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THIRD DIVISION

EUROTECH INDUSTRIAL G.R. No. 167552


TECHNOLOGIES, INC.,
Petitioner, Present:

YNARES-SANTIAGO, J.,
Chairperson,
- versus - AUSTRIA-MARTINEZ,
CALLEJO, SR.,
CHICO-NAZARIO, and
NACHURA, JJ.

EDWIN CUIZON and ERWIN CUIZON, Promulgated:


Respondents.
April 23, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

Before Us is a petition for review by certiorari assailing the Decision[1] of the Court of Appeals dated 10
August 2004 and its Resolution[2] dated 17 March 2005 in CA-G.R. SP No. 71397 entitled, Eurotech
Industrial Technologies, Inc. v. Hon. Antonio T. Echavez. The assailed Decision and Resolution affirmed
the Order[3] dated 29 January 2002 rendered by Judge Antonio T. Echavez ordering the dropping of
respondent EDWIN Cuizon (EDWIN) as a party defendant in Civil Case No. CEB-19672.

The generative facts of the case are as follows:

Petitioner is engaged in the business of importation and distribution of various European industrial
equipment for customers here in the Philippines. It has as one of its customers Impact Systems Sales
(Impact Systems) which is a sole proprietorship owned by respondent ERWIN Cuizon
(ERWIN). Respondent EDWIN is the sales manager of Impact Systems and was impleaded in the court a
quo in said capacity.

From January to April 1995, petitioner sold to Impact Systems various products allegedly amounting to
ninety-one thousand three hundred thirty-eight (P91,338.00) pesos. Subsequently, respondents sought to
buy from petitioner one unit of sludge pump valued at P250,000.00 with respondents making a down
payment of fifty thousand pesos (P50,000.00).[4] When the sludge pump arrived from the United
Kingdom, petitioner refused to deliver the same to respondents without their having fully settled their
indebtedness to petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto de Jesus, general
manager of petitioner, executed a Deed of Assignment of receivables in favor of petitioner, the pertinent
part of which states:

1.) That ASSIGNOR[5] has an outstanding receivables from Toledo Power


Corporation in the amount of THREE HUNDRED SIXTY FIVE THOUSAND
(P365,000.00) PESOS as payment for the purchase of one unit of Selwood Spate 100D
Sludge Pump;
2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and CONVEY
unto the ASSIGNEE[6] the said receivables from Toledo Power Corporation in the amount
of THREE HUNDRED SIXTY FIVE THOUSAND (P365,000.00) PESOS which
receivables the ASSIGNOR is the lawful recipient;

3.) That the ASSIGNEE does hereby accept this assignment.[7]


Following the execution of the Deed of Assignment, petitioner delivered to respondents the sludge pump
as shown by Invoice No. 12034 dated 30 June 1995.[8]

Allegedly unbeknownst to petitioner, respondents, despite the existence of the Deed of


Assignment, proceeded to collect from Toledo Power Company the amount of P365,135.29 as evidenced
by Check Voucher No. 0933[9] prepared by said power company and an official receipt dated 15 August
1995 issued by Impact Systems. [10] Alarmed by this development, petitioner made several demands upon
respondents to pay their obligations. As a result, respondents were able to make partial payments to
petitioner. On 7 October 1996, petitioners counsel sent respondents a final demand letter wherein it was
stated that as of 11 June 1996, respondents total obligations stood at P295,000.00 excluding interests and
attorneys fees.[11] Because of respondents failure to abide by said final demand letter, petitioner instituted
a complaint for sum of money, damages, with application for preliminary attachment against herein
respondents before the Regional Trial Court of Cebu City.[12]

On 8 January 1997, the trial court granted petitioners prayer for the issuance of writ of
preliminary attachment.[13]

On 25 June 1997, respondent EDWIN filed his Answer [14] wherein he admitted petitioners
allegations with respect to the sale transactions entered into by Impact Systems and petitioner between
January and April 1995.[15] He, however, disputed the total amount of Impact Systems indebtedness to
petitioner which, according to him, amounted to only P220,000.00.[16]

By way of special and affirmative defenses, respondent EDWIN alleged that he is not a real party
in interest in this case. According to him, he was acting as mere agent of his principal, which was the
Impact Systems, in his transaction with petitioner and the latter was very much aware of this fact. In
support of this argument, petitioner points to paragraphs 1.2 and 1.3 of petitioners Complaint stating

1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of Cebu City. He is
the proprietor of a single proprietorship business known as Impact Systems Sales (Impact
Systems for brevity), with office located at 46-A del Rosario Street, Cebu City, where he
may be served summons and other processes of the Honorable Court.

1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a resident


of Cebu City. He is the Sales Manager of Impact Systems and is sued in this action in
such capacity.[17]

On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default with Motion
for Summary Judgment. The trial court granted petitioners motion to declare respondent ERWIN in
default for his failure to answer within the prescribed period despite the opportunity granted [18] but it
denied petitioners motion for summary judgment in its Order of 31 August 2001 and scheduled the pre-
trial of the case on 16 October 2001.[19] However, the conduct of the pre-trial conference was deferred
pending the resolution by the trial court of the special and affirmative defenses raised by respondent
EDWIN.[20]

After the filing of respondent EDWINs Memorandum [21] in support of his special and affirmative
defenses and petitioners opposition[22] thereto, the trial court rendered its assailed Order dated 29 January
2002 dropping respondent EDWIN as a party defendant in this case. According to the trial court

A study of Annex G to the complaint shows that in the Deed of Assignment,


defendant Edwin B. Cuizon acted in behalf of or represented [Impact] Systems Sales; that
[Impact] Systems Sale is a single proprietorship entity and the complaint shows that
defendant Erwin H. Cuizon is the proprietor; that plaintiff corporation is represented by
its general manager Alberto de Jesus in the contract which is dated June 28, 1995. A
study of Annex H to the complaint reveals that [Impact] Systems Sales which is owned
solely by defendant Erwin H. Cuizon, made a down payment of P50,000.00 that Annex H
is dated June 30, 1995 or two days after the execution of Annex G, thereby showing that
[Impact] Systems Sales ratified the act of Edwin B. Cuizon; the records further show that
plaintiff knew that [Impact] Systems Sales, the principal, ratified the act of Edwin B.
Cuizon, the agent, when it accepted the down payment of P50,000.00. Plaintiff, therefore,
cannot say that it was deceived by defendant Edwin B. Cuizon, since in the instant case
the principal has ratified the act of its agent and plaintiff knew about said
ratification.Plaintiff could not say that the subject contract was entered into by Edwin B.
Cuizon in excess of his powers since [Impact] Systems Sales made a down payment
of P50,000.00 two days later.

In view of the Foregoing, the Court directs that defendant Edwin B. Cuizon be
dropped as party defendant.[23]

Aggrieved by the adverse ruling of the trial court, petitioner brought the matter to the Court of Appeals
which, however, affirmed the 29 January 2002 Order of the court a quo. The dispositive portion of the
now assailed Decision of the Court of Appeals states:

WHEREFORE, finding no viable legal ground to reverse or modify the conclusions


reached by the public respondent in his Order dated January 29, 2002, it is
hereby AFFIRMED.[24]

Petitioners motion for reconsideration was denied by the appellate court in its Resolution promulgated
on 17 March 2005. Hence, the present petition raising, as sole ground for its allowance, the following:

THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT


RULED THAT RESPONDENT EDWIN CUIZON, AS AGENT OF IMPACT
SYSTEMS SALES/ERWIN CUIZON, IS NOT PERSONALLY LIABLE, BECAUSE
HE HAS NEITHER ACTED BEYOND THE SCOPE OF HIS AGENCY NOR DID HE
PARTICIPATE IN THE PERPETUATION OF A FRAUD.[25]

To support its argument, petitioner points to Article 1897 of the New Civil Code which states:

Art. 1897. The agent who acts as such is not personally liable to the party with whom he
contracts, unless he expressly binds himself or exceeds the limits of his authority
without giving such party sufficient notice of his powers.
Petitioner contends that the Court of Appeals failed to appreciate the effect of ERWINs act of collecting
the receivables from the Toledo Power Corporation notwithstanding the existence of the Deed of
Assignment signed by EDWIN on behalf of Impact Systems. While said collection did not revoke the
agency relations of respondents, petitioner insists that ERWINs action repudiated EDWINs power to sign
the Deed of Assignment. As EDWIN did not sufficiently notify it of the extent of his powers as an agent,
petitioner claims that he should be made personally liable for the obligations of his principal. [26]

Petitioner also contends that it fell victim to the fraudulent scheme of respondents who induced it into
selling the one unit of sludge pump to Impact Systems and signing the Deed of Assignment. Petitioner
directs the attention of this Court to the fact that respondents are bound not only by their principal and
agent relationship but are in fact full-blooded brothers whose successive contravening acts bore the
obvious signs of conspiracy to defraud petitioner.[27]

In his Comment,[28] respondent EDWIN again posits the argument that he is not a real party in interest in
this case and it was proper for the trial court to have him dropped as a defendant. He insists that he was a
mere agent of Impact Systems which is owned by ERWIN and that his status as such is known even to
petitioner as it is alleged in the Complaint that he is being sued in his capacity as the sales manager of the
said business venture. Likewise, respondent EDWIN points to the Deed of Assignment which clearly
states that he was acting as a representative of Impact Systems in said transaction.

We do not find merit in the petition.

In a contract of agency, a person binds himself to render some service or to do something in


representation or on behalf of another with the latters consent. [29] The underlying principle of the contract
of agency is to accomplish results by using the services of others to do a great variety of things like
selling, buying, manufacturing, and transporting. [30] Its purpose is to extend the personality of the
principal or the party for whom another acts and from whom he or she derives the authority to act. [31] It is
said that the basis of agency is representation, that is, the agent acts for and on behalf of the principal on
matters within the scope of his authority and said acts have the same legal effect as if they were
personally executed by the principal. [32] By this legal fiction, the actual or real absence of the principal is
converted into his legal or juridical presence qui facit per alium facit per se.[33]

The elements of the contract of agency are: (1) consent, express or implied, of the parties to establish the
relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts
as a representative and not for himself; (4) the agent acts within the scope of his authority. [34]

In this case, the parties do not dispute the existence of the agency relationship between respondents
ERWIN as principal and EDWIN as agent. The only cause of the present dispute is whether respondent
EDWIN exceeded his authority when he signed the Deed of Assignment thereby binding himself
personally to pay the obligations to petitioner. Petitioner firmly believes that respondent EDWIN acted
beyond the authority granted by his principal and he should therefore bear the effect of his deed pursuant
to Article 1897 of the New Civil Code.

We disagree.
Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not personally liable to the
party with whom he contracts. The same provision, however, presents two instances when an agent
becomes personally liable to a third person. The first is when he expressly binds himself to the obligation
and the second is when he exceeds his authority. In the last instance, the agent can be held liable if he
does not give the third party sufficient notice of his powers. We hold that respondent EDWIN does not
fall within any of the exceptions contained in this provision.
The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales manager of
Impact Systems. As discussed elsewhere, the position of manager is unique in that it presupposes the
grant of broad powers with which to conduct the business of the principal, thus:

The powers of an agent are particularly broad in the case of one acting as a
general agent or manager; such a position presupposes a degree of confidence reposed
and investiture with liberal powers for the exercise of judgment and discretion in
transactions and concerns which are incidental or appurtenant to the business entrusted to
his care and management. In the absence of an agreement to the contrary, a managing
agent may enter into any contracts that he deems reasonably necessary or requisite for the
protection of the interests of his principal entrusted to his management. x x x.[35]

Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within his authority
when he signed the Deed of Assignment. To recall, petitioner refused to deliver the one unit of sludge
pump unless it received, in full, the payment for Impact Systems indebtedness. [36] We may very well
assume that Impact Systems desperately needed the sludge pump for its business since after it paid the
amount of fifty thousand pesos (P50,000.00) as down payment on 3 March 1995,[37] it still persisted in
negotiating with petitioner which culminated in the execution of the Deed of Assignment of its
receivables from Toledo Power Company on 28 June 1995. [38] The significant amount of time spent on
the negotiation for the sale of the sludge pump underscores Impact Systems perseverance to get hold of
the said equipment. There is, therefore, no doubt in our mind that respondent EDWINs participation in
the Deed of Assignment was reasonably necessary or was required in order for him to protect the
business of his principal. Had he not acted in the way he did, the business of his principal would have
been adversely affected and he would have violated his fiduciary relation with his principal.

We likewise take note of the fact that in this case, petitioner is seeking to recover both from respondents
ERWIN, the principal, and EDWIN, the agent. It is well to state here that Article 1897 of the New Civil
Code upon which petitioner anchors its claim against respondent EDWIN does not hold that in case of
excess of authority, both the agent and the principal are liable to the other contracting party. [39] To
reiterate, the first part of Article 1897 declares that the principal is liable in cases when the agent acted
within the bounds of his authority. Under this, the agent is completely absolved of any liability. The
second part of the said provision presents the situations when the agent himself becomes liable to a third
party when he expressly binds himself or he exceeds the limits of his authority without giving notice of
his powers to the third person. However, it must be pointed out that in case of excess of authority by the
agent, like what petitioner claims exists here, the law does not say that a third person can recover from
both the principal and the agent.[40]

As we declare that respondent EDWIN acted within his authority as an agent, who did not acquire any
right nor incur any liability arising from the Deed of Assignment, it follows that he is not a real party in
interest who should be impleaded in this case. A real party in interest is one who stands to be benefited or
injured by the judgment in the suit, or the party entitled to the avails of the suit. [41] In this respect, we
sustain his exclusion as a defendant in the suit before the court a quo.

WHEREFORE, premises considered, the present petition is DENIED and the Decision dated 10 August
2004 and Resolution dated 17 March 2005 of the Court of Appeals in CA-G.R. SP No. 71397, affirming
the Order dated 29 January 2002 of the Regional Trial Court, Branch 8, Cebu City, is AFFIRMED.

Let the records of this case be remanded to the Regional Trial Court, Branch 8, Cebu City, for the
continuation of the proceedings against respondent ERWIN CUIZON.
SO ORDERED.

MINITA V. CHICO-NAZARIO
Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ ROMEO J. CALLEJO, SR.


Associate Justice Associate Justice
ANTONIO EDUARDO B. NACHURA
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, it is
hereby certified that the conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO
Chief Justice

EUROTECH INDUSTRIAL TECHNOLOGIES, INC. v. CUIZON


EUROTECH INDUSTRIAL TECHNOLOGIES, INC. v. CUIZON
G.R. No. 167552; April 23, 2007
Ponente: J. Chico-Nazario

FACTS:

From January to April 1995, petitioner sold to Impact Systems various products allegedly amounting to
P91,338.00 pesos. Subsequently, respondents sought to buy from petitioner one unit of sludge pump
valued at P250,000.00 with respondents making a down payment of P50,000.00. When the sludge pump
arrived from the United Kingdom, petitioner refused to deliver the same to respondents without their
having fully settled their indebtedness to petitioner. Thus, on 28 June 1995, respondent EDWIN and
Alberto de Jesus, general manager of petitioner, executed a Deed of Assignment of receivables in favor of
petitioner. Impact systems is owed by ERWIN Cuizon.

Despite the existence of the Deed of Assignment, respondents proceeded to collect from Toledo Power
Company the amount of P365,135.29. Alarmed by this development, petitioner made several demands
upon respondents to pay their obligations. As a result, respondents were able to make partial payments to
petitioner. On 7 October 1996, petitioner's counsel sent respondents a final demand letter wherein it was
stated that as of 11 June 1996, respondents' total obligations stood at P295,000.00 excluding interests and
attorney's fees. Because of respondents' failure to abide by said final demand letter, petitioner instituted a
complaint for sum of money, damages, with application for preliminary attachment against herein
respondents

By way of special and affirmative defenses, respondent EDWIN alleged that he is not a real party in
interest in this case. According to him, he was acting as mere agent of his principal, which was the Impact
Systems, in his transaction with petitioner and the latter was very much aware of this fact.

ISSUE:
Whether the act of Edwin in signing the Deed of Assignment binds his principal Impact Systems

HELD:
Yes, the act of Edwin in signing the Deed of Assignment binds Impact Systems

The Supreme Court held that in a contract of agency, a person binds himself to render some service or to
do something in representation or on behalf of another with the latter's consent. Its purpose is to extend
the personality of the principal or the party for whom another acts and from whom he or she derives the
authority to act. It is said that the basis of agency is representation, that is, the agent acts for and on behalf
of the principal on matters within the scope of his authority and said acts have the same legal effect as if
they were personally executed by the principal.

In this case at hand, the parties do not dispute the existence of the agency relationship between
respondents ERWIN as principal and EDWIN as agent.

CASE NO. 1
Eurotech Industrial Technologies, Inc. v. Edwin Cuizon, Erwin Cuizon
G.R. No. 167552, April 23, 2007

FACTS
-Petitioner is engaged in the importation and distribution of various European industrial equipment for
customers in the Philippines.
-One of petitioners customers is Impact Systems Sales (ISS), a sole proprietorship owned by respondent
Erwin Cuizon (ERWIN) (NOTE: since its a sole proprietorship, the principal may be ERWIN or
ISS). EDWIN is the manager of ISS and was impleaded in the court in that capacity.
-January to April 1995: petitioner soled to ISS various products allegedly amounting to P91,338.
Respondents also sought to buy from petitioner on unit of sludge pump valued at P250K. Respondents
made a down payment of P50K for said sludge pump.
-Petitioner refused to deliver the sludge pump to respondents without the latter first having settled their
indebtedness.
-June 28, 1995, respondent EDWIN and Alberto the Jesus, general manager of petitioner, executed an
Assignment of receivables in favor of petitioner. The document stated that the assignor (EDWIN in his
capacity as manager of ISS) had oustanding receivables from Toledo Power Corp amounting to P365K
and that it conveyed said receivables to assignee (petitioner).
-Following the assignment, the sludge pump was delivered to respondents.
-Respondents, despite the Deed of Assignment, proceeded to collect from Toledo Power Corp the amount
of P365K (evidenced by a Check Voucher and an official receipt dated August 15, 1995). This was
done without the knowledge of petitioner.
-Petitioner made several demands upon respondents to pay their obligation. Respondents were only able to
make partial payments.
-June 11, 1996: Through counsel, petitioner sent a final demand letter stating that respondents obligations
stood at P295K excluding interests and attorneys fees.
-Petitioner filed a complaint for sum of money, damages, with application for preliminary attachment with
the RTC, Cebu City.
-The RTC granted the prayer for the issuance of writ of preliminary attachment.
-CONTENTION OF RESPONDENT: EDWIN alleged that he is not a real party of interest because he was
acting as a mere agent of his principal (ISS) and that in his transactions with the petitioner, the latter
was aware of that fact.
-CONTENTION OF PETITIONER: EDWIN exceeded his authority as an agent and should bear the effect
of the deed of assignment
-RTC: January 29, 2002 dropped respondent EDWIN as a party defendant on the ground that he was
acting on behalf of ISS in the June 28, 1995 transaction, that the principal (ISS) ratified the act and that
petitioner knew about said ratification. Petitioner cannot claim that the subject contract was entered
into by EDWIN in excess of his powers since ISS made a down payment of P50K two days later
(implied ratification).
-CA: Affirmed decision of RTC

ISSUES
- W/N respondent EDWIN was an agent acting on behalf of ISS, incurred no personal liability and should
be dropped as defendant from the instant case.

RULING
The petition is DENIED and the decision of the RTC is AFFIRMED.

EDWIN acted within his authority as an agent. He did not acquire or incur any liability arising from the
Deed of Assignment. Therefore, he is not a real party in interest in this case. The SC sustain his exclusion
from the suit.

(NOTE: the parties admit of the existence of the agency and all its elements: (1) consent of the parties to
establish the relationship, (2) object is the execution of a juridical act in relation to a third person, (3) the
agent acts as a representative and not for himself, (4) the agent acts within the scope of his authority)

In a contract of agency, an agent is not personally liable to the party with whom he contracts. However,
there are two instances when an agent is personally liable to a third person: (a) when he expressly binds
himself to the obligation or (b) when he exceeds his authority and he does not give the other party
sufficient notice of his powers. EDWIN does not fall within either instance. The Deed of Assignment
clearly stated that EDWIN signed thereon as the sales manager of ISS. The position of sales managers
presupposes the grant of broad powers necessary to conduct the business of the principal. In the absence
of a contrary agreement, a managing agent can enter into contracts that he deems reasonably necessary for
the protection of the interests of the principal entrusted to him.

EDWIn acted within his authority when he signed the Deed of Assignment. Petitioner had refused to
deliver the sludge pump until full payment. It can be assumed that ISS needed the pump for its business
since it paid the down payment of P50K and persisted in negotiating with the petitioner (culminating in
the execution of the Deed ofi Assignment). EDWINs participation in the deed was reasonably
necessary in order for him to protect the business of ISS. Had he not acted in the way he did, the
business of ISS would have been adversely affected.

It was also noted that petitioner sought to recover from both ERWINand EDWIN (agent). Under Art.
1897, NCC, a party may recover from the principal if the agent acted within his authority, or from the
agent in the instances mentioned above. However, the law does not provide that, in case of excess
authority by the agent, the third party can recover from both principal and agent.

CASE NO. 2
RALLOS v FELIX GO CHAN & SONS REALTY CORPORATION
G.R. No. L-24332, January 31, 1978
FACTS:
1. Concepcion and Gerundia Rallos were sisters and registered co-owners of a parcel of land.
2. In 1954, they executed an SPA in favor of their brother, Simeon Rallos, authorizing him to sell for
and in their behalf the said parcel of land.
3. On March 1955, Concepcion died.
4. On September 1955, Simeon sold the undivided shares of his sisters to Felix Go Chan and Sons
realty Corp.
5. The deed of sale was registered and the previous TCT was cancelled.
6. On May 1956, Ramon Rallos, as administrator of the Intestate Estate of Concepcion, filed a
complaint with the CFI of Cebu, praying:
a. that the sale be declared unenforceable, and said share be reconveyed to the deceased estate;
b. that the TCT issued in the name of Felix Go Chan and Sons Realty Corporation be cancelled;
and
c. that the plaintiff be indemnified by way of attorneys fees and payment of costs of suit.
7. The Trial Court- declared that the absolute sale is null and void, insofar as the pro-indiviso
share of Concepcion in the property, cancel the TCT issued to Felix Go Chan and Sons Realty
Corp., and sentencing the defendant Juan Borromeo, the administrator of the estate of Simeon
Rallos, to pay the plaintiff (estate of Concepcion).
8. Felix Go Chan and Sons Realty Corp, appealed to the CA, and resolved in favor of the
corporation.
9. Ramon Rallos filed MR but was denied, hence this petition.

ISSUE:
WON the sale of the undivided share of Concepcion Rallos valid when it was executed by her agent after
Concepcions (principal) death.

HELD:
NO. The sale is null and void.

Extinguishment of Agency:
The general rule in Article 1919 of the NCC is that death is one of the causes for the extinguishment of
agency. There being an integration of the personality of the principal into that of the agent, it is not
possible for the representation to continue once the death of either is established.

There are certain exceptions,


a. that the agency is couple with an interest (Article 1930)
b. the agent acted without knowledge of the death of the principal, and that the 3 rd person who
contracted with the agent acted in good faith. (Article 1931)
In this case, Article 1930 is not involved because admittedly the SPA executed in favor of Simeon was not
coupled with an interest. However, under Article 1931, an act done by the agent after the death of the
principal is valid and effective if the 2 conditions mentioned concur. It was established that Simeon Rallos
had knowledge of his principals death (Concepcion) when he made the sale, Article 1931 will not apply.
The general rule shall apply then that any act of an agent after the death of the principal is void ab initio.
Simeons act of selling the share of Concepcion after her death is therefore null and void.

Revocation by principal distinguished from revocation by operation of law:


The respondent argued that no notice of the death was annotated on the OCT regarding the death of
Concepcion hence the heirs must suffer the consequences of such omission. The SC ruled that although a
revocation of a power of attorney to be effective must be communicated to the parties concerned, yet a
revocation by operation of law, such as death of the principal is, as a rule, instantaneously effective
inasmuch as by legal fiction the agents exercise of authority is regarded as an execution of the
principals continuing will. With death, the principals will ceases or is terminated; the source of
authority is extinguished.

Agency:
The relationship of agency is whereby one party called the principal (mandate), authorizes another, called
the agent (mandatario), to act for and his behalf in transactions with 3 rd persons.

The essential elements of agency are:


a. there is consent, express or implied, of the parties to establish the relationship;
b. the object is the execution of a juridical act in relation to a third person;
c. the agent acts as a representative and not for himself; and
d. the agent acts within the scope of his authority.
Agency is basically personal, representative, and derivative in nature. The authority of the agent to act
emanates from the powers granted to him by his principal; his act is the act of the principal if done within
the scope of the authority. Qui facit per alium facit per se. He who acts through another acts himself.

