that Delgado (Capital
Insurance & Surety Co., Inc. v. Delgado, 9
SCRA 177 [1963] was decided in the light
of the Insurance Act before Sec. 72 was
amended by the underscored portion.
Supra. Prior to the Amendment, an
insurance contract was effective even if
the premium had not been paid so that an
insurer was obligated to pay indemnity in
case of loss and correlatively he had also
the right to sue for payment of the
premium. But the amendment to Sec. 72
has radically changed the legal regime in
that unless the premium is paid there is
no insurance. " (Arce v. Capitol Insurance

and Surety Co., Inc., 117 SCRA 66;

Emphasis supplied)
In Philippine Phoenix Surety case, we held:
Moreover, an insurer cannot treat a
contract as valid for the purpose of
collecting premiums and invalid for the
purpose of indemnity. (Citing Insurance
Law and Practice by John Alan Appleman,
Vol. 15, p. 331; Emphasis supplied)
The foregoing findings are buttressed by
Section 776 of the insurance Code
(Presidential Decree No. 612, promulgated
on December 18, 1974), which now
provides that no contract of Insurance by
an insurance company is valid and binding
unless and until the premium thereof has
been paid, notwithstanding any
agreement to the contrary (Ibid., 92 SCRA
425)
Perforce, since admittedly the premiums have not
been paid, the policies issued have lapsed. The
insurance coverage did not go into effect or did
not continue and the obligation of Philamgen as
insurer ceased. Hence, for Philamgen which had
no more liability under the lapsed and inexistent
policies to demand, much less sue Valenzuela for
the unpaid premiums would be the height of
injustice and unfair dealing. In this instance, with
the lapsing of the policies through the
nonpayment of premiums by the insured there
were no more insurance contracts to speak of. As
this Court held in the Philippine Phoenix
Surety case, supra "the non-payment of
premiums does not merely suspend but puts an
end to an insurance contract since the time of the
payment is peculiarly of the essence of the
contract."
The respondent appellate court also seriously
erred in according undue reliance to the report of
Banaria and Banaria and Company, auditors, that
as of December 31, 1978, Valenzuela owed
Philamgen P1,528,698.40. This audit report of
Banaria was commissioned by Philamgen after
Valenzuela was almost through with the
presentation of his evidence. In essence, the
Banaria report started with an unconfirmed and
unaudited beginning balance of account of
P1,758,185.43 as of August 20, 1976. But even
with that unaudited and unconfirmed beginning
balance of P1,758,185.43, Banaria still came up
with the amount of P3,865.49 as Valenzuela's
balance as of December 1978 with Philamgen

32 | P a g e

(Exh. "38-A-3"). In fact, as of December 31, 1976,

and December 31, 1977, Valenzuela had no
unpaid account with Philamgen (Ref: Annexes
"D", "D-1", "E", Petitioner's Memorandum). But
even disregarding these annexes which are
records of Philamgen and addressed to
Valenzuela in due course of business, the facts
show that as of July 1977, the beginning balance
of Valenzuela's account with Philamgen
amounted to P744,159.80. This was confirmed by
Philamgen itself not only once but four (4) times
on different occasions, as shown by the records.
On April 3,1978, Philamgen sent Valenzuela a
statement of account with a beginning balance of
P744,159-80 as of July 1977.
On May 23, 1978, another statement of account
with exactly the same beginning balance was
sent to Valenzuela.
On November 17, 1978, Philamgen sent still
another statement of account with P744,159.80
as the beginning balance.
And on December 20, 1978, a statement of
account with exactly the same figure was sent to
Valenzuela.
It was only after the filing of the complaint that a
radically different statement of accounts surfaced
in court. Certainly, Philamgen's own statements
made by its own accountants over a long period
of time and covering examinations made on four
different occasions must prevail over unconfirmed
and unaudited statements made to support a
position made in the course of defending against
a lawsuit.
It is not correct to say that Valenzuela should
have presented its own records to refute the
unconfirmed and unaudited finding of the Banaria
auditor. The records of Philamgen itself are the
best refutation against figures made as an
afterthought in the course of litigation. Moreover,
Valenzuela asked for a meeting where the figures
would be reconciled. Philamgen refused to meet
with him and, instead, terminated the agency
agreement.
After off-setting the amount of P744,159.80,
beginning balance as of July 1977, by way of
credits representing the commission due from
Delta and other accounts, Valenzuela had
overpaid Philamgen the amount of P530,040.37
as of November 30, 1978. Philamgen cannot later
be heard to complain that it committed a mistake

in its computation. The alleged error may be

given credence if committed only once. But as
earlier stated, the reconciliation of accounts was
arrived at four (4) times on different occasions
where Philamgen was duly represented by its
account executives. On the basis of these
admissions and representations, Philamgen
cannot later on assume a different posture and
claim that it was mistaken in its representation
with respect to the correct beginning balance as
of July 1977 amounting to P744,159.80. The
Banaria audit report commissioned by Philamgen
is unreliable since its results are admittedly based
on an unconfirmed and unaudited beginning
balance of P1,758,185.43 as of August 20,1976.
As so aptly stated by the trial court in its decision:
Defendants also conducted an audit of
accounts of plaintiff Arturo P. Valenzuela
after the controversy has started. In fact,
after hearing plaintiffs have already rested
their case.
The results of said audit were presented in
Court to show plaintiff Arturo P.
Valenzuela's accountability to defendant
PHILAMGEN. However, the auditor, when
presented as witness in this case testified
that the beginning balance of their audit
report was based on an unaudited amount
of P1,758,185.43 (Exhibit 46-A) as of
August 20, 1976, which was unverified
and merely supplied by the officers of
defendant PHILAMGEN.
Even defendants very own Exhibit 38- A-3,
showed that plaintiff Arturo P. Valenzuela's
balance as of 1978 amounted to only
P3,865.59, not P826,128.46 as stated in
defendant Bienvenido M. Aragon's letter
dated December 20,1978 (Exhibit 14) or
P1,528,698.40 as reflected in defendant's
Exhibit 46 (Audit Report of Banaria dated
December 24, 1980).
These glaring discrepancy (sic) in the
accountability of plaintiff Arturo P.
Valenzuela to defendant PHILAMGEN only
lends credence to the claim of plaintiff
Arturo P. Valenzuela that he has no
outstanding account with defendant
PHILAMGEN when the latter, thru
defendant Bienvenido M. Aragon,
terminated the General Agency
Agreement entered into by plaintiff
(Exhibit A) effective January 31, 1979 (see

33 | P a g e

Exhibits "2" and "2-A"). Plaintiff Arturo P.

Valenzuela has shown that as of October
31, 1978, he has overpaid defendant
PHILAMGEN in the amount of P53,040.37
(Exhibit "EEE", which computation was
based on defendant PHILAMGEN's balance
of P744,159.80 furnished on several
occasions to plaintiff Arturo P. Valenzuela
by defendant PHILAMGEN (Exhibits H-1,
VV, VV-1, WW, WW-1 , YY , YY-2 , ZZ and ,
ZZ-2).
Prescinding from the foregoing, and considering
that the private respondents terminated
Valenzuela with evidentmala fide it necessarily
follows that the former are liable in damages.
Respondent Philamgen has been appropriating for
itself all these years the gross billings and income
that it unceremoniously took away from the
petitioners. The preponderance of the authorities
sustain the preposition that a principal can be
held liable for damages in cases of unjust
termination of agency. In Danon v. Brimo, 42 Phil.
133 [1921]), this Court ruled that where no time
for the continuance of the contract is fixed by its
terms, either party is at liberty to terminate it at
will, subject only to the ordinary requirements
of good faith. The right of the principal to
terminate his authority is absolute and
unrestricted, except only that he may not do so
in bad faith.
The trial court in its decision awarded to
Valenzuela the amount of Seventy Five Thousand
Pesos (P75,000,00) per month as compensatory
damages from June 1980 until its decision
becomes final and executory. This award is
justified in the light of the evidence extant on
record (Exhibits "N", "N-10", "0", "0-1", "P" and
"P-1") showing that the average gross premium
collection monthly of Valenzuela over a period of
four (4) months from December 1978 to February
1979, amounted to over P300,000.00 from which
he is entitled to a commission of P100,000.00
more or less per month. Moreover, his annual
sales production amounted to P2,500,000.00
from where he was given 32.5% commissions.
Under Article 2200 of the new Civil Code,
"indemnification for damages shall comprehend
not only the value of the loss suffered, but also
that of the profits which the obligee failed to
obtain."
The circumstances of the case, however, require
that the contractual relationship between the
parties shall be terminated upon the satisfaction
of the judgment. No more claims arising from or

as a result of the agency shall be entertained by

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

The Facts
The facts, as found by the Court of Appeals,
are as follows:
On January 25, 1991, plaintiff Rodolfo
S. Guevarra instituted Civil Case No. 8855 for sum
of money against defendant Dominion Insurance
Corporation. Plaintiff sought to
recover thereunder the sum of P156,473.90
which he claimed to have advanced in his
capacity as manager of defendant to satisfy
certain claims filed by defendants clients.
In its traverse, defendant denied any liability to
plaintiff and asserted a counterclaim for
P249,672.53, representing premiums that plaintiff
allegedly failed to remit.
On August 8, 1991, defendant filed a third-party
complaint against Fernando Austria, who, at the
time relevant to the case, was its Regional
Manager for Central Luzon area.
In due time, third-party defendant Austria filed
his answer.

Feliciano, J., is on leave.

----o0o---FIRST DIVISION
[G. R. No. 129919. February 6, 2002]
DOMINION
INSURANCE
CORPORATION, petitioner, vs. COURT
OF APPEALS, RODOLFO S. GUEVARRA,
and
FERNANDO
AUSTRIA,respondents.
DECISION
PARDO, J.:
The Case
This is an appeal via certiorari[1] from the
decision of the Court of Appeals[2] affirming the
decision[3] of the Regional Trial Court, Branch 44,
San
Fernando, Pampanga,
which
ordered
petitioner
Dominion
Insurance
Corporation
(Dominion) to pay Rodolfo S. Guevarra (Guevarra)
the sum of P156,473.90 representing the total
amount advanced byGuevarra in the payment of
the claims of Dominions clients.

34 | P a g e

Thereafter the pre-trial conference was set on the

following dates: October 18, 1991, November 12,
1991, March 29, 1991, December 12, 1991,
January 17, 1992, January 29, 1992, February 28,
1992, March 17, 1992 and April 6, 1992, in all of
which dates no pre-trial conference was held. The
record shows that except for the settings
on October 18, 1991, January 17, 1992 and March
17, 1992 which were cancelled at the instance of
defendant, third-party defendant and plaintiff,
respectively, the rest were postponed upon joint
request of the parties.
On May 22, 1992 the case was again called for
pre-trial conference. Only plaintiff and counsel
were present. Despite due notice, defendant and
counsel did not appear, although a messenger,
RoyGamboa, submitted to the trial court a
handwritten note sent to him by defendants
counsel which instructed him to request for
postponement. Plaintiffs counsel objected to the
desired postponement and moved to have
defendant declared as in default. This was
granted by the trial court in the following order:
ORDER
When this case was called for pre-trial this
afternoon only plaintiff and his counsel Atty.

