G.R. No. 167552 April 23, 2007 1.2. Defendant Erwin H.
1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of Cebu City. He is the proprietor of a
EUROTECH INDUSTRIAL TECHNOLOGIES, INC.,Petitioner
vs.
EDWIN CUIZON and ERWIN CUIZON, Respondents
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 2002rendered 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
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 Defult 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.
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.
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 fortiorithat any act of an agent after the death of his principal is void ab initio unless the same fags under the
exception provided for in the aforementioned Articles 1930 and 1931. Article 1931, being an exception to the
general rule, is to be strictly construed, it is not to be given an interpretation or application beyond the clear
import of its terms for otherwise the courts will be involved in a process of legislation outside of their judicial
function.
5. Another argument advanced by respondent court is that the vendee acting in good faith relied on the power
of attorney which was duly registered on the original certificate of title recorded in the Register of Deeds of the
province of Cebu, that no notice of the death was aver annotated on said certificate of title by the heirs of the
principal and accordingly they must suffer the consequences of such omission. 17
To support such argument reference is made to a portion in Manresa's Commentaries which We quote:
If the agency has been granted for the purpose of contracting with certain persons, the revocation must be
made known to them. But if the agency is general iii nature, without reference to particular person with whom
the agent is to contract, it is sufficient that the principal exercise due diligence to make the revocation of the
agency publicity known.
In case of a general power which does not specify the persons to whom represents' on should be made, it is
the general opinion that all acts, executed with third persons who contracted in good faith, Without knowledge
of the revocation, are valid. In such case, the principal may exercise his right against the agent, who, knowing
of the revocation, continued to assume a personality which he no longer had. (Manresa Vol. 11, pp. 561 and
575; pp. 15-16, rollo)
The above discourse however, treats of revocation by an act of the principal as a mode of terminating an
agency which is to be distinguished from revocation by operation of law such as death of the principal which
obtains in this case. On page six of this Opinion We stressed that by reason of the very nature of the
relationship between principal and agent, agency is extinguished ipso jure upon the death of either principal
or agent. Although a revocation of a power of attorney to be effective must be communicated to the parties
concerned, 18 yet a revocation by operation of law, such as by death of the principal is, as a rule,
instantaneously effective inasmuch as "by legal fiction the agent's exercise of authority is regarded as an
execution of the principal's continuing will. 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
G.R. No. L-18058 January 16, 1923
FABIOLA SEVERINO, plaintiff-appellee,
vs.
GUILLERMO SEVERINO, defendant-appellant.
FELICITAS VILLANUEVA, intervenor-appellee.
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.
G.R. No. 149353 June 26, 2006
JOCELYN B. DOLES, Petitioner,
vs.
MA. AURA TINA ANGELES, Respondent.
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 witness:
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 a. We are both intermediaries. As evidenced by the checks of the debtors they were deposited to the name of
consideration.17 The question that has to be resolved for the moment is whether this debt can be considered Arsenio Pua because the money came from Arsenio Pua.
as a valid cause or consideration for the sale.
xxxx
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 Atty. Diza:
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 q. Did the plaintiff knew [sic] that you will lend the money to your friends specifically the one you mentioned [a]
she was "re-lending" the money loaned to other individuals for profit;20 and fourth, the documentary evidence while ago?
shows that the actual borrowers, the friends of petitioner, consider her as their creditor and not the
respondent.21 witness:

On the first, third, and fourth points, the CA cites the testimony of the petitioner, then defendant, during her a. Yes, she knows the money will go to those persons.
cross-examination:22
Atty. Diza:
Atty. Diza:
q. You are re-lending the money?
q. You also mentioned that you were not the one indebted to the plaintiff?
witness:
witness:
a. Yes, sir.
a. Yes, sir.
Atty. Diza:
Atty. Diza:
q. What profit do you have, do you have commission?
q. And you mentioned the persons[,] namely, Elizabeth Tomelden, Teresa Moraquin, Maria Luisa Inocencio,
Zenaida Romulo, they are your friends? witness:

witness: a. Yes, sir.

a. Inocencio and Moraquin are my friends while [as to] Jacob and Tomelden[,] they were just referred. Atty. Diza:

Atty. Diza: q. How much?

q. And you have transact[ed] with the plaintiff? witness:

witness: a. Two percent to Tomelden, one percent to Jacob and then Inocencio and my friends none, sir.
a. Yes, sir. Based on the foregoing, the CA concluded that petitioner is the real borrower, while the respondent, the real
lender.
Atty. Diza:
But as correctly noted by the RTC, respondent, then plaintiff, made the following admission during her cross
q. What is that transaction? examination:23

witness: Atty. Villacorta:

a. To refer those persons to Aura and to refer again to Arsenio Pua, sir. q. Who is this Arsenio Pua?

Atty. Diza: witness:

q. Did the plaintiff personally see the transactions with your friends? a. Principal financier, sir.

witness: Atty. Villacorta:

a. No, sir. q. So the money came from Arsenio Pua?

Atty. Diza: witness:

q. Your friends and the plaintiff did not meet personally? a. Yes, because I am only representing him, sir.

witness: Other portions of the testimony of respondent must likewise be considered:24

a. Yes, sir. Atty. Villacorta:

Atty. Diza: q. So it is not actually your money but the money of Arsenio Pua?

q. You are intermediaries? witness:

a. Yes, sir. witness:

Court: a. Yes, sir.

q. It is not your money? Atty. Villacorta:

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

a. Yes, Your Honor. witness:

Atty. Villacorta: a. Yes, sir.

q. Is it not a fact Ms. Witness that the defendant borrowed from you to accommodate somebody, are you Atty. Villacorta:
aware of that?
q. And because of that Arsenio Pua got mad with you?
witness:
witness:
a. I am aware of that.
a. Yes, sir.
Atty. Villacorta:
Respondent is estopped to deny that she herself acted as agent of a certain Arsenio Pua, her disclosed
q. More or less she [accommodated] several friends of the defendant? principal. She is also estopped to deny that petitioner acted as agent for the alleged debtors, the friends
whom she (petitioner) referred.
witness:
This Court has affirmed that, under Article 1868 of the Civil Code, the basis of agency is representation.25 The
a. Yes, sir, I am aware of that. 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
xxxx 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
Atty. Villacorta: 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
q. And these friends of the defendant borrowed money from you with the assurance of the defendant? transaction in which he or she is engaged.28

witness: In this case, petitioner knew that the financier of respondent is Pua; and respondent knew that the borrowers
are friends of petitioner.
a. They go direct to Jocelyn because I dont know them.
The CA is incorrect when it considered the fact that the "supposed friends of [petitioner], the actual borrowers,
xxxx did not present themselves to [respondent]" as evidence that negates the agency relationshipit is sufficient
that petitioner disclosed to respondent that the former was acting in behalf of her principals, her friends whom
Atty. Villacorta: 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
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? agent transacts: precisely, the purpose of agency is to extend the personality of the principal through the
facility of the agent.29
witness:
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
a. Yes, there were checks issued.
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
Atty. Villacorta: 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
q. By the friends of the defendant, am I correct? extend the personality of the principal through the facility of the agent.
witness: 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
a. Yes, sir. 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
Atty. Villacorta: 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
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? 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
witness: should have been drawn in her name and not directly paid to Pua.