DISPOSITION:
in view of all the foregoing, we set aside the decision of respondent appellate court, and affirm en toto the
judgment rendered by then Hon. Amador E. Gomez of the CFI of Cebu, quoted in pages 2 and 3 of this
Opinion, with cost against respondent corporation at all instances. So ordered.
Republic of the Philippines
SUPREME COURT
Manila

G.R. No. L-24332 January 31, 1978

RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS, petitioner,


vs.
FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF APPEALS, respondents.

Seno, Mendoza & Associates for petitioner.

Ramon Duterte for private respondent.

MUOZ PALMA, J.:

This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of his principal, Concepcion
Rallos, sold the latter's undivided share in a parcel of land pursuant to a power of attorney which the
principal had executed in favor. The administrator of the estate of the went to court to have the sale
declared uneanforceable and to recover the disposed share. The trial court granted the relief prayed for,
but upon appeal the Court of Appeals uphold the validity of the sale and the complaint.

Hence, this Petition for Review on certiorari.

The following facts are not disputed. Concepcion and Gerundia both surnamed Rallos were sisters and
registered co-owners of a parcel of land known as Lot No. 5983 of the Cadastral Survey of Cebu covered
by Transfer Certificate of Title No. 11116 of the Registry of Cebu. On April 21, 1954, the sisters executed
a special power of attorney in favor of their brother, Simeon Rallos, authorizing him to sell for and in
their behalf lot 5983. On March 3, 1955, Concepcion Rallos died. On September 12, 1955, Simeon Rallos
sold the undivided shares of his sisters Concepcion and Gerundia in lot 5983 to Felix Go Chan & Sons
Realty Corporation for the sum of P10,686.90. The deed of sale was registered in the Registry of Deeds of
Cebu, TCT No. 11118 was cancelled, and a new transfer certificate of Title No. 12989 was issued in the
named of the vendee.

On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of Concepcion Rallos filed a
complaint docketed as Civil Case No. R-4530 of the Court of First Instance of Cebu, praying (1) that the
sale of the undivided share of the deceased Concepcion Rallos in lot 5983 be d unenforceable, and said
share be reconveyed to her estate; (2) that the Certificate of 'title issued in the name of Felix Go Chan &
Sons Realty Corporation be cancelled and another title be issued in the names of the corporation and the
"Intestate estate of Concepcion Rallos" in equal undivided and (3) that plaintiff be indemnified by way of
attorney's fees and payment of costs of suit. Named party defendants were Felix Go Chan & Sons Realty
Corporation, Simeon Rallos, and the Register of Deeds of Cebu, but subsequently, the latter was dropped
from the complaint. The complaint was amended twice; defendant Corporation's Answer contained a
crossclaim against its co-defendant, Simon Rallos while the latter filed third-party complaint against his
sister, Gerundia Rallos While the case was pending in the trial court, both Simon and his sister Gerundia
died and they were substituted by the respective administrators of their estates.

After trial the court a quo rendered judgment with the following dispositive portion:

A. On Plaintiffs Complaint

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

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


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

(3) Ordering Felix Go Chan & Sons Realty Corporation to deliver the
possession of an undivided one-half (1/2) share of Lot 5983 to the herein
plaintiff;

(4) Sentencing the defendant Juan T. Borromeo, administrator of the


Estate of Simeon Rallos, to pay to plaintiff in concept of reasonable
attorney's fees the sum of P1,000.00; and

(5) Ordering both defendants to pay the costs jointly and severally.

B. On GO CHANTS Cross-Claim:

(1) Sentencing the co-defendant Juan T. Borromeo, administrator of the


Estate of Simeon Rallos, to pay to defendant Felix Co Chan & Sons
Realty Corporation the sum of P5,343.45, representing the price of one-
half (1/2) share of lot 5983;

(2) Ordering co-defendant Juan T. Borromeo, administrator of the Estate


of Simeon Rallos, to pay in concept of reasonable attorney's fees to Felix
Go Chan & Sons Realty Corporation the sum of P500.00.

C. On Third-Party Complaint of defendant Juan T. Borromeo administrator of Estate of


Simeon Rallos, against Josefina Rallos special administratrix of the Estate of Gerundia
Rallos:

(1) Dismissing the third-party complaint without prejudice to filing either a complaint
against the regular administrator of the Estate of Gerundia Rallos or a claim in the
Intestate-Estate of Cerundia Rallos, covering the same subject-matter of the third-party
complaint, at bar. (pp. 98-100, Record on Appeal)
Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of Appeals from the
foregoing judgment insofar as it set aside the sale of the one-half (1/2) share of Concepcion Rallos. The
appellate tribunal, as adverted to earlier, resolved the appeal on November 20, 1964 in favor of the
appellant corporation sustaining the sale in question. 1 The appellee administrator, Ramon Rallos, moved
for a reconsider of the decision but the same was denied in a resolution of March 4, 1965. 2

What is the legal effect of an act performed by an agent after the death of his principal? Applied more
particularly to the instant case, We have the query. is the sale of the undivided share of Concepcion Rallos
in lot 5983 valid although it was executed by the agent after the death of his principal? What is the law in
this jurisdiction as to the effect of the death of the principal on the authority of the agent to act for and in
behalf of the latter? Is the fact of knowledge of the death of the principal a material factor in determining
the legal effect of an act performed after such death?

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

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

ART. 1403. The following contracts are unenforceable, unless they are justified:

(1) Those entered into in the name of another person by one who hi - been given no
authority or legal representation or who has acted beyond his powers; ...

Out of the above given principles, sprung the creation and acceptance of the relationship of
agency whereby one party, caged the principal (mandante), authorizes another, called the agent
(mandatario), to act for and in his behalf in transactions with third persons. The essential elements of
agency are: (1) there is consent, express or implied of the parties to establish the relationship; (2) the
object is the execution of a juridical act in relation to a third person; (3) the agents acts as a representative
and not for himself, and (4) the agent acts within the scope of his authority. 5

Agency is basically personal representative, and derivative in nature. The authority of the agent to act
emanates from the powers granted to him by his principal; his act is the act of the principal if done within
the scope of the authority. Qui facit per alium facit se. "He who acts through another acts himself". 6

2. There are various ways of extinguishing agency, 7 but her We are concerned only with one cause
death of the principal Paragraph 3 of Art. 1919 of the Civil Code which was taken from Art. 1709 of the
Spanish Civil Code provides:

ART. 1919. Agency is extinguished.

xxx xxx xxx

3. By the death, civil interdiction, insanity or insolvency of the principal or of the


agent; ... (Emphasis supplied)
By reason of the very nature of the relationship between Principal and agent, agency is extinguished by
the death of the principal or the agent. This is the law in this jurisdiction. 8

Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the rationale for the law is
found in the juridical basis of agency which is representation Them being an in. integration of the
personality of the principal integration that of the agent it is not possible for the representation to continue
to exist once the death of either is establish. Pothier agrees with Manresa that by reason of the nature of
agency, death is a necessary cause for its extinction. Laurent says that the juridical tie between the
principal and the agent is severed ipso jure upon the death of either without necessity for the heirs of the
fact to notify the agent of the fact of death of the former. 9

The same rule prevails at common law the death of the principal effects instantaneous and absolute
revocation of the authority of the agent unless the Power be coupled with an interest. 10 This is the
prevalent rule in American Jurisprudence where it is well-settled that a power without an interest confer.
red upon an agent is dissolved by the principal's death, and any attempted execution of the power
afterward is not binding on the heirs or representatives of the deceased. 11

3. Is the general rule provided for in Article 1919 that the death of the principal or of the agent
extinguishes the agency, subject to any exception, and if so, is the instant case within that exception? That
is the determinative point in issue in this litigation. It is the contention of respondent corporation which
was sustained by respondent court that notwithstanding the death of the principal Concepcion Rallos the
act of the attorney-in-fact, Simeon Rallos in selling the former's sham in the property is valid and
enforceable inasmuch as the corporation acted in good faith in buying the property in question.

Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule afore-mentioned.

ART. 1930. The agency shall remain in full force and effect even after the death of the
principal, if it has been constituted in the common interest of the latter and of the agent,
or in the interest of a third person who has accepted the stipulation in his favor.

ART. 1931. Anything done by the agent, without knowledge of the death of the principal
or of any other cause which extinguishes the agency, is valid and shall be fully effective
with respect to third persons who may have contracted with him in good. faith.

Article 1930 is not involved because admittedly the special power of attorney executed in favor of
Simeon Rallos was not coupled with an interest.

Article 1931 is the applicable law. Under this provision, an act done by the agent after the death of his
principal is valid and effective only under two conditions, viz: (1) that the agent acted without knowledge
of the death of the principal and (2) that the third person who contracted with the agent himself acted in
good faith. Good faith here means that the third person was not aware of the death of the principal at the
time he contracted with said agent. These two requisites must concur the absence of one will render the
act of the agent invalid and unenforceable.

In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the death of his
principal at the time he sold the latter's share in Lot No. 5983 to respondent corporation. The knowledge
of the death is clearly to be inferred from the pleadings filed by Simon Rallos before the trial
court. 12 That Simeon Rallos knew of the death of his sister Concepcion is also a finding of fact of the
court a quo 13 and of respondent appellate court when the latter stated that Simon Rallos 'must have
known of the death of his sister, and yet he proceeded with the sale of the lot in the name of both his
sisters Concepcion and Gerundia Rallos without informing appellant (the realty corporation) of the death
of the former. 14

On the basis of the established knowledge of Simon Rallos concerning the death of his principal
Concepcion Rallos, Article 1931 of the Civil Code is inapplicable. The law expressly requires for its
application lack of knowledge on the part of the agent of the death of his principal; it is not enough that
the third person acted in good faith. Thus in Buason & Reyes v. Panuyas, the Court applying Article 1738
of the old Civil rode now Art. 1931 of the new Civil Code sustained the validity , of a sale made after the
death of the principal because it was not shown that the agent knew of his principal's demise. 15 To the
same effect is the case of Herrera, et al., v. Luy Kim Guan, et al., 1961, where in the words of Justice
Jesus Barrera the Court stated:

... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs presented no
proof and there is no indication in the record, that the agent Luy Kim Guan was aware of
the death of his principal at the time he sold the property. The death 6f the principal does
not render the act of an agent unenforceable, where the latter had no knowledge of such
extinguishment of the agency. (1 SCRA 406, 412)

4. In sustaining the validity of the sale to respondent consideration the Court of Appeals reasoned out that
there is no provision in the Code which provides that whatever is done by an agent having knowledge of
the death of his principal is void even with respect to third persons who may have contracted with him in
good faith and without knowledge of the death of the principal. 16

We cannot see the merits of the foregoing argument as it ignores the existence of the general rule
enunciated in Article 1919 that the death of the principal extinguishes the agency. That being the general
rule it follows a fortiori that any act of an agent after the death of his principal is void ab initio unless the
same fags under the exception provided for in the aforementioned Articles 1930 and 1931. Article 1931,
being an exception to the general rule, is to be strictly construed, it is not to be given an interpretation or
application beyond the clear import of its terms for otherwise the courts will be involved in a process of
legislation outside of their judicial function.

5. Another argument advanced by respondent court is that the vendee acting in good faith relied on the
power of attorney which was duly registered on the original certificate of title recorded in the Register of
Deeds of the province of Cebu, that no notice of the death was aver annotated on said certificate of title
by the heirs of the principal and accordingly they must suffer the consequences of such omission. 17

To support such argument reference is made to a portion in Manresa's Commentaries which We quote:

If the agency has been granted for the purpose of contracting with certain persons, the
revocation must be made known to them. But if the agency is general iii nature, without
reference to particular person with whom the agent is to contract, it is sufficient that the
principal exercise due diligence to make the revocation of the agency publicity known.

In case of a general power which does not specify the persons to whom represents' on
should be made, it is the general opinion that all acts, executed with third persons who
contracted in good faith, Without knowledge of the revocation, are valid. In such case, the
principal may exercise his right against the agent, who, knowing of the revocation,
continued to assume a personality which he no longer had. (Manresa Vol. 11, pp. 561 and
575; pp. 15-16, rollo)
The above discourse however, treats of revocation by an act of the principal as a mode of terminating an
agency which is to be distinguished from revocation by operation of law such as death of the principal
which obtains in this case. On page six of this Opinion We stressed that by reason of the very nature of
the relationship between principal and agent, agency is extinguished ipso jure upon the death of either
principal or agent. Although a revocation of a power of attorney to be effective must be communicated to
the parties concerned, 18 yet a revocation by operation of law, such as by death of the principal is, as a
rule, instantaneously effective inasmuch as "by legal fiction the agent's exercise of authority is regarded
as an execution of the principal's continuing will. 19 With death, the principal's will ceases or is the of
authority is extinguished.

The Civil Code does not impose a duty on the heirs to notify the agent of the death of the principal What
the Code provides in Article 1932 is that, if the agent die his heirs must notify the principal thereof, and in
the meantime adopt such measures as the circumstances may demand in the interest of the latter. Hence,
the fact that no notice of the death of the principal was registered on the certificate of title of the property
in the Office of the Register of Deeds, is not fatal to the cause of the estate of the principal

6. Holding that the good faith of a third person in said with an agent affords the former sufficient
protection, respondent court drew a "parallel" between the instant case and that of an innocent purchaser
for value of a land, stating that if a person purchases a registered land from one who acquired it in bad
faith even to the extent of foregoing or falsifying the deed of sale in his favor the registered owner
has no recourse against such innocent purchaser for value but only against the forger. 20

To support the correctness of this respondent corporation, in its brief, cites the case of Blondeau, et al., v.
Nano and Vallejo, 61 Phil. 625. We quote from the brief:

In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630, one Vallejo was
a co-owner of lands with Agustin Nano. The latter had a power of attorney supposedly
executed by Vallejo Nano in his favor. Vallejo delivered to Nano his land titles. The
power was registered in the Office of the Register of Deeds. When the lawyer-husband of
Angela Blondeau went to that Office, he found all in order including the power of
attorney. But Vallejo denied having executed the power The lower court sustained Vallejo
and the plaintiff Blondeau appealed. Reversing the decision of the court a quo, the
Supreme Court, quoting the ruling in the case of Eliason v. Wilborn, 261 U.S. 457, held:

But there is a narrower ground on which the defenses of the defendant-


appellee must be overruled. Agustin Nano had possession of Jose
Vallejo's title papers. Without those title papers handed over to Nano with
the acquiescence of Vallejo, a fraud could not have been perpetuated.
When Fernando de la Canters, a member of the Philippine Bar and the
husband of Angela Blondeau, the principal plaintiff, searched the
registration record, he found them in due form including the power of
attorney of Vallajo in favor of Nano. If this had not been so and if
thereafter the proper notation of the encumbrance could not have been
made, Angela Blondeau would not have sent P12,000.00 to the defendant
Vallejo.' An executed transfer of registered lands placed by the registered
owner thereof in the hands of another operates as a representation to a
third party that the holder of the transfer is authorized to deal with the
land.
As between two innocent persons, one of whom must suffer the
consequence of a breach of trust, the one who made it possible by his act
of coincidence bear the loss. (pp. 19-21)

The Blondeau decision, however, is not on all fours with the case before Us because here We are
confronted with one who admittedly was an agent of his sister and who sold the property of the latter after
her death with full knowledge of such death. The situation is expressly covered by a provision of law on
agency the terms of which are clear and unmistakable leaving no room for an interpretation contrary to its
tenor, in the same manner that the ruling in Blondeau and the cases cited therein found a basis in Section
55 of the Land Registration Law which in part provides:

xxx xxx xxx

The production of the owner's duplicate certificate whenever any voluntary instrument is
presented for registration shall be conclusive authority from the registered owner to the
register of deeds to enter a new certificate or to make a memorandum of registration in
accordance with such instruments, and the new certificate or memorandum Shall be
binding upon the registered owner and upon all persons claiming under him in favor of
every purchaser for value and in good faith: Provided however, That in all cases of
registration provided by fraud, the owner may pursue all his legal and equitable remedies
against the parties to such fraud without prejudice, however, to the right, of any innocent
holder for value of a certificate of title. ... (Act No. 496 as amended)

7. One last point raised by respondent corporation in support of the appealed decision is an 1842 ruling of
the Supreme Court of Pennsylvania in Cassiday v. McKenzie wherein payments made to an agent after the
death of the principal were held to be "good", "the parties being ignorant of the death". Let us take note
that the Opinion of Justice Rogers was premised on the statement that the parties were ignorant of the
death of the principal. We quote from that decision the following:

... Here the precise point is, whether a payment to an agent when the Parties are ignorant
of the death is a good payment. in addition to the case in Campbell before cited, the same
judge Lord Ellenboruogh, has decided in 5 Esp. 117, the general question that a payment
after the death of principal is not good. Thus, a payment of sailor's wages to a person
having a power of attorney to receive them, has been held void when the principal was
dead at the time of the payment. If, by this case, it is meant merely to decide the general
proposition that by operation of law the death of the principal is a revocation of the
powers of the attorney, no objection can be taken to it. But if it intended to say that his
principle applies where there was 110 notice of death, or opportunity of twice I must be
permitted to dissent from it.

... That a payment may be good today, or bad tomorrow, from the accident circumstance
of the death of the principal, which he did not know, and which by no possibility could he
know? It would be unjust to the agent and unjust to the debtor. In the civil law, the acts of
the agent, done bona fide in ignorance of the death of his principal are held valid and
binding upon the heirs of the latter. The same rule holds in the Scottish law, and I cannot
believe the common law is so unreasonable... (39 Am. Dec. 76, 80, 81; emphasis
supplied)
To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may evoke, mention may be
made that the above represents the minority view in American jurisprudence. Thus in Clayton v. Merrett,
the Court said.

There are several cases which seem to hold that although, as a general principle, death
revokes an agency and renders null every act of the agent thereafter performed, yet that
where a payment has been made in ignorance of the death, such payment will be good.
The leading case so holding is that of Cassiday v. McKenzie, 4 Watts & S. (Pa) 282, 39
Am. 76, where, in an elaborate opinion, this view ii broadly announced. It is referred to,
and seems to have been followed, in the case of Dick v. Page, 17 Mo. 234, 57 AmD 267;
but in this latter case it appeared that the estate of the deceased principal had received the
benefit of the money paid, and therefore the representative of the estate might well have
been held to be estopped from suing for it again. . . . These cases, in so far, at least, as
they announce the doctrine under discussion, are exceptional. The Pennsylvania
Case, supra (Cassiday v. McKenzie 4 Watts & S. 282, 39 AmD 76), is believed to stand
almost, if not quite, alone in announcing the principle in its broadest scope. (52, Misc.
353, 357, cited in 2 C.J. 549)

So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out that the opinion, except
so far as it related to the particular facts, was a mere dictum, Baldwin J. said:

The opinion, therefore, of the learned Judge may be regarded more as an extrajudicial
indication of his views on the general subject, than as the adjudication of the Court upon
the point in question. But accordingly all power weight to this opinion, as the judgment
of a of great respectability, it stands alone among common law authorities and is opposed
by an array too formidable to permit us to following it. (15 Cal. 12,17, cited in 2 C.J.
549)

Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in American jurisprudence, no
such conflict exists in our own for the simple reason that our statute, the Civil Code, expressly provides
for two exceptions to the general rule that death of the principal revokes ipso jure the agency, to wit: (1)
that the agency is coupled with an interest (Art 1930), and (2) that the act of the agent was executed
without knowledge of the death of the principal and the third person who contracted with the agent acted
also in good faith (Art. 1931). Exception No. 2 is the doctrine followed in Cassiday, and again We stress
the indispensable requirement that the agent acted without knowledge or notice of the death of the
principal In the case before Us the agent Ramon Rallos executed the sale notwithstanding notice of the
death of his principal Accordingly, the agent's act is unenforceable against the estate of his principal.

IN VIEW OF ALL THE FOREGOING, We set aside the ecision of respondent appellate court, and We
affirm en toto the judgment rendered by then Hon. Amador E. Gomez of the Court of First Instance of
Cebu, quoted in pages 2 and 3 of this Opinion, with costs against respondent realty corporation at all
instances.

So Ordered.

Teehankee (Chairman), Makasiar, Fernandez and Guerrero, JJ., concur.


G.R. No. L-18058 January 16, 1923

FABIOLA SEVERINO, plaintiff-appellee,


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

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


Jose Ma. Arroyo, Jose Lopez Vito, and Fisher and DeWitt for appellees.

OSTRAND, J.:

This is an action brought by the plaintiff as the alleged natural daughter and sole heir of one Melecio
Severino, deceased, to compel the defendant Guillermo Severino to convey to her four parcels of land
described in the complaint, or in default thereof to pay her the sum of P800,000 in damages for
wrongfully causing said land to be registered in his own name. Felicitas Villanueva, in her capacity as
administratrix of the estate of Melecio Severino, has filed a complaint in intervention claiming in the
same relief as the original plaintiff, except in so far as she prays that the conveyance be made, or damages
paid, to the estate instead of to the plaintiff Fabiola Severino. The defendant answered both complaints
with a general denial.

The lower court rendered a judgment recognizing the plaintiff Fabiola Severino as the acknowledged
natural child of the said Melecio Severino and ordering the defendant to convey 428 hectares of the land
in question to the intervenor as administratrix of the estate of the said Melecio Severino, to deliver to her
the proceeds in his possession of a certain mortgage placed thereon by him and to pay the costs. From this
judgment only the defendant appeals.

The land described in the complaint forms one continuous tract and consists of lots Nos. 827, 828, 834,
and 874 of the cadaster of Silay, Province of Occidental Negros, which measure, respectively, 61 hectares,
74 ares, and 79 centiares; 76 hectares, 34 ares, and 79 centiares; 52 hectares, 86 ares, and 60 centiares and
608 hectares, 77 ares and 28 centiares, or a total of 799 hectares, 75 ares, and 46 centiares.

The evidence shows that Melecio Severino died on the 25th day of May, 1915; that some 428 hectares of
the land were recorded in the Mortgage Law Register in his name in the year 1901 by virtue of possessory
information proceedings instituted on the 9th day of May of that year by his brother Agapito Severino in
his behalf; that during the lifetime of Melecio Severino the land was worked by the defendant, Guillermo
Severino, his brother, as administrator for and on behalf of the said Melecio Severino; that after Melecio's
death, the defendant Guillermo Severino continued to occupy the land; that in 1916 a parcel survey was
made of the lands in the municipality of Silay, including the land here in question, and cadastral
proceedings were instituted for the registration of the lands titles within the surveyed area; that in the
cadastral proceedings the land here in question was described as four separate lots numbered as above
stated; that Roque Hofilea, as lawyer for Guillermo Severino, filed answers in behalf of the latter in said
proceedings claiming the lots mentioned as the property of his client; that no opposition was presented in
the proceedings to the claims of Guillermo Severino and the court therefore decreed the title in his favor,
in pursuance of which decree certificates of title were issued to him in the month of March, 1917.

It may be further observed that at the time of the cadastral proceedings the plaintiff Fabiola Severino was
a minor; that Guillermo Severino did not appear personally in the proceedings and did not there testify;
that the only testimony in support of his claims was that of his attorney Hofilea, who swore that he knew
the land and that he also knew that Guillermo Severino inherited the land from his father and that he, by
himself, and through his predecessors in interest, had possessed the land for thirty years.

The appellant presents the following nine assignments of error:

1. The trial court erred in admitting the evidence that was offered by plaintiff in order to establish
the fact that said plaintiff was the legally acknowledged natural child of the deceased Melecio
Severino.

2. The trial court erred in finding that, under the evidence presented, plaintiff was the legally
acknowledged natural child of Melecio Severino.

3. The trial court erred in rejecting the evidence offered by defendant to establish the absence of
fraud on his part in securing title to the lands in Nacayao.

4. The trial court erred in concluding that the evidence adduced by plaintiff and intervenor
established that defendant was guilty of fraud in procuring title to the lands in question in his
name.

5. The trial court erred in declaring that the land that was formerly placed in the name of Melecio
Severino had an extent of either 434 or 428 hectares at the time of his death.

6. The trial court erred in declaring that the value of the land in litigation is P500 per hectare.

7. The trial court erred in granting the petition of the plaintiff for an attachment without first
giving the defendant an opportunity to be heard.

8. The trial court erred in ordering the conveyance of 428 hectares of land by defendant to the
administratrix.

9. The trial court erred in failing or refusing to make any finding as to the defendant's contention
that the petition for attachment was utterly devoid of any reasonable ground.