Romeo Maglalang appeared. When shown a note

dated May 21, 1992 addressed to a certain Roy
who was requested to ask for postponement,
Atty. Maglalang vigorously objected to any
postponement on the ground that the note is but
a mere scrap of paper and moved that the
defendant corporation be declared as in default
for its failure to appear in court despite due
notice.
Finding the verbal motion of plaintiffs counsel to
be meritorious and considering that the pre-trial
conference has been repeatedly postponed on
motion of the defendant Corporation, the
defendant Dominion Insurance Corporation is
hereby declared (as) in default and plaintiff is
allowed to present his evidence on June 16, 1992
at 9:00 oclock in the morning.
The plaintiff and his counsel are notified of this
order in open court.
SO ORDERED.
Plaintiff presented his evidence on June 16, 1992.
This was followed by a written offer of
documentary exhibits on July 8 and a
supplemental offer of additional exhibits on July
13, 1992. The exhibits were admitted in evidence
in an order dated July 17, 1992.
On August 7, 1992 defendant corporation filed a
MOTION TO LIFT ORDER OF DEFAULT. It alleged
therein that the failure of counsel to attend the
pre-trial conference was due to an unavoidable
circumstance and that counsel had sent his
representative on that date to inform the trial
court of his inability to appear. The Motion was
vehemently opposed by plaintiff.
On August 25, 1992 the trial court denied
defendants motion for reasons, among others,
that it was neither verified nor supported by an
affidavit of merit and that it further failed to
allege or specify the facts constituting his
meritorious defense.
On September 28, 1992 defendant moved for
reconsideration of the aforesaid order. For the
first time counsel revealed to the trial court that
the reason for his nonappearance at the pre-trial
conference was his illness. An Affidavit of Merit
executed by its Executive Vice-President
purporting to explain its meritorious defense was
attached to the said Motion. Just the same, in an
Order dated November 13, 1992, the trial court
denied said Motion.

35 | P a g e

On November 18, 1992, the court a quo rendered

judgment as follows:
WHEREFORE, premises considered, judgment is
hereby rendered ordering:
1. The defendant Dominion Insurance Corporation
to pay plaintiff the sum of P156,473.90
representing the total amount advanced by
plaintiff in the payment of the claims of
defendants clients;
2. The defendant to pay plaintiff P10,000.00 as
and by way of attorneys fees;
3. The dismissal of the counter-claim of the
defendant and the third-party complaint;
4. The defendant to pay the costs of suit.[4]
On December 14, 1992, Dominion appealed
the decision to the Court of Appeals.[5]
On July 19, 1996, the Court of Appeals
promulgated a decision affirming that of the trial
court.[6] On September 3, 1996, Dominion filed
with the Court of Appeals a motion for
reconsideration.[7] On July 16, 1997, the Court of
Appeals denied the motion.[8]
Hence, this appeal.[9]
The Issues
The
issues
raised
are:
(1)
whether
respondent Guevarra acted within his authority as
agent
for
petitioner,
and
(2)
whether
respondent Guevarra is
entitled
to
reimbursement of amounts he paid out of his
personal money in settling the claims of several
insured.
The Court's Ruling
The petition is without merit.
By the contract of agency, a person binds
himself to render some service or to do
something in representation or on behalf of
another, with the consent or authority of the
latter.[10] The basis for agency is representation.
[11]
On the part of the principal, there must be an
actual intention to appoint[12] or an intention
naturally inferrable from his words or actions;
[13]
and on the part of the agent, there must be an
intention to accept the appointment and act on it,

[14]

and in the absence of such intent, there is

generally no agency.[15]
A perusal of the Special Power of
Attorney[16] would
show
that
petitioner
(represented by third-party defendant Austria)
and respondent Guevarra intended to enter into a
principal-agent relationship. Despite the word
special in the title of the document, the contents
reveal that what was constituted was actually a
general agency. The terms of the agreement
read:
That we, FIRST CONTINENTAL ASSURANCE
COMPANY, INC.,[17] a corporation duly organized
and existing under and by virtue of the laws of
the Republic of the Philippines, xxx represented
by the undersigned as Regional Manager, xxx
do hereby appoint RSG Guevarra Insurance
Services represented by Mr.
Rodolfo Guevarra xxx to be our Agency
Manager in San Fdo., for our place and stead, to
do and perform the following acts and things:

The agency comprises all the business of the

principal,[20] but, couched in general terms, it is
limited only to acts of administration.[21]
A general power permits the agent to do all
acts for which the law does not require a special
power.[22] Thus, the acts enumerated in or similar
to those enumerated in the Special Power of
Attorney do not require a special power of
attorney.
Article 1878, Civil Code, enumerates the
instances when a special power of attorney is
required. The pertinent portion that applies to
this case provides that:
Article 1878. Special powers of attorney are
necessary in the following cases:
(1) To make such payments as are not
usually
considered
as
acts
of
administration;
xxx xxx xxx

1. To conduct, sign, manager (sic), carry

on
and
transact
Bonding
and
Insurance business as usually pertain
to a Agency Office, or FIRE, MARINE,
MOTOR CAR, PERSONAL ACCIDENT,
and BONDING with the right, upon our
prior written consent, to appoint
agents and sub-agents.
2. To accept, underwrite and subscribed
(sic) cover notes or Policies of
Insurance and Bonds for and on our
behalf.
3. To demand, sue, for (sic) collect,
deposit, enforce payment, deliver and
transfer for and receive and give
effectual receipts and discharge for all
money
to
which
the
FIRST
CONTINENTAL ASSURANCE COMPANY,
INC.,[18] may hereafter become due,
owing payable or transferable to said
Corporation by reason of or in
connection with the above-mentioned
appointment.
4. To receive notices, summons, and
legal processes for and in behalf of
the FIRST CONTINENTAL ASSURANCE
COMPANY, INC., in connection with
actions and all legal proceedings
against
the
said
Corporation.
[19]
[Emphasis supplied]

36 | P a g e

(15) Any other act of strict dominion.

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

In settling the claims mentioned above,

respondent Guevarras authority is further limited
by the written standard authority to pay,[25] which
states that the payment shall come from
respondent Guevarras revolving
fund
or
collection. The authority to pay is worded as
follows:
This is to authorize you to withdraw from your
revolving fund/collection the amount of PESOS
__________________ (P ) representing the payment
on the _________________ claim of assured
_______________ under Policy No. ______ in that
accident of ___________ at ____________.
It is further expected, release papers will be
signed and authorized by the concerned and
attached to the corresponding claim folder after
effecting payment of the claim.
(sgd.) FERNANDO C. AUSTRIA

Article 1236, second paragraph, Civil Code,

provides:
Whoever pays for another may demand from the
debtor what he has paid, except that if he paid
without the knowledge or against the will of the
debtor, he can recover only insofar as the
payment has been beneficial to the debtor.
In this case, when the risk insured against
occurred, petitioners liability as insurer arose.
This
obligation
was
extinguished
when
respondent Guevarra paid
the
claims
and
obtained Release of Claim Loss and Subrogation
Receipts from the insured who were paid.
Thus, to the extent that the obligation of the
petitioner
has
been
extinguished,
respondent Guevarra may
demand
for
reimbursement from his principal. To rule
otherwise would result in unjust enrichment of
petitioner.

Regional Manager[26]
[Emphasis supplied]
The instruction of petitioner as the principal
could
not
be
any
clearer.
Respondent Guevarra was authorized to pay the
claim of the insured, but the payment shall come
from the revolving fund or collection in his
possession.
Having deviated from the instructions of the
principal,
the
expenses
that
respondent Guevarra incurred in the settlement
of the claims of the insured may not be
reimbursed from petitioner Dominion. This
conclusion is in accord with Article 1918, Civil
Code, which states that:
The principal is not liable for the expenses
incurred by the agent in the following cases:
(1) If the agent acted in contravention of the
principals instructions, unless the latter should
wish to avail himself of the benefits derived from
the contract;
xxx xxx xxx
However, while the law on agency prohibits
respondent Guevarra from
obtaining
reimbursement, his right to recover may still be
justified under the general law on obligations and
contracts.

37 | P a g e

The extent to which petitioner was benefited

by the settlement of the insurance claims could
best be proven by the Release of Claim Loss and
Subrogation Receipts[27] which were attached to
the original complaint as Annexes C-2, D-1, E-1,
F-1, G-1, H-1, I-1 and J-l, in the total amount of
P116,276.95.
However, the amount of the revolving
fund/collection that was then in the possession of
respondent Guevarra as
reflected
in
the
statement of account dated July 11, 1990would
be deducted from the above amount.
The
outstanding
balance
and
the
production/remittance
for
the
period
corresponding to the claims was P3,604.84.
Deducting this from P116,276.95, we get
P112,672.11. This is the amount that may be
reimbursed to respondent Guevarra.
The Fallo
IN VIEW WHEREOF, we DENY the Petition.
However, we MODIFY the decision of the Court of
Appeals[28] and that of the Regional Trial Court,
Branch 44, San Fernando,Pampanga,[29] in that
petitioner
is
ordered
to
pay
respondent Guevarra the amount of P112,672.11
representing the total amount advanced by the
latter in the payment of the claims of petitioners
clients.

No costs in this instance.

SO ORDERED.
Davide,
(Chairman), Puno, Kapunan, and YnaresSantiago, JJ., concur.

Jr.,

----o0o---Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-20726 December 20, 1923
ALBALADEJO Y CIA., S. en C., plaintiffappellant,
vs.
The PHILIPPINE REFINING CO., as successor
to The Visayan Refining Co., defendantappellant.
Eduardo Gutierrez Repide and Felix Socias for
plaintiff.
Manly, Goddard and Lockwood for defendantappellant.
Fisher, DeWitt, Perkins and Brady of counsel.

STREET, J.:
This action was instituted in the Court of First
Instance of the Province of Albay by Albaladejo y
Cia., S. en C., to recover a sum of money from the
Philippine Refining Co., as successor to the
Visayan Refining Co., two causes of action being
stated in the complaint. Upon hearing the cause
the trial judge absolved the defendant from the
first cause of action but gave judgment for the
plaintiff to recover the sum of P49,626.68, with
costs, upon the second cause of action. From this
judgment the plaintiff appealed with respect to
the action taken upon the first cause of action,
and the defendant appealed with respect to the
action taken upon the second cause of action. It
results that, by the appeal of the two parties, the
decision of the lower court is here under review
as regards the action taken upon both grounds of
action set forth in the complaint.

