Republic of the Philippines

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

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.

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.

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.

Hence, this Petition for Review on certiorari.

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

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

A. On Plaintiffs Complaint

Seno, Mendoza & Associates for petitioner.

Ramon Duterte for private respondent.

MUOZ PALMA, J.:

(1) Declaring the deed of sale, Exh. "C", null and void insofar as the one-half proindiviso 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.

in the name of both his sisters Concepcion and Gerundia Rallos without informing
appellant (the realty corporation) of the death of the former. 14

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.

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:

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

... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs presented
no proof and there is no indication in the record, that the agent Luy Kim Guan was
aware of the death of his principal at the time he sold the property. The death 6f the
principal does not render the act of an agent unenforceable, where the latter had
no knowledge of such extinguishment of the agency. (1 SCRA 406, 412)
4. In sustaining the validity of the sale to respondent consideration the Court of
Appeals reasoned out that there is no provision in the Code which provides that
whatever is done by an agent having knowledge of the death of his principal is void
even with respect to third persons who may have contracted with him in good faith
and without knowledge of the death of the principal. 16
We cannot see the merits of the foregoing argument as it ignores the existence of
the general rule enunciated in Article 1919 that the death of the principal
extinguishes the agency. That being the general rule it follows a fortiori that any act
of an agent after the death of his principal is void ab initio unless the same fags
under the exception provided for in the aforementioned Articles 1930 and 1931.
Article 1931, being an exception to the general rule, is to be strictly construed, it is

not to be given an interpretation or application beyond the clear import of its terms
for otherwise the courts will be involved in a process of legislation outside of their
judicial function.
5. Another argument advanced by respondent court is that the vendee acting in
good faith relied on the power of attorney which was duly registered on the original
certificate of title recorded in the Register of Deeds of the province of Cebu, that no
notice of the death was aver annotated on said certificate of title by the heirs of the
principal and accordingly they must suffer the consequences of such omission. 17
To support such argument reference is made to a portion in Manresa's
Commentaries which We quote:
If the agency has been granted for the purpose of contracting with certain persons,
the revocation must be made known to them. But if the agency is general iii nature,
without reference to particular person with whom the agent is to contract, it is
sufficient that the principal exercise due diligence to make the revocation of the
agency publicity known.
In case of a general power which does not specify the persons to whom represents'
on should be made, it is the general opinion that all acts, executed with third
persons who contracted in good faith, Without knowledge of the revocation, are
valid. In such case, the principal may exercise his right against the agent, who,
knowing of the revocation, continued to assume a personality which he no longer
had. (Manresa Vol. 11, pp. 561 and 575; pp. 15-16, rollo)
The above discourse however, treats of revocation by an act of the principal as a
mode of terminating an agency which is to be distinguished from revocation by
operation of law such as death of the principal which obtains in this case. On page
six of this Opinion We stressed that by reason of the very nature of the relationship
between principal and agent, agency is extinguished ipso jure upon the death of
either principal or agent. Although a revocation of a power of attorney to be

effective must be communicated to the parties concerned, 18 yet a revocation by

operation of law, such as by death of the principal is, as a rule, instantaneously
effective inasmuch as "by legal fiction the agent's exercise of authority is regarded
as an execution of the principal's continuing will. 19 With death, the principal's will
ceases or is the of authority is extinguished.
The Civil Code does not impose a duty on the heirs to notify the agent of the death
of the principal What the Code provides in Article 1932 is that, if the agent die his
heirs must notify the principal thereof, and in the meantime adopt such measures
as the circumstances may demand in the interest of the latter. Hence, the fact that
no notice of the death of the principal was registered on the certificate of title of the
property in the Office of the Register of Deeds, is not fatal to the cause of the estate
of the principal
6. Holding that the good faith of a third person in said with an agent affords the
former sufficient protection, respondent court drew a "parallel" between the
instant case and that of an innocent purchaser for value of a land, stating that if a
person purchases a registered land from one who acquired it in bad faith even to
the extent of foregoing or falsifying the deed of sale in his favor the registered
owner has no recourse against such innocent purchaser for value but only against
the forger. 20
To support the correctness of this respondent corporation, in its brief, cites the case
of Blondeau, et al., v. Nano and Vallejo, 61 Phil. 625. We quote from the brief:
In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630, one Vallejo
was a co-owner of lands with Agustin Nano. The latter had a power of attorney
supposedly executed by Vallejo Nano in his favor. Vallejo delivered to Nano his land
titles. The power was registered in the Office of the Register of Deeds. When the
lawyer-husband of Angela Blondeau went to that Office, he found all in order
including the power of attorney. But Vallejo denied having executed the power The