In regard to the first two assignments of error, we agree with the appellant that the trial court erred in
making a declaration in the present case as to the recognition of Fabiola Severino as the natural child of
Melecio Severino. We have held in the case of Briz vs. Briz and Remigio (43 Phil., 763), that "The
legitimate heirs or kin of a deceased person who would be prejudiced by a declaration that another person
is entitled to recognition as the natural child of such decedent, are necessary and indispensable parties to
any action in which a judgment declaring the right to recognition is sought." In the present action only the
widow, the alleged natural child, and one of the brothers of the deceased are parties; the other potential
heirs have not been included. But, inasmuch as the judgment appealed from is in favor of the intervenor
and not of the plaintiff, except to the extent of holding that the latter is a recognized natural child of the
deceased, this question is, from the view we take of the case, of no importance in its final disposition. We
may say, however, in this connection, that the point urged in appellant's brief that it does not appear
affirmatively from the evidence that, at the time of the conception of Fabiola, her mother was a single
woman, may be sufficiently disposed of by a reference to article 130 of the Civil Code and subsection 1
of section 334 of the Code of Civil Procedure which create the presumption that a child born out of
wedlock is natural rather than illegitimate. The question of the status of the plaintiff Fabiola Severino and
her right to share in the inheritance may, upon notice to all the interested parties, be determined in the
probate proceedings for the settlement of the estate of the deceased.

The fifth assignment of error relates to the finding of the trial court that the land belonging to Melecio
Severino had an area of 428 hectares. The appellant contends that the court should have found that there
were only 324 hectares inasmuch as one hundred hectares of the original area were given to Melecio's
brother Donato during the lifetime of the father Ramon Severino. As it appears that Ramon Severino died
in 1896 and that the possessory information proceedings, upon which the finding of the trial court as to
the area of the land is principally based, were not instituted until the year 1901, we are not disposed to
disturb the conclusions of the trial court on this point. Moreover, in the year 1913, the defendant
Guillermo Severino testified under oath, in the case of Montelibano vs. Severino, that the area of the land
owned by Melecio Severino and of which he (Guillermo) was the administrator, embraced an area of 424
hectares. The fact that Melecio Severino, in declaring the land for taxation in 1906, stated that the area
was only 324 hectares and 60 ares while entitled to some weight is not conclusive and is not sufficient to
overcome the positive statement of the defendant and the recitals in the record of the possessory
information proceedings.

The sixth assignment of error is also of minor importance in view of the fact that in the dispositive part of
the decision of the trial court, the only relief given is an order requiring the appellant to convey to the
administratrix the land in question, together with such parts of the proceeds of the mortgage thereon as
remain in his hands. We may say further that the court's estimate of the value of the land does not appear
unreasonable and that, upon the evidence before us, it will not be disturbed.

The seventh and within assignments of error relate to the ex parte granting by the trial court of a
preliminary attachment in the case and the refusal of the court to dissolve the same. We find no merit
whatever in these assignments and a detailed discussion of them is unnecessary.

The third, fourth, and eight assignments of error involve the vital points in the case, are inter-related and
may be conveniently considered together.

The defendant argues that the gist of the instant action is the alleged fraud on his part in causing the land
in question to be registered in his name; that the trial court therefore erred in rejecting his offer of
evidence to the effect that the land was owned in common by all the heirs of Ramon Severino and did not
belong to Melecio Severino exclusively; that such evidence, if admitted, would have shown that he did
not act with fraudulent intent in taking title to the land; that the trial court erred in holding him estopped
from denying Melecio's title; that more than a year having elapsed since the entry of the final decree
adjudicating the land to the defendant, said decree cannot now be reopened; that the ordering of the
defendant to convey the decreed land to the administratrix is, for all practical purposes, equivalent to the
reopening of the decree of registration; that under section 38 of the Land Registration Act the defendant
has an indefeasible title to the land; and that the question of ownership of the land being thus judicially
settled, the question as to the previous relations between the parties cannot now be inquired into.

Upon no point can the defendant's contentions be sustained. It may first be observed that this is not an
action under section 38 of the Land Registration Act to reopen or set aside a decree; it is an action in
personam against an agent to compel him to return, or retransfer, to the heirs or the estate of its principal,
the property committed to his custody as such agent, to execute the necessary documents of conveyance
to effect such retransfer or, in default thereof, to pay damages.

That the defendant came into the possession of the property here in question as the agent of the deceased
Melecio Severino in the administration of the property, cannot be successfully disputed. His testimony in
the case of Montelibano vs. Severino (civil case No. 902 of the Court of First Instance of Occidental
Negros and which forms a part of the evidence in the present case) is, in fact, conclusive in this respect.
He there stated under oath that from the year 1902 up to the time the testimony was given, in the year
1913, he had been continuously in charge and occupation of the land as the encargado or administrator of
Melecio Severino; that he had always known the land as the property of Melecio Severino; and that the
possession of the latter had been peaceful, continuous, and exclusive. In his answer filed in the same case,
the same defendant, through his attorney, disclaimed all personal interest in the land and averred that it
was wholly the property of his brother Melecio.

Neither is it disputed that the possession enjoyed by the defendant at the time of obtaining his decree was
of the same character as that held during the lifetime of his brother, except in so far as shortly before the
trial of the cadastral case the defendant had secured from his brothers and sisters a relinguishment in his
favor of such rights as they might have in the land.

The relations of an agent to his principal are fiduciary and it is an elementary and very old rule that in
regard to property forming the subject-matter of the agency, he is estopped from acquiring or asserting a
title adverse to that of the principal. His position is analogous to that of a trustee and he cannot
consistently, with the principles of good faith, be allowed to create in himself an interest in opposition to
that of his principal or cestui que trust. Upon this ground, and substantially in harmony with the principles
of the Civil Law (see sentence of the supreme court of Spain of May 1, 1900), the English Chancellors
held that in general whatever a trustee does for the advantage of the trust estate inures to the benefit of
the cestui que trust. (Greenlaw vs. King, 5 Jur., 18; Ex parte Burnell, 7 Jur., 116; Ex parte Hughes, 6 Ves.,
617; Ex parte James, 8 Ves., 337; Oliver vs. Court, 8 Price, 127.) The same principle has been
consistently adhered to in so many American cases and is so well established that exhaustive citations of
authorities are superfluous and we shall therefore limit ourselves to quoting a few of the numerous
judicial expressions upon the subject. The principle is well stated in the case of Gilbert vs. Hewetson (79
Minn., 326):

A receiver, trustee, attorney, agent, or any other person occupying fiduciary relations respecting
property or persons, is utterly disabled from acquiring for his own benefit the property committed
to his custody for management. This rule is entirely independent of the fact whether any fraud has
intervened. No fraud in fact need be shown, and no excuse will be heard from the trustee. It is to
avoid the necessity of any such inquiry that the rule takes so general a form. The rule stands on
the moral obligation to refrain from placing one's self in positions which ordinarily excite
conflicts between self-interest and integrity. It seeks to remove the temptation that might arise out
of such a relation to serve one's self-interest at the expense of one's integrity and duty to another,
by making it impossible to profit by yielding to temptation. It applies universally to all who come
within its principle.
In the case of Massie vs. Watts (6 Cranch, 148), the United States Supreme Court, speaking through Chief
Justice Marshall, said:

But Massie, the agent of Oneale, has entered and surveyed a portion of that land for himself and
obtained a patent for it in his own name. According to the clearest and best established principles
of equity, the agent who so acts becomes a trustee for his principal. He cannot hold the land under
an entry for himself otherwise than as trustee for his principal.

In the case of Felix vs. Patrick (145 U. S., 317), the United States Supreme Court, after examining the
authorities, said:

The substance of these authorities is that, wherever a person obtains the legal title to land by any
artifice or concealment, or by making use of facilities intended for the benefit of another, a court
of equity will impress upon the land so held by him a trust in favor of the party who is justly
entitled to them, and will order the trust executed by decreeing their conveyance to the party in
whose favor the trust was created. (Citing Bank of Metropolis vs. Guttschlick, 14 Pet., 19, 31;
Moses vs. Murgatroyd, 1 Johns. Ch., 119; Cumberland vs. Codrington, 3 Johns. Ch., 229, 261;
Neilson vs. Blight, 1 Johns. Cas., 205; Weston vs. Barker, 12 Johns., 276.)

The same doctrine has also been adopted in the Philippines. In the case of Uy Aloc vs. Cho Jan Ling (19
Phil., 202), the facts are stated by the court as follows:

From the facts proven at the trial it appears that a number of Chinese merchants raised a fund by
voluntary subscription with which they purchased a valuable tract of land and erected a large
building to be used as a sort of club house for the mutual benefit of the subscribers to the fund.
The subscribers organized themselves into an irregular association, which had no regular articles
of association, and was not incorporated or registered in the commercial registry or elsewhere.
The association not having any existence as a legal entity, it was agreed to have the title to the
property placed in the name of one of the members, the defendant, Cho Jan Ling, who on his part
accepted the trust, and agreed to hold the property as the agent of the members of the association.
After the club building was completed with the funds of the members of the association, Cho Jan
Ling collected some P25,000 in rents for which he failed and refused to account, and upon
proceedings being instituted to compel him to do so, he set up title in himself to the club property
as well as to the rents accruing therefrom, falsely alleging that he had bought the real estate and
constructed the building with his own funds, and denying the claims of the members of the
association that it was their funds which had been used for that purpose.

The decree of the court provided, among other things, for the conveyance of the club house and the land
on which it stood from the defendant, Cho Jan Ling, in whose name it was registered, to the members of
the association. In affirming the decree, this court said:

In the case at bar the legal title of the holder of the registered title is not questioned; it is admitted
that the members of the association voluntarily obtained the inscription in the name of Cho Jan
Ling, and that they had no right to have that inscription cancelled; they do not seek such
cancellation, and on the contrary they allege and prove that the duly registered legal title to the
property is in Cho Jan Ling, but they maintain, and we think that they rightly maintain, that he
holds it under an obligation, both express and implied, to deal with it exclusively for the benefit
of the members of the association, and subject to their will.
In the case of Camacho vs. Municipality of Baliuag (28 Phil., 466), the plaintiff, Camacho, took title to
the land in his own name, while acting as agent for the municipality. The court said:

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

xxx xxx xxx

What judgment ought to be entered in this case? The court below simply absolved the defendant
from the complaint. The defendant municipality does not ask for a cancellation of the deed. On
the contrary, the deed is relied upon the supplement the oral evidence showing that the title to the
land is in the defendant. As we have indicated in Consunji vs. Tison, 15 Phil., 81, and Uy Aloc vs.
Cho Jan Ling, 19 Phil., 202, the proper procedure in such a case, so long as the rights of innocent
third persons have not intervened, is to compel a conveyance to the rightful owner. This ought
and can be done under the issues raised and the proof presented in the case at bar.

The case of Sy-Juco and Viardo vs. Sy-Juco (40 Phil., 634) is also in point.

As will be seen from the authorities quoted, and agent is not only estopped from denying his principal's
title to the property, but he is also disable from acquiring interests therein adverse to those of his principal
during the term of the agency. But the defendant argues that his title has become res adjudicata through
the decree of registration and cannot now be disturbed.

This contention may, at first sight, appear to possess some force, but on closer examination it proves
untenable. The decree of registration determined the legal title to the land as the date of the decree; as to
that there is no question. That, under section 38 of the Land Registration Act, this decree became
conclusive after one year from the date of the entry is not disputed and no one attempts to disturb the
decree or the proceedings upon which it is based; the plaintiff in intervention merely contends that in
equity the legal title so acquired inured to the benefit of the estate of Melecio Severino, the defendant's
principal and cestui que trust and asks that this superior equitable right be made effective by compelling
the defendant, as the holder of the legal title, to transfer it to the estate.

We have already shown that before the issuance of the decree of registration it was the undoubted duty of
the defendant to restore the property committed to his custody to his principal, or to the latter's estate, and
that the principal had a right of action in personam to enforce the performance of this duty and to compel
the defendant to execute the necessary conveyance to that effect. The only question remaining for
consideration is, therefore, whether the decree of registration extinguishing this personal right of action.

In Australia and New Zealand, under statutes in this respect similar to ours, courts of equity exercise
general jurisdiction in matters of fraud and error with reference to Torrens registered lands, and giving
attention to the special provisions of the Torrens acts, will issue such orders and direction to all the parties
to the proceedings as may seem just and proper under the circumstances. They may order parties to make
deeds of conveyance and if the order is disobeyed, they may cause proper conveyances to be made by a
Master in Chancery or Commissioner in accordance with the practice in equity (Hogg, Australian Torrens
System, p. 847).
In the Untied States courts have even gone so far in the exercise of their equity jurisdiction as to set aside
final decrees after the expiration of the statutory period of limitation for the reopening of such decrees
(Baart vs. Martin, 99 Minn., 197). But, considering that equity follows the law and that our statutes
expressly prohibit the reopening of a decree after one year from the date of its entry, this practice would
probably be out of question here, especially so as the ends of justice may be attained by other equally
effective, and less objectionable means.

Turning to our own Land Registration Act, we find no indication there of an intention to cut off, through
the issuance of a decree of registration, equitable rights or remedies such as those here in question. On the
contrary, section 70 of the Act provides:

Registered lands and ownership therein, shall in all respects be subject to the same burdens and
incidents attached by law to unregistered land. Nothing contained in this Act shall in any way be
construed to relieve registered land or the owners thereof from any rights incident to the relation
of husband and wife, or from liability to attachment on mesne process or levy on execution, or
from liability to any lien of any description established by law on land and the buildings thereon,
or the interest of the owner in such land or buildings, or to change the laws of descent, or the
rights of partition between coparceners, joint tenants and other cotenants, or the right to take the
same by eminent domain, or to relieve such land from liability to be appropriated in any lawful
manner for the payment of debts, or to change or affect in any other way any other rights or
liabilities created by law and applicable to unregistered land, except as otherwise expressly
provided in this Act or in the amendments hereof.

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

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

That an action such as the present one is covered by this proviso can hardly admit of doubt. Such was also
the view taken by this court in the case of Medina Ong-Quingco vs. Imaz and Warner, Barnes & Co. (27
Phil., 314), in which the plaintiff was seeking to take advantage of his possession of a certificate of title to
deprive the defendant of land included in that certificate and sold to him by the former owner before the
land was registered. The court decided adversely to plaintiff and in so doing said:

As between them no question as to the indefeasibility of a Torrens title could arise. Such an action
could have been maintained at any time while the property remained in the hands of the
purchaser. The peculiar force of a Torrens title would have been brought into play only when the
purchaser had sold to an innocent third person for value the lands described in his
conveyance. . . . Generally speaking, as between the vendor and the purchaser the same rights and
remedies exist with reference to land registered under Act No. 496, as exist in relation to land not
so registered.

In Cabanos vs. Register of Deeds of Laguna and Obiana (40 Phil., 620), it was held that, while a
purchaser of land under a pacto de retro cannot institute a real action for the recovery thereof where the
vendor under said sale has caused such lands to be registered in his name without said vendee's consent,
yet he may have his personal action based on the contract of sale to compel the execution of an
unconditional deed for the said lands when the period for repurchase has passed.
Torrens titles being on judicial decrees there is, of course, a strong presumption in favor of their regularity
or validity, and in order to maintain an action such as the present the proof as to the fiduciary relation of
the parties and of the breach of trust must be clear and convincing. Such proof is, as we have seen, not
lacking in this case.

But once the relation and the breach of trust on the part of the fiduciary in thus established, there is no
reason, neither practical nor legal, why he should not be compelled to make such reparation as may lie
within his power for the injury caused by his wrong, and as long as the land stands registered in the name
of the party who is guilty of the breach of trust and no rights of innocent third parties are adversely
affected, there can be no reason why such reparation should not, in the proper case, take the form of a
conveyance or transfer of the title to the cestui que trust. No reasons of public policy demand that a
person guilty of fraud or breach of trust be permitted to use his certificate of title as a shield against the
consequences of his own wrong.

The judgment of the trial court is in accordance with the facts and the law. In order to prevent unnecessary
delay and further litigation it may, however, be well to attach some additional directions to its dipositive
clauses. It will be observed that lots Nos. 827, 828, and 834 of a total area of approximately 191 hectares,
lie wholly within the area to be conveyed to the plaintiff in intervention and these lots may, therefore, be
so conveyed without subdivision. The remaining 237 hectares to be conveyed lie within the western part
of lot No. 874 and before a conveyance of this portion can be effected a subdivision of that lot must be
made and a technical description of the portion to be conveyed, as well as of the remaining portion of the
lot, must be prepared. The subdivision shall be made by an authorized surveyor and in accordance with
the provisions of Circular No. 31 of the General Land Registration Office, and the subdivision and
technical descriptions shall be submitted to the Chief of that office for his approval. Within thirty days
after being notified of the approval of said subdivision and technical descriptions, the defendant
Guillermo Severino shall execute good and sufficient deed or deeds of conveyance in favor of the
administratrix of the estate of the deceased Melecio Severino for said lots Nos. 827, 828, 834, and the 237
hectares segregated from the western part of lot No. 874 and shall deliver to the register of deeds his
duplicate certificates of title for all of the four lots in order that said certificates may be cancelled and new
certificates issued. The cost of the subdivision and the fees of the register of deeds will be paid by the
plaintiff in intervention. It is so ordered

With these additional directions the judgment appealed from is affirmed, with the costs against the
appellant. The right of the plaintiff Fabiola Severino to establish in the probate proceedings of the estate
of Melecio Severino her status as his recognized natural child is reserved.

Araullo, C. J., Johnson, Street, Malcolm, Avancea, Villamor, Johns, and Romualdez, JJ., concur.

Republic of the Philippines


SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 76931 May 29, 1991
ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,
vs.
COURT OF APPEALS and AMERICAN AIR-LINES INCORPORATED, respondents.
G.R. No. 76933 May 29, 1991
AMERICAN AIRLINES, INCORPORATED, petitioner,
vs.
COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES,
INCORPORATED, respondents.
Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and Hotel Representatives, Inc.
Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.