It appears that Albaladejo y Cia. is a limited

partnership, organized in conformity with the
laws of these Islands, and having its principal
place of business at Legaspi, in the Province of
Albay; and during the transactions which gave
origin to this litigation said firm was engaged in
the buying and selling of the products of the
country, especially copra, and in the conduct of a
general mercantile business in Legaspi and in
other places where it maintained agencies, or
sub-agencies, for the prosecution of its
commercial enterprises.
The Visayan Refining Co. is a corporation
organized under the laws of the Philippine
Islands; and prior to July 9, 1920, it was engaged
in operating its extensive plant at Opon, Cebu, for
the manufacture of coconut oil.
On August 28, 1918, the plaintiff made a contract
with the Visayan Refining Co., the material parts
of which are as follows:
Memorandum of Agreement Re Purchase
of Copra. This memorandum of
agreement, made and entered into by and
between Albaladejo y Compania, S. en C.,
of Legaspi, Province of Albay, Philippine
Islands, party of the first part, and the
Visayan Refining Company, Inc., of Opon,
Province of Cebu, Philippine Islands, party
of the second part,
Witnesseth That. Whereas, the party of
the first part is engaged in the purchase of
copra in the Province of Albay; and
Whereas, the party of the second part is
engaged in the business of the
manufacture of coconut oil, or which
purpose it must continually purchase large
quantities of copra; Now, Therefore, in
consideration of the premises and
covenants hereinafter set forth, the said
parties have agreed and do hereby
contract and agree as follows, to wit:
1. The party of the first part agrees and
binds itself to sell to the party of the
second part, and the party of the second
part agrees and binds itself to buy from
the party of the first part, for a period of
one (1) year from the date of these
presents, all the copra purchased by the
party of the first part in Province of Albay.
2. The party of the second part agrees to
pay the party of the first part for the said

38 | P a g e

copra the market price thereof in Cebu at

date (of) purchase, deducting, however,
from such price the cost of transportation
by sea to the factory of the party of
second part at Opon, Cebu, the amount
deducted to be ascertained from the rates
established, from time to time, by the
public utility commission, or such entity as
shall succeed to its functions, and also a
further deduction for the shrinkage of the
copra from the time of its delivery to the
party of the second part to its arrival at
Opon, Cebu, plus one-half of a real per
picul in the event the copra is delivered to
boats which will unload it on the pier of
the party of the second part at Opon,
Cebu, plus one real per picul in the event
that the party of the first part shall employ
its own capital exclusively in its purchase.
3. During the continuance of this contract
the party of the second part will not
appoint any other agent for the purchase
of copra in Legaspi, nor buy copra from
any vendor in Legaspi.
4. The party of the second part will, so far
as practicable, keep the party of the first
part advised of the prevailing prices paid
for copra in the Cebu market.
5. The party of the second part will
provide transportation by sea to Opon,
Cebu, for the copra delivered to it by the
party of the first part, but the party of the
first part must deliver such copra to the
party of the second part free on board the
boats of the latter's ships or on the pier
alongside the latter's ships, as the case
may be.
Pursuant to this agreement the plaintiff, during
the year therein contemplated, bought copra
extensively for the Visayan Refining Co. At the
end of said year both parties found themselves
satisfied with the existing arrangement, and they
therefore continued by tacit consent to govern
their future relations by the same agreement. In
this situation affairs remained until July 9, 1920,
when the Visayan Refining Co. closed down its
factory at Opon and withdrew from the copra
market.
When the contract above referred to was
originally made, Albaladejo y Cia. apparently had
only one commercial establishment, i.e., that at
Legaspi; but the large requirements of the

39 | P a g e

Visayan Refining Co. for copra appeared so far to

justify the extension of the plaintiff's business
that during the course of the next two or three
years it established some twenty agencies, or
subagencies, in various ports and places of the
Province of Albay and neighboring provinces.
After the Visayan Refining Co. had ceased to buy
copra, as above stated, of which fact the plaintiff
was duly notified, the supplies of copra already
purchased by the plaintiff were gradually shipped
out and accepted by the Visayan Refining Co.,
and in the course of the next eight or ten months
the accounts between the two parties were
liquidated. The last account rendered by the
Visayan Refining Co. to the plaintiff was for the
month of April, 1921, and it showed a balance of
P288 in favor of the defendant. Under date of
June 25, 1921, the plaintiff company addressed a
letter from Legaspi to the Philippine Refining Co.
(which had now succeeded to the rights and
liabilities of the Visayan Refining Co.), expressing
its approval of said account. In this letter no
dissatisfaction was expressed by the plaintiff as
to the state of affairs between the parties; but
about six weeks thereafter the present action was
begun.
Upon reference to paragraph five of the contract
reproduced above it will be seen that the Visayan
Refining Co. obligated itself to provide
transportation by sea to Opon, Cebu, for the
copra which should be delivered to it by the
plaintiff; and the first cause of action set forth in
the complaint is planted upon the alleged
negligent failure of the Visayan Refining Co. to
provide opportune transportation for the copra
collected by the plaintiff and deposited for
shipment at various places. In this connection we
reproduce the following allegations from the
complaint:
6. That, from the month of September,
1918, until the month of June, 1920, the
plaintiff opportunely advised the Visayan
of the stocks that the former had for
shipment, and, from time to time,
requested the Visayan to send vessels to
take up said stocks; but that the Visayan
culpably and negligently allowed a great
number of days to elapse before sending
the boats for the transportation of the
copra to Opon, Cebu, and that due to the
fault and negligence of the Visayan, the
stocks of copra prepared for shipment by
the plaintiff had to remain an unnecessary
length of time in warehouses and could

not be delivered to the Visayan, nor could

they be transmitted to this latter because
of the lack of boats, and that for this
reason the copra gathered by the plaintiff
and prepared for delivery to the Visayan
suffered the diminishment of weight
herein below specified, through shrinkage
or excessive drying, and, in consequence
thereof, an important diminishment in its
value.
xxx

xxx

xxx

8. That the diminishment in weight

suffered as shrinkage through excessive
drying by all the lots of copra sold by the
plaintiff to the Visayan, due to the fault
and negligence of the Visayan in the
sending of boats to take up said copra,
represents a total of 9,695 piculs and 56
cates, the just and reasonable value of
which, at the rates fixed by the purchaser
as the price in its liquidation, is a total of
two hundred and one thousand, five
hundred and ninety-nine pesos and fiftythree centavos (P201,599.53), Philippine
currency, in which amount the plaintiff has
been damaged and injured by the
negligent and culpable acts and omissions
of the Visayan, as herein above stated and
alleged.
In the course of the appealed decision the trial
judge makes a careful examination of the proof
relative to the movements of the fleet of boats
maintained by the Visayan Refining Co. for the
purpose of collecting copra from the various ports
where it was gathered for said company, as well
as of the movements of other boats chartered or
hired by said company for the same purpose; and
upon consideration of all the facts revealed in
evidence, his Honor found that the Visayan
Refining Co. had used reasonable promptitude in
its efforts to get out the copra from the places
where it had been deposited for shipment,
notwithstanding occasional irregularities due at
times to the condition of the weather as related
to transportation by sea and at other times to the
inability of the Visayan Refining Co. to dispatch
boats to the more remote ports. This finding of
the trial judge, that no negligence of the kind
alleged can properly be imputed to the Visayan
Refining Co., is in our opinion supported by the
proof.
Upon the point of the loss of weight of the copra
by shrinkage, the trial judge found that this is a

40 | P a g e

product which necessarily undergoes

considerable shrinkage in the process of drying,
and intelligent witnesses who are conversant with
the matter testified at the trial that shrinkage of
cobra varies from twenty to thirty per centum of
the original gross weight. It is agreed that the
shrinkage shown in all of the copra which the
plaintiff delivered to the Visayan Refining Co.
amounted to only 8.187 per centum of the whole,
an amount which is notably below the normal.
This showing was undoubtedly due in part, as the
trial judge suggests, to the fact that in purchasing
the copra directly from the producers the
plaintiff's buyers sometimes estimated the picul
at sixty-eight kilos, or somewhat less, but in no
case at the true weight of 63.25 kilos. The
plaintiff was therefore protected in a great
measure from loss by shrinkage by purchasing
upon a different basis of weight from that upon
which he sold, otherwise the shrinkage shown in
the result must have been much greater than
that which actually appeared. But even
considering this fact, it is quite evident that the
demonstrated shrinkage of 8.187 per centum was
extremely moderate average; and this fact goes
to show that there was no undue delay on the
part of the Visayan Refining Co. in supplying
transportation for the copra collected by the
plaintiff.
In the course of his well-reasoned opinion upon
this branch of the case, the trial judge calls
attention to the fact that it is expressly provided
in paragraph two of the contract that the
shrinkage of copra from the time of its delivery to
the party of the second part till its arrival at Opon
should fall upon the plaintiff, from whence it is to
be interfered that the parties intended that the
copra should be paid for according to its weight
upon arrival at Opon regardless of its weight
when first purchased; and such appears to have
been the uniform practice of the parties in
settling their accounts for the copra delivered
over a period of nearly two years.
From what has been said it follows that the first
cause of action set forth in the complaint is not
well founded, and the trial judge committed no
error in absolving the plaintiff therefrom.
It appears that in the first six months of the year
1919, the plaintiff found that its transactions with
the Visayan Refining Co. had not been productive
of reasonable profit, a circumstance which the
plaintiff attributed to loss of weight or shrinkage
in the copra from the time of purchase to its
arrival at Opon; and the matter was taken up with

the officials of said company, with the result that

a bounty amounting to P15,610.41 was paid to
the plaintiff by the Visayan Refining Co. In the
ninth paragraph of the complaint the plaintiff
alleges that this payment was made upon
account of shrinkage, for which the Visayan
Refining Co. admitted itself to be liable; and it is
suggested that the making of this payment
operated as a recognition on the part of the
Visayan refining Co. of the justice of the plaintiff's
claim with respect to the shrinkage in all
subsequent transactions. With this proposition we
cannot agree. At most the payment appears to
have been made in recognition of an existing
claim, without involving any commitment as to
liability on the part of the defendant in the future;
and furthermore it appears to have been in the
nature of a mere gratuity given by the company
in order to encourage the plaintiff and to assure
that the plaintiff's organization would be kept in
an efficient state for future activities. It is certain
that no general liability for plaintiff's losses was
assumed for the future; and the defendant on
more than one occasion thereafter expressly
disclaimed liability for such losses.
As already stated purchases of copra by the
defendant were suspended in the month of July,
1920. At this time the plaintiff had an expensive
organization which had been built up chiefly, we
suppose, with a view to the buying of copra; and
this organization was maintained practically
intact for nearly a year after the suspension of
purchases by the Visayan Refining Co. Indeed in
October, 1920, the plaintiff added an additional
agency at Gubat to the twenty or more already in
existence. As a second cause of action the
plaintiff seeks to recover the sum of P110,000,
the alleged amount expended by the plaintiff in
maintaining and extending its organization as
above stated. As a basis for the defendant's
liability in this respect it is alleged that said
organization was maintained and extended at the
express request, or requirement, of the
defendant, in conjunction with repeated
assurances that the defendant would soon
resume activity as a purchaser of copra.
With reference to this cause of action the trial
judge found that the plaintiff, as claimed, had
incurred expenses at the request of the
defendant and upon its representation that the
plaintiff would be fully compensated therefor in
the future. Instead, however, of allowing the
plaintiff the entire amount claimed, his Honor
gave judgment for only thirty per centum of said
amount, in view of the fact that the plaintiff's