lower court sustained Vallejo and the plaintiff Blondeau appealed. Reversing the
decision of the court a quo, the Supreme Court, quoting the ruling in the case of
Eliason v. Wilborn, 261 U.S. 457, held:
But there is a narrower ground on which the defenses of the defendant- appellee
must be overruled. Agustin Nano had possession of Jose Vallejo's title papers.
Without those title papers handed over to Nano with the acquiescence of Vallejo, a
fraud could not have been perpetuated. When Fernando de la Canters, a member of
the Philippine Bar and the husband of Angela Blondeau, the principal plaintiff,
searched the registration record, he found them in due form including the power of
attorney of Vallajo in favor of Nano. If this had not been so and if thereafter the
proper notation of the encumbrance could not have been made, Angela Blondeau
would not have sent P12,000.00 to the defendant Vallejo.' An executed transfer of
registered lands placed by the registered owner thereof in the hands of another
operates as a representation to a third party that the holder of the transfer is
authorized to deal with the land.
As between two innocent persons, one of whom must suffer the consequence of a
breach of trust, the one who made it possible by his act of coincidence bear the loss.
(pp. 19-21)
The Blondeau decision, however, is not on all fours with the case before Us because
here We are confronted with one who admittedly was an agent of his sister and
who sold the property of the latter after her death with full knowledge of such
death. The situation is expressly covered by a provision of law on agency the terms
of which are clear and unmistakable leaving no room for an interpretation contrary
to its tenor, in the same manner that the ruling in Blondeau and the cases cited
therein found a basis in Section 55 of the Land Registration Law which in part
provides:
xxx xxx xxx

The production of the owner's duplicate certificate whenever any voluntary

instrument is presented for registration shall be conclusive authority from the
registered owner to the register of deeds to enter a new certificate or to make a
memorandum of registration in accordance with such instruments, and the new
certificate or memorandum Shall be binding upon the registered owner and upon all
persons claiming under him in favor of every purchaser for value and in good faith:
Provided however, That in all cases of registration provided by fraud, the owner
may pursue all his legal and equitable remedies against the parties to such fraud
without prejudice, however, to the right, of any innocent holder for value of a
certificate of title. ... (Act No. 496 as amended)
7. One last point raised by respondent corporation in support of the appealed
decision is an 1842 ruling of the Supreme Court of Pennsylvania in Cassiday v.
McKenzie wherein payments made to an agent after the death of the principal were
held to be "good", "the parties being ignorant of the death". Let us take note that
the Opinion of Justice Rogers was premised on the statement that the parties were
ignorant of the death of the principal. We quote from that decision the following:
... Here the precise point is, whether a payment to an agent when the Parties are
ignorant of the death is a good payment. in addition to the case in Campbell before
cited, the same judge Lord Ellenboruogh, has decided in 5 Esp. 117, the general
question that a payment after the death of principal is not good. Thus, a payment of
sailor's wages to a person having a power of attorney to receive them, has been
held void when the principal was dead at the time of the payment. If, by this case, it
is meant merely to decide the general proposition that by operation of law the
death of the principal is a revocation of the powers of the attorney, no objection can
be taken to it. But if it intended to say that his principle applies where there was 110
notice of death, or opportunity of twice I must be permitted to dissent from it.
... That a payment may be good today, or bad tomorrow, from the accident
circumstance of the death of the principal, which he did not know, and which by no