PADILLA, J.:
This case is a consolidation of two (2) petitions for review on certiorari of a decision 1 of the Court of
Appeals in CA-G.R. No. CV-04294, entitled "American Airlines, Inc. vs. Orient Air Services and Hotel
Representatives, Inc." which affirmed, with modification, the decision 2 of the Regional Trial Court of
Manila, Branch IV, which dismissed the complaint and granted therein defendant's counterclaim for
agent's overriding commission and damages.
The antecedent facts are as follows:
On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American Air), an air carrier
offering passenger and air cargo transportation in the Philippines, and Orient Air Services and Hotel
Representatives (hereinafter referred to as Orient Air), entered into a General Sales Agency Agreement
(hereinafter referred to as the Agreement), whereby the former authorized the latter to act as its exclusive
general sales agent within the Philippines for the sale of air passenger transportation. Pertinent provisions
of the agreement are reproduced, to wit:
WITNESSETH
In consideration of the mutual convenants herein contained, the parties hereto agree as follows:
1. Representation of American by Orient Air Services
Orient Air Services will act on American's behalf as its exclusive General Sales Agent within the
Philippines, including any United States military installation therein which are not serviced by an
Air Carrier Representation Office (ACRO), for the sale of air passenger transportation. The
services to be performed by Orient Air Services shall include:
(a) soliciting and promoting passenger traffic for the services of American and, if
necessary, employing staff competent and sufficient to do so;
(b) providing and maintaining a suitable area in its place of business to be used
exclusively for the transaction of the business of American;
(c) arranging for distribution of American's timetables, tariffs and promotional material to
sales agents and the general public in the assigned territory;
(d) servicing and supervising of sales agents (including such sub-agents as may be
appointed by Orient Air Services with the prior written consent of American) in the
assigned territory including if required by American the control of remittances and
commissions retained; and
(e) holding out a passenger reservation facility to sales agents and the general public in
the assigned territory.
In connection with scheduled or non-scheduled air passenger transportation within the United
States, neither Orient Air Services nor its sub-agents will perform services for any other air
carrier similar to those to be performed hereunder for American without the prior written consent
of American. Subject to periodic instructions and continued consent from American, Orient Air
Services may sell air passenger transportation to be performed within the United States by other
scheduled air carriers provided American does not provide substantially equivalent schedules
between the points involved.
xxx xxx xxx
4. Remittances
Orient Air Services shall remit in United States dollars to American the ticket stock or exchange
orders, less commissions to which Orient Air Services is entitled hereunder, not less frequently
than semi-monthly, on the 15th and last days of each month for sales made during the preceding
half month.
All monies collected by Orient Air Services for transportation sold hereunder on American's
ticket stock or on exchange orders, less applicable commissions to which Orient Air Services is
entitled hereunder, are the property of American and shall be held in trust by Orient Air Services
until satisfactorily accounted for to American.
5. Commissions
American will pay Orient Air Services commission on transportation sold hereunder by Orient
Air Services or its sub-agents as follows:
(a) Sales agency commission
American will pay Orient Air Services a sales agency commission for all sales of transportation
by Orient Air Services or its sub-agents over American's services and any connecting through air
transportation, when made on American's ticket stock, equal to the following percentages of the
tariff fares and charges:
(i) For transportation solely between points within the United States and between such
points and Canada: 7% or such other rate(s) as may be prescribed by the Air Traffic
Conference of America.
(ii) For transportation included in a through ticket covering transportation between points
other than those described above: 8% or such other rate(s) as may be prescribed by the
International Air Transport Association.
(b) Overriding commission
In addition to the above commission American will pay Orient Air Services an overriding
commission of 3% of the tariff fares and charges for all sales of transportation over American's
service by Orient Air Service or its sub-agents.
xxx xxx xxx
10. Default
If Orient Air Services shall at any time default in observing or performing any of the provisions
of this Agreement or shall become bankrupt or make any assignment for the benefit of or enter
into any agreement or promise with its creditors or go into liquidation, or suffer any of its goods
to be taken in execution, or if it ceases to be in business, this Agreement may, at the option of
American, be terminated forthwith and American may, without prejudice to any of its rights under
this Agreement, take possession of any ticket forms, exchange orders, traffic material or other
property or funds belonging to American.
11. IATA and ATC Rules
The provisions of this Agreement are subject to any applicable rules or resolutions of the
International Air Transport Association and the Air Traffic Conference of America, and such rules
or resolutions shall control in the event of any conflict with the provisions hereof.
xxx xxx xxx
13. Termination
American may terminate the Agreement on two days' notice in the event Orient Air Services is
unable to transfer to the United States the funds payable by Orient Air Services to American
under this Agreement. Either party may terminate the Agreement without cause by giving the
other 30 days' notice by letter, telegram or cable.
xxx xxx x x x3
On 11 May 1981, alleging that Orient Air had reneged on its obligations under the Agreement by failing
to promptly remit the net proceeds of sales for the months of January to March 1981 in the amount of US
$254,400.40, American Air by itself undertook the collection of the proceeds of tickets sold originally by
Orient Air and terminated forthwith the Agreement in accordance with Paragraph 13 thereof
(Termination). Four (4) days later, or on 15 May 1981, American Air instituted suit against Orient Air
with the Court of First Instance of Manila, Branch 24, for Accounting with Preliminary Attachment or
Garnishment, Mandatory Injunction and Restraining Order 4 averring the aforesaid basis for the
termination of the Agreement as well as therein defendant's previous record of failures "to promptly settle
past outstanding refunds of which there were available funds in the possession of the defendant, . . . to the
damage and prejudice of plaintiff." 5
In its Answer 6 with counterclaim dated 9 July 1981, defendant Orient Air denied the material allegations
of the complaint with respect to plaintiff's entitlement to alleged unremitted amounts, contending that
after application thereof to the commissions due it under the Agreement, plaintiff in fact still owed Orient
Air a balance in unpaid overriding commissions. Further, the defendant contended that the actions taken
by American Air in the course of terminating the Agreement as well as the termination itself were
untenable, Orient Air claiming that American Air's precipitous conduct had occasioned prejudice to its
business interests.
Finding that the record and the evidence substantiated the allegations of the defendant, the trial court
ruled in its favor, rendering a decision dated 16 July 1984, the dispositive portion of which reads:
WHEREFORE, all the foregoing premises considered, judgment is hereby rendered in favor of
defendant and against plaintiff dismissing the complaint and holding the termination made by the
latter as affecting the GSA agreement illegal and improper and order the plaintiff to reinstate
defendant as its general sales agent for passenger tranportation in the Philippines in accordance
with said GSA agreement; plaintiff is ordered to pay defendant the balance of the overriding
commission on total flown revenue covering the period from March 16, 1977 to December 31,
1980 in the amount of US$84,821.31 plus the additional amount of US$8,000.00 by way of
proper 3% overriding commission per month commencing from January 1, 1981 until such
reinstatement or said amounts in its Philippine peso equivalent legally prevailing at the time of
payment plus legal interest to commence from the filing of the counterclaim up to the time of
payment. Further, plaintiff is directed to pay defendant the amount of One Million Five Hundred
Thousand (Pl,500,000.00) pesos as and for exemplary damages; and the amount of Three
Hundred Thousand (P300,000.00) pesos as and by way of attorney's fees.
Costs against plaintiff. 7
On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision promulgated on 27
January 1986, affirmed the findings of the court a quo on their material points but with some
modifications with respect to the monetary awards granted. The dispositive portion of the appellate court's
decision is as follows:
WHEREFORE, with the following modifications
1) American is ordered to pay Orient the sum of US$53,491.11 representing the balance of the
latter's overriding commission covering the period March 16, 1977 to December 31, 1980, or its
Philippine peso equivalent in accordance with the official rate of exchange legally prevailing on
July 10, 1981, the date the counterclaim was filed;
2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's overriding
commission per month starting January 1, 1981 until date of termination, May 9, 1981 or its
Philippine peso equivalent in accordance with the official rate of exchange legally prevailing on
July 10, 1981, the date the counterclaim was filed
3) American is ordered to pay interest of 12% on said amounts from July 10, 1981 the date the
answer with counterclaim was filed, until full payment;
4) American is ordered to pay Orient exemplary damages of P200,000.00;
5) American is ordered to pay Orient the sum of P25,000.00 as attorney's fees.
the rest of the appealed decision is affirmed.
Costs against American.8
American Air moved for reconsideration of the aforementioned decision, assailing the substance thereof
and arguing for its reversal. The appellate court's decision was also the subject of a Motion for Partial
Reconsideration by Orient Air which prayed for the restoration of the trial court's ruling with respect to
the monetary awards. The Court of Appeals, by resolution promulgated on 17 December 1986, denied
American Air's motion and with respect to that of Orient Air, ruled thus:
Orient's motion for partial reconsideration is denied insofar as it prays for affirmance of the trial
court's award of exemplary damages and attorney's fees, but granted insofar as the rate of
exchange is concerned. The decision of January 27, 1986 is modified in paragraphs (1) and (2) of
the dispositive part so that the payment of the sums mentioned therein shall be at their Philippine
peso equivalent in accordance with the official rate of exchange legally prevailing on the date of
actual payment. 9
Both parties appealed the aforesaid resolution and decision of the respondent court, Orient Air as
petitioner in G.R. No. 76931 and American Air as petitioner in G.R. No. 76933. By resolution 10 of this
Court dated 25 March 1987 both petitions were consolidated, hence, the case at bar.
The principal issue for resolution by the Court is the extent of Orient Air's right to the 3% overriding
commission. It is the stand of American Air that such commission is based only on sales of its services
actually negotiated or transacted by Orient Air, otherwise referred to as "ticketed sales." As basis thereof,
primary reliance is placed upon paragraph 5(b) of the Agreement which, in reiteration, is quoted as
follows:
5. Commissions
a) . . .
b) Overriding Commission
In addition to the above commission, American will pay Orient Air Services an overriding
commission of 3% of the tariff fees and charges for all sales of transportation over American's
services by Orient Air Services or its sub-agents. (Emphasis supplied)
Since Orient Air was allowed to carry only the ticket stocks of American Air, and the former not having
opted to appoint any sub-agents, it is American Air's contention that Orient Air can claim entitlement to
the disputed overriding commission based only on ticketed sales. This is supposed to be the clear meaning
of the underscored portion of the above provision. Thus, to be entitled to the 3% overriding commission,
the sale must be made by Orient Air and the sale must be done with the use of American Air's ticket
stocks.
On the other hand, Orient Air contends that the contractual stipulation of a 3% overriding commission
covers the total revenue of American Air and not merely that derived from ticketed sales undertaken by
Orient Air. The latter, in justification of its submission, invokes its designation as the exclusive General
Sales Agent of American Air, with the corresponding obligations arising from such agency, such as, the
promotion and solicitation for the services of its principal. In effect, by virtue of such exclusivity, "all
sales of transportation over American Air's services are necessarily by Orient Air." 11
It is a well settled legal principle that in the interpretation of a contract, the entirety thereof must be taken
into consideration to ascertain the meaning of its provisions. 12 The various stipulations in the contract
must be read together to give effect to all. 13 After a careful examination of the records, the Court finds
merit in the contention of Orient Air that the Agreement, when interpreted in accordance with the
foregoing principles, entitles it to the 3% overriding commission based on total revenue, or as referred to
by the parties, "total flown revenue."
As the designated exclusive General Sales Agent of American Air, Orient Air was responsible for the
promotion and marketing of American Air's services for air passenger transportation, and the solicitation
of sales therefor. In return for such efforts and services, Orient Air was to be paid commissions of two (2)
kinds: first, a sales agency commission, ranging from 7-8% of tariff fares and charges from sales by
Orient Air when made on American Air ticket stock; and second, an overriding commission of 3% of tariff
fares and charges for all sales of passenger transportation over American Air services. It is immediately
observed that the precondition attached to the first type of commission does not obtain for the second type
of commissions. The latter type of commissions would accrue for sales of American Air services made
not on its ticket stock but on the ticket stock of other air carriers sold by such carriers or other authorized
ticketing facilities or travel agents. To rule otherwise, i.e., to limit the basis of such overriding
commissions to sales from American Air ticket stock would erase any distinction between the two (2)
types of commissions and would lead to the absurd conclusion that the parties had entered into a contract
with meaningless provisions. Such an interpretation must at all times be avoided with every effort exerted
to harmonize the entire Agreement.
An additional point before finally disposing of this issue. It is clear from the records that American Air
was the party responsible for the preparation of the Agreement. Consequently, any ambiguity in this
"contract of adhesion" is to be taken "contra proferentem", i.e., construed against the party who caused
the ambiguity and could have avoided it by the exercise of a little more care. Thus, Article 1377 of the
Civil Code provides that the interpretation of obscure words or stipulations in a contract shall not favor
the party who caused the obscurity. 14 To put it differently, when several interpretations of a provision are
otherwise equally proper, that interpretation or construction is to be adopted which is most favorable to
the party in whose favor the provision was made and who did not cause the ambiguity. 15 We therefore
agree with the respondent appellate court's declaration that:
Any ambiguity in a contract, whose terms are susceptible of different interpretations, must be
read against the party who drafted it. 16
We now turn to the propriety of American Air's termination of the Agreement. The respondent appellate
court, on this issue, ruled thus:
It is not denied that Orient withheld remittances but such action finds justification from paragraph
4 of the Agreement, Exh. F, which provides for remittances to American less commissions to
which Orient is entitled, and from paragraph 5(d) which specifically allows Orient to retain the
full amount of its commissions. Since, as stated ante, Orient is entitled to the 3% override.
American's premise, therefore, for the cancellation of the Agreement did not exist. . . ."
We agree with the findings of the respondent appellate court. As earlier established, Orient Air was
entitled to an overriding commission based on total flown revenue. American Air's perception that Orient
Air was remiss or in default of its obligations under the Agreement was, in fact, a situation where the
latter acted in accordance with the Agreementthat of retaining from the sales proceeds its accrued
commissions before remitting the balance to American Air. Since the latter was still obligated to Orient
Air by way of such commissions. Orient Air was clearly justified in retaining and refusing to remit the
sums claimed by American Air. The latter's termination of the Agreement was, therefore, without cause
and basis, for which it should be held liable to Orient Air.
On the matter of damages, the respondent appellate court modified by reduction the trial court's award of
exemplary damages and attorney's fees. This Court sees no error in such modification and, thus, affirms
the same.
It is believed, however, that respondent appellate court erred in affirming the rest of the decision of the
trial court.1wphi1 We refer particularly to the lower court's decision ordering American Air to "reinstate
defendant as its general sales agent for passenger transportation in the Philippines in accordance with said
GSA Agreement."
By affirming this ruling of the trial court, respondent appellate court, in effect, compels American Air to
extend its personality to Orient Air. Such would be violative of the principles and essence of agency,
defined by law as a contract whereby "a person binds himself to render some service or to do something
in representation or on behalf of another, WITH THE CONSENT OR AUTHORITY OF THE
LATTER . 17 (emphasis supplied) In an agent-principal relationship, the personality of the principal is
extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes the principal,
authorized to perform all acts which the latter would have him do. Such a relationship can only be
effected with the consent of the principal, which must not, in any way, be compelled by law or by any
court. The Agreement itself between the parties states that "either party may terminate the
Agreement without cause by giving the other 30 days' notice by letter, telegram or cable." (emphasis
supplied) We, therefore, set aside the portion of the ruling of the respondent appellate court reinstating
Orient Air as general sales agent of American Air.
WHEREFORE, with the foregoing modification, the Court AFFIRMS the decision and resolution of the
respondent Court of Appeals, dated 27 January 1986 and 17 December 1986, respectively. Costs against
petitioner American Air.
SO ORDERED.
Melencio-Herrera, and Regalado, JJ., concur.
Paras, J., took no part. Son is a partner in one of the counsel.
Sarmiento, J., is on leave.

Republic of the Philippines


SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 130148 December 15, 1997

JOSE BORDADOR and LYDIA BORDADOR, petitioners,


vs.
BRIGIDA D. LUZ, ERNESTO M. LUZ and NARCISO DEGANOS, respondents.

REGALADO, J.:

In this appeal by certiorari, petitioners assail the judgment of the Court of Appeals in CA-G.R. CV No.
49175 affirming the adjudication of the Regional Trial Court of Malolos, Bulacan which found private
respondent Narciso Deganos liable to petitioners for actual damages, but absolved respondent spouses
Brigida D. Luz and Ernesto M. Luz of liability. Petitioners likewise belabor the subsequent resolution of
the Court of Appeals which denied their motion for reconsideration of its challenged decision.
Petitioners were engaged in the business of purchase and sale of jewelry and respondent Brigida D. Luz,
also known as Aida D. Luz, was their regular customer. On several occasions during the period from April
27, 1987 to September 4, 1987, respondent Narciso Deganos, the brother to Brigida D. Luz, received
several pieces of gold and jewelry from petitioner amounting to P382,816.00. 1 These items and their
prices were indicated in seventeen receipts covering the same. Eleven of the receipts stated that they were
received for a certain Evelyn Aquino, a niece of Deganos, and the remaining six indicated that they were
received for Brigida D. Luz. 2

Deganos was supposed to sell the items at a profit and thereafter remit the proceeds and return the unsold
items to petitioners. Deganos remitted only the sum of P53,207.00. He neither paid the balance of the
sales proceeds, nor did he return any unsold item to petitioners. By January 1990, the total of his unpaid
account to petitioners, including interest, reached the sum of P725,463.98. 3 Petitioners eventually filed a
complaint in the barangay court against Deganos to recover said amount.

In the barangay proceedings, Brigida D. Luz, who was not impleaded in the case, appeared as a witness
for Deganos and ultimately, she and her husband, together with Deganos, signed a compromise agreement
with petitioners. In that compromise agreement, Deganos obligated himself to pay petitioners, on
installment basis, the balance of his account plus interest thereon. However, he failed to comply with his
aforestated undertakings.

On June 25, 1990, petitioners instituted Civil Case No. 412-M-90 in the Regional Trial Court of Malolos,
Bulacan against Deganos and Brigida, D. Luz for recovery of a sum of money and damages, with an
application for preliminary attachment. 4 Ernesto Luz was impleaded therein as the spouse of Brigida.

Four years later, or on March 29, 1994, Deganos and Brigida D. Luz were charged with estafa 5 in the
Regional Trial Court of Malolos, Bulacan, which was docketed as Criminal Case No. 785-M-94. That
criminal case appears to be still pending in said trial court.

During the trial of the civil case, petitioners claimed that Deganos acted as the agent of Brigida D. Luz
when he received the subject items of jewelry and, because he failed to pay for the same, Brigida, as
principal, and her spouse are solidarily liable with him therefor.

On the other hand, while Deganos admitted that he had an unpaid obligation to petitioners, he claimed
that the same was only in the sum of P382,816.00 and not P725,463.98. He further asserted that it was he
alone who was involved in the transaction with the petitioners; that he neither acted as agent for nor was
he authorized to act as an agent by Brigida D. Luz, notwithstanding the fact that six of the receipts
indicated that the items were received by him for the latter. He further claimed that he never delivered any
of the items he received from petitioners to Brigida.

Brigida, on her part, denied that she had anything to do with the transactions between petitioners and
Dangerous. She claimed that she never authorized Deganos to receive any item of jewelry in her behalf
and, for that matter, neither did she actually receive any of the articles in question.

After trial, the court below found that only Deganos was liable to petitioners for the amount and damages
claimed. It held that while Brigida D. Luz did have transactions with petitioners in the past, the items
involved were already paid for and all that Brigida owed petitioners was the sum of P21,483.00
representing interest on the principal account which she had previously paid for. 6

The trial court also found that it was petitioner Lydia Bordador who indicated in the receipts that the
items were received by Deganos for Evelyn Aquino and Brigida D. Luz. 7 Said court was "persuaded that
Brigida D. Luz was behind Deganos," but because there was no memorandum to this effect, the
agreement between the parties was unenforceable under the Statute of Frauds. 8 Absent the required
memorandum or any written document connecting the respondent Luz spouses with the subject receipts,
or authorizing Deganos to act on their behalf, the alleged agreement between petitioners and Brigida D.
Luz was unenforceable.

Deganos was ordered to pay petitioners the amount of P725,463.98, plus legal interest thereon June 25,
1990, and attorney's fees. Brigida D. Luz was ordered to pay P21,483.00 representing the interest on her
own personal loan. She and her co-defendant spouse were absolved from any other or further liability. 9

As stated at the outset, petitioners appealed the judgment of the court a quo to the Court Appeals which
affirmed said judgment. 10 The motion for reconsideration filed by petitioners was subsequently
dismissed, 11 hence the present recourse to this Court.

The primary issue in the instant petition is whether or not herein respondent spouses are liable to
petitioners for the latter's claim for money and damages in the sum of P725,463.98, plus interests and
attorney's fees, despite the fact that the evidence does not show that they signed any of the subject receipts
or authorized Deganos to received the items of jewelry on their behalf.

Petitioners argue that the Court of Appeals erred in adopting the findings of the court a quo that
respondent spouses are not liable to them, as said conclusion of the trial court is contradicted by the
finding of fact of the appellate court that "(Deganos) acted as agent of his sister (Brigida Luz)." 12 In
support of this contention, petitioners quoted several letters sent to them by Brigida D. Luz wherein the
latter acknowledged her obligation to petitioners and requested for more time to fulfill the same. They
likewise aver that Brigida testified in the trial court that Deganos took some gold articles from petitioners
and delivered the same to her.

Both the Court of Appeals and the trial court, however, found as a fact that the aforementioned letters
concerned the previous obligations of Brigida to petitioners, and had nothing to do with the money sought
to be recovered in the instant case. Such concurrent factual findings are entitled to great weight, hence,
petitioners cannot plausibly claim in this appellate review that the letters were in the nature of
acknowledgments by Brigida that she was the principal of Deganos in the subject transactions.

On the other hand, with regard to the testimony of Brigida admitting delivery of the gold to her, there is
no showing whatsoever that her statement referred to the items which are the subject matter of this case. It
cannot, therefore, be validly said that she admitted her liability regarding the same.

Petitioners insist that Deganos was the agent of Brigida D. Luz as the latter clothed him with apparent
authority as her agent and held him out to the public as such, hence Brigida can not be permitted to deny
said authority to innocent third parties who dealt with Deganos under such belief. 13 Petitioners further
represent that the Court of Appeals recognized in its decision that Deganos was an agent of Brigida. 14

The evidence does not support the theory of petitioners that Deganos was an agent of Brigida D. Luz and
that the latter should consequently be held solidarily liable with Deganos in his obligation to petitioners.
While the quoted statement in the findings of fact of the assailed appellate decision mentioned that
Deganos ostensibly acted as an agent of Brigida, the actual conclusion and ruling of the Court of Appeals
categorically stated that, "(Brigida Luz) never authorized her brother (Deganos) to act for and in her
behalf in any transaction with Petitioners . . . . 15 It is clear, therefore, that even assuming arguendo that
Deganos acted as an agent of Brigida, the latter never authorized him to act on her behalf with regard to
the transaction subject of this case.
The Civil Code provides:

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

The basis for agency is representation. Here, there is no showing that Brigida consented to the
acts of Deganos or authorized him to act on her behalf, much less with respect to the particular
transactions involved. Petitioners' attempt to foist liability on respondent spouses through the
supposed agency relation with Deganos is groundless and ill-advised.

Besides, it was grossly and inexcusably negligent of petitioners to entrust to Deganos, not once or twice
but on at least six occasions as evidenced by six receipts, several pieces of jewelry of substantial value
without requiring a written authorization from his alleged principal. A person dealing with an agent is put
upon inquiry and must discover upon his peril the authority of the agent. 16

The records show that neither an express nor an implied agency was proven to have existed between
Deganos and Brigida D. Luz. Evidently, petitioners, who were negligent in their transactions with
Deganos, cannot seek relief from the effects of their negligence by conjuring a supposed agency relation
between the two respondents where no evidence supports such claim.

Petitioners next allege that the Court of Appeals erred in ignoring the fact that the decision of the court
below, which it affirmed, is "null and void" as it contradicted its ruling in CA-G.R. SP No. 39445 holding
that there is "sufficient evidence/proof" against Brigida D. Luz and Deganos for estafa in the pending
criminal case. They further aver that said appellate court erred in ruling against them in this civil action
since the same would result in an inevitable conflict of decisions should be trial court convict the accused
in the criminal case.

By way of backdrop for this argument of petitioners, herein respondents Brigida D. Luz and Deganos had
filed a demurrer to evidence and a motion for reconsideration in the aforestated criminal case, both of
which were denied by the trial court. They then filed a petition for certiorari in the Court of Appeals to
set aside the denial of their demurrer and motion for reconsideration but, as just stated, their petition
therefor was dismissed. 17

Petitioners now claim that the aforesaid dismissal by the Court of Appeals of the petition in CA-G.R. SP
No. 39445 with respect to the criminal case is equivalent to a finding that there is sufficient evidence in
the estafa case against Brigida D. Luz and Deganos. Hence, as already stated, petitioners theorize that the
decision and resolution of the Court of Appeals now being impugned in the case at bar would result in a
possible conflict with the prospective decision in the criminal case. Instead of promulgating the present
decision and resolution under review, so they suggest, the Court of Appeals should have awaited the
decision in the criminal case, so as not to render academic or preempt the same or, worse, create two
conflicting rulings. 18

Petitioners have apparently lost sight of Article 33 of the Civil Code which provides that in cases
involving alleged fraudulent acts, a civil action for damages, entirely separate and distinct from the
criminal action, may be brought by the injured party. Such civil action shall proceed independently of the
criminal prosecution and shall require only a preponderance of evidence.

It is worth noting that this civil case was instituted four years before the criminal case for estafa was filed,
and that although there was a move to consolidate both cases, the same was denied by the trial court.
Consequently, it was the duty of the two branches of the Regional Trial Court concerned to independently
proceed with the civil and criminal cases. It will also be observed that a final judgment rendered in a civil
action absolving the defendant from civil liability is no bar to a criminal action. 19

It is clear, therefore, that this civil case may proceed independently of the criminal case 20 especially
because while both cases are based on the same facts, the quantum of proof required for holding the
parties liable therein differ. Thus, it is improvident of petitioners to claim that the decision and resolution
of the Court of Appeals in the present case would be preemptive of the outcome of the criminal case.
Their fancied fear of possible conflict between the disposition of this civil case and the coutcome of the
pending criminal case is illusory.

Petitioners surprisingly postulate that the Court of Appeals had lost its jurisdiction to issue the denial
resolution dated August 18, 1997, as the same was tainted with irregularities and badges of fraud
perpetrated by its court officers. 21 They charge that said appellate court, through conspiracy and fraud on
the part of its officers, gravely abused its discretion in issuing that resolution denying their motion for
reconsideration. They claim that said resolution was drafted by the ponente, then signed and issued by the
members of the Eleventh Division of said court within one and a half days from the elevation thereof by
the division clerk of court to the office of the ponente.

It is the thesis of petitioners that there was undue haste in issuing the resolution as the same was made
without waiting for the lapse of the ten-day period for respondents to file their comment and for
petitioners to file their reply. It was allegedly impossible for the Court of Appeals to resolve the issue in
just one and a half days, especially because its ponente, the late Justice Maximiano C. Asuncion, was then
recuperating from surgery and, that, additionally, "hundreds of more important cases were pending." 22

These lamentable allegation of irregularities in the Court of Appeals and in the conduct of its officers
strikes us as a desperate attempt of petitioners to induce this Court to give credence to their arguments
which, as already found by both the trial and intermediate appellate courts, are devoid of factual and legal
substance. The regrettably irresponsible attempt to tarnish the image of the intermediate appellate tribunal
and its judicial officers through ad hominem imputations could well be contumacious, but we are inclined
to let that pass with a strict admonition that petitioners refrain from indulging in such conduct in
litigations.

On July 9, 1997, the Court of Appeals rendered judgment in this case affirming the trial court's
decision. 23Petitioners moved for reconsideration and the Court of Appeals ordered respondents to file a
comment. Respondents filed the same on August 5, 1997 24 and petitioners filed their reply to said
comment on August 15, 1997. 25 The Eleventh Division of said court issued the questioned resolution
denying petitioner's motion for reconsideration on August 18, 1997. 26

It is ironic that while some litigants malign the judiciary for being supposedly slothful in disposing of
cases, petitioners are making a show of calling out for justice because the Court of Appeals issued a
resolution disposing of a case sooner than expected of it. They would even deny the exercise of discretion
by the appellate court to prioritize its action on cases in line with the procedure it has adopted in disposing
thereof and in declogging its dockets. It is definitely not for the parties to determine and dictate when and
how a tribunal should act upon those cases since they are not even aware of the status of the dockets and
the internal rules and policies for acting thereon.

The fact that a resolution was issued by said court within a relatively short period of time after the records
of the case were elevated to the office of the ponente cannot, by itself, be deemed irregular. There is no
showing whatsoever that the resolution was issued without considering the reply filed by petitioners. In
fact, that brief pleading filed by petitioners does not exhibit any esoteric or ponderous argument which
could not be analyzed within an hour. It is a legal presumption, born of wisdom and experience, that
official duty has been regularly performed; 27that the proceedings of a judicial tribunal are regular and
valid, and that judicial acts and duties have been and will be duly and properly performed. 28 The burden
of proving irregularity in official conduct is on the part of petitioners and they have utterly failed to do so.
It is thus reprehensible for them to cast aspersions on a court of law on the bases of conjectures or
surmises, especially since one of the petitioners appears to be a member of the Philippine Bar.

Lastly, petitioners fault the trial court's holding that whatever contract of agency was established between
Brigida D. Luz and Narciso Deganos is unenforceable under the Statute of Frauds as that aspect of this
case allegedly is not covered thereby. 29 They proceed on the premise that the Statute of Frauds applies
only to executory contracts and not to executed or to partially executed ones. From there, they move on to
claim that the contract involved in this case was an executed contract as the items had already been
delivered by petitioners to Brigida D. Luz, hence, such delivery resulted in the execution of the contract
and removed the same from the coverage of the Statute of Frauds.

Petitioners' claim is speciously unmeritorious. It should be emphasized that neither the trial court nor the
appellate court categorically stated that there was such a contractual relation between these two
respondents. The trial court merely said that if there was such an agency existing between them, the same
is unenforceable as the contract would fall under the Statute of Frauds which requires the presentation of
a note or memorandum thereof in order to be enforceable in court. That was merely a preparatory
statement of a principle of law. What was finally proven as a matter of fact is that there was no such
contract between Brigida D. Luz and Narciso Deganos, executed or partially executed, and no delivery of
any of the items subject of this case was ever made to the former.

WHEREFORE, no error having been committed by the Court of Appeals in affirming the judgment of the
court a quo, its challenged decision and resolution are hereby AFFIRMED and the instant petition is
DENIED, with double costs against petitioners.

SO ORDERED.

Puno, Mendoza and Martinez, JJ., concur.


Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 152613 & No. 152628 June 23, 2006
APEX MINING CO., INC., petitioner,
vs.
SOUTHEAST MINDANAO GOLD MINING CORP., the mines adjudication board, provincial
mining regulatory board (PMRB-DAVAO), MONKAYO INTEGRATED SMALL SCALE MINERS
ASSOCIATION, INC., ROSENDO VILLAFLOR, BALITE COMMUNAL PORTAL MINING
COOPERATIVE, DAVAO UNITED MINERS COOPERATIVE, ANTONIO DACUDAO,
PUTING-BATO GOLD MINERS COOPERATIVE, ROMEO ALTAMERA, THELMA
CATAPANG, LUIS GALANG, RENATO BASMILLO, FRANCISCO YOBIDO, EDUARDO
GLORIA, EDWIN ASION, MACARIO HERNANDEZ, REYNALDO CARUBIO, ROBERTO
BUNIALES, RUDY ESPORTONO, ROMEO CASTILLO, JOSE REA, GIL GANADO,
PRIMITIVA LICAYAN, LETICIA ALQUEZA and joel brillantes management mining
corporation, Respondents.
x--------------------------------------x
G.R. No. 152619-20 June 23, 2006
BALITE COMMUNAL PORTAL MINING COOPERATIVE, petitioner,
vs.
SOUTHEAST MINDANAO GOLD MINING CORPORATION, APEX MINING CO., INC., the
mines adjudication board, provincial mining regulatory board (PMRB-DAVAO), MONKAYO
INTEGRATED SMALL SCALE MINERS ASSOCIATION, INC., ROSENDO VILLAFLOR,
DAVAO UNITED MINERS COOPERATIVE, ANTONIO DACUDAO, PUTING-BATO GOLD
MINERS COOPERATIVE, ROMEO ALTAMERA, THELMA CATAPANG, LUIS GALANG,
RENATO BASMILLO, FRANCISCO YOBIDO, EDUARDO GLORIA, EDWIN ASION,
MACARIO HERNANDEZ, REYNALDO CARUBIO, ROBERTO BUNIALES, RUDY
ESPORTONO, ROMEO CASTILLO, JOSE REA, GIL GANADO, PRIMITIVA LICAYAN,
LETICIA ALQUEZA and joel brillantes management mining corporation, Respondents.
x--------------------------------------x
G.R. No. 152870-71 June 23, 2006
THE MINES ADJUDICATION BOARD AND ITS MEMBERS, THE HON. VICTOR O. RAMOS
(Chairman), UNDERSECRETARY VIRGILIO MARCELO (Member) and DIRECTOR
HORACIO RAMOS (Member), petitioners,
vs.
SOUTHEAST MINADANAO GOLD MINING CORPORATION, Respondent.
DECISION
CHICO-NAZARIO, J.:
On 27 February 1931, Governor General Dwight F. Davis issued Proclamation No. 369, establishing the
Agusan-Davao-Surigao Forest Reserve consisting of approximately 1,927,400 hectares. 1
The disputed area, a rich tract of mineral land, is inside the forest reserve located at Monkayo, Davao del
Norte, and Cateel, Davao Oriental, consisting of 4,941.6759 hectares. 2 This mineral land is encompassed
by Mt. Diwata, which is situated in the municipalities of Monkayo and Cateel. It later became known as
the "Diwalwal Gold Rush Area." It has since the early 1980s been stormed by conflicts brought about by
the numerous mining claimants scrambling for gold that lies beneath its bosom.
On 21 November 1983, Camilo Banad and his group, who claimed to have first discovered traces of gold
in Mount Diwata, filed a Declaration of Location (DOL) for six mining claims in the area.
Camilo Banad and some other natives pooled their skills and resources and organized the Balite
Communal Portal Mining Cooperative (Balite).3
On 12 December 1983, Apex Mining Corporation (Apex) entered into operating agreements with Banad
and his group.
From November 1983 to February 1984, several individual applications for mining locations over mineral
land covering certain parts of the Diwalwal gold rush area were filed with the Bureau of Mines and Geo-
Sciences (BMG).
On 2 February 1984, Marcopper Mining Corporation (MMC) filed 16 DOLs or mining claims for areas
adjacent to the area covered by the DOL of Banad and his group. After realizing that the area
encompassed by its mining claims is a forest reserve within the coverage of Proclamation No. 369 issued
by Governor General Davis, MMC abandoned the same and instead applied for a prospecting permit with
the Bureau of Forest Development (BFD).
On 1 July 1985, BFD issued a Prospecting Permit to MMC covering an area of 4,941.6759 hectares
traversing the municipalities of Monkayo and Cateel, an area within the forest reserve under Proclamation
No. 369. The permit embraced the areas claimed by Apex and the other individual mining claimants.
On 11 November 1985, MMC filed Exploration Permit Application No. 84-40 with the BMG. On 10
March 1986, the BMG issued to MCC Exploration Permit No. 133 (EP 133).
Discovering the existence of several mining claims and the proliferation of small-scale miners in the area
covered by EP 133, MMC thus filed on 11 April 1986 before the BMG a Petition for the Cancellation of
the Mining Claims of Apex and Small Scale Mining Permit Nos. (x-1)-04 and (x-1)-05 which was
docketed as MAC No. 1061. MMC alleged that the areas covered by its EP 133 and the mining claims of
Apex were within an established and existing forest reservation (Agusan-Davao-Surigao Forest Reserve)
under Proclamation No. 369 and that pursuant to Presidential Decree No. 463, 4 acquisition of mining
rights within a forest reserve is through the application for a permit to prospect with the BFD and not
through registration of a DOL with the BMG.
On 23 September 1986, Apex filed a motion to dismiss MMCs petition alleging that its mining claims are
not within any established or proclaimed forest reserve, and as such, the acquisition of mining rights
thereto must be undertaken via registration of DOL with the BMG and not through the filing of
application for permit to prospect with the BFD.
On 9 December 1986, BMG dismissed MMCs petition on the ground that the area covered by the Apex
mining claims and MMCs permit to explore was not a forest reservation. It further declared null and void
MMCs EP 133 and sustained the validity of Apex mining claims over the disputed area.
MMC appealed the adverse order of BMG to the Department of Environment and Natural Resources
(DENR).
On 15 April 1987, after due hearing, the DENR reversed the 9 December 1996 order of BMG and
declared MMCs EP 133 valid and subsisting.
Apex filed a Motion for Reconsideration with the DENR which was subsequently denied. Apex then filed
an appeal before the Office of the President. On 27 July 1989, the Office of the President, through
Assistant Executive Secretary for Legal Affairs, Cancio C. Garcia, 5 dismissed Apexs appeal and affirmed
the DENR ruling.
Apex filed a Petition for Certiorari before this Court. The Petition was docketed as G.R. No. 92605
entitled, "Apex Mining Co., Inc. v. Garcia."6 On 16 July 1991, this Court rendered a Decision against
Apex holding that the disputed area is a forest reserve; hence, the proper procedure in acquiring mining
rights therein is by initially applying for a permit to prospect with the BFD and not through a registration
of DOL with the BMG.
On 27 December 1991, then DENR Secretary Fulgencio Factoran, Jr. issued Department Administrative
Order No. 66 (DAO No. 66) declaring 729 hectares of the areas covered by the Agusan-Davao-Surigao
Forest Reserve as non-forest lands and open to small-scale mining purposes.
As DAO No. 66 declared a portion of the contested area open to small scale miners, several mining
entities filed applications for Mineral Production Sharing Agreement (MPSA).
On 25 August 1993, Monkayo Integrated Small Scale Miners Association (MISSMA) filed an MPSA
application which was denied by the BMG on the grounds that the area applied for is within the area
covered by MMC EP 133 and that the MISSMA was not qualified to apply for an MPSA under DAO No.
82,7 Series of 1990.
On 5 January 1994, Rosendo Villaflor and his group filed before the BMG a Petition for Cancellation of
EP 133 and for the admission of their MPSA Application. The Petition was docketed as RED Mines Case
No. 8-8-94. Davao United Miners Cooperative (DUMC) and Balite intervened and likewise sought the
cancellation of EP 133.
On 16 February 1994, MMC assigned EP 133 to Southeast Mindanao Gold Mining Corporation (SEM), a
domestic corporation which is alleged to be a 100% -owned subsidiary of MMC.
On 14 June 1994, Balite filed with the BMG an MPSA application within the contested area that was later
on rejected.
On 23 June 1994, SEM filed an MPSA application for the entire 4,941.6759 hectares under EP 133, which
was also denied by reason of the pendency of RED Mines Case No. 8-8-94. On 1 September 1995, SEM
filed another MPSA application.
On 20 October 1995, BMG accepted and registered SEMs MPSA application and the Deed of
Assignment over EP 133 executed in its favor by MMC. SEMs application was designated MPSA
Application No. 128 (MPSAA 128). After publication of SEMs application, the following filed before the
BMG their adverse claims or oppositions:
a) MAC Case No. 004 (XI) JB Management Mining Corporation;
b) MAC Case No. 005(XI) Davao United Miners Cooperative;
c) MAC Case No. 006(XI) Balite Integrated Small Scale Miners Cooperative;
d) MAC Case No. 007(XI) Monkayo Integrated Small Scale Miners Association, Inc.
(MISSMA);
e) MAC Case No. 008(XI) Paper Industries Corporation of the Philippines;
f) MAC Case No. 009(XI) Rosendo Villafor, et al.;
g) MAC Case No. 010(XI) Antonio Dacudao;
h) MAC Case No. 011(XI) Atty. Jose T. Amacio;
i) MAC Case No. 012(XI) Puting-Bato Gold Miners Cooperative;
j) MAC Case No. 016(XI) Balite Communal Portal Mining Cooperative;
k) MAC Case No. 97-01(XI) Romeo Altamera, et al.8
To address the matter, the DENR constituted a Panel of Arbitrators (PA) to resolve the following:
(a) The adverse claims on MPSAA No. 128; and
(b) The Petition to Cancel EP 133 filed by Rosendo Villaflor docketed as RED Case No. 8-8-94. 9
On 13 June 1997, the PA rendered a resolution in RED Mines Case No. 8-8-94. As to the Petition for
Cancellation of EP 133 issued to MMC, the PA relied on the ruling in Apex Mining Co., Inc. v.
Garcia,10 and opined that EP 133 was valid and subsisting. It also declared that the BMG Director, under
Section 99 of the Consolidated Mines Administrative Order implementing Presidential Decree No. 463,
was authorized to issue exploration permits and to renew the same without limit.
With respect to the adverse claims on SEMs MPSAA No. 128, the PA ruled that adverse claimants
petitions were not filed in accordance with the existing rules and regulations governing adverse claims
because the adverse claimants failed to submit the sketch plan containing the technical description of their
respective claims, which was a mandatory requirement for an adverse claim that would allow the PA to
determine if indeed there is an overlapping of the area occupied by them and the area applied for by SEM.
It added that the adverse claimants were not claim owners but mere occupants conducting illegal mining
activities at the contested area since only MMC or its assignee SEM had valid mining claims over the
area as enunciated in Apex Mining Co., Inc. v. Garcia. 11 Also, it maintained that the adverse claimants
were not qualified as small-scale miners under DENR Department Administrative Order No. 34 (DAO
No. 34),12 or the Implementing Rules and Regulation of Republic Act No. 7076 (otherwise known as the
"Peoples Small-Scale Mining Act of 1991"), as they were not duly licensed by the DENR to engage in
the extraction or removal of minerals from the ground, and that they were large-scale miners. The decretal
portion of the PA resolution pronounces:
VIEWED IN THE LIGHT OF THE FOREGOING, the validity of Expoloration Permit No. 133 is hereby
reiterated and all the adverse claims against MPSAA No. 128 are DISMISSED. 13
Undaunted by the PA ruling, the adverse claimants appealed to the Mines Adjudication Board (MAB). In
a Decision dated 6 January 1998, the MAB considered erroneous the dismissal by the PA of the adverse
claims filed against MMC and SEM over a mere technicality of failure to submit a sketch plan. It argued
that the rules of procedure are not meant to defeat substantial justice as the former are merely secondary
in importance to the latter. Dealing with the question on EP 133s validity, the MAB opined that said issue
was not crucial and was irrelevant in adjudicating the appealed case because EP 133 has long expired due
to its non-renewal and that the holder of the same, MMC, was no longer a claimant of the Agusan-Davao-
Surigao Forest Reserve having relinquished its right to SEM. After it brushed aside the issue of the
validity of EP 133 for being irrelevant, the MAB proceeded to treat SEMs MPSA application over the
disputed area as an entirely new and distinct application. It approved the MPSA application, excluding the
area segregated by DAO No. 66, which declared 729 hectares within the Diwalwal area as non-forest
lands open for small-scale mining. The MAB resolved:
WHEREFORE, PREMISES CONSIDERED, the decision of the Panel of Arbitrators dated 13 June 1997
is hereby VACATED and a new one entered in the records of the case as follows:
1. SEMs MPSA application is hereby given due course subject to the full and strict compliance
of the provisions of the Mining Act and its Implementing Rules and Regulations;
2. The area covered by DAO 66, series of 1991, actually occupied and actively mined by the
small-scale miners on or before August 1, 1987 as determined by the Provincial Mining
Regulatory Board (PMRB), is hereby excluded from the area applied for by SEM;
3. A moratorium on all mining and mining-related activities, is hereby imposed until such time
that all necessary procedures, licenses, permits, and other requisites as provided for by RA 7076,
the Mining Act and its Implementing Rules and Regulations and all other pertinent laws, rules
and regulations are complied with, and the appropriate environmental protection measures and
safeguards have been effectively put in place;
4. Consistent with the spirit of RA 7076, the Board encourages SEM and all small-scale miners to
continue to negotiate in good faith and arrive at an agreement beneficial to all. In the event of
SEMs strict and full compliance with all the requirements of the Mining Act and its
Implementing Rules and Regulations, and the concurrence of the small-scale miners actually
occupying and actively mining the area, SEM may apply for the inclusion of portions of the areas
segregated under paragraph 2 hereof, to its MPSA application. In this light, subject to the
preceding paragraph, the contract between JB [JB Management Mining Corporation] and SEM is
hereby recognized.14
Dissatisfied, the Villaflor group and Balite appealed the decision to this Court. SEM, aggrieved by the
exclusion of 729 hectares from its MPSA application, likewise appealed. Apex filed a Motion for Leave
to Admit Petition for Intervention predicated on its right to stake its claim over the Diwalwal gold rush
which was granted by the Court. These cases, however, were remanded to the Court of Appeals for proper
disposition pursuant to Rule 43 of the 1997 Rules of Civil Procedure. The Court of Appeals consolidated
the remanded cases as CA-G.R. SP No. 61215 and No. 61216.
In the assailed Decision15 dated 13 March 2002, the Court of Appeals affirmed in toto the decision of the
PA and declared null and void the MAB decision.
The Court of Appeals, banking on the premise that the SEM is the agent of MMC by virtue of its
assignment of EP 133 in favor of SEM and the purported fact that SEM is a 100% subsidiary of MMC,
ruled that the transfer of EP 133 was valid. It argued that since SEM is an agent of MMC, the assignment
of EP 133 did not violate the condition therein prohibiting its transfer except to MMCs duly designated
agent. Thus, despite the non-renewal of EP 133 on 6 July 1994, the Court of Appeals deemed it relevant
to declare EP 133 as valid since MMCs mining rights were validly transferred to SEM prior to its
expiration.
The Court of Appeals also ruled that MMCs right to explore under EP 133 is a property right which the
1987 Constitution protects and which cannot be divested without the holders consent. It stressed that
MMCs failure to proceed with the extraction and utilization of minerals did not diminish its vested right
to explore because its failure was not attributable to it.
Reading Proclamation No. 369, Section 11 of Commonwealth Act 137, and Sections 6, 7, and 8 of
Presidential Decree No. 463, the Court of Appeals concluded that the issuance of DAO No. 66 was done
by the DENR Secretary beyond his power for it is the President who has the sole power to withdraw from
the forest reserve established under Proclamation No. 369 as non-forest land for mining purposes.
Accordingly, the segregation of 729 hectares of mining areas from the coverage of EP 133 by the MAB
was unfounded.
The Court of Appeals also faulted the DENR Secretary in implementing DAO No. 66 when he awarded
the 729 hectares segregated from the coverage area of EP 133 to other corporations who were not
qualified as small-scale miners under Republic Act No. 7076.
As to the petitions of Villaflor and company, the Court of Appeals argued that their failure to submit the
sketch plan to the PA, which is a jurisdictional requirement, was fatal to their appeal. It likewise stated the
Villaflor and companys mining claims, which were based on their alleged rights under DAO No. 66,
cannot stand as DAO No. 66 was null and void. The dispositive portion of the Decision decreed:
WHEREFORE, premises considered, the Petition of Southeast Mindanao Gold Mining Corporation is
GRANTED while the Petition of Rosendo Villaflor, et al., is DENIED for lack of merit. The Decision of
the Panel of Arbitrators dated 13 June 1997 is AFFIRMED in toto and the assailed MAB Decision is
hereby SET ASIDE and declared as NULL and VOID.16
Hence, the instant Petitions for Review on Certiorari under Rule 45 of the Rules of Court filed by Apex,
Balite and MAB.
During the pendency of these Petitions, President Gloria Macapagal-Arroyo issued Proclamation No. 297
dated 25 November 2002. This proclamation excluded an area of 8,100 hectares located in Monkayo,
Compostela Valley, and proclaimed the same as mineral reservation and as environmentally critical area.
Subsequently, DENR Administrative Order No. 2002-18 was issued declaring an emergency situation in
the Diwalwal gold rush area and ordering the stoppage of all mining operations therein. Thereafter,
Executive Order No. 217 dated 17 June 2003 was issued by the President creating the National Task
Force Diwalwal which is tasked to address the situation in the Diwalwal Gold Rush Area.
In G.R. No. 152613 and No. 152628, Apex raises the following issues:
I
WHETHER OR NOT SOUTHEAST MINDANAO GOLD MININGS [SEM] E.P. 133 IS NULL AND
VOID DUE TO THE FAILURE OF MARCOPPER TO COMPLY WITH THE TERMS AND
CONDITIONS PRESCRIBED IN EP 133.
II
WHETHER OR NOT APEX HAS A SUPERIOR AND PREFERENTIAL RIGHT TO STAKE ITS
CLAIM OVER THE ENTIRE 4,941 HECTARES AGAINST SEM AND THE OTHER CLAIMANTS
PURSUANT TO THE TIME-HONORED PRINCIPLE IN MINING LAW THAT "PRIORITY IN TIME
IS PRIORITY IN RIGHT."17
In G.R. No. 152619-20, Balite anchors its petition on the following grounds:
I
WHETHER OR NOT THE MPSA OF SEM WHICH WAS FILED NINE (9) DAYS LATE (JUNE 23,
1994) FROM THE FILING OF THE MPSA OF BALITE WHICH WAS FILED ON JUNE 14, 1994 HAS
A PREFERENTIAL RIGHT OVER THAT OF BALITE.
II
WHETHER OR NOT THE DISMISSAL BY THE PANEL OF ARBITRATORS OF THE ADVERSE
CLAIM OF BALITE ON THE GROUND THAT BALITE FAILED TO SUBMIT THE REQUIRED
SKETCH PLAN DESPITE THE FACT THAT BALITE, HAD IN FACT SUBMITTED ON TIME WAS
A VALID DISMISSAL OF BALITES ADVERSE CLAIM.
III
WHETHER OR NOT THE ACTUAL OCCUPATION AND SMALL-MINING OPERATIONS OF
BALITE PURSUANT TO DAO 66 IN THE 729 HECTARES WHICH WAS PART OF THE 4,941.6759
HECTARES COVERED BY ITS MPSA WHICH WAS REJECTED BY THE BUREAU OF MINES
AND GEOSCIENCES WAS ILLEGAL.18
In G.R. No. 152870-71, the MAB submits two issues, to wit:
I
WHETHER OR NOT EP NO. 133 IS STILL VALID AND SUBSISTING.
II
WHETHER OR NOT THE SUBSEQUENT ACTS OF THE GOVERNMENT SUCH AS THE
ISSUANCE OF DAO NO. 66, PROCLAMATION NO. 297, AND EXECUTIVE ORDER 217 CAN
OUTWEIGH EP NO. 133 AS WELL AS OTHER ADVERSE CLAIMS OVER THE DIWALWAL GOLD
RUSH AREA.19
The common issues raised by petitioners may be summarized as follows:
I. Whether or not the Court of Appeals erred in upholding the validity and continuous existence of
EP 133 as well as its transfer to SEM;
II. Whether or not the Court of Appeals erred in declaring that the DENR Secretary has no
authority to issue DAO No. 66; and
III. Whether or not the subsequent acts of the executive department such as the issuance of
Proclamation No. 297, and DAO No. 2002-18 can outweigh Apex and Balites claims over the
Diwalwal Gold Rush Area.
On the first issue, Apex takes exception to the Court of Appeals ruling upholding the validity of MMCs
EP 133 and its subsequent transfer to SEM asserting that MMC failed to comply with the terms and
conditions in its exploration permit, thus, MMC and its successor-in-interest SEM lost their rights in the
Diwalwal Gold Rush Area. Apex pointed out that MMC violated four conditions in its permit. First,
MMC failed to comply with the mandatory work program, to complete exploration work, and to declare a
mining feasibility. Second, it reneged on its duty to submit an Environmental Compliance Certificate.
Third, it failed to comply with the reportorial requirements. Fourth, it violated the terms of EP 133 when
it assigned said permit to SEM despite the explicit proscription against its transfer.
Apex likewise emphasizes that MMC failed to file its MPSA application required under DAO No.
8220 which caused its exploration permit to lapse because DAO No. 82 mandates holders of exploration
permits to file a Letter of Intent and a MPSA application not later than 17 July 1991. It said that because
EP 133 expired prior to its assignment to SEM, SEMs MPSA application should have been evaluated on
its own merit.
As regards the Court of Appeals recognition of SEMs vested right over the disputed area, Apex bewails
the same to be lacking in statutory bases. According to Apex, Presidential Decree No. 463 and Republic
Act No. 7942 impose upon the claimant the obligation of actually undertaking exploration work within
the reserved lands in order to acquire priority right over the area. MMC, Apex claims, failed to conduct
the necessary exploration work, thus, MMC and its successor-in-interest SEM lost any right over the area.
In its Memorandum, Balite maintains that EP 133 of MMC, predecessor-in-interest of SEM, is an expired
and void permit which cannot be made the basis of SEMs MPSA application.
Similarly, the MAB underscores that SEM did not acquire any right from MMC by virtue of the transfer
of EP 133 because the transfer directly violates the express condition of the exploration permit stating that
"it shall be for the exclusive use and benefit of the permittee or his duly authorized agents." It added that
while MMC is the permittee, SEM cannot be considered as MMCs duly designated agent as there is no
proof on record authorizing SEM to represent MMC in its business dealings or undertakings, and neither
did SEM pursue its interest in the permit as an agent of MMC. According to the MAB, the assignment by
MMC of EP 133 in favor of SEM did not make the latter the duly authorized agent of MMC since the
concept of an agent under EP 133 is not equivalent to the concept of assignee. It finds fault in the
assignment of EP 133 which lacked the approval of the DENR Secretary in contravention of Section 25 of
Republic Act No. 794221 requiring his approval for a valid assignment or transfer of exploration permit to
be valid.
SEM, on the other hand, counters that the errors raised by petitioners Apex, Balite and the MAB relate to
factual and evidentiary matters which this Court cannot inquire into in an appeal by certiorari.
The established rule is that in the exercise of the Supreme Courts power of review, the Court not being a
trier of facts, does not normally embark on a re-examination of the evidence presented by the contending
parties during the trial of the case considering that the findings of facts of the Court of Appeals are
conclusive and binding on the Court.22 This rule, however, admits of exceptions as recognized by
jurisprudence, to wit:
(1) [w]hen the findings are grounded entirely on speculation, surmises or conjectures; (2) when the
inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion;
(4) when the judgment is based on misapprehension of facts; (5) when the findings of facts are
conflicting; (6) when in making its findings the Court of Appeals went beyond the issues of the case, or
its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings
are contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence
on which they are based; (9) when the facts set forth in the petition as well as in the petitioners main and
reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on the
supposed absence of evidence and contradicted by the evidence on record; and (11) when the Court of
Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly
considered, would justify a different conclusion. 23
Also, in the case of Manila Electric Company v. Benamira, 24 the Court in a Petition for Review on
Certiorari, deemed it proper to look deeper into the factual circumstances of the case since the Court of
Appeals findings are at odds to those of the National Labor Relations Commission (NLRC). Just like in
the foregoing case, it is this Courts considered view that a re-evaluation of the attendant facts
surrounding the present case is appropriate considering that the findings of the MAB are in conflict with
that of the Court of Appeals.
I
At the threshold, it is an undisputed fact that MMC assigned to SEM all its rights under EP 133 pursuant
to a Deed of Assignment dated 16 February 1994.25
EP 133 is subject to the following terms and conditions26 :
1. That the permittee shall abide by the work program submitted with the application or
statements made later in support thereof, and which shall be considered as conditions and
essential parts of this permit;
2. That permittee shall maintain a complete record of all activities and accounting of all
expenditures incurred therein subject to periodic inspection and verification at reasonable
intervals by the Bureau of Mines at the expense of the applicant;
3. That the permittee shall submit to the Director of Mines within 15 days after the end of each
calendar quarter a report under oath of a full and complete statement of the work done in the area
covered by the permit;
4. That the term of this permit shall be for two (2) years to be effective from this date, renewable
for the same period at the discretion of the Director of Mines and upon request of the applicant;
5. That the Director of Mines may at any time cancel this permit for violation of its provision or
in case of trouble or breach of peace arising in the area subject hereof by reason of conflicting
interests without any responsibility on the part of the government as to expenditures for
exploration that might have been incurred, or as to other damages that might have been suffered
by the permittee; and
6. That this permit shall be for the exclusive use and benefit of the permittee or his duly
authorized agents and shall be used for mineral exploration purposes only and for no other
purpose.
Under Section 9027 of Presidential Decree No. 463, the applicable statute during the issuance of EP 133,
the DENR Secretary, through Director of BMG, is charged with carrying out the said law. Also, under
Commonwealth Act No. 136, also known as "An Act Creating The Bureau of Mines," which was
approved on 7 November 1936, the Director of Mines has the direct charge of the administration of the
mineral lands and minerals, and of the survey, classification, lease or any other form of concession or
disposition thereof under the Mining Act.28 This power of administration includes the power to prescribe
terms and conditions in granting exploration permits to qualified entities. Thus, in the grant of EP 133 in
favor of the MMC, the Director of the BMG acted within his power in laying down the terms and
conditions attendant thereto.
Condition number 6 categorically states that the permit shall be for the exclusive use and benefit of MMC
or its duly authorized agents. While it may be true that SEM, the assignee of EP 133, is a 100% subsidiary
corporation of MMC, records are bereft of any evidence showing that the former is the duly authorized
agent of the latter. For a contract of agency to exist, it is essential that the principal consents that the other
party, the agent, shall act on its behalf, and the agent consents so as to act. 29 In the case of Yu Eng Cho v.
Pan American World Airways, Inc.,30this Court had the occasion to set forth the elements of agency, viz:
(1) consent, express or implied, of the parties to establish the relationship;
(2) the object is the execution of a juridical act in relation to a third person;
(3) the agent acts as a representative and not for himself;
(4) the agent acts within the scope of his authority.
The existence of the elements of agency is a factual matter that needs to be established or proven by
evidence. The burden of proving that agency is extant in a certain case rests in the party who sets forth
such allegation. This is based on the principle that he who alleges a fact has the burden of proving it. 31 It
must likewise be emphasized that the evidence to prove this fact must be clear, positive and convincing. 32
In the instant Petitions, it is incumbent upon either MMC or SEM to prove that a contract of agency
actually exists between them so as to allow SEM to use and benefit from EP 133 as the agent of MMC.
SEM did not claim nor submit proof that it is the designated agent of MMC to represent the latter in its
business dealings or undertakings. SEM cannot, therefore, be considered as an agent of MMC which can
use EP 133 and benefit from it. Since SEM is not an authorized agent of MMC, it goes without saying
that the assignment or transfer of the permit in favor of SEM is null and void as it directly contravenes the
terms and conditions of the grant of EP 133.
Furthermore, the concept of agency is distinct from assignment. In agency, the agent acts not on his own
behalf but on behalf of his principal.33 While in assignment, there is total transfer or relinquishment of
right by the assignor to the assignee.34 The assignee takes the place of the assignor and is no longer bound
to the latter. The deed of assignment clearly stipulates:
1. That for ONE PESO (P1.00) and other valuable consideration received by the ASSIGNOR from the
ASSIGNEE, the ASSIGNOR hereby ASSIGNS, TRANSFERS and CONVEYS unto the ASSIGNEE
whatever rights or interest the ASSIGNOR may have in the area situated in Monkayo, Davao del Norte
and Cateel, Davao Oriental, identified as Exploration Permit No. 133 and Application for a Permit to
Prospect in Bunawan, Agusan del Sur respectively.35
Bearing in mind the just articulated distinctions and the language of the Deed of Assignment, it is readily
obvious that the assignment by MMC of EP 133 in favor of SEM did not make the latter the formers
agent. Such assignment involved actual transfer of all rights and obligations MMC have under the permit
in favor of SEM, thus, making SEM the permittee. It is not a mere grant of authority to SEM, as an agent
of MMC, to use the permit. It is a total abdication of MMCs rights over the permit. Hence, the
assignment in question did not make SEM the authorized agent of MMC to make use and benefit from EP
133.
The condition stipulating that the permit is for the exclusive use of the permittee or its duly authorized
agent is not without any reason. Exploration permits are strictly granted to entities or individuals
possessing the resources and capability to undertake mining operations. Without such a condition, non-
qualified entities or individuals could circumvent the strict requirements under the law by the simple
expediency acquiring the permit from the original permittee.
We cannot lend recognition to the Court of Appeals theory that SEM, being a 100% subsidiary of MMC,
is automatically an agent of MMC.
A corporation is an artificial being created by operation of law, having the right of succession and the
powers, attributes, and properties expressly authorized by law or incident to its existence. 36 It is an
artificial being invested by law with a personality separate and distinct from those of the persons
composing it as well as from that of any other legal entity to which it may be related. 37 Resultantly, absent
any clear proof to the contrary, SEM is a separate and distinct entity from MMC.
The Court of Appeals pathetically invokes the doctrine of piercing the corporate veil to legitimize the
prohibited transfer or assignment of EP 133. It stresses that SEM is just a business conduit of MMC,
hence, the distinct legal personalities of the two entities should not be recognized. True, the corporate
mask may be removed when the corporation is just an alter ego or a mere conduit of a person or of
another corporation.38 For reasons of public policy and in the interest of justice, the corporate veil will
justifiably be impaled only when it becomes a shield for fraud, illegality or inequity committed against a
third person.39 However, this Court has made a caveat in the application of the doctrine of piercing the
corporate veil. Courts should be mindful of the milieu where it is to be applied. Only in cases where the
corporate fiction was misused to such an extent that injustice, fraud or crime was committed against
another, in disregard of its rights may the veil be pierced and removed. Thus, a subsidiary corporation
may be made to answer for the liabilities and/or illegalities done by the parent corporation if the former
was organized for the purpose of evading obligations that the latter may have entered into. In other words,
this doctrine is in place in order to expose and hold liable a corporation which commits illegal acts and
use the corporate fiction to avoid liability from the said acts. The doctrine of piercing the corporate veil
cannot therefore be used as a vehicle to commit prohibited acts because these acts are the ones which the
doctrine seeks to prevent.
To our mind, the application of the foregoing doctrine is unwarranted. The assignment of the permit in
favor of SEM is utilized to circumvent the condition of non-transferability of the exploration permit. To
allow SEM to avail itself of this doctrine and to approve the validity of the assignment is tantamount to
sanctioning illegal act which is what the doctrine precisely seeks to forestall.
Quite apart from the above, a cursory consideration of the mining law pertinent to the case, will, indeed,
demonstrate the infraction committed by MMC in its assignment of EP 133 to SEM.
Presidential Decree No. 463, enacted on 17 May 1974, otherwise known as the Mineral Resources
Development Decree, which governed the old system of exploration, development, and utilization of
mineral resources through "license, concession or lease" prescribed:
SEC. 97. Assignment of Mining Rights. A mining lease contract or any interest therein shall not be
transferred, assigned, or subleased without the prior approval of the Secretary: Provided, That such
transfer, assignment or sublease may be made only to a qualified person possessing the resources and
capability to continue the mining operations of the lessee and that the assignor has complied with all the
obligations of the lease: Provided, further, That such transfer or assignment shall be duly registered with
the office of the mining recorder concerned. (Emphasis supplied.)
The same provision is reflected in Republic Act No. 7942, otherwise known as the Philippine Mining Act
of 1995, which is the new law governing the exploration, development and utilization of the natural
resources, which provides:
SEC. 25. Transfer or Assignment. - An exploration permit may be transferred or assigned to a qualified
person subject to the approval of the Secretary upon the recommendation of the Director.
The records are bereft of any indication that the assignment bears the imprimatur of the Secretary of the
DENR. Presidential Decree No. 463, which is the governing law when the assignment was executed,
explicitly requires that the transfer or assignment of mining rights, including the right to explore a mining
area, must be with the prior approval of the Secretary of DENR. Quite conspicuously, SEM did not
dispute the allegation that the Deed of Assignment was made without the prior approval of the Secretary
of DENR. Absent the prior approval of the Secretary of DENR, the assignment of EP 133, was, therefore,
without legal effect for violating the mandatory provision of Presidential Decree No. 463.
An added significant omission proved fatal to MMC/SEMs cause. While it is true that the case of Apex
Mining Co., Inc. v. Garcia40 settled the issue of which between Apex and MMC validly acquired mining
rights over the disputed area, such rights, though, had been extinguished by subsequent events. Records
indicate that on 6 July 1993, EP 133 was extended for 12 months or until 6 July 1994. 41 MMC never
renewed its permit prior and after its expiration. Thus, EP 133 expired by non-renewal.
With the expiration of EP 133 on 6 July 1994, MMC lost any right to the Diwalwal Gold Rush Area.
SEM, on the other hand, has not acquired any right to the said area because the transfer of EP 133 in its
favor is invalid. Hence, both MMC and SEM have not acquired any vested right over the 4,941.6759
hectares which used to be covered by EP 133.
II
The Court of Appeals theorizes that DAO No. 66 was issued beyond the power of the DENR Secretary
since the power to withdraw lands from forest reserves and to declare the same as an area open for mining
operation resides in the President.
Under Proclamation No. 369 dated 27 February 1931, the power to convert forest reserves as non-forest
reserves is vested with the DENR Secretary. Proclamation No. 369 partly states:
From this reserve shall be considered automatically excluded all areas which had already been certified
and which in the future may be proclaimed as classified and certified lands and approved by the Secretary
of Agriculture and Natural Resources.42
However, a subsequent law, Commonwealth Act No. 137, otherwise known as "The Mining Act" which
was approved on 7 November 1936 provides:
Sec. 14. Lands within reservations for purposes other than mining, which, after such reservation is made,
are found to be more valuable for their mineral contents than for the purpose for which the reservation
was made, may be withdrawn from such reservations by the President with the concurrence of the
National Assembly, and thereupon such lands shall revert to the public domain and be subject to
disposition under the provisions of this Act.
Unlike Proclamation No. 369, Commonwealth Act No. 137 vests solely in the President, with the
concurrence of the National Assembly, the power to withdraw forest reserves found to be more valuable
for their mineral contents than for the purpose for which the reservation was made and convert the same
into non-forest reserves. A similar provision can also be found in Presidential Decree No. 463 dated 17
May 1974, with the modifications that (1) the declaration by the President no longer requires the
concurrence of the National Assembly and (2) the DENR Secretary merely exercises the power to
recommend to the President which forest reservations are to be withdrawn from the coverage thereof.
Section 8 of Presidential Decree No. 463 reads:
SEC. 8. Exploration and Exploitation of Reserved Lands. When lands within reservations, which have
been established for purposes other than mining, are found to be more valuable for their mineral contents,
they may, upon recommendation of the Secretary be withdrawn from such reservation by the President
and established as a mineral reservation.
Against the backdrop of the applicable statutes which govern the issuance of DAO No. 66, this Court is
constrained to rule that said administrative order was issued not in accordance with the laws. Inescapably,
DAO No. 66, declaring 729 hectares of the areas covered by the Agusan-Davao-Surigao Forest Reserve
as non-forest land open to small-scale mining operations, is null and void as, verily, the DENR Secretary
has no power to convert forest reserves into non-forest reserves.
III
It is the contention of Apex that its right over the Diwalwal gold rush area is superior to that of MMC or
that of SEM because it was the first one to occupy and take possession of the area and the first to record
its mining claims over the area.
For its part, Balite argues that with the issuance of DAO No. 66, its occupation in the contested area,
particularly in the 729 hectares small-scale mining area, has entitled it to file its MPSA. Balite claims that
its MPSA application should have been given preference over that of SEM because it was filed ahead.
The MAB, on the other hand, insists that the issue on who has superior right over the disputed area has
become moot and academic by the supervening events. By virtue of Proclamation No. 297 dated 25
November 2002, the disputed area was declared a mineral reservation.
Proclamation No. 297 excluded an area of 8,100 hectares located in Monkayo, Compostela Valley, and
proclaimed the same as mineral reservation and as environmentally critical area, viz:
WHEREAS, by virtue of Proclamation No. 369, series of 1931, certain tracts of public land situated in the
then provinces of Davao, Agusan and Surigao, with an area of approximately 1,927,400 hectares, were
withdrawn from settlement and disposition, excluding, however, those portions which had been certified
and/or shall be classified and certified as non-forest lands;
WHEREAS, gold deposits have been found within the area covered by Proclamation No. 369, in the
Municipality of Monkayo, Compostela Valley Province, and unregulated small to medium-scale mining
operations have, since 1983, been undertaken therein, causing in the process serious environmental,
health, and peace and order problems in the area;
WHEREAS, it is in the national interest to prevent the further degradation of the environment and to
resolve the health and peace and order problems spawned by the unregulated mining operations in the
said area;
WHEREAS, these problems may be effectively addressed by rationalizing mining operations in the area
through the establishment of a mineral reservation;
WHEREAS, after giving due notice, the Director of Mines and Geoxciences conducted public hearings
on September 6, 9 and 11, 2002 to allow the concerned sectors and communities to air their views
regarding the establishment of a mineral reservation in the place in question;
WHEREAS, pursuant to the Philippine Mining Act of 1995 (RA 7942), the President may, upon the
recommendation of the Director of Mines and Geosciences, through the Secretary of Environment and
Natural Resources, and when the national interest so requires, establish mineral reservations where
mining operations shall be undertaken by the Department directly or thru a contractor;
WHEREAS, as a measure to attain and maintain a rational and orderly balance between socio-economic
growth and environmental protection, the President may, pursuant to Presidential Decree No. 1586, as
amended, proclaim and declare certain areas in the country as environmentally critical;
NOW, THEREFORE, I, GLORIA MACAPAGAL-ARROYO, President of the Philippines, upon
recommendation of the Secretary of the Department of Environment and Natural Resources (DENR), and
by virtue of the powers vested in me by law, do hereby exclude certain parcel of land located in Monkayo,
Compostela Valley, and proclaim the same as mineral reservation and as environmentally critical area,
with metes and bound as defined by the following geographical coordinates;
xxxx
with an area of Eight Thousand One Hundred (8,100) hectares, more or less. Mining operations in the
area may be undertaken either by the DENR directly, subject to payment of just compensation that may
be due to legitimate and existing claimants, or thru a qualified contractor, subject to existing rights, if any.
The DENR shall formulate and issue the appropriate guidelines, including the establishment of an
environmental and social fund, to implement the intent and provisions of this Proclamation.
Upon the effectivity of the 1987 Constitution, the State assumed a more dynamic role in the exploration,
development and utilization of the natural resources of the country.43 With this policy, the State may
pursue full control and supervision of the exploration, development and utilization of the countrys natural
mineral resources. The options open to the State are through direct undertaking or by entering into co-
production, joint venture, or production-sharing agreements, or by entering into agreement with foreign-
owned corporations for large-scale exploration, development and utilization. 44 Thus, Article XII, Section
2, of the 1987 Constitution, specifically states:
SEC. 2. All lands of the public domain, waters, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, fisheries, forests or timber, wildlife, flora and fauna, and other natural
resources are owned by the State. With the exception of agricultural lands, all other natural resources shall
not be alienated. The exploration, development, and utilization of natural resources shall be under the full
control and supervision of the State. The State may directly undertake such activities, or it may enter into
co-production, joint venture, or production-sharing agreements with Filipino citizens, or corporations or
associations at least sixty per centum of whose capital is owned by such citizens. Such agreements may
be for a period not exceeding twenty-five years, renewable for not more than twenty-five years, and under
such terms and conditions as may be provided by law. x x x
xxxx
The President may enter into agreements with foreign-owned corporations involving either technical or
financial assistance for large-scale exploration, development, and utilization of minerals, petroleum, and
other mineral oils according to the general terms and conditions provided by law, based on real
contributions to the economic growth and general welfare of the country. x x x (Underscoring supplied.)
Recognizing the importance of the countrys natural resources, not only for national economic
development, but also for its security and national defense, Section 5 of Republic Act No. 7942 empowers
the President, when the national interest so requires, to establish mineral reservations where mining
operations shall be undertaken directly by the State or through a contractor.
To implement the intent and provisions of Proclamation No. 297, the DENR Secretary issued DAO No.
2002-18 dated 12 August 2002 declaring an emergency situation in the Diwalwal Gold Rush Area and
ordering the stoppage of all mining operations therein.
The issue on who has priority right over the disputed area is deemed overtaken by the above subsequent
developments particularly with the issuance of Proclamation 297 and DAO No. 2002-18, both being
constitutionally-sanctioned acts of the Executive Branch. Mining operations in the Diwalwal Mineral
Reservation are now, therefore, within the full control of the State through the executive branch. Pursuant
to Section 5 of Republic Act No. 7942, the State can either directly undertake the exploration,
development and utilization of the area or it can enter into agreements with qualified entities, viz:
SEC 5. Mineral Reservations. When the national interest so requires, such as when there is a need to
preserve strategic raw materials for industries critical to national development, or certain minerals for
scientific, cultural or ecological value, the President may establish mineral reservations upon the
recommendation of the Director through the Secretary. Mining operations in existing mineral reservations
and such other reservations as may thereafter be established, shall be undertaken by the Department or
through a contractor x x x .
It is now up to the Executive Department whether to take the first option, i.e., to undertake directly the
mining operations of the Diwalwal Gold Rush Area. As already ruled, the State may not be precluded
from considering a direct takeover of the mines, if it is the only plausible remedy in sight to the gnawing
complexities generated by the gold rush. The State need be guided only by the demands of public interest
in settling on this option, as well as its material and logistic feasibility.45 The State can also opt to award
mining operations in the mineral reservation to private entities including petitioners Apex and Balite, if it
wishes. The exercise of this prerogative lies with the Executive Department over which courts will not
interfere.
WHEREFORE, premises considered, the Petitions of Apex, Balite and the MAB are PARTIALLY
GRANTED, thus:
1. We hereby REVERSE and SET ASIDE the Decision of the Court of Appeals, dated 13 March
2002, and hereby declare that EP 133 of MMC has EXPIRED on 7 July 1994 and that its
subsequent transfer to SEM on 16 February 1994 is VOID.
2. We AFFIRM the finding of the Court of Appeals in the same Decision declaring DAO No. 66
illegal for having been issued in excess of the DENR Secretarys authority.
Consequently, the State, should it so desire, may now award mining operations in the disputed area to any
qualified entity it may determine. No costs.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice
WE CONCUR:
ARTEMIO V. PANGANIBAN
Chief Justice
Chairperson
CONSUELO YNARES-SANTIAGO MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice Asscociate Justice
ROMEO J. CALLEJO, SR.
Associate Justice
C E R T I F I C AT I O N
Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the
above Decision were reached in consultation before the case was assigned to the writer of the opinion of
the Courts Division.
ARTEMIO V. PANGANIBAN
Chief Justice