41 | P a g e

transactions in copra had amounted in the past

only to about thirty per centum of the total
business transacted by it. Estimated upon this
basis, the amount recognized as constituting a
just claim was found to be P49,626.68, and for
this amount judgment was rendered against the
defendant.
The discussion of this branch of the appeal
involves the sole question whether the plaintiff's
expense in maintaining and extending its
organization for the purchase of copra in the
period between July, 1920, to July, 1921, were
incurred at the instance and request of the
defendant, or upon any promise of the defendant
to make the expenditure good. A careful
examination of the evidence, mostly of a
documentary character, is, in our opinion,
convincing that the supposed liability does not
exist.
By recurring to paragraph four of the contract
between the plaintiff and the Visayan Refining Co.
it will be seen that the latter agreed to keep the
plaintiff advised of the prevailing prices paid for
the copra in the Cebu market. In compliance with
this obligation the Visayan Refining Co. was
accustomed to send out "trade letters" from time
to time its various clients in the southern
provinces of whom the plaintiff was one. In these
letters the manager of the company was
accustomed to make comment upon the state of
the market and to give such information as might
be of interest or value to the recipients of the
letters. From the series of letters thus sent to
Albaladejo y Cia. during the latter half of 1920,
we here reproduce the following excerpts:
(Letter of July 2, 1920, from K.B. Day, General
Manager of the Visayan Refining Co., to
Albaladejo y Cia.)
The copra market is still very weak. I have
spent the past two weeks in Manila
studying conditions and find that
practically no business at all is being done.
A few of the mills having provincial agents
are accepting small deliveries, but I do not
suppose that 500 piculs of copra are
changing hands a day. Buyers are offering
from P13 to P15, depending on quality,
and sellers are offering to sell at anywhere
from P16 to P18, but no business can be
done for the simple reason that the banks
will not lend the mills any money to buy
copra with at this time.

Reports from the United States are to the

effect that the oil market is in a very
serious and depressed condition and that
large quantities of oil cannot be disposed
of at any price.
xxx

xxx

(Letter of July 17, 1920, from K.B. Day to

Albaladejo y Cia.)

xxx

Under this conditions it is imperative that

this mill buy no more copra than it can
possibly help at the present time. We are
not anxious to compete, nor do we wish to
purchase same in competition with others.
We do, however, desire to keep our agents
doing business and trust that they will
continue to hold their parroquianos
(customers), buying only minimum
quantities at present.
The local market has not changed since
last week, and our liquidating price is P14.
(Letter of July 9, 1920, from Visayan Refining Co.
to Albaladejo y Cia.)
Notify your subagents to drop out of the
market temporarily. We do not desire to
purchase at present.
(Letter of July 10, 1920, from K. B. Day, General
Manager, to Albaladejo y Cia.)
The market continues to grow weaker.
Conditions are so uncertain that this
company desires to drop out of the copra
market until conditions have a chance to
readjust themselves. We request therefore
that our agents drop out of active
competition for copra temporarily. Stocks
that are at present on hand will, of course,
be liquidated, but no new stocks should be
acquired. Agents should do their best to
keep their organizations together
temporarily, for we expect to be in the
market again soon stronger than ever. We
expect the cooperation of agents in
making this effective; and if they give us
this cooperation, we will endeavor to see
that they do not lose by the transaction in
the long run. This company has been
receiving copra from its agents for a long
time at prices which have netted it a loss.
The company has been supporting its
agents during this period. It now expects
the same support from its agents. Agents
having stocks actually on hand in their
bodegas should telegraph us the quantity

42 | P a g e

immediately and we will protect same. But

stocks not actually in bodegas cannot be
considered.

Conditions have changed very little in the

copra market since last reports. . . . We
are in the same position as last week and
are out of the market.
For the benefit of our agents, we wish to
explain in a few words just why we are
have been forced to close down our mill
until the arrival of a boat to load some of
our stocks on hand. We have large stocks
of copra. The market for oil is so uncertain
that we do not care to increase these
stocks until such time as we know that the
market has touched the bottom. As soon
as this period of uncertainty is over, we
expect to be in the market again stronger
than ever, but it is only the part of
business wisdom to play safe at such
times as these.
Owing to the very small amounts of copra
now in the provinces, we do not think that
our agents will lose anything by our being
out of the market. On the contrary, the
producers of copra will have a chance to
allow their nuts to mature on the trees so
that the quality of copra which you will
receive when we again are in the market
should be much better than what you
have been receiving in the past. Due to
the high prices and scarcity of copra a
large proportion of the copra we have
received has been made from unripe
coconuts and in order to keep revenue
coming in the producers have kept
harvesting these coconuts without giving
them a chance to reach maturity. This
period now should give them the chance
to let their nuts ripen and should give you
a better copra in the future which will
shrink less and be more satisfactory both
from your standpoint and ours. Please do
all you can to assist us at this time. We
shall greatly appreciate your
cooperation.lawphi1.net
(Letter of August 7, 1920, from H.U. Umstead,
Assistant General Manager, to Albaladejo y Cia.)

The copra situation in Manila remains

unchanged and the outlook is still
uncertain. Arrivals continue small.
We are still out of the market and are not
yet in a position to give you buying orders.
We trust, however, that within the next
few days weeks we may be able to reenter
the market and resume our former activity.
xxx

xxx

xxx

While we are not of the market we have

no objection whatever to our agents
selling copra to other purchasers, if by
doing so they are able to keep themselves
in the market and retain
their parroquianos(customers). We do not,
however, wish you to use our money, for
this purpose, nor do we want you to buy
copra on speculation with the idea in mind
that we will take it off of your hands at
high prices when we reenter the market.
We wish to warn you against this now so
that you will not be working under any
misapprehension.
In this same mail, we are sending you a
notice of change of organization. In your
dealings with us hereafter, will you kindly
address all communications to the
Philippine Refining Corporation, Cebu,
which you will understand will be delivered
to us.
(Letter of August 21, 1920, from Philippine
Refining Corporation, by K.B. Day, to Albaladejo y
Cia.)
We are not yet in the market, but, as we
have indicated before, are hopeful of
renewing our activities soon. We shall
advise all our agents seasonably of our
return to the market. . . .
We are preparing new form of agreement
between ourselves and our agents and
hope to have them completed in time to
refer them to our agents in the course of
the next week or ten days.
All agents should endeavor to liquidate
outstanding advances at this time
because this is a particularly good time to
clean out old accounts and be on a
business basis when we return to the

43 | P a g e

market. We request that our agents

concentrate their attention on this point
during the coming week.lawphi1.net
(Letter of October 16, 1920, from K.B. Day,
Manager, to Albaladejo y Cia.)
Copra in Manila and coconut oil in the
United States have taken a severe drop
during the past week. The Cebu price
seems to have remained unchanged, but
we look for an early drop in the local
market.
We have received orders from our
president in New York to buy no more
copra until the situation becomes more
favorable. We had hoped and expected to
be in the market actively before this time,
but this most unexpected reaction in the
market makes the date of our entry in it
more doubtful.
With this in view, we hereby notify our
agents that we can accept no more copra
and advance no more money until we
have permission from our president to do
so. We request, therefore, that you go
entirely out of the market, so far as we are
concerned, with the exception of receiving
copra against outstanding accounts.
In case any agent be compelled to take in
copra and desire to send same to us, we
will be glad to sell same for him to the
highest bidder in Cebu. We will make no
charge for our services in this connection,
but the copra must be forwarded to us on
consignment only so that we will not
appear as buyers and be required to pay
the internal-revenue tax.
We are extremely sorry to be compelled to
make the present announcement to you,
but the market is such that our president
does not deem it wise for us to purchase
copra at present, and, with this in view, we
have no alternative other than to comply
with his orders. We hope that our agents
will realize the spirit in which these orders
are given, and will do all they can to
remain faithful to us until such time as we
can reenter the market, which we hope
and believe will be within a comparatively
short time.

(Special Letter of October 16, 1920, from

Philippine Refining Corporation, by K.B. Day, to
Albaladejo y Cia.)
We have received very strict instructions
from New York temporarily to suspend the
purchase of copra, and of course we must
comply therewith. However, should you
find yourselves obliged to buy copra in
connection with your business activities,
and cannot dispose of it advantageously in
Cebu, we shall be glad to receive your
copra under the condition that we shall
sell it in the market on your account to the
highest bidder, or, in other words, we offer
you our services free, to sell your copra to
the best possible advantages that the
local market may offer, provided that, in
doing so, we be not obliged to accept your
copra as a purchase when there be no
market for this product.
Whenever you find yourselves obliged to
buy copra in order to liquidate pending
advances, we can accept it provided that,
so long as present conditions prevail, we
be not required to make further cash
advances.
We shall quote no further from letters written by
the management of the Philippine Refining
Corporation to the plaintiff, as we find nothing in
the correspondence which reflects an attitude
different from that reflected in the matter above
quoted. It is only necessary to add that the hope
so frequently expressed in the letters, to the
effect that the Philippine Refining Corporation
would soon enter the market as a buyer of copra
on a more extensive scale than its predecessor,
was not destined to be realized, and the factory
at Opon remained closed.
But it is quite obvious that there is nothing in
these letters on which to hold the defendant
liable for the expenses incurred by the plaintiff in
keeping its organization intact during the period
now under consideration. Nor does the oral
testimony submitted by the plaintiff materially
change the situation in any respect. Furthermore,
the allegation in the complaint that one agency in
particular (Gubat) had been opened on October 1,
1920, at the special instance and request of the
defendant, is not at all sustained by the evidence.
We note that in his letter of July 10, 1920, Mr. Day
suggested that if the various purchasing agents
of the Visayan Refining Co. would keep their