a. Yes, sir. 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,
Atty. Villacorta:
suffice it to say that in the normal course of commercial dealings and for reasons of convenience and practical
q. So that occasion lasted for more than a year? 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. 38253236 on its face shows that
the owner of the property which admittedly forms the subject matter of the Deed of Absolute Sale refers
neither to the petitioner nor to her father, Teodorico Doles, the alleged co-owner. Rather, it states that the
property is registered in the name of "Household Development Corporation." Although there is an entry to the
effect that the petitioner had been granted a special power of attorney "covering the shares of Teodorico
Doles on the parcel of land described in this certificate,"37 it cannot be inferred from this bare notation, nor
from any other evidence on the record, that the petitioner or her father held any direct interest on the property
in question so as to validly constitute a mortgage thereon38 and, with more reason, to effect the delivery of the
object of the sale at the consummation stage.39 What is worse, there is a notation that the TCT itself has been
"cancelled."40
In view of these anomalies, the Court cannot entertain the
possibility that respondent agreed to assume the balance of the mortgage loan which petitioner allegedly
owed to the NHMFC, especially since the record is bereft of any factual finding that petitioner was, in the first
place, endowed with any ownership rights to validly mortgage and convey the property. As the complainant
who initiated the case, respondent bears the burden of proving the basis of her complaint. Having failed to
discharge such burden, the Court has no choice but to declare the sale void for lack of cause. And since the
sale is void, the Court finds it unnecessary to dwell on the issue of whether duress or intimidation had been
foisted upon petitioner upon the execution of the sale.
Moreover, even assuming the mortgage validly exists, the Court notes respondents allegation that the
mortgage with the NHMFC was for 25 years which began September 3, 1994. Respondent filed her
Complaint for Specific Performance in 1997. Since the 25 years had not lapsed, the prayer of respondent to
compel petitioner to execute necessary documents to effect the transfer of title is premature.
WHEREFORE, the petition is granted. The Decision and Resolution of the Court of Appeals
are REVERSED and SET ASIDE. The complaint of respondent in Civil Case No. 97-82716 is DISMISSED.
SO ORDERED.
G.R. No. L-57339 December 29, 1983
AIR FRANCE, petitioner,
vs.
HONORABLE COURT OF APPEALS, JOSE G. GANA (Deceased), CLARA A. GANA, RAMON GANA,
MANUEL GANA, MARIA TERESA GANA, ROBERTO GANA, JAIME JAVIER GANA, CLOTILDE VDA. DE
AREVALO, and EMILY SAN JUAN, respondents.
In this petition for review on certiorari, petitioner AIR FRANCE assails the Decision of then respondent Court
of Appeals 1 promulgated on 15 December 1980 in CA-G.R. No. 58164-R, entitled "Jose G. Gana, et al. vs.
Sociedad Nacionale Air France", which reversed the Trial Court's judgment dismissing the Complaint of
private respondents for damages arising from breach of contract of carriage, and awarding instead
P90,000.00 as moral damages.
Sometime in February, 1970, the late Jose G. Gana and his family, numbering nine (the GANAS), purchased
from AIR FRANCE through Imperial Travels, Incorporated, a duly authorized travel agent, nine (9) "open-
dated" air passage tickets for the Manila/Osaka/Tokyo/Manila route. The GANAS paid a total of US$2,528.85
for their economy and first class fares. Said tickets were bought at the then prevailing exchange rate of P3.90
per US$1.00. The GANAS also paid travel taxes of P100.00 for each passenger.
On 24 April 1970, AIR FRANCE exchanged or substituted the aforementioned tickets with other tickets for the
same route. At this time, the GANAS were booked for the Manila/Osaka segment on AIR FRANCE Flight 184
for 8 May 1970, and for the Tokyo/Manila return trip on AIR FRANCE Flight 187 on 22 May 1970. The
aforesaid tickets were valid until 8 May 1971, the date written under the printed words "Non valuable apres de
(meaning, "not valid after the").
The GANAS did not depart on 8 May 1970.
Sometime in January, 1971, Jose Gana sought the assistance of Teresita Manucdoc, a Secretary of the Sta.
Clara Lumber Company where Jose Gana was the Director and Treasurer, for the extension of the validity of
their tickets, which were due to expire on 8 May 1971. Teresita enlisted the help of Lee Ella Manager of the
Philippine Travel Bureau, who used to handle travel arrangements for the personnel of the Sta. Clara Lumber
Company. Ella sent the tickets to Cesar Rillo, Office Manager of AIR FRANCE. The tickets were returned to
Ella who was informed that extension was not possible unless the fare differentials resulting from the increase
in fares triggered by an increase of the exchange rate of the US dollar to the Philippine peso and the
increased travel tax were first paid. Ella then returned the tickets to Teresita and informed her of the
impossibility of extension.
In the meantime, the GANAS had scheduled their departure on 7 May 1971 or one day before the expiry
date. In the morning of the very day of their scheduled departure on the first leg of their trip, Teresita
requested travel agent Ella to arrange the revalidation of the tickets. Ella gave the same negative answer and
warned her that although the tickets could be used by the GANAS if they left on 7 May 1971, the tickets would
no longer be valid for the rest of their trip because the tickets would then have expired on 8 May 1971.
Teresita replied that it will be up to the GANAS to make the arrangements. With that assurance, Ella on his
own, attached to the tickets validating stickers for the Osaka/Tokyo flight, one a JAL. sticker and the other an
SAS (Scandinavian Airways System) sticker. The SAS sticker indicates thereon that it was "Reevaluated by:
the Philippine Travel Bureau, Branch No. 2" (as shown by a circular rubber stamp) and signed "Ador", and the
date is handwritten in the center of the circle. Then appear under printed headings the notations: JL. 108
(Flight), 16 May (Date), 1040 (Time), OK (status). Apparently, Ella made no more attempt to contact AIR
FRANCE as there was no more time.
Notwithstanding the warnings, the GANAS departed from Manila in the afternoon of 7 May 1971 on board AIR
FRANCE Flight 184 for Osaka, Japan. There is no question with respect to this leg of the trip.
However, for the Osaka/Tokyo flight on 17 May 1971, Japan Airlines refused to honor the tickets because of
their expiration, and the GANAS had to purchase new tickets. They encountered the same difficulty with
respect to their return trip to Manila as AIR FRANCE also refused to honor their tickets. They were able to
return only after pre-payment in Manila, through their relatives, of the readjusted rates. They finally flew back
to Manila on separate Air France Frights on 19 May 1971 for Jose Gana and 26 May 1971 for the rest of the
family.
On 25 August 1971, the GANAS commenced before the then Court of First Instance of Manila, Branch III,
Civil Case No. 84111 for damages arising from breach of contract of carriage.
AIR FRANCE traversed the material allegations of the Complaint and alleged that the GANAS brought upon
themselves the predicament they found themselves in and assumed the consequential risks; that travel agent
Ella's affixing of validating stickers on the tickets without the knowledge and consent of AIR FRANCE, violated
airline tariff rules and regulations and was beyond the scope of his authority as a travel agent; and that AIR
FRANCE was not guilty of any fraudulent conduct or bad faith.
On 29 May 1975, the Trial Court dismissed the Complaint based on Partial and Additional Stipulations of Fact
as wen as on the documentary and testimonial evidence.
The GANAS appealed to respondent Appellate Court. During the pendency of the appeal, Jose Gana, the
principal plaintiff, died.
On 15 December 1980, respondent Appellate Court set aside and reversed the Trial Court's judgment in a
Decision, which decreed:
WHEREFORE, the decision appealed from is set aside. Air France is hereby ordered to pay appellants moral
damages in the total sum of NINETY THOUSAND PESOS (P90,000.00) plus costs.
SO ORDERED. 2
Reconsideration sought by AIR FRANCE was denied, hence, petitioner's recourse before this instance, to
which we gave due course.
The crucial issue is whether or not, under the environmental milieu the GANAS have made out a case for
breach of contract of carriage entitling them to an award of damages.
We are constrained to reverse respondent Appellate Court's affirmative ruling thereon.
Pursuant to tariff rules and regulations of the International Air Transportation Association (IATA), included in
paragraphs 9, 10, and 11 of the Stipulations of Fact between the parties in the Trial Court, dated 31 March
1973, an airplane ticket is valid for one year. "The passenger must undertake the final portion of his journey
by departing from the last point at which he has made a voluntary stop before the expiry of this limit (parag.
3.1.2. ) ... That is the time allowed a passenger to begin and to complete his trip (parags. 3.2 and 3.3.). ... A
ticket can no longer be used for travel if its validity has expired before the passenger completes his trip
(parag. 3.5.1.) ... To complete the trip, the passenger must purchase a new ticket for the remaining portion of
the journey" (ibid.) 3
From the foregoing rules, it is clear that AIR FRANCE cannot be faulted for breach of contract when it
dishonored the tickets of the GANAS after 8 May 1971 since those tickets expired on said date; nor when it
required the GANAS to buy new tickets or have their tickets re-issued for the Tokyo/Manila segment of their
trip. Neither can it be said that, when upon sale of the new tickets, it imposed additional charges representing
fare differentials, it was motivated by self-interest or unjust enrichment considering that an increase of fares
took effect, as authorized by the Civil Aeronautics Board (CAB) in April, 1971. This procedure is well in accord
with the IATA tariff rules which provide:
6. TARIFF RULES
7. APPLICABLE FARE ON THE DATE OF DEPARTURE
3.1 General Rule.
All journeys must be charged for at the fare (or charge) in effect on the date on which transportation
commences from the point of origin. Any ticket sold prior to a change of fare or charge (increase or decrease)
occurring between the date of commencement of the journey, is subject to the above general rule and must
be adjusted accordingly. A new ticket must be issued and the difference is to be collected or refunded as the
case may be. No adjustment is necessary if the increase or decrease in fare (or charge) occurs when the
journey is already commenced. 4
The GANAS cannot defend by contending lack of knowledge of those rules since the evidence bears out that
Teresita, who handled travel arrangements for the GANAS, was duly informed by travel agent Ella of the
advice of Reno, the Office Manager of Air France, that the tickets in question could not be extended beyond
the period of their validity without paying the fare differentials and additional travel taxes brought about by the
increased fare rate and travel taxes.
ATTY. VALTE
Q What did you tell Mrs. Manucdoc, in turn after being told this by Mr. Rillo?
A I told her, because that is the reason why they accepted again the tickets when we returned the tickets spin,
that they could not be extended. They could be extended by paying the additional fare, additional tax and
additional exchange during that time.
Q You said so to Mrs. Manucdoc?
A Yes, sir." ... 5
The ruling relied on by respondent Appellate Court, therefore, in KLM. vs. Court of Appeals, 65 SCRA 237
(1975), holding that it would be unfair to charge respondents therein with automatic knowledge or notice of
conditions in contracts of adhesion, is inapplicable. To all legal intents and purposes, Teresita was the agent
of the GANAS and notice to her of the rejection of the request for extension of the validity of the tickets was
notice to the GANAS, her principals.
The SAS validating sticker for the Osaka/Tokyo flight affixed by Era showing reservations for JAL. Flight 108
for 16 May 1971, without clearing the same with AIR FRANCE allegedly because of the imminent departure of
the GANAS on the same day so that he could not get in touch with Air France 6 was certainly in contravention
of IATA rules although as he had explained, he did so upon Teresita's assurance that for the onward flight
from Osaka and return, the GANAS would make other arrangements.
Q Referring you to page 33 of the transcript of the last session, I had this question which reads as follows:
'But did she say anything to you when you said that the tickets were about to expire?' Your answer was: 'I am
the one who asked her. At that time I told her if the tickets being used ... I was telling her what about their
bookings on the return. What about their travel on the return? She told me it is up for the Ganas to make the
arrangement.' May I know from you what did you mean by this testimony of yours?
A That was on the day when they were asking me on May 7, 1971 when they were checking the tickets. I told
Mrs. Manucdoc that I was going to get the tickets. I asked her what about the tickets onward from the return
from Tokyo, and her answer was it is up for the Ganas to make the arrangement, because I told her that they
could leave on the seventh, but they could take care of that when they arrived in Osaka.
Q What do you mean?
A The Ganas will make the arrangement from Osaka, Tokyo and Manila.
Q What arrangement?
A The arrangement for the airline because the tickets would expire on May 7, and they insisted on leaving. I
asked Mrs. Manucdoc what about the return onward portion because they would be travelling to Osaka, and
her answer was, it is up to for the Ganas to make the arrangement.
Q Exactly what were the words of Mrs. Manucdoc when you told her that? If you can remember, what were
her exact words?
A Her words only, it is up for the Ganas to make the arrangement.
Q This was in Tagalog or in English?
A I think it was in English. ... 7
The circumstances that AIR FRANCE personnel at the ticket counter in the airport allowed the GANAS to
leave is not tantamount to an implied ratification of travel agent Ella's irregular actuations. It should be
recalled that the GANAS left in Manila the day before the expiry date of their tickets and that "other
arrangements" were to be made with respect to the remaining segments. Besides, the validating stickers that
Ella affixed on his own merely reflect the status of reservations on the specified flight and could not legally
serve to extend the validity of a ticket or revive an expired one.
The conclusion is inevitable that the GANAS brought upon themselves the predicament they were in for
having insisted on using tickets that were due to expire in an effort, perhaps, to beat the deadline and in the
thought that by commencing the trip the day before the expiry date, they could complete the trip even
thereafter. It should be recalled that AIR FRANCE was even unaware of the validating SAS and JAL. stickers
that Ella had affixed spuriously. Consequently, Japan Air Lines and AIR FRANCE merely acted within their
contractual rights when they dishonored the tickets on the remaining segments of the trip and when AIR
FRANCE demanded payment of the adjusted fare rates and travel taxes for the Tokyo/Manila flight.
WHEREFORE, the judgment under review is hereby reversed and set aside, and the Amended Complaint
filed by private respondents hereby dismissed.
No costs.
SO ORDERED.
G.R. No. 114311. November 29, 1996
COSMIC LUMBER CORPORATION, petitioner, vs. COURT OF APPEALS and ISIDRO
PEREZ, respondents.
COSMIC LUMBER CORPORATION through its General Manager executed on 28 January 1985 a Special
Power of Attorney appointing Paz G. Villamil-Estrada as attorney-in-fact -
x x x to initiate, institute and file any court action for the ejectment of third persons and/or squatters of the
entire lot 9127 and 443 and covered by TCT Nos. 37648 and 37649, for the said squatters to remove their
houses and vacate the premises in order that the corporation may take material possession of the entire lot,
and for this purpose, to appear at the pre-trial conference and enter into any stipulation of facts and/or
compromise agreement so far as it shall protect the rights and interest of the corporation in the
aforementioned lots.[1]
On 11 March 1985 Paz G. Villamil-Estrada, by virtue of her power of attorney, instituted an action for the
ejectment of private respondent Isidro Perez and recover the possession of a portion of Lot No. 443 before
the Regional Trial Court of Dagupan, docketed as Civil Case No. D-7750.[2]
On 25 November 1985 Villamil-Estrada entered into a Compromise Agreement with respondent Perez, the
terms of which follow:
1. That as per relocation sketch plan dated June 5, 1985 prepared by Engineer Rodolfo dela Cruz the area at
present occupied by defendant wherein his house is located is 333 square meters on the easternmost part of
lot 443 and which portion has been occupied by defendant for several years now;
2. That to buy peace said defendant pays unto the plaintiff through herein attorney-in-fact the sum
of P26,640.00 computed at P80.00/square meter;
3. That plaintiff hereby recognizes ownership and possession of the defendant by virtue of this compromise
agreement over said portion of 333 square m. of lot 443 which portion will be located on the easternmost part
as indicated in the sketch as annex A;
4. Whatever expenses of subdivision, registration, and other incidental expenses shall be shouldered by the
defendant.[3]
On 27 November 1985 the Compromise Agreement was approved by the trial court and judgment was
rendered in accordance therewith.[4]
Although the decision became final and executory it was not executed within the 5-year period from date of its
finality allegedly due to the failure of petitioner to produce the owners duplicate copy of Title No. 37649
needed to segregate from Lot No. 443 the portion sold by the attorney-in-fact, Paz G. Villamil-Estrada, to
private respondent under the compromise agreement. Thus on 25 January 1993 respondent filed a complaint
to revive the judgment, docketed as Civil Case No. D-10459.[5]
Petitioner asserts that it was only when the summons in Civil Case No. D-10459 for the revival of judgment
was served upon it that it came to know of the compromise agreement entered into between Paz G. Villamil-
Estrada and respondent Isidro Perez upon which the trial court based its decision of 26 July 1993 in Civil
Case No. D-7750. Forthwith, upon learning of the fraudulent transaction, petitioner sought annulment of the
decision of the trial court before respondent Court of Appeals on the ground that the compromise agreement
was void because: (a) the attorney-in-fact did not have the authority to dispose of, sell, encumber or divest
the plaintiff of its ownership over its real property or any portion thereof; (b) the authority of the attorney-in-fact
was confined to the institution and filing of an ejectment case against third persons/squatters on the property
of the plaintiff, and to cause their eviction therefrom; (c) while the special power of attorney made mention of
an authority to enter into a compromise agreement, such authority was in connection with, and limited to, the
eviction of third persons/squatters thereat, in order that the corporation may take material possession of the
entire lot; (d) the amount of P26,640.00 alluded to as alleged consideration of said agreement was never
received by the plaintiff; (e) the private defendant acted in bad faith in the execution of said agreement
knowing fully well the want of authority of the attorney-in-fact to sell, encumber or dispose of the real property
of plaintiff; and, (f) the disposal of a corporate property indispensably requires a Board Resolution of its
Directors, a fact which is wanting in said Civil Case No. D-7750, and the General Manager is not the proper
officer to encumber a corporate property.[6]
On 29 October 1993 respondent court dismissed the complaint on the basis of its finding that not one of the
grounds for annulment, namely, lack of jurisdiction, fraud or illegality was shown to exist.[7] It also denied the
motion for reconsideration filed by petitioner, discoursing that the alleged nullity of the compromise judgment
on the ground that petitioners attorney in fact Villamit-Estrada was not authorized to sell the subject property
may be raised as a defense in the execution of the compromise judgment as it does not bind petitioner, but
not as a ground for annulment of judgment because it does not affect the jurisdiction of the trial court over the
action nor does it amount to extrinsic fraud.[8]
Petitioner challenges this verdict. It argues that the decision of the trial court is void because the compromise
agreement upon which it was based is void. Attorney-in-fact Villamil-Estrada did not possess the authority to
sell or was she armed with a Board Resolution authorizing the sale of its property. She was merely
empowered to enter into a compromise agreement in the recovery suit she was authorized to file against
persons squatting on Lot No. 443, such authority being expressly confined to the ejectment of third persons or
squatters of x x x lot x x x (No.) 443 x x x for the said squatters to remove their houses and vacate the
premises in order that the corporation may take material possession of the entire lot x x x x
We agree with petitioner. The authority granted Villamil-Estrada under the special power of attorney was