Republic of the Philippines


SUPREME COURT
Manila

EN BANC

G.R. No. L-7089 August 31, 1954

DOMINGO DE LA CRUZ, plaintiff-appellant,


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

Conrado Rubio for appellant.


Ruiz, Ruiz, Ruiz, Ruiz, and Benjamin Guerrero for appellees.

MONTEMAYOR, J.:

The facts in this case based on an agreed statement of facts are simple. In the year 1941 the Northern
Theatrical Enterprises Inc., a domestic corporation operated a movie house in Laoag, Ilocos Norte, and
among the persons employed by it was the plaintiff DOMINGO DE LA CRUZ, hired as a special guard
whose duties were to guard the main entrance of the cine, to maintain peace and order and to report the
commission of disorders within the premises. As such guard he carried a revolver. In the afternoon of July
4, 1941, one Benjamin Martin wanted to crash the gate or entrance of the movie house. Infuriated by the
refusal of plaintiff De la Cruz to let him in without first providing himself with a ticket, Martin attacked
him with a bolo. De la Cruz defendant himself as best he could until he was cornered, at which moment to
save himself he shot the gate crasher, resulting in the latter's death.

For the killing, De la Cruz was charged with homicide in Criminal Case No. 8449 of the Court of First
Instance of Ilocos Norte. After a re-investigation conducted by the Provincial Fiscal the latter filed a
motion to dismiss the complaint, which was granted by the court in January 1943. On July 8, 1947, De la
Cruz was again accused of the same crime of homicide, in Criminal Case No. 431 of the same Court.
After trial, he was finally acquitted of the charge on January 31, 1948. In both criminal cases De la Cruz
employed a lawyer to defend him. He demanded from his former employer reimbursement of his
expenses but was refused, after which he filed the present action against the movie corporation and the
three members of its board of directors, to recover not only the amounts he had paid his lawyers but also
moral damages said to have been suffered, due to his worry, his neglect of his interests and his family as
well in the supervision of the cultivation of his land, a total of P15,000. On the basis of the complaint and
the answer filed by defendants wherein they asked for the dismissal of the complaint, as well as the
agreed statement of facts, the Court of First Instance of Ilocos Norte after rejecting the theory of the
plaintiff that he was an agent of the defendants and that as such agent he was entitled to reimbursement of
the expenses incurred by him in connection with the agency (Arts. 1709-1729 of the old Civil Code),
found that plaintiff had no cause of action and dismissed the complaint without costs. De la Cruz appealed
directly to this Tribunal for the reason that only questions of law are involved in the appeal.

We agree with the trial court that the relationship between the movie corporation and the plaintiff was not
that of principal and agent because the principle of representation was in no way involved. Plaintiff was
not employed to represent the defendant corporation in its dealings with third parties. He was a mere
employee hired to perform a certain specific duty or task, that of acting as special guard and staying at the
main entrance of the movie house to stop gate crashers and to maintain peace and order within the
premises. The question posed by this appeal is whether an employee or servant who in line of duty and
while in the performance of the task assigned to him, performs an act which eventually results in his
incurring in expenses, caused not directly by his master or employer or his fellow servants or by reason of
his performance of his duty, but rather by a third party or stranger not in the employ of his employer, may
recover said damages against his employer.

The learned trial court in the last paragraph of its decision dismissing the complaint said that "after
studying many laws or provisions of law to find out what law is applicable to the facts submitted and
admitted by the parties, has found none and it has no other alternative than to dismiss the complaint." The
trial court is right. We confess that we are not aware of any law or judicial authority that is directly
applicable to the present case, and realizing the importance and far-reaching effect of a ruling on the
subject-matter we have searched, though vainly, for judicial authorities and enlightenment. All the laws
and principles of law we have found, as regards master and servants, or employer and employee, refer to
cases of physical injuries, light or serious, resulting in loss of a member of the body or of any one of the
senses, or permanent physical disability or even death, suffered in line of duty and in the course of the
performance of the duties assigned to the servant or employee, and these cases are mainly governed by
the Employer's Liability Act and the Workmen's Compensation Act. But a case involving damages caused
to an employee by a stranger or outsider while said employee was in the performance of his duties,
presents a novel question which under present legislation we are neither able nor prepared to decide in
favor of the employee.

In a case like the present or a similar case of say a driver employed by a transportation company, who
while in the course of employment runs over and inflicts physical injuries on or causes the death of a
pedestrian; and such driver is later charged criminally in court, one can imagine that it would be to the
interest of the employer to give legal help to and defend its employee in order to show that the latter was
not guilty of any crime either deliberately or through negligence, because should the employee be finally
held criminally liable and he is found to be insolvent, the employer would be subsidiarily liable. That is
why, we repeat, it is to the interest of the employer to render legal assistance to its employee. But we are
not prepared to say and to hold that the giving of said legal assistance to its employees is a legal
obligation. While it might yet and possibly be regarded as a normal obligation, it does not at present count
with the sanction of man-made laws.

If the employer is not legally obliged to give, legal assistance to its employee and provide him with a
lawyer, naturally said employee may not recover the amount he may have paid a lawyer hired by him.

Viewed from another angle it may be said that the damage suffered by the plaintiff by reason of the
expenses incurred by him in remunerating his lawyer, is not caused by his act of shooting to death the
gate crasher but rather by the filing of the charge of homicide which made it necessary for him to defend
himself with the aid of counsel. Had no criminal charge been filed against him, there would have been no
expenses incurred or damage suffered. So the damage suffered by plaintiff was caused rather by the
improper filing of the criminal charge, possibly at the instance of the heirs of the deceased gate crasher
and by the State through the Fiscal. We say improper filing, judging by the results of the court
proceedings, namely, acquittal. In other words, the plaintiff was innocent and blameless. If despite his
innocence and despite the absence of any criminal responsibility on his part he was accused of homicide,
then the responsibility for the improper accusation may be laid at the door of the heirs of the deceased and
the State, and so theoretically, they are the parties that may be held responsible civilly for damages and if
this is so, we fail to see now this responsibility can be transferred to the employer who in no way
intervened, much less initiated the criminal proceedings and whose only connection or relation to the
whole affairs was that he employed plaintiff to perform a special duty or task, which task or duty was
performed lawfully and without negligence.