44 | P a g e

organization intact, the company would endeavor

to see that they should not lose by the
transaction in the long run. These words afford no
sufficient basis for the conclusion, which the trial
judge deduced therefrom, that the defendant is
bound to compensate the plaintiff for the
expenses incurred in maintaining its organization.
The correspondence sufficiently shows on its face
that there was no intention on the part of the
company to lay a basis for contractual liability of
any sort; and the plaintiff must have understood
the letters in that light. The parties could
undoubtedly have contracted about it, but there
was clearly no intention to enter into contractual
relation; and the law will not raise a contract by
implication against the intention of the parties.
The inducement held forth was that, when
purchasing should be resumed, the plaintiff would
be compensated by the profits then to be earned
for any expense that would be incurred in
keeping its organization intact. It is needless to
say that there is no proof showing that the
officials of the defendant acted in bad faith in
holding out this hope.
In the appellant's brief the contention is
advanced that the contract between the plaintiff
and the Visayan Refining Co. created the relation
of principal and agent between the parties, and
the reliance is placed upon article 1729 of the
Civil Code which requires the principal to
indemnify the agent for damages incurred in
carrying out the agency. Attentive perusal of the
contract is, however, convincing to the effect that
the relation between the parties was not that of
principal and agent in so far as relates to the
purchase of copra by the plaintiff. It is true that
the Visayan Refining Co. made the plaintiff one of
its instruments for the collection of copra; but it is
clear that in making its purchases from the
producers the plaintiff was buying upon its own
account and that when it turned over the copra to
the Visayan Refining Co., pursuant to that
agreement, a second sale was effected. In
paragraph three of the contract it is declared that
during the continuance of this contract the
Visayan Refining Co. would not appoint any other
agent for the purchase of copra in Legaspi; and
this gives rise indirectly to the inference that the
plaintiff was considered its buying agent. But the
use of this term in one clause of the contract
cannot dominate the real nature of the
agreement as revealed in other clauses, no less
than in the caption of the agreement itself. In
some of the trade letters also the various
instrumentalities used by the Visayan Refining
Co. for the collection of copra are spoken of as

agents. But this designation was evidently used

for convenience; and it is very clear that in its
activities as a buyer the plaintiff was acting upon
its own account and not as agents, in the legal
sense, of the Visayan Refining Co. The title to all
of the copra purchased by the plaintiff
undoubtedly remained in it until it was delivered
by way of subsequent sale to said company.
For the reasons stated we are of the opinion that
no liability on the part of the defendant is shown
upon the plaintiff's second cause of action, and
the judgment of the trial court on this part of the
case is erroneous.
The appealed judgment will therefore be affirmed
in so far as it absolves the defendant from the
first cause of action and will be reversed in so far
as it gives judgment against the defendant upon
the second cause of action; and the defendant
will be completely absolved from the complaint.
So ordered, without express findings as to costs
of either instance.
Johnson, Malcolm, Avancea, Villamor, Johns and
Romualdez, JJ., concur.
----o0o---Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 15823

September 12, 1921

JULIO DANON, plaintiff-appellee,

vs.
ANTONIO A. BRIMO & CO., defendantappellant.
Claro M. Recto for appellant.
Canillas & Cardenas for appellee.
JOHNSON, J.:
This action was brought to recover the sum of
P60,000, alleged to be the value of services
rendered to the defendant by the plaintiff as a
broker. The plaintiff alleges that in the month of
August, 1918, the defendant company, through
its manager, Antonio A. Brimo, employed him to
look for a purchaser of its factory known as
"Holland American Oil Co.," for the sum of
P1,200,000, payable in cash; that the defendant
promised to pay the plaintiff, as compensation for

45 | P a g e

his services, a commission of five per cent on the

said sum of P1,200,000, if the sale was
consummated, or if the plaintiff should find a
purchaser ready, able and willing to buy said
factory for the said sum of P1,200,000; that
subsequently the plaintiff found such a purchaser,
but that the defendant refused to sell the said
factory without any justifiable motive or reason
therefor and without having previously notified
the plaintiff of its desistance or variation in the
price and terms of the sale.
To that complaint the defendant interposed a
general denial. Upon the issue thus presented,
the Honorable Simplicio del Rosario, judge, after
hearing and considering the evidence adduced
during the trial of the cause, rendered a judgment
in favor of the plaintiff and against the defendant
for the sum of P60,000, with costs. From that
judgment the defendant appealed to this court.
The proof with regard to the authority of the
plaintiff to sell the factory in question for the
defendant, on commission, is extremely
unsatisfactory. It consists solely of the testimony
of the plaintiff, on the one hand, and of the
manager of the defendant company, Antonio A.
Brimo, on the other. From a reading of their
testimony we believe that neither of them has
been entirely free from prevarications. However,
after giving due weight to the finding of the trial
court in this regard and after carefully considering
the inherent probability or improbability of the
testimony of each of said witnesses, we believe
we are approximating the truth in finding: (1)
That Antonio A. Brimo, in a conversation with the
plaintiff, Julio Danon, about the middle of August,
1918, informed the latter that he (Brimo) desired
to sell his factory, the Holland American Oil Co.,
for the sum of P1,200,000; (2) that he agreed and
promised to pay to the plaintiff a commission of 5
per cent provided the latter could sell said factory
for that amount; and (3) that no definite period of
time was fixed within which the plaintiff should
effect the sale. It seems that another broker,
Sellner, was also negotiating the sale, or trying to
find a purchaser for the same property and that
the plaintiff was informed of the fact either by
Brimo himself or by someone else; at least, it is
probable that the plaintiff was aware that he was
not alone in the field, and his whole effort was to
forestall his competitor by being the first to find a
purchaser and effect the sale. Such, we believe.
was the contract between the plaintiff and the
defendant, upon which the present action is
based.

The next question to determine is whether the

plaintiff had performed all that was required of
him under that contract to entitle him to recover
the commission agreed upon. The proof in this
regard is no less unsatisfactory. It seems that
immediately after having an interview with Mr.
Brimo, as above stated, the plaintiff went to see
Mr. Mauro Prieto, president of the Santa Ana Oil
Mill, a corporation, and offered to sell to him the
defendant's property at P1,200,000. The said
corporation was at that time in need of such a
factory as the plaintiff was offering for sale, and
Mr. Prieto, its president, instructed the manager,
Samuel E. Kane, to see Mr. Brimo and ascertain
whether he really wanted to sell said factory, and,
if so, to get permission from him to inspect the
premises. Mr. Kane inspected the factory and,
presumably, made a favorable report to Mr.
Prieto. The latter asked for an appointment with
Mr. Brimo to perfect the negotiation. In the
meantime Sellner, the other broker referred to,
had found a purchaser for the same property,
who ultimately bought it for P1,300,000. For that
reason Mr. Prieto, the would be purchaser found
by the plaintiff, never came to see Mr. Brimo to
perfect the proposed negotiation.
Under the proofs in this case, the most that can
be said as to what the plaintiff had accomplished
is, that he had found a person who might have
bought the defendant's factory if the defendant
had not sold it to someone else. The evidence
does not show that the Santa Ana Oil Mill
had definitely decided to buy the property in
question at the fixed price of P1,200,000. The
board of directors of said corporation had not
resolved to purchase said property; and even if
its president could legally make the purchase
without previous formal authorization of the
board of directors, yet said president does not
pretend that he had definitely and formally
agreed to buy the factory in question on behalf of
his corporation at the price stated. On direct
examination he testified for the plaintiff as
follows:

A.

Yes, sir.

Q.
And you accepted it at that price
of P1,200.000?
A.
Surely, because as I already said
before, we were in the difficult position of
not being able to operate our factory,
because of the obstacle placed by the
Government.
Q.
And did you inform Mr. Danon of
this acceptance?
A.

I did not explain to Mr. Danon.

On cross-examination the same witness testified:

Q.
What actions did the board of
directors of the Santa Ana Oil Mill take in
order to acquire or to make an offer to Mr.
Brimo of the Holland American Oil
Company?
A.
But nothing was effected,
because Mr. Danon stated that the
property had been sold when I was going
to deal with him.
Q.
But do you not say that you
made an offer of P1,200,000?
A.
No; it was Mr. Danon who made
the offer and we were sure to put the deal
through because we have bound
ourselves.

Our company, the Santa Ana Oil

The plaintiff claims that the reasons why the sale

to the Santa Ana Mill was not consummated was
because Mr. Brimo refused to sell to a Filipino firm
and preferred an American buyer; that upon
learning such attitude of the defendant the
plaintiff endeavored to procure another purchaser
and found a Mr. Leas, who delivered to the
plaintiff a letter addressed to Mr. Brimo, offering
to buy the factory in question at P1,200,000. the
offer being good for twenty-four; that said offer
was not accepted by Brimo because while he was
reading the letter of Leas, Sellner came in, drew
Brimo into another room, and then and there
closed the deal at P1,300,000. The last statement
is admitted by the defendant.

Q.
And is that company able to pay
the sum of P1,200,000?

Such are the facts in this case, as nearly accurate

as we can gather them from the conflicting
evidence before us. Under those facts, is the

Q.
You say that we were going to
accept or that it was beneficial for us; will
you say to whom your refer, when you say
"we?"
A.
Mill.

46 | P a g e

plaintiff entitled to recover the sum of P60,000,

claimed by him as compensation for his services?
It will be noted that, according to the plaintiff's
own testimony, the defendant agreed and
promised to pay him a commission of 5 per
cent provided he (the plaintiff) could sell the
factory at P1,200.000 ("con tal que V. me venda
la fabrica en P1,200.000"). It will also be noted
that all that the plaintiff had accomplished by
way of performance of his contract was, that he
had found a person who might have bought the
factory in question had not the defendant sold it
to someone else. (Beaumont vs. Prieto, 41 Phil.,
670; 249 U.S., 554.)
Under these circumstances it is difficult to see
how the plaintiff can recover anything in the
premises. The plaintiff's action is not one for
damages for breach of contract; it is an action to
recover "the reasonable value" of services
rendered. this is unmistakable both from the
plaintiff's complaint and his testimony as a
witness during the trial.
Q.
And what is the reasonable
value of the services you rendered to Mr.
Brimo?
A.
Five per cent of the price at
which it was sold.

Y., 561; Lloyd vs. Mathews, 51 id., 124;

Lyon vs. Mitchell, 36 id., 235;
Briggs vs. Rowe, 4 Keyes, 424;
Murrayvs. Currie, 7 Carr. and Payne, 584;
Wilkinson vs. Martin, 8 id., 5.)
A leading case on the subject is that of
Sibbald vs. Bethlehem Iron Co. (83 N. Y., 378; 38
Am. Rep., 441). In the case, after an exhaustive
review of various cases, the Court of Appeals of
New York stated the rule as follows:
In all the cases, under all and varying
forms of expression, the fundamental and
correct doctrine, is, thatthe duty assumed
by the broker is to bring the minds of the
buyer and seller to an agreement for a
sale, and the price and terms on which it
is to be made, and until that is done his
right to commissions does not accrue.
(McGavock vs. Woodlief, 20 How., 221;
Barnes vs. Roberts, 5 Bosw., 73;
Holly vs. Gosling, 2 E. D., Smith, 262;
Jacobs vs. Kolff, 2 Hilt., 133;
Kock vs. Emmerling, 22 How., 72;
Corning vs. Calvert, 2 Hilt., 56;
Trundy vs. N.Y. and Hartf. Steamboat Co., 6
Robt., 312; Van Lien vs. Burns, 1 Hilt.,
134.)
xxx

Q.
Upon what do you base your
qualification that those services were
reasonable?
A.
First, because that is the
common rate in the city, and, secondly,
because of the big gain that he obtained
from the sale.
What benefit did the plaintiff, by his "services,"
bestow upon the defendant to entitle him to
recover from the latter the sum of P60,000? It is
perfectly clear and undisputed that his "services"
did not any way contribute towards bringing
about the sale of the factory in question. He was
not "the efficient agent or the procuring cause of
the sale."
The broker must be the efficient agent or
the procuring cause of sale. The means
employed by him and his efforts must
result in the sale. He must find the
purchaser, and the sale must proceed
from his efforts acting as broker.
(Wylie vs. Marine National Bank, 61 N. Y.,
414; 416; citing: McClure vs. Paine, 49 N.