explicit and exclusionary: for her to institute any action in court to eject all persons found on Lots Nos. 9127
and 443 so that petitioner could take material possession thereof, and for this purpose, to appear at the pre-
trial and enter into any stipulation of facts and/or compromise agreement but only insofar as this was
protective of the rights and interests of petitioner in the property. Nowhere in this authorization was Villamil-
Estrada granted expressly or impliedly any power to sell the subject property nor a portion thereof. Neither
can a conferment of the power to sell be validly inferred from the specific authority to enter into a compromise
agreement because of the explicit limitation fixed by the grantor that the compromise entered into shall only
be so far as it shall protect the rights and interest of the corporation in the aforementioned lots. In the context
of the specific investiture of powers to Villamil-Estrada, alienation by sale of an immovable certainly cannot be
deemed protective of the right of petitioner to physically possess the same, more so when the land was being
sold for a price of P80.00 per square meter, very much less than its assessed value of P250.00 per square
meter, and considering further that petitioner never received the proceeds of the sale.
When the sale of a piece of land or any interest thereon is through an agent, the authority of the latter shall be
in writing; otherwise, the sale shall be void.[9] Thus the authority of an agent to execute a contract for the sale
of real estate must be conferred in writing and must give him specific authority, either to conduct the general
business of the principal or to execute a binding contract containing terms and conditions which are in the
contract he did execute.[10] A special power of attorney is necessary to enter into any contract by which the
ownership of an immovable is transmitted or acquired either gratuitously or for a valuable consideration.
[11] The express mandate required by law to enable an appointee of an agency (couched) in general terms to
sell must be one that expressly mentions a sale or that includes a sale as a necessary ingredient of the act
mentioned.[12] For the principal to confer the right upon an agent to sell real estate, a power of attorney must
so express the powers of the agent in clear and unmistakable language. When there is any reasonable doubt
that the language so used conveys such power, no such construction shall be given the document.[13]
It is therefore clear that by selling to respondent Perez a portion of petitioners land through a compromise
agreement, Villamil-Estrada acted without or in obvious authority. The saleipso jure is consequently void. So
is the compromise agreement. This being the case, the judgment based thereon is necessarily void. Antipodal
to the opinion expressed by respondent court in resolving petitioners motion for reconsideration, the nullity of
the settlement between Villamil-Estrada and Perez impaired the jurisdiction of the trial court to render its
decision based on the compromise agreement. In Alviar v. Court of First Instance of La Union,[14] the Court
held -
x x x x this court does not hesitate to hold that the judgment in question is null and void ab initio. It is not
binding upon and cannot be executed against the petitioners. It is evident that the compromise upon which
the judgment was based was not subscribed by them x x x x Neither could Attorney Ortega bind them validly
in the compromise because he had no special authority x x x x
As the judgment in question is null and void ab initio, it is evident that the court acquired no jurisdiction to
render it, much less to order the execution thereof x x x
x x x x A judgment, which is null and void ab initio, rendered by a court without jurisdiction to do so, is without
legal efficacy and may properly be impugned in any proceeding by the party against whom it is sought to be
enforced x x x x
This ruling was adopted in Jacinto v. Montesa,[15] by Mr. Justice J.B.L. Reyes, a much-respected authority on
civil law, where the Court declared that a judgment based on a compromise entered into by an attorney
without specific authority from the client is void. Such judgment may be impugned and its execution restrained
in any proceeding by the party against whom it is sought to be enforced. The Court also observed that a
defendant against whom a judgment based on a compromise is sought to be enforced may file a petition for
certiorari to quash the execution. He could not move to have the compromise set aside and then appeal from
the order of denial since he was not a party to the compromise. Thus it would appear that the obiter of the
appellate court that the alleged nullity of the compromise agreement should be raised as a defense against its
enforcement is not legally feasible. Petitioner could not be in a position to question the compromise
agreement in the action to revive the compromise judgment since it was never privy to such
agreement. Villamil-Estrada who signed the compromise agreement may have been the attorney-in-fact but
she could not legally bind petitioner thereto as she was not entrusted with a special authority to sell the land,
as required in Art. 1878, par. (5), of the Civil Code.
Under authority of Sec. 9, par. (2), of B.P. Blg. 129, a party may now petition the Court of Appeals to annul
and set aside judgments of Regional Trial Courts.[16] Thus, the Intermediate Appellate Court (now Court of
Appeals) shall exercise x x x x (2) Exclusive original jurisdiction over action for annulment of judgments of the
Regional Trial Courts x x x x However, certain requisites must first be established before a final and executory
judgment can be the subject of an action for annulment. It must either be void for want of jurisdiction or for
lack of due process of law, or it has been obtained by fraud.[17]
Conformably with law and the above-cited authorities, the petition to annul the decision of the trial court in
Civil Case No. D-7750 before the Court of Appeals was proper. Emanating as it did from a void compromise
agreement, the trial court had no jurisdiction to render a judgment based thereon.[18]
It would also appear, and quite contrary to the finding of the appellate court that the highly reprehensible
conduct of attorney-in-fact Villamil-Estrada in Civil Case No. 7750 constituted an extrinsic or collateral fraud
by reason of which the judgment rendered thereon should have been struck down. Not all the legal semantics
in the world can becloud the unassailable fact that petitioner was deceived and betrayed by its attorney-in-
fact. Villamil-Estrada deliberately concealed from petitioner, her principal, that a compromise agreement had
been forged with the end-result that a portion of petitioners property was sold to the deforciant, literally for a
song. Thus completely kept unaware of its agents artifice, petitioner was not accorded even a fighting chance
to repudiate the settlement so much so that the judgment based thereon became final and executory.
For sure, the Court of Appeals restricted the concept of fraudulent acts within too narrow limits. Fraud may
assume different shapes and be committed in as many different ways and here lies the danger of attempting
to define fraud. For man in his ingenuity and fertile imagination will always contrive new schemes to fool the
unwary.
There is extrinsic fraud within the meaning of Sec. 9, par. (2), of B.P. Blg. 129, where it is one the effect of
which prevents a party from hearing a trial, or real contest, or from presenting all of his case to the court, or
where it operates upon matters, not pertaining to the judgment itself, but to the manner in which it was
procured so that there is not a fair submission of the controversy. In other words, extrinsic fraud refers to any
fraudulent act of the prevailing party in the litigation which is committed outside of the trial of the case,
whereby the defeated party has been prevented from exhibiting fully his side of the case by fraud or
deception practiced on him by his opponent.[19] Fraud is extrinsic where the unsuccessful party has been
prevented from exhibiting fully his case, by fraud or deception practiced on him by his opponent, as by
keeping him away from court, a false promise of a compromise; or where the defendant never had knowledge
of the suit, being kept in ignorance by the acts of the plaintiff; or where an attorney fraudulently or without
authority connives at his defeat; these and similar cases which show that there has never been a real contest
in the trial or hearing of the case are reasons for which a new suit may be sustained to set aside and annul
the former judgment and open the case for a new and fair hearing.[20]
It may be argued that petitioner knew of the compromise agreement since the principal is chargeable with and
bound by the knowledge of or notice to his agent received while the agent was acting as such. But the
general rule is intended to protect those who exercise good faith and not as a shield for unfair dealing. Hence
there is a well-established exception to the general rule as where the conduct and dealings of the agent are
such as to raise a clear presumption that he will not communicate to the principal the facts in controversy.
[21] The logical reason for this exception is that where the agent is committing a fraud, it would be contrary to
common sense to presume or to expect that he would communicate the facts to the principal.Verily, when an
agent is engaged in the perpetration of a fraud upon his principal for his own exclusive benefit, he is not really
acting for the principal but is really acting for himself, entirely outside the scope of his agency.[22] Indeed, the
basic tenets of agency rest on the highest considerations of justice, equity and fair play, and an agent will not
be permitted to pervert his authority to his own personal advantage, and his act in secret hostility to the
interests of his principal transcends the power afforded him.[23]
WHEREFORE, the petition is GRANTED. The decision and resolution of respondent Court of Appeals dated
29 October 1993 and 10 March 1994, respectively, as well as the decision of the Regional Trial Court of
Dagupan City in Civil Case No. D-7750 dated 27 November 1985, are NULLIFIED and SET ASIDE. The
Compromise Agreement entered into between Attorney-in-fact Paz G. Villamil-Estrada and respondent Isidro
Perez is declared VOID. This is without prejudice to the right of petitioner to pursue its complaint against
private respondent Isidro Perez in Civil Case No. D-7750 for the recovery of possession of a portion of Lot
No. 443.
SO ORDERED.
G.R. No. L-18377 December 29, 1962
ANASTACIO G. DUGO, petitioner,
vs.
ADRIANO LOPENA, ROSA RAMOS and HON. ANDRES REYES, Judge of the Court of First Instance of
Rizal,respondents.
On September 10, 1959, herein petitioner Anastacio Dugo and one Rodrigo S. Gonzales purchased 3 parcel
of land from the respondents Adriano Lopena and Rosa Ramos for the total price of P269,804.00. Of this
amount P28.000.00 was given as down payment with the agreement that the balance of P241,804.00 would
be paid in 6 monthly installments.
To secure the payment of the balance Anastacio Dugo and Rodrigo S. Gonzales, the vendees, on
September 11, 1958, executed over the same 3 parcels of land Deed of Real Estate Mortgage in favor of the
respondent Adriano Lopena and Rosa Ramos. This deed was duly registered with the Office of the Register
of Deeds Rizal, with the condition that failure of the vendees to pay any of the installments on their maturity
dates shall automatically cause the entire unpaid balance to become due and demandable.
The vendees defaulted on the first installment. It resulted then that on November 7, 1959, the vendors, herein
respondents Adriano Lopena and Rosa Ramos, filed a complaint for the foreclosure of the aforementioned
real estate mortgage with the Court of First Instance of Rizal the Hon. Judge Andres Reyes, presiding. This
complaint was answered by the herein petitioner and the other vendee, Rodrigo S. Gonzales, on December
7, 1959.
Meanwhile, there were 2 other civil cases filed in the same lower court against the same defendants
Anastacio Dugo and Rodrigo S. Gonzales. The plaintiff in one was a certain Dionisio Lopena, and in the
other case, the complainants were Bernardo Lopena and Maria de la Cruz.
Both complaints involved the same cause of action as that of herein respondents Adriano Lopena and Rosa
Ramos. As a matter of fact all three cases arose out of one transaction. In view of the identical nature of the
above three cases, they were consolidated by the lower court into just one proceeding.
It must be made clear, however, that this present decision refers solely to the interests and claim of Adriano
Lopena against Anastacio Dugo alone.
Before the cases could be tried, a compromise agreement dated January 15, 1960 was submitted to the
lower court for approval. It was signed by herein respondents Adriano Lopena and Rosa Ramos on one hand,
and Rodrigo S. Gonzales, on the other. It was not signed by the herein petitioner. However, Rodrigo S.
Gonzales represented that his signature was for both himself and the herein petitioner. Moreover, Anastacio
Dugo's counsel of record, Atty. Manuel O. Chan, the same lawyer who signed and submitted for him the
answer to the complaint, was present at the preparation of the compromise agreement and this counsel
affixed his signature thereto.
The text of this agreement is hereunder quoted:
COMPROMISE AGREEMENT
COME NOW the parties in the above entitled cases and unto this Hon. Court respectfully set forth:
That, the plaintiffs, have agreed to give the defendants up to June 30, 1960 to pay the mortgage
indebtedness in each of the said cases;
That, should the defendants fail to pay the said mortgage indebtedness, judgments of foreclosure shall
thereafter be entered against the said defendants;
That, the defendants hereby waive the period of redemption provided by law after entry of judgments;
That, in the event of sale of the properties involved in these three cases, the defendants agree that the said
properties shall be sold at one time at public auction, that is, one piece of property cannot be sold without the
others.
This compromise agreement was approved by the lower court on the same day it was submitted, January 15,
1960.
Subsequently, on May 3, 1960, a so-called Tri-Party Agreement was drawn. The signatories to it were
Anastacio Dugo (herein petitioner) and Rodrigo S. Gonzales as debtors, Adriano Lopena and Rosa Ramos
(herein respondents) as creditors, and, one Emma R. Santos as pay or. The stipulations of the Tri-Party
Agreement were as follows: .
A TRI-PARTY AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This contract entered into by and between
(1) MMA R. SANTOS, Filipino, of legal age, single, with residence and postal address at ..........., Rizal
Avenue, Manila, hereinafter referred to as the PAYOR,
(2) ANASTACIO C. DUGO Filipino, of legal age, single, with residence and postal address at 137 N.
Domingo, Quezon City, and RODRIGO S. GONZALES, Filipino, of legal age, married to Magdalena Balatbat,
with residence and postal address at 73 Maryland, Quezon City, hereinafter referred to as the DEBTOR,
and
(3) DIONISIO LOPENA, married to Teofila Nofuente, LIBRADA LOPENA, married to Arellano Cawagas,
BERNARDO LOPENA, married to Maria de la Cruz, and ADRIANO LOPENA, married to Rosa Ramos, all of
whom are Filipinos, of legal ages, with residence and postal address at Sucat, Muntinlupa, Rizal, hereinafter
represented by their attorney of record, ANTONIO LOPENA, hereinafter referred to as the CREDITOR,
W I T N E S S E T H:
WHEREAS, the DEBTOR is indebted to the CREDITOR as of this date in the aggregate amount of
P503,000.00 for the collection of which, the latter as party plaintiffs have institute foreclosure proceedings
against the former as party defendant in Civil Cases Nos. 5872, 5873 and 5874 now pending in the Court of
First Instance, Pasig, Rizal;
WHEREAS, the PAYOR, hereby submits and binds herself to the force and effect of the Order dated January
15, 1960, of the Court of First Instance of Pasig, Rizal, Branch VI, which order is hereby made an integral part
of this agreement as ANNEX "A";
WHEREAS, the PAYOR with due knowledge and consent of the DEBTOR, hereby proposes to pay the
aforesaid indebtedness in the sum of P503,000.00 to the CREDITOR for and in behalf of the DEBTOR under
the following terms and condition petitions:
(a) To pay the said P503,000.00 in installments in the following schedule of amounts and time: P50,000.00 on
or before May 31, 1960 70,000.00 on or before June 30, 1960 70,000.00 on or before July 31, 1960
313,000.00 on or before Aug. 31, 1960.
(b) That the DEBTOR and the PAYOR hereby waive any right to object and oblige themselves not to oppose
the motion that the CREDITOR may file during the first week of July 1960, or subsequently thereafter,
informing the Court of the exact money obligation of the DEBTOR which shall be P503,000.00 minus
whatever payments, if any, made before June 30, 1960 by the PAYOR and praying for the issuance of an
order to sell the property covered by the mortgage.
(c) That the CREDITOR, once he has the order referred to, should not execute the same by giving it to the
sheriff if the PAYOR is regular and punctual in the payment of all of the installments stated above.
PROVIDED, however, if the PAYOR defaults or fails to pay anyone of the installments in the manner stated
above, the PAYOR and the DEBTOR hereby permit the CREDITOR to execute the order of sale referred to
above, and they (PAYOR and DEBTOR) hereby waive any and all objection's or oppositions to the propriety
of the public auction sale and to the confirmation of the sale to be made by the court.
(d) That the CREDITOR, at his option, may execute the August installment stated in letter (a) of this
paragraph if the PAYOR has paid regularly the May, June, and July installments, and provided further that one
half () of the August installment in the amount of P156,500.00 is paid on the said date of August 31, 1960.
NOW, THEREFORE, for and in consideration of the foregoing stipulations, the DEBTOR and CREDITOR
hereby accept, approve and ratify the above-mentioned propositions of the PAYOR and all the parties herein
bind and oblige themselves to comply to the covenants and stipulations aforestated;
That by mutual agreements of all the parties herein, this TRI-PARTY AGREEMENT may be submitted to
Court to form integral parts of the records of the Civil Cases mentioned above;
IN WITNESS WHEREOF, the parties hereunto affix their signature on this 3rd day of May, 1960 in the City of
Manila, Philippines.
When Anastacio Dugo (herein petitioner) and Rodrigo S. Gonzales failed to pay the balance of their
indebtedness on June 30, 1960, herein respondents Lopena and Ramos filed on July 5, 1960, a Motion for
the Sale of Mortgaged Property. Although this last motion was filed ex parte, Anastacio Dugo and Rodrigo S.
Gonzales were notified of it by the lower court. Neither of them, however, despite the notice, filed any
opposition thereto. As a result, the lower court granted the above motion on July 19, 1960, and ordered the
sale of the mortgaged property.
On August 25, 1960, the 3 parcels of land above-mentioned were sold by the Sheriff at a public auction where
at herein petitioners, together with the plaintiffs of the other two cases won as the highest bidders. The said
sheriff's sale was later confirmed by the lower court on August 30, 1960. In this connection, it should also
made of record that before confirming the sale, the lower court gave due notice of the motion for the
confirmation to the herein petitioner who filed no opposition therefore.
On August 31, 1960, Anastacio Dugo filed a motion to set aside all the proceedings on the ground that the
compromise agreement dated January 15, 1960 was void ab initio with respect to him because he did not
sign the same. Consequently, he argued, all subsequent proceedings under and by virtue of the compromise
agreement, including the foreclosure sale of August 25, 1960, were void and null as regards him. This motion
to set aside, however, was denied by the lower court in its order of December 14, 1960.
Upon denial of the said motion to set aside, Anastacio Dugo filed a Notice of Appeal from the order of August
31, 1960 approving the foreclosure sale of August 25, 1960, as well as the order of December 14, 1960,
denying his motion to set aside. The approval of the record on appeal however, was opposed by the herein
respondent spouses who claimed that the judgment was not appealable having been rendered by virtue of
the compromise agreement. The opposition was contained in a motion to dismiss the appeal. Anastacio
Dugo filed a reply to the above motion. Soon thereafter, the lower court dismissed the appeal.
Two issues were raised to this Court for review, to wit:
(1) Was the compromise agreement of January 15, 1960, the Order of the same date approving the same,
and, all the proceedings subsequent thereto, valid or void insofar as the petitioner herein is concerned?
(2) Did the lower court abuse its discretion when it dismissed the appeal of the herein petitioner?
Petitioner Anastacio Dugo insists that the Compromise Agreement was void ab initio and could have no
effect whatsoever against him because he did not sign the same. Furthermore, as it was void, all the
proceedings subsequent to its execution, including the Order approving it, were similarly void and could not
result to anything adverse to his interest.
The argument was not well taken. It is true that a compromise is, in itself, a contract. It is as such that the Civil
Code speaks of it.
ART. 2028. A compromise is a contract whereby the parties, by making reciprocal concessions, avoid a