Still another point of view is that the damages incurred here consisting of the payment of the lawyer's fee
did not flow directly from the performance of his duties but only indirectly because there was an efficient,
intervening cause, namely, the filing of the criminal charges. In other words, the shooting to death of the
deceased by the plaintiff was not the proximate cause of the damages suffered but may be regarded as
only a remote cause, because from the shooting to the damages suffered there was not that natural and
continuous sequence required to fix civil responsibility.

In view of the foregoing, the judgment of the lower court is affirmed. No costs.

Bengzon, Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, and Reyes, J.B.L., JJ., concur.
Republic of the Philippines
SUPREME COURT

THIRD DIVISION

G.R. No. 156262 July 14, 2005

MARIA TUAZON, ALEJANDRO P. TUAZON, MELECIO P. TUAZON, Spouses ANASTACIO


and MARY T. BUENAVENTURA, Petitioners,
vs.
HEIRS OF BARTOLOME RAMOS, Respondents.

DECISION

PANGANIBAN, J.:

Stripped of nonessentials, the present case involves the collection of a sum of money. Specifically, this
case arose from the failure of petitioners to pay respondents predecessor-in-interest. This fact was shown
by the non-encashment of checks issued by a third person, but indorsed by herein Petitioner Maria Tuazon
in favor of the said predecessor. Under these circumstances, to enable respondents to collect on the
indebtedness, the check drawer need not be impleaded in the Complaint. Thus, the suit is directed, not
against the drawer, but against the debtor who indorsed the checks in payment of the obligation.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the July 31, 2002
Decision2 of the Court of Appeals (CA) in CA-GR CV No. 46535. The decretal portion of the assailed
Decision reads:

"WHEREFORE, the appeal is DISMISSED and the appealed decision is AFFIRMED."

On the other hand, the affirmed Decision3 of Branch 34 of the Regional Trial Court (RTC) of Gapan,
Nueva Ecija, disposed as follows:

"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants,
ordering the defendants spouses Leonilo Tuazon and Maria Tuazon to pay the plaintiffs, as follows:

"1. The sum of P1,750,050.00, with interests from the filing of the second amended complaint;

"2. The sum of P50,000.00, as attorneys fees;

"3. The sum of P20,000.00, as moral damages

"4. And to pay the costs of suit.

x x x x x x x x x"4

The Facts

The facts are narrated by the CA as follows:

"[Respondents] alleged that between the period of May 2, 1988 and June 5, 1988, spouses Leonilo and
Maria Tuazon purchased a total of 8,326 cavans of rice from [the deceased Bartolome] Ramos
[predecessor-in-interest of respondents]. That of this [quantity,] x x x only 4,437 cavans [have been paid
for so far], leaving unpaid 3,889 cavans valued at P1,211,919.00. In payment therefor, the spouses Tuazon
issued x x x [several] Traders Royal Bank checks.

xxxxxxxxx

[B]ut when these [checks] were encashed, all of the checks bounced due to insufficiency of funds.
[Respondents] advanced that before issuing said checks[,] spouses Tuazon already knew that they had no
available fund to support the checks, and they failed to provide for the payment of these despite repeated
demands made on them.

"[Respondents] averred that because spouses Tuazon anticipated that they would be sued, they conspired
with the other [defendants] to defraud them as creditors by executing x x x fictitious sales of their
properties. They executed x x x simulated sale[s] [of three lots] in favor of the x x x spouses
Buenaventura x x x[,] as well as their residential lot and the house thereon[,] all located at Nueva Ecija,
and another simulated deed of sale dated July 12, 1988 of a Stake Toyota registered with the Land
Transportation Office of Cabanatuan City on September 7, 1988. [Co-petitioner] Melecio Tuazon, a son
of spouses Tuazon, registered a fictitious Deed of Sale on July 19, 1988 x x x over a residential lot located
at Nueva Ecija. Another simulated sale of a Toyota Willys was executed on January 25, 1988 in favor of
their other son, [co-petitioner] Alejandro Tuazon x x x. As a result of the said sales, the titles of these
properties issued in the names of spouses Tuazon were cancelled and new ones were issued in favor of the
[co-]defendants spouses Buenaventura, Alejandro Tuazon and Melecio Tuazon. Resultantly, by the said
ante-dated and simulated sales and the corresponding transfers there was no more property left registered
in the names of spouses Tuazon answerable to creditors, to the damage and prejudice of [respondents].

"For their part, defendants denied having purchased x x x rice from [Bartolome] Ramos. They alleged that
it was Magdalena Ramos, wife of said deceased, who owned and traded the merchandise and Maria
Tuazon was merely her agent. They argued that it was Evangeline Santos who was the buyer of the rice
and issued the checks to Maria Tuazon as payments therefor. In good faith[,] the checks were received [by
petitioner] from Evangeline Santos and turned over to Ramos without knowing that these were not
funded. And it is for this reason that [petitioners] have been insisting on the inclusion of Evangeline
Santos as an indispensable party, and her non-inclusion was a fatal error. Refuting that the sale of several
properties were fictitious or simulated, spouses Tuazon contended that these were sold because they were
then meeting financial difficulties but the disposals were made for value and in good faith and done
before the filing of the instant suit. To dispute the contention of plaintiffs that they were the buyers of the
rice, they argued that there was no sales invoice, official receipts or like evidence to prove this. They
assert that they were merely agents and should not be held answerable." 5

The corresponding civil and criminal cases were filed by respondents against Spouses Tuazon. Those
cases were later consolidated and amended to include Spouses Anastacio and Mary Buenaventura, with
Alejandro Tuazon and Melecio Tuazon as additional defendants. Having passed away before the pretrial,
Bartolome Ramos was substituted by his heirs, herein respondents.

Contending that Evangeline Santos was an indispensable party in the case, petitioners moved to file a
third-party complaint against her. Allegedly, she was primarily liable to respondents, because she was the
one who had purchased the merchandise from their predecessor, as evidenced by the fact that the checks
had been drawn in her name. The RTC, however, denied petitioners Motion.

Since the trial court acquitted petitioners in all three of the consolidated criminal cases, they appealed
only its decision finding them civilly liable to respondents.

Ruling of the Court of Appeals

Sustaining the RTC, the CA held that petitioners had failed to prove the existence of an agency between
respondents and Spouses Tuazon. The appellate court disbelieved petitioners contention that Evangeline
Santos should have been impleaded as an indispensable party. Inasmuch as all the checks had been
indorsed by Maria Tuazon, who thereby became liable to subsequent holders for the amounts stated in
those checks, there was no need to implead Santos.

Hence, this Petition.6

Issues

Petitioners raise the following issues for our consideration:


"1. Whether or not the Honorable Court of Appeals erred in ruling that petitioners are not agents of the
respondents.

"2. Whether or not the Honorable Court of Appeals erred in rendering judgment against the petitioners
despite x x x the failure of the respondents to include in their action Evangeline Santos, an indispensable
party to the suit."7

The Courts Ruling

The Petition is unmeritorious.

First Issue:

Agency

Well-entrenched is the rule that the Supreme Courts role in a petition under Rule 45 is limited to
reviewing errors of law allegedly committed by the Court of Appeals. Factual findings of the trial court,
especially when affirmed by the CA, are conclusive on the parties and this Court. 8 Petitioners have not
given us sufficient reasons to deviate from this rule.

In a contract of agency, one binds oneself to render some service or to do something in representation or
on behalf of another, with the latters consent or authority.9 The following are the elements of agency: (1)
the parties consent, express or implied, to establish the relationship; (2) the object, which is the execution
of a juridical act in relation to a third person; (3) the representation, by which the one who acts as an
agent does so, not for oneself, but as a representative; (4) the limitation that the agent acts within the
scope of his or her authority.10 As the basis of agency is representation, there must be, on the part of the
principal, an actual intention to appoint, an intention naturally inferable from the principals words or
actions. In the same manner, there must be an intention on the part of the agent to accept the appointment
and act upon it. Absent such mutual intent, there is generally no agency.11

This Court finds no reversible error in the findings of the courts a quo that petitioners were the rice buyers
themselves; they were not mere agents of respondents in their rice dealership. The question of whether a
contract is one of sale or of agency depends on the intention of the parties. 12

The declarations of agents alone are generally insufficient to establish the fact or extent of their
authority.13 The law makes no presumption of agency; proving its existence, nature and extent is
incumbent upon the person alleging it.14 In the present case, petitioners raise the fact of agency as an
affirmative defense, yet fail to prove its existence.

The Court notes that petitioners, on their own behalf, sued Evangeline Santos for collection of the
amounts represented by the bounced checks, in a separate civil case that they sought to be consolidated
with the current one. If, as they claim, they were mere agents of respondents, petitioners should have
brought the suit against Santos for and on behalf of their alleged principal, in accordance with Section 2
of Rule 3 of the Rules on Civil Procedure.15 Their filing a suit against her in their own names negates their
claim that they acted as mere agents in selling the rice obtained from Bartolome Ramos.

Second Issue:

Indispensable Party
Petitioners argue that the lower courts erred in not allowing Evangeline Santos to be impleaded as an
indispensable party. They insist that respondents Complaint against them is based on the bouncing checks
she issued; hence, they point to her as the person primarily liable for the obligation.

We hold that respondents cause of action is clearly founded on petitioners failure to pay the purchase
price of the rice. The trial court held that Petitioner Maria Tuazon had indorsed the questioned checks in
favor of respondents, in accordance with Sections 31 and 63 of the Negotiable Instruments Law.16 That
Santos was the drawer of the checks is thus immaterial to the respondents cause of action.

As indorser, Petitioner Maria Tuazon warranted that upon due presentment, the checks were to be
accepted or paid, or both, according to their tenor; and that in case they were dishonored, she would pay
the corresponding amount.17After an instrument is dishonored by nonpayment, indorsers cease to be
merely secondarily liable; they become principal debtors whose liability becomes identical to that of the
original obligor. The holder of a negotiable instrument need not even proceed against the maker before
suing the indorser.18 Clearly, Evangeline Santos -- as the drawer of the checks -- is not an indispensable
party in an action against Maria Tuazon, the indorser of the checks.

Indispensable parties are defined as "parties in interest without whom no final determination can be
had."19 The instant case was originally one for the collection of the purchase price of the rice bought by
Maria Tuazon from respondents predecessor. In this case, it is clear that there is no privity of contract
between respondents and Santos. Hence, a final determination of the rights and interest of the parties may
be made without any need to implead her.

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against
petitioners.

SO ORDERED.

ARTEMIO V. PANGANIBAN

Associate Justice

Chairman, Third Division

WECONCUR:

ANGELINA SANDOVAL-GUTIERREZ RENATO C. CORONA

Associate Justice Associate Justice

CONCHITA CARPIO MORALES CANCIO C. GARCIA

Associate Justice Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.
ARTEMIO V. PANGANIBAN

Associate Justice
Chairman, Third Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairmans Attestation, it is
hereby certified that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.

HILARIO G. DAVIDE, JR.

Chief Justice

Republic of the Philippines


SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 117356 June 19, 2000

VICTORIAS MILLING CO., INC., petitioner,


vs.
COURT OF APPEALS and CONSOLIDATED SUGAR CORPORATION, respondents.
DECISION

QUISUMBING, J.:

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

The facts of this case as found by both the trial and appellate courts are as follows:

St. Therese Merchandising (hereafter STM) regularly bought sugar from petitioner Victorias Milling Co.,
Inc., (VMC). In the course of their dealings, petitioner issued several Shipping List/Delivery Receipts
(SLDRs) to STM as proof of purchases. Among these was SLDR No. 1214M, which gave rise to the
instant case. Dated October 16, 1989, SLDR No. 1214M covers 25,000 bags of sugar. Each bag contained
50 kilograms and priced at P638.00 per bag as "per sales order VMC Marketing No. 042 dated October
16, 1989."1 The transaction it covered was a "direct sale." 2The SLDR also contains an additional note
which reads: "subject for (sic) availability of a (sic) stock at NAWACO (warehouse)." 3

On October 25, 1989, STM sold to private respondent Consolidated Sugar Corporation (CSC) its rights in
SLDR No. 1214M for P 14,750,000.00. CSC issued one check dated October 25, 1989 and three checks
postdated November 13, 1989 in payment. That same day, CSC wrote petitioner that it had been
authorized by STM to withdraw the sugar covered by SLDR No. 1214M. Enclosed in the letter were a
copy of SLDR No. 1214M and a letter of authority from STM authorizing CSC "to withdraw for and in
our behalf the refined sugar covered by Shipping List/Delivery Receipt-Refined Sugar (SDR) No. 1214
dated October 16, 1989 in the total quantity of 25,000 bags."4

On October 27, 1989, STM issued 16 checks in the total amount of P31,900,000.00 with petitioner as
payee. The latter, in turn, issued Official Receipt No. 33743 dated October 27, 1989 acknowledging
receipt of the said checks in payment of 50,000 bags. Aside from SLDR No. 1214M, said checks also
covered SLDR No. 1213.

Private respondent CSC surrendered SLDR No. 1214M to the petitioner's NAWACO warehouse and was
allowed to withdraw sugar. However, after 2,000 bags had been released, petitioner refused to allow
further withdrawals of sugar against SLDR No. 1214M. CSC then sent petitioner a letter dated January
23, 1990 informing it that SLDR No. 1214M had been "sold and endorsed" to it but that it had been
refused further withdrawals of sugar from petitioner's warehouse despite the fact that only 2,000 bags had
been withdrawn.5 CSC thus inquired when it would be allowed to withdraw the remaining 23,000 bags.

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

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

Seven days later, petitioner reiterated that all the sugar corresponding to the amount of STM's cleared
checks had been fully withdrawn and hence, there would be no more deliveries of the commodity to
STM's account. Petitioner also noted that CSC had represented itself to be STM's agent as it had
withdrawn the 2,000 bags against SLDR No. 1214M "for and in behalf" of STM.
On April 27, 1990, CSC filed a complaint for specific performance, docketed as Civil Case No. 90-1118.
Defendants were Teresita Ng Sy (doing business under the name of St. Therese Merchandising) and
herein petitioner. Since the former could not be served with summons, the case proceeded only against the
latter. During the trial, it was discovered that Teresita Ng Go who testified for CSC was the same Teresita
Ng Sy who could not be reached through summons.7 CSC, however, did not bother to pursue its case
against her, but instead used her as its witness.

CSC's complaint alleged that STM had fully paid petitioner for the sugar covered by SLDR No. 1214M.
Therefore, the latter had no justification for refusing delivery of the sugar. CSC prayed that petitioner be
ordered to deliver the 23,000 bags covered by SLDR No. 1214M and sought the award of P1,104,000.00
in unrealized profits, P3,000,000.00 as exemplary damages, P2,200,000.00 as attorney's fees and
litigation expenses.

Petitioner's primary defense a quo was that it was an unpaid seller for the 23,000 bags. 8 Since STM had
already drawn in full all the sugar corresponding to the amount of its cleared checks, it could no longer
authorize further delivery of sugar to CSC. Petitioner also contended that it had no privity of contract with
CSC.

Petitioner explained that the SLDRs, which it had issued, were not documents of title, but mere delivery
receipts issued pursuant to a series of transactions entered into between it and STM. The SLDRs
prescribed delivery of the sugar to the party specified therein and did not authorize the transfer of said
party's rights and interests.

Petitioner also alleged that CSC did not pay for the SLDR and was actually STM's co-conspirator to
defraud it through a misrepresentation that CSC was an innocent purchaser for value and in good faith.
Petitioner then prayed that CSC be ordered to pay it the following sums: P10,000,000.00 as moral
damages; P10,000,000.00 as exemplary damages; and P1,500,000.00 as attorney's fees. Petitioner also
prayed that cross-defendant STM be ordered to pay it P10,000,000.00 in exemplary damages, and
P1,500,000.00 as attorney's fees.

Since no settlement was reached at pre-trial, the trial court heard the case on the merits.

As earlier stated, the trial court rendered its judgment favoring private respondent CSC, as follows:

"WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the plaintiff and
against defendant Victorias Milling Company:

"1) Ordering defendant Victorias Milling Company to deliver to the plaintiff 23,000 bags of
refined sugar due under SLDR No. 1214;

"2) Ordering defendant Victorias Milling Company to pay the amount of P920,000.00 as
unrealized profits, the amount of P800,000.00 as exemplary damages and the amount of
P1,357,000.00, which is 10% of the acquisition value of the undelivered bags of refined sugar in
the amount of P13,570,000.00, as attorney's fees, plus the costs.

"SO ORDERED."9

It made the following observations:


"[T]he testimony of plaintiff's witness Teresita Ng Go, that she had fully paid the purchase price of
P15,950,000.00 of the 25,000 bags of sugar bought by her covered by SLDR No. 1214 as well as the
purchase price of P15,950,000.00 for the 25,000 bags of sugar bought by her covered by SLDR No. 1213
on the same date, October 16, 1989 (date of the two SLDRs) is duly supported by Exhibits C to C-15
inclusive which are post-dated checks dated October 27, 1989 issued by St. Therese Merchandising in
favor of Victorias Milling Company at the time it purchased the 50,000 bags of sugar covered by SLDR
No. 1213 and 1214. Said checks appear to have been honored and duly credited to the account of
Victorias Milling Company because on October 27, 1989 Victorias Milling Company issued official
receipt no. 34734 in favor of St. Therese Merchandising for the amount of P31,900,000.00 (Exhibits B
and B-1). The testimony of Teresita Ng Go is further supported by Exhibit F, which is a computer printout
of defendant Victorias Milling Company showing the quantity and value of the purchases made by St.
Therese Merchandising, the SLDR no. issued to cover the purchase, the official reciept no. and the status
of payment. It is clear in Exhibit 'F' that with respect to the sugar covered by SLDR No. 1214 the same
has been fully paid as indicated by the word 'cleared' appearing under the column of 'status of payment.'

"On the other hand, the claim of defendant Victorias Milling Company that the purchase price of the
25,000 bags of sugar purchased by St. Therese Merchandising covered by SLDR No. 1214 has not been
fully paid is supported only by the testimony of Arnulfo Caintic, witness for defendant Victorias Milling
Company. The Court notes that the testimony of Arnulfo Caintic is merely a sweeping barren assertion
that the purchase price has not been fully paid and is not corroborated by any positive evidence. There is
an insinuation by Arnulfo Caintic in his testimony that the postdated checks issued by the buyer in
payment of the purchased price were dishonored. However, said witness failed to present in Court any
dishonored check or any replacement check. Said witness likewise failed to present any bank record
showing that the checks issued by the buyer, Teresita Ng Go, in payment of the purchase price of the
sugar covered by SLDR No. 1214 were dishonored."10

Petitioner appealed the trial courts decision to the Court of Appeals.

On appeal, petitioner averred that the dealings between it and STM were part of a series of transactions
involving only one account or one general contract of sale. Pursuant to this contract, STM or any of its
authorized agents could withdraw bags of sugar only against cleared checks of STM. SLDR No. 21214M
was only one of 22 SLDRs issued to STM and since the latter had already withdrawn its full quota of
sugar under the said SLDR, CSC was already precluded from seeking delivery of the 23,000 bags of
sugar.

Private respondent CSC countered that the sugar purchases involving SLDR No. 1214M were separate
and independent transactions and that the details of the series of purchases were contained in a single
statement with a consolidated summary of cleared check payments and sugar stock withdrawals because
this a more convenient system than issuing separate statements for each purchase.

The appellate court considered the following issues: (a) Whether or not the transaction between petitioner
and STM involving SLDR No. 1214M was a separate, independent, and single transaction; (b) Whether
or not CSC had the capacity to sue on its own on SLDR No. 1214M; and (c) Whether or not CSC as
buyer from STM of the rights to 25,000 bags of sugar covered by SLDR No. 1214M could compel
petitioner to deliver 23,000 bags allegedly unwithdrawn.

On February 24, 1994, the Court of Appeals rendered its decision modifying the trial court's judgment, to
wit:

"WHEREFORE, the Court hereby MODIFIES the assailed judgment and orders defendant-appellant to:
"1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by SLDR No. 1214M;

"2) Pay to plaintiff-appellee P792,918.00 which is 10% of the value of the undelivered bags of
refined sugar, as attorneys fees;

"3) Pay the costs of suit.

"SO ORDERED."11

Both parties then seasonably filed separate motions for reconsideration.

In its resolution dated September 30, 1994, the appellate court modified its decision to read:

"WHEREFORE, the Court hereby modifies the assailed judgment and orders defendant-appellant to:

"(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar under SLDR No. 1214M;

"(2) Pay costs of suit.

"SO ORDERED."12

The appellate court explained the rationale for the modification as follows:

"There is merit in plaintiff-appellee's position.

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

"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October 1990, p. 33] and Marianito L.
Santos [TSN, 17 October 1990, pp. 16, 18, and 36]) presented by plaintiff-appellee was to the effect that
it had withdrawn only 2,000 bags of sugar from SLDR after which it was not allowed to withdraw
anymore. Documentary evidence (Exhibit I, Id., p. 78, Exhibit K, Id., p. 80) show that plaintiff-appellee
had sent demand letters to defendant-appellant asking the latter to allow it to withdraw the remaining
23,000 bags of sugar from SLDR 1214M. Defendant-appellant, on the other hand, alleged that sugar
delivery to the STM corresponded only to the value of cleared checks; and that all sugar corresponded to
cleared checks had been withdrawn. Defendant-appellant did not rebut plaintiff-appellee's assertions. It
did not present evidence to show how many bags of sugar had been withdrawn against SLDR No. 1214M,
precisely because of its theory that all sales in question were a series of one single transaction and
withdrawal of sugar depended on the clearing of checks paid therefor.

"After a second look at the evidence, We see no reason to overturn the findings of the trial court on this
point."13
Hence, the instant petition, positing the following errors as grounds for review:

"1. The Court of Appeals erred in not holding that STM's and private respondent's specially
informing petitioner that respondent was authorized by buyer STM to withdraw sugar against
SLDR No. 1214M "for and in our (STM) behalf," (emphasis in the original) private respondent's
withdrawing 2,000 bags of sugar for STM, and STM's empowering other persons as its agents to
withdraw sugar against the same SLDR No. 1214M, rendered respondent like the other persons,
an agent of STM as held in Rallos v. Felix Go Chan & Realty Corp., 81 SCRA 252, and
precluded it from subsequently claiming and proving being an assignee of SLDR No. 1214M and
from suing by itself for its enforcement because it was conclusively presumed to be an agent
(Sec. 2, Rule 131, Rules of Court) and estopped from doing so. (Art. 1431, Civil Code).

"2. The Court of Appeals erred in manifestly and arbitrarily ignoring and disregarding certain
relevant and undisputed facts which, had they been considered, would have shown that petitioner
was not liable, except for 69 bags of sugar, and which would justify review of its conclusion of
facts by this Honorable Court.

"3. The Court of Appeals misapplied the law on compensation under Arts. 1279, 1285 and 1626
of the Civil Code when it ruled that compensation applied only to credits from one SLDR or
contract and not to those from two or more distinct contracts between the same parties; and erred
in denying petitioner's right to setoff all its credits arising prior to notice of assignment from other
sales or SLDRs against private respondent's claim as assignee under SLDR No. 1214M, so as to
extinguish or reduce its liability to 69 bags, because the law on compensation applies precisely to
two or more distinct contracts between the same parties (emphasis in the original).

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

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

"6. The Court of Appeals erred in not holding that the "clean hands" doctrine precluded
respondent from seeking judicial reliefs (sic) from petitioner, its only remedy being against its
assignor."14

Simply stated, the issues now to be resolved are:

(1)....Whether or not the Court of Appeals erred in not ruling that CSC was an agent of STM and
hence, estopped to sue upon SLDR No. 1214M as an assignee.

(2)....Whether or not the Court of Appeals erred in applying the law on compensation to the
transaction under SLDR No. 1214M so as to preclude petitioner from offsetting its credits on the
other SLDRs.
(3)....Whether or not the Court of Appeals erred in not ruling that the sale of sugar under SLDR
No. 1214M was a conditional sale or a contract to sell and hence freed petitioner from further
obligations.

(4)....Whether or not the Court of Appeals committed an error of law in not applying the "clean
hands doctrine" to preclude CSC from seeking judicial relief.

The issues will be discussed in seriatim.

Anent the first issue, we find from the records that petitioner raised this issue for the first time on
appeal.1avvphi1 It is settled that an issue which was not raised during the trial in the court below could
not be raised for the first time on appeal as to do so would be offensive to the basic rules of fair play,
justice, and due process.15 Nonetheless, the Court of Appeals opted to address this issue, hence, now a
matter for our consideration.