47 | P a g e

xxx

xxx

It follows, as a necessary deduction from

the established rule, that a broker is never
entitled to commissions for unsuccessful
efforts. The risk of a failure is wholly his.
The reward comes only with his success.
That is the plain contract and
contemplation of the parties. The broker
may devote his time and labor, and
expend his money with ever so much of
devotion to the interest of his employer,
and yet if he fails, if without effecting an
agreement or accomplishing a bargain, he
abandons the effort, or his authority is
fairly and in good faith terminated, he
gains no right to commissions. He loses
the labor and effort which was staked
upon success. And in such event it
matters not that after his failure, and the
termination of his agency, what he has
done proves of use and benefit to the
principal. In a multitude of cases that must
necessarily result. He may have
introduced to each other parties who
otherwise would have never met; he may
have created impressions, which under

later and more favorable circumstances

naturally lead to and materially assist in
the consummation of a sale; he may have
planted the very seed from which others
reap the harvest; but all that gives him no
claim. It was part of his risk that failing
himself, not successful in fulfilling his
obligation, others might be left to some
extent to avail themselves of the fruit of
his labors. As we said in Wylie vs. Marine
National Bank (61 N.Y., 416), in such a
case the principal violates no right of the
broker by selling to the first party who
offers the price asked, and it matters not
that sale is to the very party with whom
the broker had been negotiating. He failed
to find or produce a purchaser upon the
terms prescribed in his employment, and
the principal was under no obligation to
wait longer that he might make further
efforts. The failure therefore and its
consequences were the risk of the broker
only. This however must be taken with one
important and necessary limitation. If the
efforts of the broker are rendered a failure
by the fault of the employer;
if capriciously he changes his mind after
the purchaser, ready and willing,
andconsenting to the prescribed terms, is
produced; or if the latter declines to
complete the contract because of some
defect of title in the ownership of the
seller, some unremoved incumbrance,
some defect which is the fault of the
latter, then the broker does not lose his
commissions. And that upon the familiar
principle that no one can avail himself of
the nonperformance of a condition
precedent, who has himself occasioned its
nonperformance. But this limitation is not
even an exception to the general rule
affecting the broker's right for it goes on
the ground that the broker has done his
duty, that he has brought buyer and seller
to an agreement, but that the contract is
not consummated and fails though the
after-fault of the seller. The cases are
uniform in this respect. (Moses vs. Burling,
31 N.Y., 462; Glentworth vs. Luther, 21
Barb., 147; Van Lien vs. Burns, 1 Hilt.,
134.)
One other principle applicable to such a
contract as existed in the present case
needs to be kept in view.Where no time
for the continuance of the contract is fixed
by its terms either party is at liberty to

48 | P a g e

terminate it at will, subject only to the

ordinary requirements of good faith.
Usually the broker is entitled to a fair and
reasonable opportunity to perform his
obligation, subject of course to the right of
the seller to sell independently. But having
been granted him, the right of the
principal to terminate his authority
is absoluteand unrestricted, except only
that he may not do it in bad faith, and as a
mere device to escape the payment of the
broker's commissions. Thus, if in the midst
of negotiations instituted by the broker,
and which were plainly and evidently
approaching success, the seller should
revoke the authority of the broker,with the
view of concluding the bargain without his
aid, and avoiding the payment of
commission about to be earned, it might
be well said that the due performance his
obligation by the broker was purposely
prevented by the principal. But if the latter
acts in good faith, not seeking to escape
the payment of commissions, but moved
fairly by a view of his own interest, he has
the absolute right before a bargain is
made while negotiations remain
unsuccessful, before commissions are
earned, to revoke the broker's authority,
and the latter cannot thereafter claim
compensation for a sale made by the
principal, even though it be to a customer
with whom the broker unsuccessfully
negotiated, and even though, to some
extent, the seller might justly be said to
have availed himself of the fruits of the
broker's labor. (Ibid. pp. 444, 445 and
446.)
The rule laid down in the foregoing case was
adopted and followed in the cases of
Zeimer vs. Antisell (75 Cal. 509), and
Ayres vs. Thomas (116 Cal., 140).
The undertaking to procure a purchaser
requires of the party so undertaking, not
simply to name or introduce a person who
may be willing to make any sort of
contract in reference to the property, but
to produce a party capable, and who
ultimately becomes the purchaser.
(Kimberly vs. Henderson and Lupton, 29
Md., 512, 515, citing: Keener vs. Harrod
and Brooke, 2 Md. 63;
McGavock vs. Woodlief, 20 How., 221. See
also Richards, Executor, vs. Jackson, 31
Md., 250.)

The defendant sent a proposal to a broker

in these words: If you send or cause to be
sent to me, by advertisement or
otherwise, any party with whom I may see
fit and proper to effect a sale or exchange
of my real estate, above described I will
pay you the sum of $200. The broker
found a person who proposed to purchase
the property, but the sale was not
affected. Held: That the broker was not
entitled to compensation.
(Walker vs. Tirrel, 3 Am. Rep., 352.)

MARIANO DIOLOSA and ALEGRIA

VILLANUEVA-DIOLOSA, petitioners,
vs.
THE HON. COURT OF APPEALS, and QUIRINO
BATERNA (As owner and proprietor of QUIN
BATERNA REALTY), respondents.
Enrique L. Soriano for petitioners.
Domingo Laurea for private respondent.

It is clear from the foregoing authorities that,

although the present plaintiff could probably have
effected the sale of the defendant's factory had
not the defendant sold it to someone else, he is
not entitled to the commissions agreed upon
because he had no intervention whatever in, and
much sale in question. It must be borne in mind
that no definite period was fixed by the defendant
within which the plaintiff might effect the sale of
its factory. Nor was the plaintiff given by the
defendant the exclusive agency of such sale.
Therefore, the plaintiff cannot complaint of the
defendant's conduct in selling the property
through another agent before the plaintiff's
efforts were crowned with success. "One who has
employed a broker can himself sell the property
to a purchaser whom he has procured, without
any aid from the broker." (Hungerford vs. Hicks,
39 Conn., 259; Wylie vs. Marine National Bank, 61
N.Y., 415, 416.)

RELOVA, J.:

For the foregoing reasons the judgment appealed

from is hereby revoked and the defendant is
hereby absolved from all liability under the
plaintiff's complaint, with costs in both instances
against the plaintiff. So ordered.

The parties petitioners and respondents-agree

on the findings of facts made by respondent court
which are based largely on the pre-trial order of
the trial court, as follows:

Araullo, Street, Avancea and Villamor, JJ., concur.

----o0o---Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-36585 July 16, 1984

Appeal by certiorari from a decision of the then

Court of Appeals ordering herein petitioners to
pay private respondent "the sum of P10,000.00
as damages and the sum of P2,000.00 as
attorney's fees, and the costs."
This case originated in the then Court of First
Instance of Iloilo where private respondents
instituted a case of recovery of unpaid
commission against petitioners over some of the
lots subject of an agency agreement that were
not sold. Said complaint, docketed as Civil Case
No. 7864 and entitled: "Quirino Baterna vs.
Mariano Diolosa and Alegria Villanueva-Diolosa",
was dismissed by the trial court after hearing.
Thereafter, private respondent elevated the case
to respondent court whose decision is the subject
of the present petition.

PRE-TRIAL ORDER
When this case was called for a pre-trial
conference today, the plaintiff, assisted by
Atty. Domingo Laurea, appeared and the
defendants, assisted by Atty. Enrique
Soriano, also appeared.
A. During the pre-trial conference the
parties, in addition to what have been
admitted in the pleadings, have agreed and
admitted that the following facts are
attendant in this case and that they will no
longer adduce evidence to prove them:
1. That the plaintiff was and still is a
licensed real estate broker, and as such

49 | P a g e

licensed real estate broker on June 20,

1968, an agreement was entered into
between him as party of the second part
and the defendants spouses as party of the
first part, whereby the former was
constituted as exclusive sales agent of the
defendants, its successors, heirs and
assigns, to dispose of, sell, cede, transfer
and convey the lots included in VILLA
ALEGRE SUBDIVISION owned by the
defendants, under the terms and conditions
embodied in Exhibit "A", and pursuant to
said agreement (Exhibit "A"), the plaintiff
acted for and in behalf of the defendants as
their agent in the sale of the lots included
in the VILLA ALEGRE SUBDIVISION;

1. That the plaintiff's complaint was filed

to make money out of the suit from
defendants, to harrass and to molest
defendants;
2. That because of the unjustified and
unfounded complaint of the plaintiff, the
defendants suffered moral damages in the
amount of P50,000.00, and that for the
public good, the court may order the
plaintiff to pay the defendants exemplary
damages in the amount of P20,000.00,
plus attorney's fees of P10,000.00.
D. Contentions of the parties:
1. The plaintiff contends:

2. That on September 27, 1968, the

defendants terminated the services of
plaintiff as their exclusive sales agent per
letter marked as Exhibit "B", for the reason
stated in the latter.
B. During the trial of this case on the
merit, the plaintiff will adduce by
competent evidence the following facts:
1. That as a real estate broker, he had sold
the lots comprised in several subdivisions,
to wit: Greenfield Subdivision, the Villa
Beach Subdivision, the Juntado Subdivision,
the St. Joseph Village, the Ledesma
Subdivision, the Brookside Subdivision, the
Villa Alegre Subdivision, and Cecilia
Subdivision, all in the City of Iloilo except
St. Joseph which is in Pavia Iloilo.
2. That the plaintiff, as a licensed real
estate broker, has been seriously damaged
by the action of the defendants in
rescinding, by Exhibit "B", the contract
(Exhibit "A") for which the plaintiff suffered
moral damages in the amount of
P50,000.00, damages to his good will in the
amount of P100,000.00, for attorney's fees
in the amount of P10,000.00 to protect his
rights and interests, plus exemplary
damages to be fixed by the Court.

(a) That under the terms of the contract

(Exhibit "A") the plaintiff had unrevocable
authority to sell all the lots included in the
Villa Alegre Subdivision and to act as
exclusive sales agent of the defendants
until all the lots shall have been disposed
of;
(b) That the rescission of the contract
under Exhibit "B", contravenes the
agreement of the parties.
2. The defendants contend:
(a) That they were within their legal right
to terminate the agency on the ground
that they needed the undisposed lots for
the use of the family;
(b) That the plaintiff has no right in law to
case for commission on lots that they
have not sold.
E. The parties hereby submit to the
Court the following issues:
1. Whether under the terms of Exhibit "A"
the plaintiff has the irrevocable right to
sen or dispose of all the lots included
within Villa Alegre Subdivision;

3. That the plaintiff is entitled to a

commission on the lots unsold because of
the rescission of the contract.