litigation or put an end to one already commenced.
Moreover, under Art. 1878 of the Civil Code, a third person cannot bind another to a compromise agreement
unless he, the third person, has obtained a special power of attorney for that purpose from the party intended
to be bound.
ART. 1878. Special powers of attorney are necessary in the following cases:
xxx xxx xxx
xxx xxx xxx
(3) To compromise, to submit questions to arbitration, to renounce the right to appeal from a judgment, to
waive objections to the venue of an action or to abandon a prescription already acquired;
However, although the Civil Code expressly requires a special power of attorney in order that one may
compromise an interest of another, it is neither accurate nor correct to conclude that its absence renders the
compromise agreement void. In such a case, the compromise is merely unenforceable. This results from its
nature is a contract. It must be governed by the rules and the law on contracts.
ART. 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by one who has been given no authority or legal
representation, or who has acted beyond his powers;
Logically, then, the next inquiry in this case should be whether the herein petitioner, Anastacio Dugo had or
had not ratified the compromise agreement. If he had, then the compromise agreement was legally enforced
against him; otherwise, he should be sustained in his contention that it never bound him, nor ever could it be
made to bind him.
The ratification of the compromise agreement was conclusively established by the Tri-Party Agreement of
May 1960. It is to be noted that the compromise agreement was submitted to and approved by the lower court
January 15, 1960. Now, the Tri-Party Agreement referred itself to that order when it stipulated thus:
WHEREAS, the MAYOR, hereby submits and binds herself to the force and effect of the order dated January
15, 1960, of the Court of First Instance of Pasig, Rizal, Branch which order is hereby made an integral part of
this agreement as Annex "A
Having so consented to making that court order approving the compromise agreement an integral part of the
Tri-Party Agreement, how can the petitioner herein now repudiate the compromise agreement and claim he
has not authorized it?
When it appears that the client, on becoming aware the compromise and the judgment thereon, fails to
repudiate promptly the action of his attorney, he will not afterwards be heard to contest its validity (Rivero vs.
Rivero, 59 Phil. 15).
Besides, this Court has not overlooked the fact that which indeed Anastacio Dugo was not a signatory to the
compromise agreement, the principal provision of the said instrument was for his benefit. Originally, Anastacio
Dugo's obligation matured and became demandable on October 10, 1959. However, the compromise
agreement extended the date of maturity to June 30, 1960. More than anything, therefore, the compromise
agreement operated to benefit the herein petitioner because it afforded him more time and opportunity to fulfill
his monetary obligations under the contract. If only for this reason, this Court believes that the herein
petitioner should not be heard to repudiate the said agreement.
Lastly, the compromise agreement stated "that, should the defendants fail to pay the said mortgage
indebtedness, judgment of foreclosure shall thereafter be entered against the said defendants:" Beyond
doubt, this was ratified by the Tri-Party Agreement when it covenanted that
If the MAYOR defaults or fails to pay anyone of the installments in the manner stated above, the MAYOR and
the DEBTOR hereby permit the CREDITOR to execute the order of sale referred to above (the Judgment of
Foreclosure), and they (PAYOR and DEBTOR) hereby waive any and all objections or oppositions to the
propriety of the public auction sale and to the confirmation of the sale to be made by the Court.
Petitioner Dugo finally argued that even assuming that the compromise agreement was valid, it nevertheless
could not be enforced against him because it has been novated by the Tri-Party Agreement which brought in
a third party, namely, Emma R. Santos, who assumed the mortgaged obligation of the herein petitioner.
This Court cannot accept the argument. Novation by presumption has never been favored. To be sustained, it
need be established that the old and new contracts are incompatible in all points, or that the will to novate
appears by express agreement of the parties or in acts of similar import. (Martinez v. Cavives, 25 Phil. 581;
Tiy Sinco vs. Havana, 45 Phil. 707; Asia Banking Corp. vs. Lacson Co.. 48 Phil. 482; Pascual vs. Lacsamana,
53 O.G. 2467, April 1957).
An obligation to pay a sum of money is not novated, in a new instrument wherein the old is ratified, by
changing only the term of payment and adding other obligations not incompatible with the old one (Inchausti
vs. Yulo, 34 Phil. 978; Pablo vs. Sapungan, 71 Phil. 145) or wherein the old contract is merely supplemented
by the new one Ramos vs. Gibbon, 67 Phil. 371).
Herein petitioner claims that when a third party Emma R. Santos, came in and assumed the mortgaged
obligation, novation resulted thereby inasmuch as a new debtor was substituted in place of the original one. In
this kind of novation, however, it is not enough that the juridical relation of the parties to the original contract is
extended to a third person; it is necessary that the old debtor be released from the obligation, and the third
person or new debtor take his place in the new relation. Without such release, there is no novation; the third
person who has assumed the obligation of the debtor merely becomes a co-debtor or surety. If there is no
agreement as to solidarity, the first and the new debtors are considered obligation jointly. (IV Tolentino, Civil
Code, p. 360, citing Manresa. There was no such release of the original debtor in the Tri-Party Agreement.
It is a very common thing in the business affairs for a stranger to a contract to assume its obligations; an while
this may have the effect of adding to the number of persons liable, it does not necessarily imply the
extinguishment of the liability of the first debtor (Rios v Jacinto, etc., 49 Phil. 7; Garcia vs. Khu Yek Ching, 65
Phil. 466). The mere fact that the creditor receives a guaranty or accepts payments from a third person who
has agreed to assume the obligation, when there is no agreement that the first debtor shall be released from
responsibility, do not constitute a novation, and the creditor can still enforce the obligation against the original
debtor (Straight vs. Haskell, 49 Phil. 614; Pacific Commercial Co. vs. Sotto, 34 Phil. 237; Estate of Mota vs.
Serra, 47 Phil. 446).
In view of all the foregoing, We hold that the Tri-Party Agreement was an instrument intended to render
effective the compromise agreement. It merely complemented an ratified the same. That a third person was
involved in it is inconsequential. Nowhere in the new agreement may the release of the herein petitioner be
even inferred.
Having held that the compromise agreement was validity and enforceable against the herein petitioner, it
follows that the lower court committed no abuse of discretion when it dismissed the appeal of the herein
petitioner.
WHEREFORE, the petition for certiorari and mandamus filed by the herein petitioner is hereby dismissed.
The order of the lower court dismissing the appeal is her by affirmed, with costs.
G.R. No. 111448. January 16, 2002
AF REALTY & DEVELOPMENT, INC. and ZENAIDA R. RANULLO, petitioners, vs. DIESELMAN FREIGHT
SERVICES, CO., MANUEL C. CRUZ, JR. and MIDAS DEVELOPMENT CORPORATION, respondents
Petition for review on certiorari assailing the Decision dated December 10, 1992 and the Resolution
(Amending Decision) dated August 5, 1993 of the Court of Appeals in CA-G.R. CV No. 30133.
Dieselman Freight Service Co. (Dieselman for brevity) is a domestic corporation and a registered owner of a
parcel of commercial lot consisting of 2,094 square meters, located at 104 E. Rodriguez Avenue, Barrio
Ugong, Pasig City, Metro Manila. The property is covered by Transfer Certificate of Title No. 39849 issued by
the Registry of Deeds of the Province of Rizal.[1]
On May 10, 1988, Manuel C. Cruz, Jr., a member of the board of directors of Dieselman, issued a letter
denominated as "Authority To Sell Real Estate"[2] to Cristeta N. Polintan, a real estate broker of the CNP Real
Estate Brokerage. Cruz, Jr. authorized Polintan "to look for a buyer/buyers and negotiate the sale" of the lot
at P3,000.00 per square meter, or a total ofP6,282,000.00. Cruz, Jr. has no written authority from Dieselman
to sell the lot.
In turn, Cristeta Polintan, through a letter[3] dated May 19, 1988, authorized Felicisima ("Mimi") Noble[4] to sell
the same lot.
Felicisima Noble then offered for sale the property to AF Realty & Development, Inc. (AF Realty) at P2,500.00
per square meter.[5] Zenaida Ranullo, board member and vice-president of AF Realty, accepted the offer and
issued a check in the amount of P300,000.00 payable to the order of Dieselman. Polintan received the check
and signed an "Acknowledgement Receipt"[6]indicating that the amount of P300,000.00 represents the partial
payment of the property but refundable within two weeks should AF Realty disapprove Ranullo's action on the
matter.
On June 29, 1988, AF Realty confirmed its intention to buy the lot. Hence, Ranullo asked Polintan for the
board resolution of Dieselman authorizing the sale of the property. However, Polintan could only give Ranullo
the original copy of TCT No. 39849, the tax declaration and tax receipt for the lot, and a photocopy of the
Articles of Incorporation of Dieselman.[7]
On August 2, 1988, Manuel F. Cruz, Sr., president of Dieselman, acknowledged receipt of the said
P300,000.00 as "earnest money" but required AF Realty to finalize the sale at P4,000.00 per square meter.
[8] AF Realty replied that it has paid an initial down payment of P300,000.00 and is willing to pay the balance.
[9]
However, on August 13, 1988, Mr. Cruz, Sr. terminated the offer and demanded from AF Realty the return of
the title of the lot earlier delivered by Polintan.[10]
Claiming that there was a perfected contract of sale between them, AF Realty filed with the Regional Trial
Court, Branch 160, Pasig City a complaint for specific performance (Civil Case No. 56278) against Dieselman
and Cruz, Jr.. The complaint prays that Dieselman be ordered to execute and deliver a final deed of sale in
favor of AF Realty.[11] In its amended complaint,[12]AF Realty asked for payment of P1,500,000.00 as
compensatory damages; P400,000.00 as attorneys fees; and P500,000.00 as exemplary damages.
In its answer, Dieselman alleged that there was no meeting of the minds between the parties in the sale of the
property and that it did not authorize any person to enter into such transaction on its behalf.
Meanwhile, on July 30, 1988, Dieselman and Midas Development Corporation (Midas) executed a Deed of
Absolute Sale[13] of the same property. The agreed price was P2,800.00 per square meter. Midas delivered to
Dieselman P500,000.00 as down payment and deposited the balance of P5,300,000.00 in escrow account
with the PCIBank.
Constrained to protect its interest in the property, Midas filed on April 3, 1989 a Motion for Leave to Intervene
in Civil Case No. 56278. Midas alleged that it has purchased the property and took possession thereof, hence
Dieselman cannot be compelled to sell and convey it to AF Realty. The trial court granted Midas' motion.
After trial, the lower court rendered the challenged Decision holding that the acts of Cruz, Jr. bound
Dieselman in the sale of the lot to AF Realty.[14] Consequently, the perfected contract of sale between
Dieselman and AF Realty bars Midas' intervention. The trial court also held that Midas acted in bad faith when
it initially paid Dieselman P500,000.00 even without seeing the latter's title to the property. Moreover, the
notarial report of the sale was not submitted to the Clerk of Court of the Quezon City RTC and the balance of
P5,300,000.00 purportedly deposited in escrow by Midas with a bank was not established.
The dispositive portion of the trial courts Decision reads:
WHEREFORE, foregoing considered, judgment is hereby rendered ordering defendant to execute and deliver
to plaintiffs the final deed of sale of the property covered by the Transfer Certificate of Title No. 39849 of the
Registry of Deed of Rizal, Metro Manila District II, including the improvements thereon, and ordering
defendants to pay plaintiffs attorneys fees in the amount of P50,000.00 and to pay the costs.
"The counterclaim of defendants is necessarily dismissed.
"The counterclaim and/or the complaint in intervention are likewise dismissed
"SO ORDERED.[15]
Dissatisfied, all the parties appealed to the Court of Appeals.
AF Realty alleged that the trial court erred in not holding Dieselman liable for moral, compensatory and
exemplary damages, and in dismissing its counterclaim against Midas.
Upon the other hand, Dieselman and Midas claimed that the trial court erred in finding that a contract of sale
between Dieselman and AF Realty was perfected. Midas further averred that there was no bad faith on its
part when it purchased the lot from Dieselman.
In its Decision dated December 10, 1992, the Court of Appeals reversed the judgment of the trial court
holding that since Cruz, Jr. was not authorized in writing by Dieselman to sell the subject property to AF
Realty, the sale was not perfected; and that the Deed of Absolute Sale between Dieselman and Midas is valid,
there being no bad faith on the part of the latter. The Court of Appeals then declared Dieselman and Cruz, Jr.
jointly and severally liable to AF Realty for P100,000.00 as moral damages; P100,000.00 as exemplary
damages; and P100,000.00 as attorney's fees.[16]
On August 5, 1993, the Court of Appeals, upon motions for reconsideration filed by the parties, promulgated
an Amending Decision, the dispositive portion of which reads:
WHEREFORE, The Decision promulgated on October 10, 1992, is hereby AMENDED in the sense that only
defendant Mr. Manuel Cruz, Jr. should be made liable to pay the plaintiffs the damages and attorneys fees
awarded therein, plus the amount of P300,000.00 unless, in the case of the said P300,000.00, the same is
still deposited with the Court which should be restituted to plaintiffs.
"SO ORDERED.[17]
AF Realty now comes to this Court via the instant petition alleging that the Court of Appeals committed errors
of law.
The focal issue for consideration by this Court is who between petitioner AF Realty and respondent Midas has
a right over the subject lot.
The Court of Appeals, in reversing the judgment of the trial court, made the following ratiocination:
From the foregoing scenario, the fact that the board of directors of Dieselman never authorized, verbally and
in writing, Cruz, Jr. to sell the property in question or to look for buyers and negotiate the sale of the subject
property is undeniable.
"While Cristeta Polintan was actually authorized by Cruz, Jr. to look for buyers and negotiate the sale of the
subject property, it should be noted that Cruz, Jr. could not confer on Polintan any authority which he himself
did not have. Nemo dat quod non habet. In the same manner, Felicisima Noble could not have possessed
authority broader in scope, being a mere extension of Polintans purported authority, for it is a legal truism in
our jurisdiction that a spring cannot rise higher than its source. Succinctly stated, the alleged sale of the
subject property was effected through persons who were absolutely without any authority whatsoever from
Dieselman.
"The argument that Dieselman ratified the contract by accepting the P300,000.00 as partial payment of the
purchase price of the subject property is equally untenable. The sale of land through an agent without any
written authority is void.
xxxxxxxxx
"On the contrary, anent the sale of the subject property by Dieselman to intervenor Midas, the records bear
out that Midas purchased the same from Dieselman on 30 July 1988. The notice of lis pendens was
subsequently annotated on the title of the property by plaintiffs on 15 August 1988. However, this subsequent
annotation of the notice of lis pendens certainly operated prospectively and did not retroact to make the
previous sale of the property to Midas a conveyance in bad faith. A subsequently registered notice of lis
pendens surely is not proof of bad faith. It must therefore be borne in mind that the 30 July 1988 deed of sale
between Midas and Dieselman is a document duly certified by notary public under his hand and seal. x x
x. Such a deed of sale being public document acknowledged before a notary public is admissible as to the
date and fact of its execution without further proof of its due execution and delivery (Bael vs. Intermediate
Appellate Court, 169 SCRA617; Joson vs. Baltazar, 194 SCRA 114) and to prove the defects and lack of
consent in the execution thereof, the evidence must be strong and not merely preponderant x x x.[18]
We agree with the Court of Appeals.
Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be
exercised by the board of directors. Just as a natural person may authorize another to do certain acts in his
behalf, so may the board of directors of a corporation validly delegate some of its functions to individual
officers or agents appointed by it.[19] Thus, contracts or acts of a corporation must be made either by the
board of directors or by a corporate agent duly authorized by the board.[20] Absent such valid delegation/
authorization, the rule is that the declarations of an individual director relating to the affairs of the corporation,
but not in the course of, or connected with, the performance of authorized duties of such director, are held not
binding on the corporation.[21]
In the instant case, it is undisputed that respondent Cruz, Jr. has no written authority from the board of
directors of respondent Dieselman to sell or to negotiate the sale of the lot, much less to appoint other
persons for the same purpose. Respondent Cruz, Jr.s lack of such authority precludes him from conferring
any authority to Polintan involving the subject realty.Necessarily, neither could Polintan authorize Felicisima
Noble. Clearly, the collective acts of respondent Cruz, Jr., Polintan and Noble cannot bind Dieselman in the
purported contract of sale.
Petitioner AF Realty maintains that the sale of land by an unauthorized agent may be ratified where, as here,
there is acceptance of the benefits involved. In this case the receipt by respondent Cruz, Jr. from AF Realty of
the P300,000.00 as partial payment of the lot effectively binds respondent Dieselman.[22]
We are not persuaded.
Involved in this case is a sale of land through an agent. Thus, the law on agency under the Civil Code takes
precedence. This is well stressed in Yao Ka Sin Trading vs. Court of Appeals:[23]
Since a corporation, such as the private respondent, can act only through its officers and agents, all acts
within the powers of said corporation may be performed by agents of its selection; and, except so far as
limitations or restrictions may be imposed by special charter, by-law, or statutory provisions, the same
general principles of law which govern the relation of agency for a natural person govern the officer
or agent of a corporation, of whatever status or rank, in respect to his power to act for the
corporation; and agents when once appointed, or members acting in their stead, are subject to
thesame rules, liabilities, and incapacities as are agents of individuals and private persons. (Emphasis
supplied)
Pertinently, Article 1874 of the same Code provides:
ART. 1874. When a sale of piece of land or any interest therein is through an agent, the authority of the
latter shall be in writing; otherwise, the sale shall be void. (Emphasis supplied)
Considering that respondent Cruz, Jr., Cristeta Polintan and Felicisima Ranullo were not authorized by
respondent Dieselman to sell its lot, the supposed contract is void. Being a void contract, it is not susceptible
of ratification by clear mandate of Article 1409 of the Civil Code, thus:
ART. 1409. The following contracts are inexistent and void from the very beginning:
xxx
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the defense of illegality be
waived. (Emphasis supplied)
Upon the other hand, the validity of the sale of the subject lot to respondent Midas is unquestionable. As aptly
noted by the Court of Appeals,[24] the sale was authorized by a board resolution of respondent Dieselman
dated May 27, 1988.
The Court of Appeals awarded attorney's fees and moral and exemplary damages in favor of petitioner AF
Realty and against respondent Cruz, Jr.. The award was made by reason of a breach of contract imputable to
respondent Cruz, Jr. for having acted in bad faith. We are no persuaded. It bears stressing that petitioner
Zenaida Ranullo, board member and vice-president of petitioner AF Realty who accepted the offer to sell the
property, admitted in her testimony[25] that a board resolution from respondent Dieselman authorizing the sale
is necessary to bind the latter in the transaction; and that respondent Cruz, Jr. has no such written
authority. In fact, despite demand, such written authority was not presented to her.[26] This notwithstanding,
petitioner Ranullo tendered a partial payment for the unauthorized transaction. Clearly, respondent Cruz, Jr.
should not be held liable for damages and attorney's fees.
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are hereby AFFIRMED
with MODIFICATION in the sense that the award of damages and attorney's fees is deleted. Respondent
Dieselman is ordered to return to petitioner AF Realty its partial payment of P300,000.00. Costs against
petitioners.
SO ORDERED.