Petitioner heavily relies upon STM's letter of authority allowing CSC to withdraw sugar against SLDR
No. 1214M to show that the latter was STM's agent. The pertinent portion of said letter reads:

"This is to authorize Consolidated Sugar Corporation or its representative to withdraw for and in our
behalf (stress supplied) the refined sugar covered by Shipping List/Delivery Receipt = Refined Sugar
(SDR) No. 1214 dated October 16, 1989 in the total quantity of 25, 000 bags." 16

The Civil Code defines a contract of agency as follows:

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

It is clear from Article 1868 that the basis of agency is representation. 17 On the part of the principal, there
must be an actual intention to appoint18 or an intention naturally inferable from his words or actions; 19 and
on the part of the agent, there must be an intention to accept the appointment and act on it, 20 and in the
absence of such intent, there is generally no agency.21 One factor which most clearly distinguishes agency
from other legal concepts is control; one person - the agent - agrees to act under the control or direction of
another - the principal. Indeed, the very word "agency" has come to connote control by the
principal.22 The control factor, more than any other, has caused the courts to put contracts between
principal and agent in a separate category.23 The Court of Appeals, in finding that CSC, was not an agent
of STM, opined:

"This Court has ruled that where the relation of agency is dependent upon the acts of the parties, the law
makes no presumption of agency, and it is always a fact to be proved, with the burden of proof resting
upon the persons alleging the agency, to show not only the fact of its existence, but also its nature and
extent (Antonio vs. Enriquez [CA], 51 O.G. 3536]. Here, defendant-appellant failed to sufficiently
establish the existence of an agency relation between plaintiff-appellee and STM. The fact alone that it
(STM) had authorized withdrawal of sugar by plaintiff-appellee "for and in our (STM's) behalf" should
not be eyed as pointing to the existence of an agency relation ...It should be viewed in the context of all
the circumstances obtaining. Although it would seem STM represented plaintiff-appellee as being its
agent by the use of the phrase "for and in our (STM's) behalf" the matter was cleared when on 23 January
1990, plaintiff-appellee informed defendant-appellant that SLDFR No. 1214M had been "sold and
endorsed" to it by STM (Exhibit I, Records, p. 78). Further, plaintiff-appellee has shown that the 25, 000
bags of sugar covered by the SLDR No. 1214M were sold and transferred by STM to it ...A conclusion
that there was a valid sale and transfer to plaintiff-appellee may, therefore, be made thus capacitating
plaintiff-appellee to sue in its own name, without need of joining its imputed principal STM as co-
plaintiff."24

In the instant case, it appears plain to us that private respondent CSC was a buyer of the SLDFR form,
and not an agent of STM. Private respondent CSC was not subject to STM's control. The question of
whether a contract is one of sale or agency depends on the intention of the parties as gathered from the
whole scope and effect of the language employed. 25 That the authorization given to CSC contained the
phrase "for and in our (STM's) behalf" did not establish an agency. Ultimately, what is decisive is the
intention of the parties.26 That no agency was meant to be established by the CSC and STM is clearly
shown by CSC's communication to petitioner that SLDR No. 1214M had been "sold and endorsed" to
it.27 The use of the words "sold and endorsed" means that STM and CSC intended a contract of sale, and
not an agency. Hence, on this score, no error was committed by the respondent appellate court when it
held that CSC was not STM's agent and could independently sue petitioner.

On the second issue, proceeding from the theory that the transactions entered into between petitioner and
STM are but serial parts of one account, petitioner insists that its debt has been offset by its claim for
STM's unpaid purchases, pursuant to Article 1279 of the Civil Code. 28 However, the trial court found, and
the Court of Appeals concurred, that the purchase of sugar covered by SLDR No. 1214M was a separate
and independent transaction; it was not a serial part of a single transaction or of one account contrary to
petitioner's insistence. Evidence on record shows, without being rebutted, that petitioner had been paid for
the sugar purchased under SLDR No. 1214M. Petitioner clearly had the obligation to deliver said
commodity to STM or its assignee. Since said sugar had been fully paid for, petitioner and CSC, as
assignee of STM, were not mutually creditors and debtors of each other. No reversible error could thereby
be imputed to respondent appellate court when, it refused to apply Article 1279 of the Civil Code to the
present case.

Regarding the third issue, petitioner contends that the sale of sugar under SLDR No. 1214M is a
conditional sale or a contract to sell, with title to the sugar still remaining with the vendor. Noteworthy,
SLDR No. 1214M contains the following terms and conditions:

"It is understood and agreed that by payment by buyer/trader of refined sugar and/or receipt of this
document by the buyer/trader personally or through a representative, title to refined sugar is transferred
to buyer/trader and delivery to him/it is deemed effected and completed (stress supplied) and buyer/trader
assumes full responsibility therefore"29

The aforequoted terms and conditions clearly show that petitioner transferred title to the sugar to the
buyer or his assignee upon payment of the purchase price. Said terms clearly establish a contract of sale,
not a contract to sell. Petitioner is now estopped from alleging the contrary. The contract is the law
between the contracting parties.30 And where the terms and conditions so stipulated are not contrary to
law, morals, good customs, public policy or public order, the contract is valid and must be
upheld.31 Having transferred title to the sugar in question, petitioner is now obliged to deliver it to the
purchaser or its assignee.

As to the fourth issue, petitioner submits that STM and private respondent CSC have entered into a
conspiracy to defraud it of its sugar. This conspiracy is allegedly evidenced by: (a) the fact that STM's
selling price to CSC was below its purchasing price; (b) CSC's refusal to pursue its case against Teresita
Ng Go; and (c) the authority given by the latter to other persons to withdraw sugar against SLDR No.
1214M after she had sold her rights under said SLDR to CSC. Petitioner prays that the doctrine of "clean
hands" should be applied to preclude CSC from seeking judicial relief. However, despite careful scrutiny,
we find here the records bare of convincing evidence whatsoever to support the petitioner's allegations of
fraud. We are now constrained to deem this matter purely speculative, bereft of concrete proof.

WHEREFORE, the instant petition is DENIED for lack of merit. Costs against petitioner.

SO ORDERED.

Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.

Republic of the Philippines


SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 149353 June 26, 2006
JOCELYN B. DOLES, Petitioner,
vs.
MA. AURA TINA ANGELES, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
This refers to the Petition for Review on Certiorari under Rule 45 of the Rules of Court questioning the
Decision1dated April 30, 2001 of the Court of Appeals (CA) in C.A.-G.R. CV No. 66985, which reversed
the Decision dated July 29, 1998 of the Regional Trial Court (RTC), Branch 21, City of Manila; and the
CA Resolution2 dated August 6, 2001 which denied petitioners Motion for Reconsideration.
The antecedents of the case follow:
On April 1, 1997, Ma. Aura Tina Angeles (respondent) filed with the RTC a complaint for Specific
Performance with Damages against Jocelyn B. Doles (petitioner), docketed as Civil Case No. 97-82716.
Respondent alleged that petitioner was indebted to the former in the concept of a personal loan amounting
to P405,430.00 representing the principal amount and interest; that on October 5, 1996, by virtue of a
"Deed of Absolute Sale",3 petitioner, as seller, ceded to respondent, as buyer, a parcel of land, as well as
the improvements thereon, with an area of 42 square meters, covered by Transfer Certificate of Title No.
382532,4 and located at a subdivision project known as Camella Townhomes Sorrente in Bacoor, Cavite,
in order to satisfy her personal loan with respondent; that this property was mortgaged to National Home
Mortgage Finance Corporation (NHMFC) to secure petitioners loan in the sum of P337,050.00 with that
entity; that as a condition for the foregoing sale, respondent shall assume the undue balance of the
mortgage and pay the monthly amortization of P4,748.11 for the remainder of the 25 years which began
on September 3, 1994; that the property was at that time being occupied by a tenant paying a monthly rent
of P3,000.00; that upon verification with the NHMFC, respondent learned that petitioner had incurred
arrearages amounting to P26,744.09, inclusive of penalties and interest; that upon informing the petitioner
of her arrears, petitioner denied that she incurred them and refused to pay the same; that despite repeated
demand, petitioner refused to cooperate with respondent to execute the necessary documents and other
formalities required by the NHMFC to effect the transfer of the title over the property; that petitioner
collected rent over the property for the month of January 1997 and refused to remit the proceeds to
respondent; and that respondent suffered damages as a result and was forced to litigate.
Petitioner, then defendant, while admitting some allegations in the Complaint, denied that she borrowed
money from respondent, and averred that from June to September 1995, she referred her friends to
respondent whom she knew to be engaged in the business of lending money in exchange for personal
checks through her capitalist Arsenio Pua. She alleged that her friends, namely, Zenaida Romulo, Theresa
Moratin, Julia Inocencio, Virginia Jacob, and Elizabeth Tomelden, borrowed money from respondent and
issued personal checks in payment of the loan; that the checks bounced for insufficiency of funds; that
despite her efforts to assist respondent to collect from the borrowers, she could no longer locate them;
that, because of this, respondent became furious and threatened petitioner that if the accounts were not
settled, a criminal case will be filed against her; that she was forced to issue eight checks amounting
to P350,000 to answer for the bounced checks of the borrowers she referred; that prior to the issuance of
the checks she informed respondent that they were not sufficiently funded but the latter nonetheless
deposited the checks and for which reason they were subsequently dishonored; that respondent then
threatened to initiate a criminal case against her for violation of Batas Pambansa Blg. 22; that she was
forced by respondent to execute an "Absolute Deed of Sale" over her property in Bacoor, Cavite, to avoid
criminal prosecution; that the said deed had no valid consideration; that she did not appear before a notary
public; that the Community Tax Certificate number on the deed was not hers and for which respondent
may be prosecuted for falsification and perjury; and that she suffered damages and lost rental as a result.
The RTC identified the issues as follows: first, whether the Deed of Absolute Sale is valid; second; if
valid, whether petitioner is obliged to sign and execute the necessary documents to effect the transfer of
her rights over the property to the respondent; and third, whether petitioner is liable for damages.
On July 29, 1998, the RTC rendered a decision the dispositive portion of which states:
WHEREFORE, premises considered, the Court hereby orders the dismissal of the complaint for
insufficiency of evidence. With costs against plaintiff.
SO ORDERED.
The RTC held that the sale was void for lack of cause or consideration: 5
Plaintiff Angeles admission that the borrowers are the friends of defendant Doles and further admission
that the checks issued by these borrowers in payment of the loan obligation negates [sic] the cause or
consideration of the contract of sale executed by and between plaintiff and defendant. Moreover, the
property is not solely owned by defendant as appearing in Entry No. 9055 of Transfer Certificate of Title
No. 382532 (Annex A, Complaint), thus:
"Entry No. 9055. Special Power of Attorney in favor of Jocelyn Doles covering the share of Teodorico
Doles on the parcel of land described in this certificate of title by virtue of the special power of attorney
to mortgage, executed before the notary public, etc."
The rule under the Civil Code is that contracts without a cause or consideration produce no effect
whatsoever. (Art. 1352, Civil Code).
Respondent appealed to the CA. In her appeal brief, respondent interposed her sole assignment of error:
THE TRIAL COURT ERRED IN DISMISSING THE CASE AT BAR ON THE GROUND OF [sic] THE
DEED OF SALE BETWEEN THE PARTIES HAS NO CONSIDERATION OR INSUFFICIENCY OF
EVIDENCE.6
On April 30, 2001, the CA promulgated its Decision, the dispositive portion of which reads:
WHEREFORE, IN VIEW OF THE FOREGOING, this appeal is hereby GRANTED. The Decision of the
lower court dated July 29, 1998 is REVERSED and SET ASIDE. A new one is entered ordering
defendant-appellee to execute all necessary documents to effect transfer of subject property to plaintiff-
appellant with the arrearages of the formers loan with the NHMFC, at the latters expense. No costs.
SO ORDERED.
The CA concluded that petitioner was the borrower and, in turn, would "re-lend" the amount borrowed
from the respondent to her friends. Hence, the Deed of Absolute Sale was supported by a valid
consideration, which is the sum of money petitioner owed respondent amounting to P405,430.00,
representing both principal and interest.
The CA took into account the following circumstances in their entirety: the supposed friends of petitioner
never presented themselves to respondent and that all transactions were made by and between petitioner
and respondent;7 that the money borrowed was deposited with the bank account of the petitioner, while
payments made for the loan were deposited by the latter to respondents bank account; 8 that petitioner
herself admitted in open court that she was "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 133511 of the Civil Code;12 that with respect to the arrearages of petitioner on her monthly
amortization with the NHMFC in the sum of P26,744.09, the same shall be deemed part of the balance of
petitioners loan with the NHMFC which respondent agreed to assume; and that the amount of P3,000.00
representing the rental for January 1997 supposedly collected by petitioner, as well as the claim for
damages and attorneys fees, is denied for insufficiency of evidence. 13
On May 29, 2001, petitioner filed her Motion for Reconsideration with the CA, arguing that respondent
categorically admitted in open court that she acted only as agent or representative of Arsenio Pua, the
principal financier and, hence, she had no legal capacity to sue petitioner; and that the CA failed to
consider the fact that petitioners father, who co-owned the subject property, was not impleaded as a
defendant nor was he indebted to the respondent and, hence, she cannot be made to sign the documents to
effect the transfer of ownership over the entire property.
On August 6, 2001, the CA issued its Resolution denying the motion on the ground that the foregoing
matters had already been passed upon.
On August 13, 2001, petitioner received a copy of the CA Resolution. On August 28, 2001, petitioner
filed the present Petition and raised the following issues:
I.
WHETHER OR NOT THE PETITIONER CAN BE CONSIDERED AS A DEBTOR OF THE
RESPONDENT.
II.
WHETHER OR NOT AN AGENT WHO WAS NOT AUTHORIZED BY THE PRINCIPAL TO
COLLECT DEBT IN HIS BEHALF COULD DIRECTLY COLLECT PAYMENT FROM THE
DEBTOR.
III.
WHETHER OR NOT THE CONTRACT OF SALE WAS EXECUTED FOR A CAUSE.14
Although, as a rule, it is not the business of this Court to review the findings of fact made by the lower
courts, jurisprudence has recognized several exceptions, at least three of which are present in the instant
case, namely: when the judgment is based on a misapprehension of facts; when the findings of facts of the
courts a quo are conflicting; and when the CA manifestly overlooked certain relevant facts not disputed
by the parties, which, if properly considered, could justify a different conclusion. 15 To arrive at a proper
judgment, therefore, the Court finds it necessary to re-examine the evidence presented by the contending
parties during the trial of the case.
The Petition is meritorious.
The principal issue is whether the Deed of Absolute Sale is supported by a valid consideration.
1. Petitioner argues that since she is merely the agent or representative of the alleged debtors, then she is
not a party to the loan; and that the Deed of Sale executed between her and the respondent in their own
names, which was predicated on that pre-existing debt, is void for lack of consideration.
Indeed, the Deed of Absolute Sale purports to be supported by a consideration in the form of a price
certain in money16 and that this sum indisputably pertains to the debt in issue. This Court has consistently
held that a contract of sale is null and void and produces no effect whatsoever where the same is without
cause or consideration.17 The question that has to be resolved for the moment is whether this debt can be
considered as a valid cause or consideration for the sale.
To restate, the CA cited four instances in the record to support its holding that petitioner "re-lends" the
amount borrowed from respondent to her friends: first, the friends of petitioner never presented
themselves to respondent and that all transactions were made by and between petitioner and
respondent;18 second; the money passed through the bank accounts of petitioner and respondent; 19 third,
petitioner herself admitted that she was "re-lending" the money loaned to other individuals for
profit;20 and fourth, the documentary evidence shows that the actual borrowers, the friends of petitioner,
consider her as their creditor and not the respondent. 21
On the first, third, and fourth points, the CA cites the testimony of the petitioner, then defendant, during
her cross-examination:22
Atty. Diza:
q. You also mentioned that you were not the one indebted to the plaintiff?
witness:
a. Yes, sir.
Atty. Diza:
q. And you mentioned the persons[,] namely, Elizabeth Tomelden, Teresa Moraquin, Maria Luisa
Inocencio, Zenaida Romulo, they are your friends?
witness:
a. Inocencio and Moraquin are my friends while [as to] Jacob and Tomelden[,] they were just
referred.
Atty. Diza:
q. And you have transact[ed] with the plaintiff?
witness:
a. Yes, sir.
Atty. Diza:
q. What is that transaction?
witness:
a. To refer those persons to Aura and to refer again to Arsenio Pua, sir.
Atty. Diza:
q. Did the plaintiff personally see the transactions with your friends?
witness:
a. No, sir.
Atty. Diza:
q. Your friends and the plaintiff did not meet personally?
witness:
a. Yes, sir.
Atty. Diza:
q. You are intermediaries?
witness:
a. We are both intermediaries. As evidenced by the checks of the debtors they were deposited to
the name of Arsenio Pua because the money came from Arsenio Pua.
xxxx
Atty. Diza:
q. Did the plaintiff knew [sic] that you will lend the money to your friends specifically the one
you mentioned [a] while ago?
witness:
a. Yes, she knows the money will go to those persons.
Atty. Diza:
q. You are re-lending the money?
witness:
a. Yes, sir.
Atty. Diza:
q. What profit do you have, do you have commission?
witness:
a. Yes, sir.
Atty. Diza:
q. How much?
witness:
a. Two percent to Tomelden, one percent to Jacob and then Inocencio and my friends none, sir.
Based on the foregoing, the CA concluded that petitioner is the real borrower, while the
respondent, the real lender.
But as correctly noted by the RTC, respondent, then plaintiff, made the following admission
during her cross examination:23
Atty. Villacorta:
q. Who is this Arsenio Pua?
witness:
a. Principal financier, sir.
Atty. Villacorta:
q. So the money came from Arsenio Pua?
witness:
a. Yes, because I am only representing him, sir.
Other portions of the testimony of respondent must likewise be considered: 24
Atty. Villacorta:
q. So it is not actually your money but the money of Arsenio Pua?
witness:
a. Yes, sir.
Court:
q. It is not your money?
witness:
a. Yes, Your Honor.
Atty. Villacorta:
q. Is it not a fact Ms. Witness that the defendant borrowed from you to accommodate somebody,
are you aware of that?
witness:
a. I am aware of that.
Atty. Villacorta:
q. More or less she [accommodated] several friends of the defendant?
witness:
a. Yes, sir, I am aware of that.
xxxx
Atty. Villacorta:
q. And these friends of the defendant borrowed money from you with the assurance of the
defendant?
witness:
a. They go direct to Jocelyn because I dont know them.
xxxx
Atty. Villacorta:
q. And is it not also a fact Madam witness that everytime that the defendant borrowed money
from you her friends who [are] in need of money issued check[s] to you? There were checks
issued to you?
witness:
a. Yes, there were checks issued.
Atty. Villacorta:
q. By the friends of the defendant, am I correct?
witness:
a. Yes, sir.
Atty. Villacorta:
q. And because of your assistance, the friends of the defendant who are in need of money were
able to obtain loan to [sic] Arsenio Pua through your assistance?
witness:
a. Yes, sir.
Atty. Villacorta:
q. So that occasion lasted for more than a year?
witness:
a. Yes, sir.
Atty. Villacorta:
q. And some of the checks that were issued by the friends of the defendant bounced, am I correct?
witness:
a. Yes, sir.
Atty. Villacorta:
q. And because of that Arsenio Pua got mad with you?
witness:
a. Yes, sir.
Respondent is estopped to deny that she herself acted as agent of a certain Arsenio Pua, her disclosed
principal. She is also estopped to deny that petitioner acted as agent for the alleged debtors, the friends
whom she (petitioner) referred.
This Court has affirmed that, under Article 1868 of the Civil Code, the basis of agency is
representation.25 The question of whether an agency has been created is ordinarily a question which may
be established in the same way as any other fact, either by direct or circumstantial evidence. The question
is ultimately one of intention.26 Agency may even be implied from the words and conduct of the parties
and the circumstances of the particular case. 27Though 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 relationship
it is sufficient that petitioner disclosed to respondent that the former was acting in behalf of her principals,
her friends whom she referred to respondent. For an agency to arise, it is not necessary that the principal
personally encounter the third person with whom the agent interacts. The law in fact contemplates, and to
a great degree, impersonal dealings where the principal need not personally know or meet the third person
with whom her agent transacts: precisely, the purpose of agency is to extend the personality of the
principal through the facility of the agent.29
In the case at bar, both petitioner and respondent have undeniably disclosed to each other that they are
representing someone else, and so both of them are estopped to deny the same. It is evident from the
record that petitioner merely refers actual borrowers and then collects and disburses the amounts of the
loan upon which she received a commission; and that respondent transacts on behalf of her "principal
financier", a certain Arsenio Pua. If their respective principals do not actually and personally know each
other, such ignorance does not affect their juridical standing as agents, especially since the very purpose
of agency is to extend the personality of the principal through the facility of the agent.
With respect to the admission of petitioner that she is "re-lending" the money loaned from respondent to
other individuals for profit, it must be stressed that the manner in which the parties designate the
relationship is not controlling. If an act done by one person in behalf of another is in its essential nature
one of agency, the former is the agent of the latter notwithstanding he or she is not so called. 30 The
question is to be determined by the fact that one represents and is acting for another, and if relations exist
which will constitute an agency, it will be an agency whether the parties understood the exact nature of
the relation or not.31
That both parties acted as mere agents is shown by the undisputed fact that the friends of petitioner issued
checks in payment of the loan in the name of Pua. If it is true that petitioner was "re-lending", then the
checks should have been drawn in her name and not directly paid to Pua.
With respect to the second point, particularly, the finding of the CA that the disbursements and payments
for the loan were made through the bank accounts of petitioner and respondent,
suffice it to say that in the normal course of commercial dealings and for reasons of convenience and
practical utility it can be reasonably expected that the facilities of the agent, such as a bank account, may
be employed, and that a sub-agent be appointed, such as the bank itself, to carry out the task, especially
where there is no stipulation to the contrary.32
In view of the two agency relationships, petitioner and respondent are not privy to the contract of loan
between their principals. Since the sale is predicated on that loan, then the sale is void for lack of
consideration.
2. A further scrutiny of the record shows, however, that the sale might have been backed up by another
consideration that is separate and distinct from the debt: respondent averred in her complaint and testified
that the parties had agreed that as a condition for the conveyance of the property the respondent shall
assume the balance of the mortgage loan which petitioner allegedly owed to the NHMFC. 33 This Court in
the recent past has declared that an assumption of a mortgage debt may constitute a valid consideration
for a sale.34
Although the record shows that petitioner admitted at the time of trial that she owned the property
described in the TCT,35 the Court must stress that the Transfer Certificate of Title No. 382532 36 on its face
shows that the owner of the property which admittedly forms the subject matter of the Deed of Absolute
Sale refers neither to the petitioner nor to her father, Teodorico Doles, the alleged co-owner. Rather, it
states that the property is registered in the name of "Household Development Corporation." Although
there is an entry to the effect that the petitioner had been granted a special power of attorney "covering the
shares of Teodorico Doles on the parcel of land described in this certificate," 37 it cannot be inferred from
this bare notation, nor from any other evidence on the record, that the petitioner or her father held any
direct interest on the property in question so as to validly constitute a mortgage thereon 38 and, with more
reason, to effect the delivery of the object of the sale at the consummation stage. 39 What is worse, there is
a notation that the TCT itself has been "cancelled." 40
In view of these anomalies, the Court cannot entertain the
possibility that respondent agreed to assume the balance of the mortgage loan which petitioner allegedly
owed to the NHMFC, especially since the record is bereft of any factual finding that petitioner was, in the
first place, endowed with any ownership rights to validly mortgage and convey the property. As the
complainant who initiated the case, respondent bears the burden of proving the basis of her complaint.
Having failed to discharge such burden, the Court has no choice but to declare the sale void for lack of
cause. And since the sale is void, the Court finds it unnecessary to dwell on the issue of whether duress or
intimidation had been foisted upon petitioner upon the execution of the sale.
Moreover, even assuming the mortgage validly exists, the Court notes respondents allegation that the
mortgage with the NHMFC was for 25 years which began September 3, 1994. Respondent filed her
Complaint for Specific Performance in 1997. Since the 25 years had not lapsed, the prayer of respondent
to compel petitioner to execute necessary documents to effect the transfer of title is premature.
WHEREFORE, the petition is granted. The Decision and Resolution of the Court of Appeals
are REVERSED and SET ASIDE. The complaint of respondent in Civil Case No. 97-82716
is DISMISSED.
SO ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
WE CONCUR:
ARTEMIO V. PANGANIBAN
Chief Justice
Chairperson
CONSUELO YNARES-SANTIAGO ROMEO J. CALLEJO, SR.
Associate Justice Asscociate Justice
MINITA V. CHICO-NAZARIO
Associate Justice
C E R T I F I C AT I O N
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