2. Can the defendants terminate their

agreement with the plaintiff by a letter like
Exhibit "B"?

C. The defendants during the trial will ill

prove by competent evidence the
following:

F. The plaintiff submitted the following

exhibits which were admitted by the
defendants:

50 | P a g e

Exhibit "A" agreement entered into

between the parties on June 20, 1968
whereby the plaintiff had the authority to
sell the subdivision lots included in Villa
Alegre subdivision;
Exhibit "B" Letter of the defendant
Alegria V. Diolosa dated September 27,
1968 addressed to the plaintiff terminating
the agency and rescinding Exhibit "A" for
the reason that the lots remained unsold
lots were for reservation for their
grandchildren.
The Court will decide this case based on
the facts admitted in the pleadings, those
agreed by the parties during the pre-trial
conference, and those which they can
prove during the trial of this case, in
accordance with the contention of the
parties based on the issues submitted by
them during the pre-trial conference.
SO ORDERED.
Iloilo City, Philippines, August 14, 1969.
RIO V. ROVIRA
Judge
(pp. 22-25, Rollo)
The only issue in this case is whether the
petitioners could terminate the agency
agreement, Exhibit "A", without paying damages
to the private respondent. Pertinent portion of
said Exhibit "A" reads:
That the PARTY OF THE FIRST PART is the
lawful and absolute owner in fee simple of
VILLA ALEGRE SUBDIVISION situated in the
District of Mandurriao, Iloilo City, which
parcel of land is more particularly
described as follows, to wit:
A parcel of land, Lot No. 2110-b-2-C, PSD
74002, Transfer Certificate of Title No.
T_____ situated in the District of
Mandurriao, Iloilo, Philippines, containing
an area of 39016 square meters, more or
less, with improvements thereon.
That the PARTY OF THE FIRST PART by
virtue of these presents, to enhance the
sale of the lots of the above-described
subdivision, is engaging as their
EXCLUSIVE SALES AGENT the PARTY OF

51 | P a g e

THE SECOND PART, its successors, heirs

and assigns to dispose of, sell, cede,
transfer and convey the above-described
property in whatever manner and nature
the PARTY OF THE SECOND PART, with the
concurrence of the PARTY OF THE FIRST
PART, may deem wise and proper under
the premises, whether it be in cash or
installment basis, until all the subject
property as subdivided is fully disposed
of. (p. 7 of Petitioner's brief. Emphasis
supplied).
Respondent court, in its decision which is the
subject of review said:
Article 1920 of the Civil Code of the
Philippines notwithstanding, the
defendants could not terminate the
agency agreement, Exh. "A", at will
without paying damages. The said agency
agreement expressly stipulates ... until all
the subject property as subdivided is fully
disposed of ..." The testimony of Roberto
Malundo(t.s.n. p. 99) that the plaintiff
agreed to the intention of Mrs. Diolosa to
reserve some lots for her own famay use
cannot prevail over the clear terms of the
agency agreement. Moreover, the plaintiff
denied that there was an agreement to
reserve any of the lots for the family of the
defendants. (T.s.n. pp. 16).
There are twenty seven (27) lots of the
subdivision remaining unsold on
September 27, 1968 when the defendants
rescinded the agency agreement, Exhibit
"A". On that day the defendants had only
six grandchildren. That the defendants
wanted to reserve the twenty seven
remaining lots for the six grandchildren is
not a legal reason for defendants rescind
the agency agreement. Even if the
grandchildren were to be given one lot
each, there would still be twenty-one lots
available for sale. Besides it is undisputed
that the defendants have other lands
which could be reserved for their
grandchildren. (pp. 26-27, Rollo)
The present appeal is manifestly without merit.
Under the contract, Exhibit "A", herein petitioners
allowed the private respondent "to dispose of,
sell, cede, transfer and convey ... until out the
subject property as subdivided is fully disposed
of." The authority to sell is not extinguished until

all the lots have been disposed of. When,

therefore, the petitioners revoked the contract
with private respondent in a letter, Exhibit "B"
Dear Mr. Baterna:
Please be informed that we have
finally decided to reserve the
remaining unsold lots, as of this
date of our VILLA ALEGRE
Subdivision for our grandchildren.
In view thereof, notice is hereby
served upon you to the effect that
our agreement dated June 20, 1968
giving you the authority to sell as
exclusive sales agent of our
subdivision is hereby rescinded.
Please be duly guided.
Very truly yours,
(SGD) ALEGRIA V.
DIOLOSA
Subdivision Owner

(4) Those which refer to things under

litigation if they have been entered into
by the defendant without the knowledge
and approval of the litigants or of
competent judicial authority;
(5) All other contracts specially declared
by law to be subject to rescission.
ART. 1382. Payments made in a state of
insolvency for obligations to whose
fulfillment the debtor could not be
compelled at the time they were effected,
are also rescissible."
In the case at bar, not one of the grounds
mentioned above is present which may be the
subject of an action of rescission, much less can
petitioners say that the private respondent
violated the terms of their agreement-such as
failure to deliver to them (Subdivision owners) the
proceeds of the purchase price of the lots.
ACCORDINGLY, the petition is hereby dismissed
without pronouncement as to costs.
SO ORDERED.

(p. 11 of Petitioner's Brief)

they become liable to the private respondent for
damages for breach of contract.

Teehankee (Chairman), Melencio-Herrera, Plana,

Gutierrez, Jr. and Dela Fuente, JJ., concur.
----o0o----

And, it may be added that since the agency

agreement, Exhibit "A", is a valid contract, the
same may be rescinded only on grounds specified
in Articles 1381 and 1382 of the Civil Code, as
follows:
ART. 1381. The following contracts are
rescissible:
(1) Those which are entered in to by
guardians whenever the wards whom
they represent suffer lesion by more than
one-fourth of the value of the things
which are the object thereof;
(2) Those agreed upon in representation
of absentees, if the latter suffer the lesion
stated in the preceding number;
(3) Those undertaken in fraud of creditors
when the latter cannot in any other name
collect the claims due them;

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-13414

February 4, 1919

JUAN GARCIA Y PALICIO, plaintiff-appelle,

vs.
JOSEFA DE MANZANO, as administratrix of
the estate of her husband Narciso Lopez
Manzano,defendant-appellant.
Godofredo Reyes for appellants.
Eduardo Gutierrez Repide and Felix Socias for
appellee.
MOIR, J.:
In order to understand this case, a brief
explanation of the facts is considered necessary.
Narciso Lopez Manzano was a merchant in
Atimonan, Tayabas, who went to Spain in May,
1910, and died there the 8th of September, 1913.

52 | P a g e

He gave a general power-of-attorney to his son,

Angel L. Manzano on the 9th of February, 1910,
and on the 25th of March a second general
power-of-attorney to his wife, Josefa Samson.
Narciso L. Manzano had various commercial
dealings before leaving for Spain.
Manzano was the owner of a half interest in a
small steamer, the San Nicolas, the other half
being owned by Ocejo, Perez & Co., with whom
there was a partnership agreement to run the
steamer for a few years. When this period expired
Ocejo, Perez & Co., refused to continue the
contact and demanded that Manzano buy or sell.
As he did not want to sell at the price offered and
could not buy, Juan Garcia bought the half
interest held by Ocejo, Perez & Co., on the 15th of
October, 1910. Angel L. Manzano, acting under
his power-of-attorney, sold in July, 1911, the other
half of the boat to the plaintiff, but as Garcia is a
Spaniard and could not register the boat in his
name at the Custom House, the boat was
registered in the name of Agustin Garcia, a son of
the plaintiff, who at that time, July 2d, 1913, was
a minor about twenty years old. Agustin Garcia
shortly thereafter died, leaving his parents as his
heirs at law, and as such heirs plaintiff's wife was
made a party.
On the 23rd of July, 1912, Angel L. Manzano, by
virtue of the power-of-attorney from his father,
Narciso L. Manzano, executed a contract, Exhibit
A, made a part of the complaint, by which Juan
Garcia agreed to extend a credit to Narciso L.
Manzano in the sum of P12,000, and this credit
was used by the house of Manzano. To secure it a
mortgage was given in the same document on
three parcels of land in Atimonan, with their
improvements. The registration of this mortgage
was refused by the registrar.
The court of First Instance of Tayabas, on the 18th
of April, 1914, named Josefa Samson y San Pedro,
administratrix of the property of Narciso L.
Manzano, and commissioners were duly
appointed, and notice was published, and no
claims having been presented against the estate
to the commissioners, they so reported to the
court on the 7th of December, 1914.
On the 29th of July, 1915, the Court of First
Instance ordered the partition of the property
amongst the heirs of Narciso L. Manzano.
On the 15th day of May, 1915, the plaintiff filed
his action in the Court of First Instance of Tayabas
to foreclose the so-called mortgage in Exhibit a.
Josefa de Manzano filed a pleading stating that
the estate had already been divided; that the
property mentioned in Exhibit A of the plaintiff
had been assigned, A and B, to her and her
children and C entirely to her; that her son Angel
had ceded his share to her; that all the other

53 | P a g e

children were minors and suggesting that she be

made guardian ad litem for the minors. In a
second motion filed the 25th of August, 1915, the
defendant's attorney states the amended
complaint had not been presented as stipulated
in open court and prays the court that instead of
the administratrix the heirs of Narciso L. Manzano
be considered defendants and the names of the
heirs including Josefa de Manzano are given.
Plaintiff filed his amended complaint on the 24th
of August, making them individually defendants,
the minors to be represented by their
guardian ad litem, and asking for a judgment
against each and all of them for P14,087.59,
being the amount then due on the open account
and for P2,700 as attorney's fees, all secured by
the so-called mortgage; and that in case the
judgment was not paid, that the mortgaged
property be sold to pay the debt.
The defendants, "Josefa de Manzano y otros,"
filed an answer on September 4, 1915, stating
they knew such a mortgage document set up in
the complaint existed, but as they were not
certain that Exhibit A was an exact copy, they
denied the document; they denied its efficacy
and legal effect; they denied the jurisdiction of
the court to hear and decide the case, and
alleged that the action had prescribed.
They alleged no facts in their answer.
The defendants also filed a counter-claim against
Juan Garcia and his wife, Conception Castro, in
which they allege that Narciso L. Manzano was
the owner of one-half of the small steamer San
Nicolas and Juan Garcia the owner of the half;
that Garcia taking advantage of the youth and
inexperience of Angel L. Manzano falsely and
maliciously made him believe that he had
authority under the power-of-attorney from his
father to sell the half interest in the San Nicolas,
and that he did so. That Angel L. Manzano had no
authority to sell the interest in the steamer, but
that since the date of said sale, July, 1912,
(1911?) the plaintiff had illegally appropriated all
rents and profits of the boat to his own use, which
amount to P30,000 per year, after paying for all
repairs, etc., and they ask the court to absolve
them from the complaint, to declare them the
owners of one-half of the steamer San Nicolas,
and to order the plaintiffs to render a detailed
account of all the profits received from the San
Nicolas, and to order one-half of the profits paid
to the defendants.
There are other immaterial questions presented
by the counterclaim.
The trial court held there was not legal mortgage
and gave judgment for the plaintiff against Josefa
Samson only, for the amount admitted by her
letter to be due, i.e., P12,752.85, and dismissed