G.R. No. 144805 June 8, 2006
EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners,
Vs.
E T E R N I T C O R P O R AT I O N ( n o w E T E R T O N M U LT I - R E S O U R C E S C O R P O R AT I O N ) ,
ETEROUTREMER, S.A. and Promulgated: FAR EAST BANK & TRUST COMPANY, Respondents
On appeal via a Petition for Review on Certiorari is the Decision[1] of the Court of Appeals (CA) in CA-G.R. CV
No. 51022, which affirmed the Decision of the Regional Trial Court (RTC), Pasig City, Branch 165, in Civil
Case No. 54887, as well as the Resolution[2] of the CA denying the motion for reconsideration thereof.
May 22, 1987
The Eternit Corporation (EC) is a corporation duly organized and registered under Philippine laws. Since
1950, it had been engaged in the manufacture of roofing materials and pipe products. Its manufacturing
operations were conducted on eight parcels of land with a total area of 47,233 square meters. The properties,
located in Mandaluyong City, Metro Manila, were covered by Transfer Certificates of Title Nos. 451117,
451118, 451119, 451120, 451121, 451122, 451124 and 451125 under the name of Far East Bank & Trust
Company, as trustee. Ninety (90%) percent of the shares of stocks of EC were owned by Eteroutremer S.A.
Corporation (ESAC), a corporation organized and registered under the laws of Belgium.[3] Jack Glanville, an
Australian citizen, was the General Manager and President of EC, while Claude Frederick Delsaux was the
Regional Director for Asia of ESAC. Both had their offices in Belgium.
In 1986, the management of ESAC grew concerned about the political situation in the Philippines and wanted
to stop its operations in the country. The Committee for Asia of ESAC instructed Michael Adams, a member of
ECs Board of Directors, to dispose of the eight parcels of land. Adams engaged the services of realtor/broker
Lauro G. Marquez so that the properties could be offered for sale to prospective buyers. Glanville later
showed the properties to Marquez.
Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo B. Litonjua, Jr. of
the Litonjua & Company, Inc. In a Letter dated September 12, 1986, Marquez declared that he was authorized
to sell the properties for P27,000,000.00 and that the terms of the sale were subject to negotiation.[4]
Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to Eduardo Litonjua, Jr., and his
brother Antonio K. Litonjua. The Litonjua siblings offered to buy the property for P20,000,000.00 cash.
Marquez apprised Glanville of the Litonjua siblings offer and relayed the same to Delsaux in Belgium, but the
latter did not respond.On October 28, 1986, Glanville telexed Delsaux in Belgium, inquiring on his position/
counterproposal to the offer of the Litonjua siblings. It was only on February 12, 1987 that Delsaux sent a
telex to Glanville stating that, based on the Belgian/Swiss decision, the final offer was US$1,000,000.00
and P2,500,000.00 to cover all existing obligations prior to final liquidation.[5]
Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux. Litonjua, Jr. accepted the
counterproposal of Delsaux. Marquez conferred with Glanville, and in a Letter dated February 26, 1987,
confirmed that the Litonjua siblings had accepted the counter-proposal of Delsaux. He also stated that the
Litonjua siblings would confirm full payment within 90 days after execution and preparation of all documents
of sale, together with the necessary governmental clearances.[6]
The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security Bank & Trust Company,
Ermita Branch, and drafted an Escrow Agreement to expedite the sale.[7]
Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the sale would be
implemented. In a telex dated April 22, 1987, Glanville informed Delsaux that he had met with the buyer,
which had given him the impression that he is prepared to press for a satisfactory conclusion to the sale.[8] He
also emphasized to Delsaux that the buyers were concerned because they would incur expenses in bank
commitment fees as a consequence of prolonged period of inaction.[9]
Meanwhile, with the assumption of Corazon C. Aquino as President of the Republic of the Philippines, the
political situation in the Philippines had improved. Marquez received a telephone call from Glanville, advising
that the sale would no longer proceed. Glanville followed it up with a Letter dated May 7, 1987, confirming
that he had been instructed by his principal to inform Marquez that the decision has been taken at a Board
Meeting not to sell the properties on which Eternit Corporation is situated.[10]
Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC Regional Office had decided
not to proceed with the sale of the subject land, to wit:
Mr. L.G. Marquez
L.G. Marquez, Inc.
334 Makati Stock Exchange Bldg.
6767 Ayala Avenue
Makati, Metro Manila
Philippines
Dear Sir:
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has decided not to proceed with the sale of the land which was
proposed to you.
The Committee for Asia of our Group met recently (meeting every six months) and examined the position as
far as the Philippines are (sic) concerned. Considering [the] new political situation since the departure of
MR. MARCOS and a certain stabilization in the Philippines, the Committee has decided not to stop our
operations in Manila. In fact, production has started again last week, and (sic) to recognize the
participation in the Corporation.
We regret that we could not make a deal with you this time, but in case the policy would change at a later
state, we would consult you again.
xxx
Yours sincerely,
(Sgd.)
C.F. DELSAUX
cc. To: J. GLANVILLE (Eternit Corp.)[11]
When apprised of this development, the Litonjuas, through counsel, wrote EC, demanding payment for
damages they had suffered on account of the aborted sale. EC, however, rejected their demand.
The Litonjuas then filed a complaint for specific performance and damages against EC (now the Eterton Multi-
Resources Corporation) and the Far East Bank & Trust Company, and ESAC in the RTC of Pasig City. An
amended complaint was filed, in which defendant EC was substituted by Eterton Multi-Resources
Corporation; Benito C. Tan, Ruperto V. Tan, Stock Ha T. Tan and Deogracias G. Eufemio were impleaded as
additional defendants on account of their purchase of ESAC shares of stocks and were the controlling
stockholders of EC.
In their answer to the complaint, EC and ESAC alleged that since Eteroutremer was not doing business in the
Philippines, it cannot be subject to the jurisdiction of Philippine courts; the Board and stockholders of EC
never approved any resolution to sell subject properties nor authorized Marquez to sell the same; and the
telex dated October 28, 1986 of Jack Glanville was his own personal making which did not bind EC.
On July 3, 1995, the trial court rendered judgment in favor of defendants and dismissed the amended
complaint.[12] The fallo of the decision reads:
WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-Resources Corporation and
Eteroutremer, S.A. is dismissed on the ground that there is no valid and binding sale between the plaintiffs
and said defendants.
The complaint as against Far East Bank and Trust Company is likewise dismissed for lack of cause of action.
The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer, S.A. is
also dismissed for lack of merit.[13]
The trial court declared that since the authority of the agents/realtors was not in writing, the sale is void and
not merely unenforceable, and as such, could not have been ratified by the principal. In any event, such
ratification cannot be given any retroactive effect. Plaintiffs could not assume that defendants had agreed to
sell the property without a clear authorization from the corporation concerned, that is, through resolutions of
the Board of Directors and stockholders. The trial court also pointed out that the supposed sale involves
substantially all the assets of defendant EC which would result in the eventual total cessation of its operation.
[14]
The Litonjuas appealed the decision to the CA, alleging that (1) the lower court erred in concluding that the
real estate broker in the instant case needed a written authority from appellee corporation and/or that said
broker had no such written authority; and (2) the lower court committed grave error of law in holding that
appellee corporation is not legally bound for specific performance and/or damages in the absence of an
enabling resolution of the board of directors.[15] They averred that Marquez acted merely as a broker or go-
between and not as agent of the corporation; hence, it was not necessary for him to be empowered as such
by any written authority. They further claimed that an agency by estoppel was created when the corporation
clothed Marquez with apparent authority to negotiate for the sale of the properties. However, since it was a
bilateral contract to buy and sell, it was equivalent to a perfected contract of sale, which the corporation was
obliged to consummate.
In reply, EC alleged that Marquez had no written authority from the Board of Directors to bind it; neither were
Glanville and Delsaux authorized by its board of directors to offer the property for sale. Since the sale
involved substantially all of the corporations assets, it would necessarily need the authority from the
stockholders.
On June 16, 2000, the CA rendered judgment affirming the decision of the RTC. [16] The Litonjuas filed a
motion for reconsideration, which was also denied by the appellate court.
The CA ruled that Marquez, who was a real estate broker, was a special agent within the purview of Article
1874 of the New Civil Code. Under Section 23 of the Corporation Code, he needed a special authority from
ECs board of directors to bind such corporation to the sale of its properties. Delsaux, who was merely the
representative of ESAC (the majority stockholder of EC) had no authority to bind the latter. The CA pointed
out that Delsaux was not even a member of the board of directors of EC. Moreover, the Litonjuas failed to
prove that an agency by estoppel had been created between the parties.
In the instant petition for review, petitioners aver that
I
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PERFECTED CONTRACT
OF SALE.
II
THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT MARQUEZ NEEDED
A WRITTEN AUTHORITY FROM RESPONDENT ETERNIT BEFORE THE SALE CAN BE PERFECTED.
III
THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND DELSAUX HAVE THE
NECESSARY AUTHORITY TO SELL THE SUBJECT PROPERTIES, OR AT THE VERY LEAST, WERE
KNOWINGLY PERMITTED BY RESPONDENT ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN
APPARENT AUTHORITY, AND THUS HELD THEM OUT TO THE PUBLIC AS POSSESSING POWER TO
SELL THE SAID PROPERTIES.[17]
Petitioners maintain that, based on the facts of the case, there was a perfected contract of sale of the parcels
of land and the improvements thereon for US$1,000,000.00 plus P2,500,000.00 to cover obligations prior to
final liquidation. Petitioners insist that they had accepted the counter-offer of respondent EC and that before
the counter-offer was withdrawn by respondents, the acceptance was made known to them through real
estate broker Marquez.
Petitioners assert that there was no need for a written authority from the Board of Directors of EC for Marquez
to validly act as broker/middleman/intermediary. As broker, Marquez was not an ordinary agent because his
authority was of a special and limited character in most respects. His only job as a broker was to look for a
buyer and to bring together the parties to the transaction. He was not authorized to sell the properties or to
make a binding contract to respondent EC; hence, petitioners argue, Article 1874 of the New Civil Code does
not apply.
In any event, petitioners aver, what is important and decisive was that Marquez was able to communicate
both the offer and counter-offer and their acceptance of respondent ECs counter-offer, resulting in a perfected
contract of sale.
Petitioners posit that the testimonial and documentary evidence on record amply shows that Glanville, who
was the President and General Manager of respondent EC, and Delsaux, who was the Managing Director for
ESAC Asia, had the necessary authority to sell the subject property or, at least, had been allowed by
respondent EC to hold themselves out in the public as having the power to sell the subject properties.
Petitioners identified such evidence, thus:

1. The testimony of Marquez that he was chosen by Glanville as the then President and General Manager of
Eternit, to sell the properties of said corporation to any interested party, which authority, as hereinabove
discussed, need not be in writing.
2. The fact that the NEGOTIATIONS for the sale of the subject properties spanned SEVERAL MONTHS, from
1986 to 1987;
3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties to the Petitioners;
4. The GOOD FAITH of Petitioners in believing Eternits offer to sell the properties as evidenced by the
Petitioners ACCEPTANCE of the counter-offer;
5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with the Security Bank and that an
ESCROW agreement was drafted over the subject properties;
6. Glanvilles telex to Delsaux inquiring WHEN WE (Respondents) WILL IMPLEMENT ACTION TO BUY AND
SELL;
7. More importantly, Exhibits G and H of the Respondents, which evidenced the fact that Petitioners offer
was allegedly REJECTED by both Glanville and Delsaux.[18]
Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-offer to petitioners offer
and thereafter reject such offer unless they were authorized to do so by respondent EC. Petitioners insist that
Delsaux confirmed his authority to sell the properties in his letter to Marquez, to wit:
Dear Sir,
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has decided not to proceed with the sale of the land which was
proposed to you.
The Committee for Asia of our Group met recently (meeting every six months) and examined the position as
far as the Philippines are (sic) concerned. Considering the new political situation since the departure of MR.
MARCOS and a certain stabilization in the Philippines, the Committee has decided not to stop our operations
in Manila[.] [I]n fact production started again last week, and (sic) to reorganize the participation in the
Corporation.
We regret that we could not make a deal with you this time, but in case the policy would change at a
later stage we would consult you again.
not disputed by the parties, which, if properly considered, would justify a different conclusion; and (10) when
In the meantime, I remain
Yours sincerely,
C.F. DELSAUX[19]
Petitioners further emphasize that they acted in good faith when Glanville and Delsaux were knowingly
permitted by respondent EC to sell the properties within the scope of an apparent authority. Petitioners insist
that respondents held themselves to the public as possessing power to sell the subject properties.
By way of comment, respondents aver that the issues raised by the petitioners are factual, hence, are
proscribed by Rule 45 of the Rules of Court. On the merits of the petition, respondents EC (now EMC) and
ESAC reiterate their submissions in the CA. They maintain that Glanville, Delsaux and Marquez had no
authority from the stockholders of respondent EC and its Board of Directors to offer the properties for sale to
the petitioners, or to any other person or entity for that matter. They assert that the decision and resolution of
the CA are in accord with law and the evidence on record, and should be affirmed in toto.
Petitioners aver in their subsequent pleadings that respondent EC, through Glanville and Delsaux, conformed
to the written authority of Marquez to sell the properties. The authority of Glanville and Delsaux to bind
respondent EC is evidenced by the fact that Glanville and Delsaux negotiated for the sale of 90% of stocks of
respondent EC to Ruperto Tan on June 1, 1997. Given the significance of their positions and their duties in
respondent EC at the time of the transaction, and the fact that respondent ESAC owns 90% of the shares of
stock of respondent EC, a formal
resolution of the Board of Directors would be a mere ceremonial formality. What is important, petitioners
maintain, is that Marquez was able to communicate the offer of respondent EC and the petitioners
acceptance thereof. There was no time that they acted without the knowledge of respondents. In fact,
respondent EC never repudiated the acts of Glanville, Marquez and Delsaux.
The petition has no merit.
Anent the first issue, we agree with the contention of respondents that the issues raised by petitioner in this
case are factual. Whether or not Marquez, Glanville, and Delsaux were authorized by respondent EC to act
as its agents relative to the sale of the properties of respondent EC, and if so, the boundaries of their authority
as agents, is a question of fact.In the absence of express written terms creating the relationship of an agency,
the existence of an agency is a fact question.[20] Whether an agency by estoppel was created or whether a
person acted within the bounds of his apparent authority, and whether the principal is estopped to deny the
apparent authority of its agent are, likewise, questions of fact to be resolved on the basis of the evidence on
record.[21] The findings of the trial court on such issues, as affirmed by the CA, are conclusive on the Court,
absent evidence that the trial and appellate courts ignored, misconstrued, or misapplied facts and
circumstances of substance which, if considered, would warrant a modification or reversal of the outcome of
the case.[22]
It must be stressed that issues of facts may not be raised in the Court under Rule 45 of the Rules of Court
because the Court is not a trier of facts. It is not to re-examine and assess the evidence on record, whether
testimonial and documentary. There are, however, recognized exceptions where the Court may delve into and
resolve factual issues, namely:
(1) When the conclusion is a finding grounded entirely on speculations, surmises, or conjectures; (2) when
the inference made is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion;
(4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting;
(6) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is
contrary to the admissions of both appellant and appellee; (7) when the findings of the Court of Appeals are
contrary to those of the trial court; (8) when the findings of fact are conclusions without citation of specific
evidence on which they are based; (9) when the Court of Appeals manifestly overlooked certain relevant facts
the findings of fact of the Court of Appeals are premised on the absence of evidence and are contradicted by
the evidence on record.[23]