the claim against the other defendants and also

dismissed the counterclaim of defendants. The
plaintiffs did not appeal. All of the defendants
presented a motion for a new trial, but only the
defendant Josefa de Manzano excepted to the
order of the court denying the motion for new
trial, and she sets up the following assignments
of error in the decision giving judgment against
her individually. (The alleged errors of the trial
court regarding the counterclaim are set out
later.)
1. The court exceeded its jurisdiction in
deciding a question and granting a relief not
comprised within the pleadings and
contentions of the parties.
2. The trial court acted without jurisdiction on
judging and holding that there was a novation
of the debt.
3. The trial court erred in an essential mater
in holding that there was a novation of the
debt.
The argument presented in support of the first
error assigned is that the action was against the
administratrix of the estate and not against the
heirs individually. What are the facts? The original
action was presented against Josefa de Manzano
as administratrix of her deceased husband,
Narciso L. Manzano, on May 15, 1915. The
defendant's attorneys on the 6th of August filed a
pleading stating that the estate had been
distributed by the court on the 27th of July, and
giving the names of the heirs and stating that
some are minors for whom the mother "is the
guardian" and agreeing that she be named
guardian ad litem for the minors which was done
by the court's order dated the 4th of September,
and she took the oath prescribed by law for such
guardian.
On the 25th of August the same attorneys filed
another pleading saying the time stipulated by
the parties in open court for filing an amended
complaint had passed, that the complaint had not
been presented and "Wherefore they respectfully
request the Honorable Court that, in place of the
defendant-administratrix, the heirs of the late
Narciso L. Manzano, whose names are Josefa
Samson de Manzano, widow, Paz Manzano,
Matilde Manzano, Soledad Manzano, Carmelo
Manzano, Narciso Manzano, and Jose
Manzano, be considered defendants in this case,"
The first two of legal age and the others
minors, and they pray that Josefa Samson be
named guardianad litem for the minors, which
the court did. The plaintiff's amended complaint
making all the above heirs and Angel L. Manzano
defendants by name had been filed in the clerk's
office the day before but it is assumed the
defendants were not then aware of the fact.

54 | P a g e

The defendants filed their answer on September

4th 1915, which is headed "Josefa de Manzano y
Otros, demandados." The court's judgment is
against them individually.
It is difficult to conceive what more defendants
could want in order to make them individually
defendants, or what effect they intended their
pleadings to have if they were not to be
considered as defendants. The only thing that
might be considered as lacking is an order of the
court admitting the amended complaint, but his
admission was supplied by the facts of
defendants themselves. All the parties were
before the court individually and the court could
only give judgment against them individually if
they were obligated individually.
When the whole record shows that the trial
proceeded on the theory set up in an amended
complaint this court will not inquire as to whether
the court actually entered an order admitting the
amended complaint. There is no error in this part
of the decision.
The other two errors assigned will be considered
together.
The nature of the action having been changed
from one against the administratrix to one
against the heirs individually, the action against
the other heirs was dismissed and judgment was
given by the Court against Josefa Samson de
Manzano individually, basing its decision on the
following letter:

September 10, 1913.

Mr. Juan Garcia.

Manila, Philippine Islands.
Dear Sir: In reply to your favor which I
have received together with a copy of my
current account kept in your city, showing
a balance of P12,752.852, I have to state
that I find the same entirely satisfactory.
I hope to be able to remit a part of the
sum during the month of October.
I remain,
Yours respectfully.

(Sgd.) JOSEFA DE MANZANO.

This letter was written two days after the death of

Narciso L. Manzano. Is it a novation of the
obligation of her husband?
Article 1205 of the Civil Code reads as follows:
Novation which consists in the substitution
of a new debtor in the place of the original
one may be made without the knowledge
of the later, but not without the consent of
the creditor.
If the creditor Garcia had consented to the
substitution of debtors in this case, he would not
have presented his original action against the
administratrix of Narciso L. Manzano and later
against all the heirs, but against Josefa de
Manzano only.
As much as justice may plead for it, we can see
nothing in the letter which would made appellant
personally liable.
There is no denial that the debt is a justice one
against the estate. The judgment is based on the
letter which was not intended by the writer to
make her personally liable, and was not
considered by the plaintiff to make her personally
responsible. There was not novation of the
obligation and the part of the judgment holding
her liable must be reversed.
The defendants set up the following assignment
of errors as to their counterclaim against
plaintiffs:
1. The trial court erred in holding that the
power of attorney executed in favor of Angel
L. Manzano was not revoked, at least in so far
as it might concern the plaintiff Juan Garcia
Palicio.
2. The court below erred in holding that the
power of attorney executed by Narciso L.
Manzano in favor of Angel L. Manzano
authorized the latter to alienate the
vessel San Nicolas.
3. The trial court erred in holding that the sale
of the vessel San Nicolas was approved by
Narciso L. Manzano.
4. The trial court erred in holding that Angel L.
Manzano, in executing the sale, did not do so
under the pressure of undue influences.
As to the first two alleged errors the defendants
argue that the power-of-attorney to the wife
revoked the one to the son, in accordance with
article 1735 of the Civil code, and that even if not
revoked the power-of-attorney did not authorize
the sale of the boat by Angel L. Manzano. Article
1735 of the Civil code is as follows:

55 | P a g e

The appointment of a new agent for the

same business produces a revocation of the
previous agency from the day on which
notice was given to the former agent,
excepting the provisions of the next
preceding article.
There is no proof in the record that the first
agent, the son, knew of the power-of-attorney to
his mother.
It was necessary under the law for the
defendants, in order to establish their
counterclaim, to prove that the son had notice of
the second power-of-attorney. They have not
done so, and it must be considered that Angel L.
Manzano was acting under a valid power-ofattorney from his father which had not been
legally revoked on the date of the sale of the half
interest in the steamer to the plaintiff's son,
which half interest was legally inherited by the
plaintiffs.
The defendant's next argument is that the powerof-attorney, if valid, does not authorize the sale of
the half interest in the boat to the plaintiff.
There is no pretense that the boat was not sold
for a fair price, there is no denial that the value
was received in full, but he defendants allege that
the power-of-attorney under which Angel L.
Manzano acted, even if a valid power, did not
authorize the sale of the boat, and they want it
back it with one-half of the profits derived from
its use by the plaintiff.
The document under which Angel L. Manzano
sold the boat reads in part as follows:
To enable him to buy or sell, absolutely or
under pacto de retro, any of the rural or urban
estates that now own and may acquire in the
future, at such price as he may deem most
advantageous, which he shall collect in cash
or by installments and under such conditions
as he may consider proper, and he shall set
forth the encumbrances on the properties and
their origin. I bind myself to warrant and
defend, in accordance with law, the titles to
such properties; and if the properties
alienated by this agreement should be
redeemed, he is empowered to redeem them
by paying the price that may have been fixed,
and, for this purpose, shall execute the proper
instrument.
The power-of-attorney authorizes the sale of real
property, the buying of real property and
mortgaging the same the borrowing of money
and in fact is general and complete.
The power does not expressly state that the
agent may sell the boat, but a power so full and
complete authoring the sale of real property,

must necessarily carry with it the right to sell a

half interest in a small boat. The record further
shows the sale was necessary in order to get
money or a credit without which it would be
impossible to continue the business which was
being conducted in the name of Narciso L.
Manzano and for his benefit.
We consider that the authorization is so complete
that it carries with it full authority to sell the onehalf interest in the boat which was then owned by
Narciso L. Manzano.
The last assignment of error is not supported by
any reasonable evidence in the record.
That part of the judgement ordering the
defendant Josefa Samson de Manzano to pay the
plaintiff P12,752.85 is revoked, and the judgment
in so far as it dismisses the counterclaim of the
defendants is affirmed, without any declaration of
costs. So ordered.
Arellano, C.J., Carson, Street and Avancea,
JJ., concur.
Johnson, J., took no part.
Separate Opinions
TORRES, J., dissenting:
The undersigned, regretting not to be entirely in
accord with the majority opinion, with the due
respect thereto, is of the opinion that the
defendant Josefa Samson, widow of the late
Narciso Lopez Manzano, should be obliged to pay
one-half of the sum stated in her letter of
September 10, 1913, with interest at the rate of 6
per cent per annum from January 10, 1917, the
date on which the amended complaint was filed.
It is contended that the conjugal partnership
property is directly liable for the payment of the
debts of such partnerships and that in order to
determine what this property is, in case of the
death of one of the spouses, it is indispensable
that a liquidation be made of the property that
may have been left by the deceased husband or
wife, for the purpose of classifying and separating
in the estate the private property of each spouse
and such property as partakes of the nature of
community property.
The record shows that, not only was the
liquidation made, but also that the partition of the
estate left by Narciso Lopez Manzano at his

56 | P a g e

death, had already been effected, so that it

appears duly determined what property as
community property would have pertained to the
widow, Josefa Samson; and, as it is a proven fact,
and one not discussed, that, on the death of the
husband Manzano, the dissolved conjugal
partnership was in debt to the plaintiff in the sum
of P12, 752.85. Under this premise it is
unquestionable that the window Samson, the
surviving member of that partnership, should be
obliged to pay one-half of this sum, that is
P6,376.425, for it would not be right for her to
enrich herself by keeping possession of this
amount, to the prejudice of the plaintiff creditor.
Although, on the death of the husband, the
property of the conjugal partnership was in a
mass and pro indiviso, after the liquidation and
partition of this property had been made, the
widow, a member of the dissolved partnership,
received her share of the community property,
and it would not be just that, for the collection of
one-half of the debt, for which she is liable, the
creditor should be force to subject himself to and
observe the proceedings prescribed for the
collection of the amount owing him, from the
testate or intestate estate of the deceased
debtor.
We abstain in this opinion from an examination of
the right which the plaintiff creditor may have
had to collect the debt owing him from the estate
of the deceased debtor, and we restrict our
opinion solely to the debt which the defendant
Josefa Samson, on her part, had the obligation to
pay, not in her capacity of administratrix, but in
that of widow member of the partnership, the
property of which is directly liable for the debts
contracted by her; and if the defendant Samson,
as lawful owner of one-half of the community
property, was entitled to receive it, and in fact did
receive it, nothing could be more just than that
she should, in turn, be compelled to pay, out of
the property she received, the one-half of the
debts for which part thereof she is liable.
The defendant Josefa Samson should, therefore,
be ordered to pay the aforesaid sum of
P6,376.425, with interest thereon at the rate of 6
per cent per annum from January 10, 1917. That
part of the judgment whereby this defendant is
ordered to pay the other one-half of the sum
mentioned therein, should be reversed, and the
dismissed of the counterclaim should be affirmed,
without special finding as to costs.
Araullo, J., concur.