We have reviewed the records thoroughly and find that the petitioners failed to establish that the instant case
falls under any of the foregoing exceptions. Indeed, the assailed decision of the Court of Appeals is supported
by the evidence on record and the law.
It was the duty of the petitioners to prove that respondent EC had decided to sell its properties and that it had
empowered Adams, Glanville and Delsaux or Marquez to offer the properties for sale to prospective buyers
and to accept any counter-offer. Petitioners likewise failed to prove that their counter-offer had been accepted
by respondent EC, through Glanville and Delsaux. It must be stressed that when specific performance is
sought of a contract made with an agent, the agency must be established by clear, certain and specific proof.
[24]
Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the Philippines,
provides:
SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate powers of
all corporations formed under this Code shall be exercised, all business conducted and all property of such
corporations controlled and held by the board of directors or trustees to be elected from among the holders of
stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one
(1) year and until their successors are elected and qualified.
Indeed, a corporation is a juridical person separate and distinct from its members or stockholders and is not
affected by the personal rights,
obligations and transactions of the latter.[25] It may act only through its board of directors or, when authorized
either by its by-laws or by its board resolution, through its officers or agents in the normal course of
business. The general principles of agency govern the relation between the corporation and its officers or
agents, subject to the articles of incorporation, by-laws, or relevant provisions of law.[26]
Under Section 36 of the Corporation Code, a corporation may sell or convey its real properties, subject to the
limitations prescribed by law and the Constitution, as follows:
SEC. 36. Corporate powers and capacity. Every corporation incorporated under this Code has the power and
capacity:
xxxx
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with
such real and personal property, including securities and bonds of other corporations, as the transaction of a
lawful business of the corporation may reasonably and necessarily require, subject to the limitations
prescribed by the law and the Constitution.
The property of a corporation, however, is not the property of the stockholders or members, and as such, may
not be sold without express authority from the board of directors.[27] Physical acts, like the offering of the
properties of the corporation for sale, or the acceptance of a counter-offer of prospective buyers of such
properties and the execution of the deed of sale covering such property, can be performed by the corporation
only by officers or agents duly authorized for the purpose by corporate by-laws or by specific acts of the board
of directors.[28] Absent such valid delegation/authorization, the rule is that the declarations of an individual
director relating to the affairs of the corporation, but not in the course of, or
connected with, the performance of authorized duties of such director, are not binding on the corporation.[29]
While a corporation may appoint agents to negotiate for the sale of its real properties, the final say will have to
be with the board of directors through its officers and agents as authorized by a board resolution or by its by-
laws.[30] An unauthorized act of an officer of the corporation is not binding on it unless the latter ratifies the
same expressly or impliedly by its board of directors. Any sale of real property of a corporation by a person
purporting to be an agent thereof but without written authority from the corporation is null and void. The
declarations of the agent alone are generally insufficient to establish the fact or extent of his/her authority.[31]
By the contract of agency, a person binds himself to render some service or to do something in representation
on behalf of another, with the consent or authority of the latter.[32]Consent of both principal and agent is
necessary to create an agency. The principal must intend that the agent shall act for him; the agent must
intend to accept the authority and act on it, and the intention of the parties must find expression either in
words or conduct between them.[33]
An agency may be expressed or implied from the act of the principal, from his silence or lack of action, or his
failure to repudiate the agency knowing that another person is acting on his behalf without
authority. Acceptance by the agent may be expressed, or implied from his acts which carry out the agency, or
from his silence or inaction according to the circumstances.[34] Agency may be oral unless the law requires a
specific form.[35] However, to create or convey real rights over immovable property, a special power of
attorney is necessary.[36] Thus, when a sale of a piece of land or any portion thereof is through an agent, the
authority of the latter shall be in writing, otherwise, the sale shall be void.[37]
In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution of the Board of
Directors of respondent EC empowering Marquez, Glanville or Delsaux as its agents, to sell, let alone offer for
sale, for and in its behalf, the eight parcels of land owned by respondent EC including the improvements
thereon. The bare fact that Delsaux may have been authorized to sell to Ruperto Tan the shares of stock of
respondent ESAC, on June 1, 1997, cannot be used as basis for petitioners claim that he had likewise been
authorized by respondent EC to sell the parcels of land.
Moreover, the evidence of petitioners shows that Adams and Glanville acted on the authority of Delsaux, who,
in turn, acted on the authority of respondent ESAC, through its Committee for Asia,[38] the Board of Directors
of respondent ESAC,[39] and the Belgian/Swiss component of the management of respondent ESAC.[40] As
such, Adams and Glanville engaged the services of Marquez to offer to sell the properties to prospective
buyers. Thus, on September 12, 1986, Marquez wrote the petitioner that he was authorized to offer for sale
the property for P27,000,000.00 and the other terms of the sale subject to negotiations. When petitioners
offered to purchase the property for P20,000,000.00, through Marquez, the latter relayed petitioners offer to
Glanville; Glanville had to send a telex to Delsaux to inquire the position of respondent ESAC to petitioners
offer.However, as admitted by petitioners in their Memorandum, Delsaux was unable to reply immediately to
the telex of Glanville because Delsaux had to wait for confirmation from respondent ESAC.[41] When Delsaux
finally responded to Glanville on February 12, 1987, he made it clear that, based on the Belgian/Swiss
decision the final offer of respondent ESAC was US$1,000,000.00 plus P2,500,000.00 to cover all existing
obligations prior to final liquidation.[42] The offer of Delsaux emanated only from the Belgian/Swiss decision,
and not the entire management or Board of Directors of respondent ESAC. While it is true that petitioners
accepted the counter-offer of respondent ESAC, respondent EC was not a party to the transaction between
them; hence, EC was not bound by such acceptance.
While Glanville was the President and General Manager of respondent EC, and Adams and Delsaux were
members of its Board of Directors, the three acted for and in behalf of respondent ESAC, and not as duly
authorized agents of respondent EC; a board resolution evincing the grant of such authority is needed to bind
EC to any agreement regarding the sale of the subject properties. Such board resolution is not a mere
formality but is a condition sine qua non to bind respondent EC. Admittedly, respondent ESAC owned 90% of
the shares of stocks of respondent EC; however, the mere fact that a corporation owns a majority of the
shares of stocks of another, or even all of such shares of stocks, taken alone, will not justify their being
treated as one corporation.[43]
It bears stressing that in an agent-principal relationship, the personality of the principal is extended through
the facility of the agent. In so doing, the agent, by legal fiction, becomes the principal, authorized to perform
all acts which the latter would have him do. Such a relationship can only be effected with the consent of the
principal, which must not, in any way, be compelled by law or by any court.[44]
The petitioners cannot feign ignorance of the absence of any regular and valid authority of respondent EC
empowering Adams, Glanville or Delsaux to offer the properties for sale and to sell the said properties to the
petitioners. A person dealing with a known agent is not authorized, under any circumstances, blindly to trust
the agents; statements as to the extent of his powers; such person must not act negligently but must use
reasonable diligence and prudence to ascertain whether the agent acts within the scope of his authority.
[45] The settled rule is that, persons dealing with an assumed agent are bound at their peril, and if they would
hold the principal liable, to ascertain not only the fact of agency but also the nature and extent of authority,
and in case either is controverted, the burden of proof is upon them to prove it.[46] In this case, the petitioners
failed to discharge their burden; hence, petitioners are not entitled to damages from respondent EC.
It appears that Marquez acted not only as real estate broker for the petitioners but also as their agent. As
gleaned from the letter of Marquez to Glanville, on February 26, 1987, he confirmed, for and in behalf of the
petitioners, that the latter had accepted such offer to sell the land and the improvements thereon. However,
we agree with the ruling of the appellate court that Marquez had no authority to bind respondent EC to sell the
subject properties. A real estate broker is one who negotiates the sale of real properties. His business,
generally speaking, is only to find a purchaser who is willing to buy the land upon terms fixed by the
owner. He has no authority to bind the principal by signing a contract of sale. Indeed, an authority to find a
purchaser of real property does not include an authority to sell.[47]
Equally barren of merit is petitioners contention that respondent EC is estopped to deny the existence of a
principal-agency relationship between it and Glanville or Delsaux. For an agency by estoppel to exist, the
following must be established: (1) the principal manifested a representation of the agents authority or
knowlingly allowed the agent to assume such
authority; (2) the third person, in good faith, relied upon such representation; (3) relying upon such
representation, such third person has changed his position to his detriment.[48]An agency by estoppel, which
is similar to the doctrine of apparent authority, requires proof of reliance upon the representations, and that, in
turn, needs proof that the representations predated the action taken in reliance.[49] Such proof is lacking in this
case. In their communications to the petitioners, Glanville and Delsaux positively and unequivocally declared
that they were acting for and in behalf of respondent ESAC.
Neither may respondent EC be deemed to have ratified the transactions between the petitioners and
respondent ESAC, through Glanville, Delsaux and Marquez. The transactions and the various
communications inter se were never submitted to the Board of Directors of respondent EC for ratification.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the petitioners.
SO ORDERED.
G.R. No. 118375. October 3, 2003
CELESTINA T. NAGUIAT, petitioner, vs. COURT OF APPEALS and AURORA QUEAO, respondents.
Before us is a Petition for Review on Certiorari under Rule 45, assailing the decision of the Sixteenth Division
of the respondent Court of Appeals promulgated on 21 December 1994[1], which affirmed in toto the decision
handed down by the Regional Trial Court (RTC) of Pasay City.[2]
The case arose when on 11 August 1981, private respondent Aurora Queao (Queao) filed a complaint before
the Pasay City RTC for cancellation of a Real Estate Mortgage she had entered into with petitioner Celestina
Naguiat (Naguiat). The RTC rendered a decision, declaring the questioned Real Estate Mortgage void, which
Naguiat appealed to the Court of Appeals. After the Court of Appeals upheld the RTC decision, Naguiat
instituted the present petition.
The operative facts follow:
Queao applied with Naguiat for a loan in the amount of Two Hundred Thousand Pesos (P200,000.00), which
Naguiat granted. On 11 August 1980, Naguiat indorsed to Queao Associated Bank Check No. 090990 (dated
11 August 1980) for the amount of Ninety Five Thousand Pesos (P95,000.00), which was earlier issued to
Naguiat by the Corporate Resources Financing Corporation. She also issued her own Filmanbank Check No.
065314, to the order of Queao, also dated 11 August 1980 and for the amount of Ninety Five Thousand Pesos
(P95,000.00). The proceeds of these checks were to constitute the loan granted by Naguiat to Queao.[3]
To secure the loan, Queao executed a Deed of Real Estate Mortgage dated 11 August 1980 in favor of
Naguiat, and surrendered to the latter the owners duplicates of the titles covering the mortgaged properties.
[4] On the same day, the mortgage deed was notarized, and Queao issued to Naguiat a promissory note for
the amount of TWO HUNDRED THOUSAND PESOS (P200,000.00), with interest at 12% per annum,
payable on 11 September 1980.[5] Queao also issued a Security Bank and Trust Company check, postdated
11 September 1980, for the amount of TWO HUNDRED THOUSAND PESOS (P200,000.00) and payable to
the order of Naguiat.
Upon presentment on its maturity date, the Security Bank check was dishonored for insufficiency of funds. On
the following day, 12 September 1980, Queao requested Security Bank to stop payment of her postdated
check, but the bank rejected the request pursuant to its policy not to honor such requests if the check is
drawn against insufficient funds.[6]
On 16 October 1980, Queao received a letter from Naguiats lawyer, demanding settlement of the
loan. Shortly thereafter, Queao and one Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat. At the meeting,
Queao told Naguiat that she did not receive the proceeds of the loan, adding that the checks were retained by
Ruebenfeldt, who purportedly was Naguiats agent.[7]
Naguiat applied for the extrajudicial foreclosure of the mortgage with the Sheriff of Rizal Province, who then
scheduled the foreclosure sale on 14 August 1981. Three days before the scheduled sale, Queao filed the
case before the Pasay City RTC,[8] seeking the annulment of the mortgage deed. The trial court eventually
stopped the auction sale.[9]
On 8 March 1991, the RTC rendered judgment, declaring the Deed of Real Estate Mortgage null and void,
and ordering Naguiat to return to Queao the owners duplicates of her titles to the mortgaged lots.[10] Naguiat
appealed the decision before the Court of Appeals, making no less than eleven assignments of error. The
Court of Appeals promulgated the decision now assailed before us that affirmed in toto the RTC
decision. Hence, the present petition.
Naguiat questions the findings of facts made by the Court of Appeals, especially on the issue of whether
Queao had actually received the loan proceeds which were supposed to be covered by the two checks
Naguiat had issued or indorsed. Naguiat claims that being a notarial instrument or public document, the
mortgage deed enjoys the presumption that the recitals therein are true. Naguiat also questions the
admissibility of various representations and pronouncements of Ruebenfeldt, invoking the rule on the non-
binding effect of the admissions of third persons.[11]
The resolution of the issues presented before this Court by Naguiat involves the determination of facts, a
function which this Court does not exercise in an appeal by certiorari. Under Rule 45 which governs appeal by
certiorari, only questions of law may be raised[12] as the Supreme Court is not a trier of facts.[13] The resolution
of factual issues is the function of lower courts, whose findings on these matters are received with respect
and are in fact generally binding on the Supreme Court.[14] A question of law which the Court may pass upon
must not involve an examination of the probative value of the evidence presented by the litigants.[15] There is
a question of law in a given case when the doubt or difference arises as to what the law is on a certain state
of facts; there is a question of fact when the doubt or difference arises as to the truth or the falsehood of
alleged facts.[16]
Surely, there are established exceptions to the rule on the conclusiveness of the findings of facts of the lower
courts.[17] But Naguiats case does not fall under any of the exceptions. In any event, both the decisions of the
appellate and trial courts are supported by the evidence on record and the applicable laws.
Against the common finding of the courts below, Naguiat vigorously insists that Queao received the loan
proceeds. Capitalizing on the status of the mortgage deed as a public document, she cites the rule that a
public document enjoys the presumption of validity and truthfulness of its contents. The Court of Appeals,
however, is correct in ruling that the presumption of truthfulness of the recitals in a public document was
defeated by the clear and convincing evidence in this case that pointed to the absence of consideration.
[18] This Court has held that the presumption of truthfulness engendered by notarized documents is rebuttable,
yielding as it does to clear and convincing evidence to the contrary, as in this case.[19]
On the other hand, absolutely no evidence was submitted by Naguiat that the checks she issued or endorsed
were actually encashed or deposited. The mere issuance of the checks did not result in the perfection of the
contract of loan. For the Civil Code provides that the delivery of bills of exchange and mercantile documents
such as checks shall produce the effect of payment only when they have been cashed.[20] It is only after the
checks have produced the effect of payment that the contract of loan may be deemed perfected. Art. 1934 of
the Civil Code provides:
An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties,
but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract.
A loan contract is a real contract, not consensual, and, as such, is perfected only upon the delivery of the
object of the contract.[21] In this case, the objects of the contract are the loan proceeds which Queao would
enjoy only upon the encashment of the checks signed or indorsed by Naguiat. If indeed the checks were
encashed or deposited, Naguiat would have certainly presented the corresponding documentary evidence,
such as the returned checks and the pertinent bank records. Since Naguiat presented no such proof, it
follows that the checks were not encashed or credited to Queaos account.
Naguiat questions the admissibility of the various written representations made by Ruebenfeldt on the ground
that they could not bind her following the res inter alia acta alteri nocere non debet rule. The Court of Appeals
rejected the argument, holding that since Ruebenfeldt was an authorized representative or agent of Naguiat
the situation falls under a recognized exception to the rule.[22] Still, Naguiat insists that Ruebenfeldt was not
her agent.
Suffice to say, however, the existence of an agency relationship between Naguiat and Ruebenfeldt is
supported by ample evidence. As correctly pointed out by the Court of Appeals, Ruebenfeldt was not a
stranger or an unauthorized person. Naguiat instructed Ruebenfeldt to withhold from Queao the checks she
issued or indorsed to Queao, pending delivery by the latter of additional collateral. Ruebenfeldt served as
agent of Naguiat on the loan application of Queaos friend, Marilou Farralese, and it was in connection with
that transaction that Queao came to know Naguiat.[23] It was also Ruebenfeldt who accompanied Queao in
her meeting with Naguiat and on that occasion, on her own and without Queao asking for it, Reubenfeldt
actually drew a check for the sum of P220,000.00 payable to Naguiat, to cover for Queaos alleged liability to
Naguiat under the loan agreement.[24]
The Court of Appeals recognized the existence of an agency by estoppel[25] citing Article 1873 of the Civil
Code.[26] Apparently, it considered that at the very least, as a consequence of the interaction between Naguiat
and Ruebenfeldt, Queao got the impression that Ruebenfeldt was the agent of Naguiat, but Naguiat did
nothing to correct Queaos impression. In that situation, the rule is clear. One who clothes another with
apparent authority as his agent, and holds him out to the public as such, cannot be permitted to deny the
authority of such person to act as his agent, to the prejudice of innocent third parties dealing with such person
in good faith, and in the honest belief that he is what he appears to be.[27] The Court of Appeals is correct in
invoking the said rule on agency by estoppel.
More fundamentally, whatever was the true relationship between Naguiat and Ruebenfeldt is irrelevant in the
face of the fact that the checks issued or indorsed to Queao were never encashed or deposited to her
account of Naguiat.
All told, we find no compelling reason to disturb the finding of the courts a quo that the lender did not remit
and the borrower did not receive the proceeds of the loan. That being the case, it follows that the mortgage
which is supposed to secure the loan is null and void. The consideration of the mortgage contract is the same
as that of the principal contract from which it receives life, and without which it cannot exist as an independent
contract.[28] A mortgage contract being a mere accessory contract, its validity would depend on the validity of
the loan secured by it.[29]
WHEREFORE, the petition is denied and the assailed decision is affirmed. Costs against petitioner.
SO ORDERED.
G.R. No. 113074. January 22, 1997
ALFRED HAHN, petitioner, vs. COURT OF APPEALS and BAYERISCHE MOTOREN WERKE
AKTIENGESELLSCHAFT (BMW), respondents.
This is a petition for review of the decision[1] of the Court of Appeals dismissing a complaint for specific
performance which petitioner had filed against private respondent on the ground that the Regional Trial Court
of Quezon City did not acquire jurisdiction over private respondent, a nonresident foreign corporation, and of
the appellate court's order denying petitioner's motion for reconsideration.
The following are the facts:
Petitioner Alfred Hahn is a Filipino citizen doing business under the name and style "Hahn-Manila." On the
other hand, private respondent Bayerische Motoren Werke Aktiengesellschaft (BMW) is a nonresident foreign
corporation existing under the laws of the former Federal Republic of Germany, with principal office at Munich,
Germany.
On March 7, 1967, petitioner executed in favor of private respondent a "Deed of Assignment with Special
Power of Attorney," which reads in full as follows:
WHEREAS, the ASSIGNOR is the present owner and holder of the BMW trademark and device in the
Philippines which ASSIGNOR uses and has been using on the products manufactured by ASSIGNEE, and for
which ASSIGNOR is the authorized exclusive Dealer of the ASSIGNEE in the Philippines, the same being
evidenced by certificate of registration issued by the Director of Patents on 12 December 1963 and is referred
to as Trademark No. 10625;
WHEREAS, the ASSIGNOR has agreed to transfer and consequently record said transfer of the said BMW
trademark and device in favor of the ASSIGNEE herein with the Philippines Patent Office;
NOW THEREFORE, in view of the foregoing and in consideration of the stipulations hereunder stated, the
ASSIGNOR hereby affirms the said assignment and transfer in favor of the ASSIGNEE under the following
terms and conditions:
1. The ASSIGNEE shall take appropriate steps against any user other than ASSIGNOR or infringer of the
BMW trademark in the Philippines, for such purpose, the ASSIGNOR shall inform the ASSIGNEE immediately
of any such use or infringement of the said trademark which comes to his knowledge and upon such
information the ASSIGNOR shall automatically act as Attorney-In-Fact of the ASSIGNEE for such case, with
full power, authority and responsibility to prosecute unilaterally or in concert with ASSIGNEE, any such
infringer of the subject mark and for purposes hereof the ASSIGNOR is hereby named and constituted as
ASSIGNEE's Attorney-In-Fact, but any such suit without ASSIGNEE's consent will exclusively be the
responsibility and for the account of the ASSIGNOR,
2. That the ASSIGNOR and the ASSIGNEE shall continue business relations as has been usual in the past
without a formal contract, and for that purpose, the dealership of ASSIGNOR shall cover the ASSIGNEE's
complete production program with the only limitation that, for the present, in view of ASSIGNEE's limited
production, the latter shall not be able to supply automobiles to ASSIGNOR.
Per the agreement, the parties "continue[d] business relations as has been usual in the past without a formal
contract." But on February 16, 1993, in a meeting with a BMW representative and the president of Columbia
Motors Corporation (CMC), Jose Alvarez, petitioner was informed that BMW was arranging to grant the
exclusive dealership of BMW cars and products to CMC, which had expressed interest in acquiring the same.
On February 24, 1993, petitioner received confirmation of the information from BMW which, in a letter,
expressed dissatisfaction with various aspects of petitioner's business, mentioning among other things,
decline in sales, deteriorating services, and inadequate showroom and warehouse facilities, and petitioner's
alleged failure to comply with the standards for an exclusive BMW dealer.[2] Nonetheless, BMW expressed
willingness to continue business relations with the petitioner on the basis of a "standard BMW importer"
contract, otherwise, it said, if this was not acceptable to petitioner, BMW would have no alternative but to
terminate petitioner's exclusive dealership effective June 30, 1993.
Petitioner protested, claiming that the termination of his exclusive dealership would be a breach of the Deed
of Assignment.[3] Hahn insisted that as long as the assignment of its trademark and device subsisted, he
remained BMW's exclusive dealer in the Philippines because the assignment was made in consideration of
the exclusive dealership. In the same letter petitioner explained that the decline in sales was due to lower
prices offered for BMW cars in the United States and the fact that few customers returned for repairs and
servicing because of the durability of BMW parts and the efficiency of petitioner's service.
Because of Hahn's insistence on the former business relation, BMW withdrew on March 26, 1993 its offer of a
"standard importer contract" and terminated the exclusive dealer relationship effective June 30, 1993.[4] At a
conference of BMW Regional Importers held on April 26, 1993 in Singapore, Hahn was surprised to find
Alvarez among those invited from the Asian region. On April 29, 1993, BMW proposed that Hahn and CMC
jointly import and distribute BMW cars and parts.
Hahn found the proposal unacceptable. On May 14, 1993, he filed a complaint for specific performance and
damages against BMW to compel it to continue the exclusive dealership. Later he filed an amended
complaint to include an application for temporary restraining order and for writs of preliminary, mandatory and
prohibitory injunction to enjoin BMW from terminating his exclusive dealership. Hahn's amended complaint
alleged in pertinent parts:
2. Defendant [BMW] is a foreign corporation doing business in the Philippines with principal offices at Munich,
Germany. It may be served with summons and other court processes through the Secretary of the
Department of Trade and Industry of the Philippines. . . .
....
5. On March 7, 1967, Plaintiff executed in favor of defendant BMW a Deed of Assignment with Special Power
of Attorney covering the trademark and in consideration thereof, under its first whereas clause, Plaintiff was
duly acknowledged as the "exclusive Dealer of the Assignee in the Philippines" . . . .
....
8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in the Philippines up to the
present, Plaintiff, through its firm name "HAHN MANILA" and without any monetary contribution from
defendant BMW, established BMW's goodwill and market presence in the Philippines. Pursuant thereto,
Plaintiff has invested a lot of money and resources in order to single-handedly compete against other
motorcycle and car companies .... Moreover, Plaintiff has built buildings and other infrastructures such as
service centers and showrooms to maintain and promote the car and products of defendant BMW.
....
10. In a letter dated February 24, 1993, defendant BMW advised Plaintiff that it was willing to maintain with
Plaintiff a relationship but only "on the basis of a standard BMW importer contract as adjusted to reflect the
particular situation in the Philippines" subject to certain conditions, otherwise, defendant BMW would
terminate Plaintiff's exclusive dealership and any relationship for cause effective June 30, 1993. . . .
....
15. The actuations of defendant BMW are in breach of the assignment agreement between itself and plaintiff
since the consideration for the assignment of the BMW trademark is the continuance of the exclusive
dealership agreement. It thus, follows that the exclusive dealership should continue for so long as defendant
BMW enjoys the use and ownership of the trademark assigned to it by Plaintiff.
The case was docketed as Civil Case No. Q-93-15933 and raffled to Branch 104 of the Quezon City Regional
Trial Court, which on June 14, 1993 issued a temporary restraining order. Summons and copies of the
complaint and amended complaint were thereafter served on the private respondent through the Department
of Trade and Industry, pursuant to Rule 14, 14 of the Rules of Court. The order, summons and copies of the
complaint and amended complaint were later sent by the DTI to BMW via registered mail on June 15,
1993[5] and received by the latter on June 24, 1993.
On June 17, 1993, without proof of service on BMW, the hearing on the application for the writ of preliminary
injunction proceeded ex parte, with petitioner Hahn testifying. On June 30, 1993, the trial court issued an
order granting the writ of preliminary injunction upon the filing of a bond of P100,000.00. On July 13, 1993,
following the posting of the required bond, a writ of preliminary injunction was issued.
On July 1, 1993, BMW moved to dismiss the case, contending that the trial court did not acquire jurisdiction
over it through the service of summons on the Department of Trade and Industry, because it (BMW) was a
foreign corporation and it was not doing business in the Philippines. It contended that the execution of the
Deed of Assignment was an isolated transaction; that Hahn was not its agent because the latter undertook to
assemble and sell BMW cars and products without the participation of BMW and sold other products; and that
Hahn was an indentor or middleman transacting business in his own name and for his own account.
Petitioner Alfred Hahn opposed the motion. He argued that BMW was doing business in the Philippines
through him as its agent, as shown by the fact that BMW invoices and order forms were used to document his
transactions; that he gave warranties as exclusive BMW dealer; that BMW officials periodically inspected
standards of service rendered by him; and that he was described in service booklets and international
publications of BMW as a "BMW Importer" or "BMW Trading Company" in the Philippines.
The trial court[6] deferred resolution of the Motion to dismiss until after trial on the merits for the reason that
the grounds advanced by BMW in its motion did not seem to be indubitable.
Without seeking reconsideration of the aforementioned order, BMW filed a petition for certiorari with the Court
of Appeals alleging that:
I. THE RESPONDENT JUDGE ACTED WITH UNDUE HASTE OR OTHERWISE INJUDICIOUSLY IN
PROCEEDINGS LEADING TOWARD THE ISSUANCE OF THE WRIT OF PRELIMINARY INJUNCTION,
AND IN PRESCRIBING THE TERMS FOR THE ISSUANCE THEREOF.
II. THE RESPONDENT JUDGE PATENTLY ERRED IN DEFERRING RESOLUTION OF THE MOTION TO
DISMISS ON THE GROUND OF LACK OF JURISDICTION, AND THEREBY FAILING TO IMMEDIATELY
DISMISS THE CASE A QUO.
BMW asked for the immediate issuance of a temporary restraining order and, after hearing, for a writ of
preliminary injunction, to enjoin the trial court from proceeding further in Civil Case No. Q-93-15933. Private
respondent pointed out that, unless the trial court's order was set aside, it would be forced to submit to the
jurisdiction of the court by filing its answer or to accept judgment in default, when the very question was
whether the court had jurisdiction over it.
The Court of Appeals enjoined the trial court from hearing petitioner's complaint. On December 20, 1993, it
rendered judgment finding the trial court guilty of grave abuse of discretion in deferring resolution of the
motion to dismiss. It stated:
Going by the pleadings already filed with the respondent court before it came out with its questioned order of
July 26, 1993, we rule and so hold that petitioner's (BMW) motion to dismiss could be resolved then and
there, and that the respondent judge's deferment of his action thereon until after trial on the merit constitutes,
to our mind, grave abuse of discretion.
....
. . . [T]here is not much appreciable disagreement as regards the factual matters relating, to the motion to
dismiss. What truly divide (sic) the parties and to which they greatly differ is the legal conclusions they
respectively draw from such facts, (sic) with Hahn maintaining that on the basis thereof, BMW is doing
business in the Philippines while the latter asserts that it is not.
Then, after stating that any ruling which the trial court might make on the motion to dismiss would anyway be
elevated to it on appeal, the Court of Appeals itself resolved the motion. It ruled that BMW was not doing
business in the country and, therefore, jurisdiction over it could not be acquired through service of summons
on the DTI pursuant to Rule 14, Section 14. The court upheld private respondent's contention that Hahn acted
in his own name and for his own account and independently of BMW, based on Alfred Hahn's allegations that
he had invested his own money and resources in establishing BMW's goodwill in the Philippines and on
BMW's claim that Hahn sold products other than those of BMW. It held that petitioner was a mere indentor or
broker and not an agent through whom private respondent BMW transacted business in the Philippines.
Consequently, the Court of Appeals dismissed petitioner's complaint against BMW.
Hence, this appeal. Petitioner contends that the Court of Appeals erred (1) in finding that the trial court
gravely abused its discretion in deferring action on the motion to dismiss and (2) in finding that private
respondent BMW is not doing business in the Philippines and, for this reason, dismissing petitioner's case.
Petitioner's appeal is well taken. Rule 14, 14 provides:
14. Service upon foreign corporations. If the defendant is a foreign corporation, or a nonresident joint stock
company or association, doing business in the Philippines, service may be made on its resident agent
designated in accordance with law for that purpose, or, if there be no such agent, on the government official
designated by law to that effect, or on any of its officers or agents within the Philippines. (Emphasis added)
What acts are considered "doing business in the Philippines" are enumerated in 3(d) of the Foreign
Investments Act of 1991 (R.A. No. 7042) as follows:[7]
d) the phrase "doing business" shall include soliciting orders, service contracts, opening offices, whether
called "liaison" offices or branches, appointing representatives or distributors domiciled in the
Philippines or who in any calendar year stay in the country for a period or periods totalling one hundred
eighty (180) days or more; participating in the management, supervision or control of any domestic business,
firm, entity or corporation in the Philippines; and any other act or acts that imply a continuity of
commercial dealings or arrangements and contemplate to that extent the performance of acts or
works, or the exercise of some of the functions normally incident to, and in progressive prosecution
of, commercial gain or of the purpose and object of the business organization: Provided, however, That
the phrase "doing business" shall not be deemed to include mere investment as a shareholder by a
foreign entity in domestic corporations duly registered to do business, and/or the exercise of rights as such
investor; nor having, a nominee director or officer to represent its interests in such corporation; nor
appointing a representative or distributor domiciled in the Philippines which transacts business in its
own name and for its own account. (Emphasis supplied)
Thus, the phrase includes "appointing representatives or distributors in the Philippines" but not when the
representative or distributor "transacts business in its name and for its own account." In addition, Section 1(f)
(1) of the Rules and Regulations implementing (IRR) the Omnibus Investment Code of 1987 (E.O. No. 226)
provided:
(f) "Doing business" shall be any act or combination of acts, enumerated in Article 44 of the Code. In
particular, "doing business" includes:
(1).... A foreign firm which does business through middlemen acting in their own names, such as indentors,
commercial brokers or commission merchants, shall not be deemed doing business in the Philippines. But
such indentors, commercial brokers or commission merchants shall be the ones deemed to be doing
business in the Philippines.
The question is whether petitioner Alfred Hahn is the agent or distributor in the Philippines of private
respondent BMW. If he is, BMW may be considered doing business in the Philippines and the trial court
acquired jurisdiction over it (BMW) by virtue of the service of summons on the Department of Trade and
Industry. Otherwise, if Hahn is not the agent of BMW but an independent dealer, albeit of BMW cars and
products, BMW, a foreign corporation, is not considered doing business in the Philippines within the meaning
of the Foreign Investments Act of 1991 and the IRR, and the trial court did not acquire jurisdiction over it
(BMW).
The Court of Appeals held that petitioner Alfred Hahn acted in his own name and for his own account and not
as agent or distributor in the Philippines of BMW on the ground that "he alone had contacts with individuals or
entities interested in acquiring BMW vehicles. Independence characterizes Hahn's undertakings, for which
reason he is to be considered, under governing statutes, as doing business." (p. 13) In support of this
conclusion, the appellate court cited the following allegations in Hahn's amended complaint:
8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in the Philippines up to the
present, Plaintiff, through its firm name "HAHN MANILA" and without any monetary contributions from
defendant BMW; established BMW's goodwill and market presence in the Philippines. Pursuant thereto,
Plaintiff invested a lot of money and resources in order to single-handedly compete against other motorcycle
and car companies.... Moreover, Plaintiff has built buildings and other infrastructures such as service centers
and showrooms to maintain and promote the car and products of defendant BMW.
As the above quoted allegations of the amended complaint show, however, there is nothing to support the
appellate court's finding that Hahn solicited orders alone and for his own account and without "interference
from, let alone direction of, BMW." (p. 13) To the contrary, Hahn claimed he took orders for BMW cars and
transmitted them to BMW. Upon receipt of the orders, BMW fixed the down payment and pricing charges,
notified Hahn of the scheduled production month for the orders, and reconfirmed the orders by signing and
returning to Hahn the acceptance sheets. Payment was made by the buyer directly to BMW. Title to cars
purchased passed directly to the buyer and Hahn never paid for the purchase price of BMW cars sold in the
Philippines. Hahn was credited with a commission equal to 14% of the purchase price upon the invoicing of a
vehicle order by BMW. Upon confirmation in writing that the vehicles had been registered in the Philippines
and serviced by him, Hahn received an additional 3% of the full purchase price. Hahn performed after-sale
services, including, warranty services, for which he received reimbursement from BMW. All orders were on
invoices and forms of BMW.[8]
These allegations were substantially admitted by BMW which, in its petition for certiorari before the Court of
Appeals, stated:[9]
9.4. As soon as the vehicles are fully manufactured and full payment of the purchase prices are made, the
vehicles are shipped to the Philippines. (The payments may be made by the purchasers or third-persons or
even by Hahn.) The bills of lading are made up in the name of the purchasers, but Hahn-Manila is therein
indicated as the person to be notified.
9.5. It is Hahn who picks up the vehicles from the Philippine ports, for purposes of conducting pre-delivery
inspections. Thereafter, he delivers the vehicles to the purchasers.
9.6. As soon as BMW invoices the vehicle ordered, Hahn is credited with a commission of fourteen percent
(14%) of the full purchase price thereof, and as soon as he confirms in writing, that the vehicles have been
registered in the Philippines and have been serviced by him, he will receive an additional three percent (3%)
of the full purchase prices as commission.
Contrary to the appellate court's conclusion, this arrangement shows an agency. An agent receives a
commission upon the successful conclusion of a sale. On the other hand, a broker earns his pay merely by
bringing the buyer and the seller together, even if no sale is eventually made.
As to the service centers and showrooms which he said he had put up at his own expense, Hahn said that he
had to follow BMW specifications as exclusive dealer of BMW in the Philippines. According to Hahn, BMW
periodically inspected the service centers to see to it that BMW standards were maintained. Indeed, it would
seem from BMW's letter to Hahn that it was for Hahn's alleged failure to maintain BMW standards that BMW
was terminating Hahn's dealership.
The fact that Hahn invested his own money to put up these service centers and showrooms does not
necessarily prove that he is not an agent of BMW. For as already noted, there are facts in the record which
suggest that BMW exercised control over Hahn's activities as a dealer and made regular inspections of
Hahn's premises to enforce compliance with BMW standards and specifications.[10] For example, in its letter
to Hahn dated February 23, 1996, BMW stated:
In the last years we have pointed out to you in several discussions and letters that we have to tackle the
Philippine market more professionally and that we are through your present activities not adequately prepared
to cope with the forthcoming challenges.[11]
In effect, BMW was holding Hahn accountable to it under the 1967 Agreement.
This case fits into the mould of Communications Materials, Inc. v. Court of Appeals,[12] in which the foreign
corporation entered into a "Representative Agreement" and a "Licensing Agreement" with a domestic
corporation, by virtue of which the latter was appointed "exclusive representative" in the Philippines for a
stipulated commission. Pursuant to these contracts, the domestic corporation sold products exported by the
foreign corporation and put up a service center for the products sold locally. This Court held that these acts
constituted doing business in the Philippines. The arrangement showed that the foreign corporation's purpose
was to penetrate the Philippine market and establish its presence in the Philippines.
In addition, BMW held out private respondent Hahn as its exclusive distributor in the Philippines, even as it
announced in the Asian region that Hahn was the "official BMW agent" in the Philippines.[13]
The Court of Appeals also found that petitioner Alfred Hahn dealt in other products, and not exclusively in
BMW products, and, on this basis, ruled that Hahn was not an agent of BMW. (p. 14) This finding is based
entirely on allegations of BMW in its motion to dismiss filed in the trial court and in its petition
for certiorari before the Court of Appeals.[14] But this allegation was denied by Hahn[15] and therefore the Court
of Appeals should not have cited it as if it were the fact.
Indeed this is not the only factual issue raised, which should have indicated to the Court of Appeals the
necessity of affirming the trial court's order deferring resolution of BMW's motion to dismiss. Petitioner alleged
that whether or not he is considered an agent of BMW, the fact is that BMW did business in the Philippines
because it sold cars directly to Philippine buyers. [16]This was denied by BMW, which claimed that Hahn was
not its agent and that, while it was true that it had sold cars to Philippine buyers, this was done without
solicitation on its part.[17]
It is not true then that the question whether BMW is doing business could have been resolved simply by
considering the parties' pleadings. There are genuine issues of facts which can only be determined on the
basis of evidence duly presented. BMW cannot short circuit the process on the plea that to compel it to go to
trial would be to deny its right not to submit to the jurisdiction of the trial court which precisely it denies. Rule
16, 3 authorizes courts to defer the resolution of a motion to dismiss until after the trial if the ground on which
the motion is based does not appear to be indubitable. Here the record of the case bristles with factual issues
and it is not at all clear whether some allegations correspond to the proof.
Anyway, private respondent need not apprehend that by responding to the summons it would be waiving its
objection to the trial court's jurisdiction. It is now settled that. for purposes of having summons served on a
foreign corporation in accordance with Rule 14, 14, it is sufficient that it be alleged in the complaint that the
foreign corporation is doing business in the Philippines. The court need not go beyond the allegations of the
complaint in order to determine whether it has jurisdiction.[18] A determination that the foreign corporation is
doing business is only tentative and is made only for the purpose of enabling the local court to acquire
jurisdiction over the foreign corporation through service of summons pursuant to Rule 14, 14. Such
determination does not foreclose a contrary finding should evidence later show that it is not transacting
business in the country. As this Court has explained:
This is not to say, however, that the petitioner's right to question the jurisdiction of the court over its person is
now to be deemed a foreclosed matter. If it is true, as Signetics claims, that its only involvement in the
Philippines was through a passive investment in Sigfil, which it even later disposed of, and that TEAM Pacific
is not its agent, then it cannot really be said to be doing business in the Philippines. It is a defense, however,
that requires the contravention of the allegations of the complaint, as well as a full ventilation, in effect, of the
main merits of the case, which should not thus be within the province of a mere motion to dismiss. So, also,
the issue posed by the petitioner as to whether a foreign corporation which has done business in the country,
but which has ceased to do business at the time of the filing, of a complaint, can still be made to answer for a
cause of action which accrued while it was doing, business, is another matter that would yet have to await the
reception and admission of evidence. Since these points have seasonably been raised by the petitioner, there
should be no real cause for what may understandably be its apprehension, i.e., that by its participation during
the trial on the merits, it may, absent an invocation of separate or independent reliefs of its own, be
considered to have voluntarily submitted itself to the court's jurisdiction.[19]
Far from committing an abuse of discretion, the trial court properly deferred resolution of the motion to
dismiss and thus avoided prematurely deciding a question which requires a factual basis, with the same result
if it had denied the motion and conditionally assumed jurisdiction. It is the Court of Appeals which, by ruling
that BMW is not doing business on the basis merely of uncertain allegations in the pleadings, disposed of the
whole case with finality and thereby deprived petitioner of his right to be heard on his cause of action. Nor
was there justification for nullifying the writ of preliminary injunction issued by the trial court. Although the
injunction was issued ex parte, the fact is that BMW was subsequently heard on its defense by filing a motion
to dismiss.
WHEREFORE, the decision of the Court of Appeals is REVERSED and the case is REMANDED to the trial
court for further proceedings.
SO ORDERED.
G.R. No. 121824. January 29, 1998
BRITISH AIRWAYS, petitioner, vs. COURT OF APPEALS, GOP MAHTANI, and PHILIPPINE
AIRLINES, respondents.
In this appeal by certiorari, petitioner British Airways (BA) seeks to set aside the decision of respondent Court
of Appeals[1] promulgated on September 7, 1995, which affirmed the award of damages and attorneys fees
made by the Regional Trial Court of Cebu, 7th Judicial Region, Branch 17, in favor of private respondent GOP
Mahtani as well as the dismissal of its third-party complaint against Philippine Airlines (PAL).[2]
The material and relevant facts are as follows:
On April 16, 1989, Mahtani decided to visit his relatives in Bombay, India. In anticipation of his visit, he
obtained the services of a certain Mr. Gumar to prepare his travel plans. The latter, in turn, purchased a ticket
from BA where the following itinerary was indicated:[3]
CARRIER FLIGHT DATE TIME STATUS
MANILA MNL PR 310Y 16 APR 1730 OK
HONGKONG HKG BA 20 M 16 APR 2100 OK
BOMBAY BOM BA 19 M 23 APR 0840 OK
MANILA MNL"
Since BA had no direct flights from Manila to Bombay, Mahtani had to take a flight to Hongkong via PAL, and
upon arrival in Hongkong he had to take a connecting flight to Bombay on board BA.
Prior to his departure, Mahtani checked in at the PAL counter in Manila his two pieces of luggage containing
his clothings and personal effects, confident that upon reaching Hongkong, the same would be transferred to
the BA flight bound for Bombay.
Unfortunately, when Mahtani arrived in Bombay he discovered that his luggage was missing and that upon
inquiry from the BA representatives, he was told that the same might have been diverted to London. After
patiently waiting for his luggage for one week, BA finally advised him to file a claim by accomplishing the
Property Irregularity Report.[4]
Back in the Philippines, specifically on June 11, 1990, Mahtani filed his complaint for damages and attorneys
fees[5] against BA and Mr. Gumar before the trial court, docketed as Civil Case No. CEB-9076.
On September 4, 1990, BA filed its answer with counter claim[6] to the complaint raising, as special and
affirmative defenses, that Mahtani did not have a cause of action against it.Likewise, on November 9, 1990,
BA filed a third-party complaint[7] against PAL alleging that the reason for the non-transfer of the luggage was
due to the latters late arrival in Hongkong, thus leaving hardly any time for the proper transfer of Mahtanis
luggage to the BA aircraft bound for Bombay.
On February 25, 1991, PAL filed its answer to the third-party complaint, wherein it disclaimed any liability,
arguing that there was, in fact, adequate time to transfer the luggage to BA facilities in
Hongkong. Furthermore, the transfer of the luggage to Hongkong authorities should be considered as transfer
to BA.[8]
After appropriate proceedings and trial, on March 4, 1993, the trial court rendered its decision in favor of
Mahtani,[9] the dispositive portion of which reads as follows:
WHEREFORE, premises considered, judgment is rendered for the plaintiff and against the defendant for
which defendant is ordered to pay plaintiff the sum of Seven Thousand (P7,000.00) Pesos for the value of the
two (2) suit cases; Four Hundred U.S. ($400.00) Dollars representing the value of the contents of plaintiffs
luggage; Fifty Thousand (P50,000.00) Pesos for moral and actual damages and twenty percent (20%) of the
total amount imposed against the defendant for attorneys fees and costs of this action.
The Third-Party Complaint against third-party defendant Philippine Airlines is DISMISSED for lack of cause of
action.
SO ORDERED.
Dissatisfied, BA appealed to the Court of Appeals, which however, affirmed the trial courts findings. Thus:
WHEREFORE, in view of all the foregoing considerations, finding the Decision appealed from to be in
accordance with law and evidence, the same is hereby AFFIRMED in toto, with costs against defendant-
appellant.
SO ORDERED.[10]
BA is now before us seeking the reversal of the Court of Appeals decision.
In essence, BA assails the award of compensatory damages and attorneys fees, as well as the dismissal of
its third-party complaint against PAL.[11]
Regarding the first assigned issue, BA asserts that the award of compensatory damages in the separate sum
of P7,000.00 for the loss of Mahtanis two pieces of luggage was without basis since Mahtani in his
complaint[12] stated the following as the value of his personal belongings:
8. On said travel, plaintiff took with him the following items and its corresponding value, to wit:
1. personal belonging - - - - - - - - - - - - - - P10,000.00
2. gifts for his parents and relatives - - - - - $5,000.00
Moreover, he failed to declare a higher valuation with respect to his luggage, a condition provided for in the
ticket, which reads:[13]
Liability for loss, delay, or damage to baggage is limited unless a higher value is declared in advance and
additional charges are paid:
1. For most international travel (including domestic corporations of international journeys) the liability limit is
approximately U.S. $9.07 per pound (U.S. $20.00) per kilo for checked baggage and U.S. $400 per
passenger for unchecked baggage.
Before we resolve the issues raised by BA, it is needful to state that the nature of an airlines contract of
carriage partakes of two types, namely: a contract to deliver a cargo or merchandise to its destination and a
contract to transport passengers to their destination. A business intended to serve the travelling public
primarily, it is imbued with public interest, hence, the law governing common carriers imposes an exacting
standard.[14] Neglect or malfeasance by the carriers employees could predictably furnish bases for an action
for damages.[15]
In the instant case, it is apparent that the contract of carriage was between Mahtani and BA. Moreover, it is
indubitable that his luggage never arrived in Bombay on time. Therefore, as in a number of cases[16] we have
assessed the airlines culpability in the form of damages for breach of contract involving misplaced luggage.
In determining the amount of compensatory damages in this kind of cases, it is vital that the claimant
satisfactorily prove during the trial the existence of the factual basis of the damages and its causal connection
to defendants acts.[17]
In this regard, the trial court granted the following award as compensatory damages:
Since plaintiff did not declare the value of the contents in his luggage and even failed to show receipts of the
alleged gifts for the members of his family in Bombay, the most that can be expected for compensation of his
lost luggage (2 suit cases) is Twenty U.S. Dollars ($20.00) per kilo, or a combined value of Four Hundred
($400.00) U.S. Dollars for Twenty kilos representing the contents plus Seven Thousand (P7,000.00) Pesos
representing the purchase price of the two (2) suit cases.
However, as earlier stated, it is the position of BA that there should have been no separate award for the
luggage and the contents thereof since Mahtani failed to declare a separate higher valuation for the luggage,
[18] and therefore, its liability is limited, at most, only to the amount stated in the ticket.
Considering the facts of the case, we cannot assent to such specious argument.
Admittedly, in a contract of air carriage a declaration by the passenger of a higher value is needed to recover
a greater amount. Article 22(1) of the Warsaw Convention,[19] provides as follows:
xxxxxxxxx
(2) In the transportation of checked baggage and goods, the liability of the carrier shall be limited to a sum of
250 francs per kilogram, unless the consignor has made, at the time the package was handed over to the
carrier, a special declaration of the value at delivery and has paid a supplementary sum if the case so
requires. In that case the carrier will be liable to pay a sum not exceeding the declared sum, unless he proves
that the sum is greater than the actual value to the consignor at delivery.
American jurisprudence provides that an air carrier is not liable for the loss of baggage in an amount in
excess of the limits specified in the tariff which was filed with the proper authorities, such tariff being binding
on the passenger regardless of the passengers lack of knowledge thereof or assent thereto.[20] This doctrine
is recognized in this jurisdiction.[21]
Notwithstanding the foregoing, we have, nevertheless, ruled against blind reliance on adhesion contracts
where the facts and circumstances justify that they should be disregarded.[22]
In addition, we have held that benefits of limited liability are subject to waiver such as when the air carrier
failed to raise timely objections during the trial when questions and answers regarding the actual claims and
damages sustained by the passenger were asked.[23]
Given the foregoing postulates, the inescapable conclusion is that BA had waived the defense of limited
liability when it allowed Mahtani to testify as to the actual damages he incurred due to the misplacement of his
luggage, without any objection. In this regard, we quote the pertinent transcript of stenographic notes of
Mahtanis direct testimony:[24]
Q - How much are you going to ask from this court?
A - P100,000.00.
Q - What else?
A - Exemplary damages.
Q - How much?
A - P100,000.00.
Q - What else?
A - The things I lost, $5,000.00 for the gifts I lost and my
personal belongings, P10,000.00.
Q - What about the filing of this case?
A - The court expenses and attorneys fees is 30%.
Indeed, it is a well-settled doctrine that where the proponent offers evidence deemed by counsel of the
adverse party to be inadmissible for any reason, the latter has the right to object.However, such right is a
mere privilege which can be waived. Necessarily, the objection must be made at the earliest opportunity, lest
silence when there is opportunity to speak may operate as a waiver of objections.[25] BA has precisely failed in
this regard.
To compound matters for BA, its counsel failed, not only to interpose a timely objection, but even conducted
his own cross-examination as well.[26] In the early case of Abrenica v. Gonda,[27] we ruled that:
x x x (I)t has been repeatedly laid down as a rule of evidence that a protest or objection against the admission
of any evidence must be made at the proper time, and that if not so made it will be understood to have been
waived. The proper time to make a protest or objection is when, from the question addressed to the witness,
or from the answer thereto, or from the presentation of proof, the inadmissibility of evidence is, or may be
inferred.
Needless to say, factual findings of the trial court, as affirmed by the Court of Appeals, are entitled to great
respect.[28] Since the actual value of the luggage involved appreciation of evidence, a task within the
competence of the Court of Appeals, its ruling regarding the amount is assuredly a question of fact, thus, a
finding not reviewable by this Court.[29]
As to the issue of the dismissal of BAs third-party complaint against PAL, the Court of Appeals justified its
ruling in this wise, and we quote:[30]
Lastly, we sustain the trial courts ruling dismissing appellants third-party complaint against PAL.
The contract of air transportation in this case pursuant to the ticket issued by appellant to plaintiff-appellee
was exclusively between the plaintiff Mahtani and defendant-appellant BA. When plaintiff boarded the PAL
plane from Manila to Hongkong, PAL was merely acting as a subcontractor or agent of BA. This is shown by
the fact that in the ticket issued by appellant to plaintiff-appellee, it is specifically provided on the Conditions of
Contract, paragraph 4 thereof that:
4. x x x carriage to be performed hereunder by several successive carriers is regarded as a single operation.
The rule that carriage by plane although performed by successive carriers is regarded as a single operation
and that the carrier issuing the passengers ticket is considered the principal party and the other carrier merely
subcontractors or agent, is a settled issue.
We cannot agree with the dismissal of the third-complaint.
In Firestone Tire and Rubber Company of the Philippines v. Tempengko,[31] we expounded on the nature of a
third-party complaint thus:
The third-party complaint is, therefore, a procedural device whereby a third party who is neither a party nor
privy to the act or deed complained of by the plaintiff, may be brought into the case with leave of court, by the
defendant, who acts as third-party plaintiff to enforce against such third-party defendant a right for
contribution, indemnity, subrogation or any other relief, in respect of the plaintiffs claim. The third-party
complaint is actually independent of and separate and distinct from the plaintiffs complaint. Were it not for this
provision of the Rules of Court, it would have to be filed independently and separately from the original
complaint by the defendant against the third-party. But the Rules permit defendant to bring in a third-party
defendant or so to speak, to litigate his separate cause of action in respect of plaintiffs claim against a third-
party in the original and principal case with the object of avoiding circuitry of action and unnecessary
proliferation of law suits and of disposing expeditiously in one litigation the entire subject matter arising from
one particular set of facts.
Undeniably, for the loss of his luggage, Mahtani is entitled to damages from BA, in view of their contract of
carriage. Yet, BA adamantly disclaimed its liability and instead imputed it to PAL which the latter naturally
denies. In other words, BA and PAL are blaming each other for the incident.
In resolving this issue, it is worth observing that the contract of air transportation was exclusively between
Mahtani and BA, the latter merely endorsing the Manila to Hongkong leg of the formers journey to PAL, as its
subcontractor or agent. In fact, the fourth paragraph of the Conditions of Contracts of the ticket[32] issued by
BA to Mahtani confirms that the contract was one of continuous air transportation from Manila to Bombay.
4. x x x carriage to be performed hereunder by several successive carriers is regarded as a single operation.
Prescinding from the above discussion, it is undisputed that PAL, in transporting Mahtani from Manila to
Hongkong acted as the agent of BA.
Parenthetically, the Court of Appeals should have been cognizant of the well-settled rule that an agent
is also responsible for any negligence in the performance of its function[33] and is liable for damages which the
principal may suffer by reason of its negligent act.[34] Hence, the Court of Appeals erred when it opined that
BA, being the principal, had no cause of action against PAL, its agent or sub-contractor.
Also, it is worth mentioning that both BA and PAL are members of the International Air Transport Association
(IATA), wherein member airlines are regarded as agents of each other in the issuance of the tickets and other
matters pertaining to their relationship.[35] Therefore, in the instant case, the contractual relationship between
BA and PAL is one of agency, the former being the principal, since it was the one which issued the confirmed
ticket, and the latter the agent.
Our pronouncement that BA is the principal is consistent with our ruling in Lufthansa German Airlines v. Court
of Appeals.[36] In that case, Lufthansa issued a confirmed ticket to Tirso Antiporda covering five-leg trip aboard
different airlines. Unfortunately, Air Kenya, one of the airlines which was to carry Antiporda to a specific
destination bumped him off.
An action for damages was filed against Lufthansa which, however, denied any liability, contending that its
responsibility towards its passenger is limited to the occurrence of a mishap on its own line. Consequently,
when Antiporda transferred to Air Kenya, its obligation as a principal in the contract of carriage ceased; from
there on, it merely acted as a ticketing agent for Air Kenya.
In rejecting Lufthansas argument, we ruled:
In the very nature of their contract, Lufthansa is clearly the principal in the contract of carriage with Antiporda
and remains to be so, regardless of those instances when actual carriage was to be performed by various
carriers. The issuance of confirmed Lufthansa ticket in favor of Antiporda covering his entire five-leg trip
aboard successive carriers concretely attest to this.
Since the instant petition was based on breach of contract of carriage, Mahtani can only sue BA alone, and
not PAL, since the latter was not a party to the contract. However, this is not to say that PAL is relieved from
any liability due to any of its negligent acts. In China Air Lines, Ltd. v. Court of Appeals,[37] while not exactly in
point, the case, however, illustrates the principle which governs this particular situation. In that case, we
recognized that a carrier (PAL), acting as an agent of another carrier, is also liable for its own negligent acts or
omission in the performance of its duties.

Accordingly, to deny BA the procedural remedy of filing a third-party complaint against PAL for the purpose of
ultimately determining who was primarily at fault as between them, is without legal basis. After all, such
proceeding is in accord with the doctrine against multiplicity of cases which would entail receiving the same or
similar evidence for both cases and enforcing separate judgments therefor. It must be borne in mind that the
purpose of a third-party complaint is precisely to avoid delay and circuity of action and to enable the
controversy to be disposed of in one suit.[38] It is but logical, fair and equitable to allow BA to sue PAL for
indemnification, if it is proven that the latters negligence was the proximate cause of Mahtanis unfortunate
experience, instead of totally absolving PAL from any liability.

WHEREFORE, in view of the foregoing, the decision of the Court of Appeals in CA-G.R. CV No. 43309 dated
September 7, 1995 is hereby MODIFIED, reinstating the third-party complaint filed by British Airways dated
November 9, 1990 against Philippine Airlines. No costs.

SO ORDERED.