possibility could he know? It would be unjust to the agent and unjust to the debtor.
In the civil law, the acts of the agent, done bona fide in ignorance of the death of his
principal are held valid and binding upon the heirs of the latter. The same rule holds
in the Scottish law, and I cannot believe the common law is so unreasonable... (39
Am. Dec. 76, 80, 81; emphasis supplied)
To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may
evoke, mention may be made that the above represents the minority view in
American jurisprudence. Thus in Clayton v. Merrett, the Court said.
There are several cases which seem to hold that although, as a general principle,
death revokes an agency and renders null every act of the agent thereafter
performed, yet that where a payment has been made in ignorance of the death,
such payment will be good. The leading case so holding is that of Cassiday v.
McKenzie, 4 Watts & S. (Pa) 282, 39 Am. 76, where, in an elaborate opinion, this
view ii broadly announced. It is referred to, and seems to have been followed, in the
case of Dick v. Page, 17 Mo. 234, 57 AmD 267; but in this latter case it appeared that
the estate of the deceased principal had received the benefit of the money paid,
and therefore the representative of the estate might well have been held to be
estopped from suing for it again. . . . These cases, in so far, at least, as they
announce the doctrine under discussion, are exceptional. The Pennsylvania Case,
supra (Cassiday v. McKenzie 4 Watts & S. 282, 39 AmD 76), is believed to stand
almost, if not quite, alone in announcing the principle in its broadest scope. (52,
Misc. 353, 357, cited in 2 C.J. 549)
So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out that
the opinion, except so far as it related to the particular facts, was a mere dictum,
Baldwin J. said:
The opinion, therefore, of the learned Judge may be regarded more as an
extrajudicial indication of his views on the general subject, than as the adjudication

of the Court upon the point in question. But accordingly all power weight to this
opinion, as the judgment of a of great respectability, it stands alone among common
law authorities and is opposed by an array too formidable to permit us to following
it. (15 Cal. 12,17, cited in 2 C.J. 549)
Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in
American jurisprudence, no such conflict exists in our own for the simple reason
that our statute, the Civil Code, expressly provides for two exceptions to the general
rule that death of the principal revokes ipso jure the agency, to wit: (1) that the
agency is coupled with an interest (Art 1930), and (2) that the act of the agent was
executed without knowledge of the death of the principal and the third person who
contracted with the agent acted also in good faith (Art. 1931). Exception No. 2 is the
doctrine followed in Cassiday, and again We stress the indispensable requirement
that the agent acted without knowledge or notice of the death of the principal In
the case before Us the agent Ramon Rallos executed the sale notwithstanding
notice of the death of his principal Accordingly, the agent's act is unenforceable
against the estate of his principal.
IN VIEW OF ALL THE FOREGOING, We set aside the ecision of respondent appellate
court, and We affirm en toto the judgment rendered by then Hon. Amador E.
Gomez of the Court of First Instance of Cebu, quoted in pages 2 and 3 of this
Opinion, with costs against respondent realty corporation at all instances.
So Ordered.
G.R. No. 76931

May 29, 1991

ORIENT AIR SERVICES & HOTEL REPRESENTATIVES, petitioner,

vs.
COURT OF APPEALS and AMERICAN AIR-LINES INCORPORATED, respondents.
G.R. No. 76933

May 29, 1991

AMERICAN AIRLINES, INCORPORATED, petitioner,

vs.
COURT OF APPEALS and ORIENT AIR SERVICES & HOTEL REPRESENTATIVES,
INCORPORATED, respondents.

In consideration of the mutual convenants herein contained, the parties hereto

agree as follows:

Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and Hotel
Representatives, Inc.
Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.

Orient Air Services will act on American's behalf as its exclusive General Sales Agent
within the Philippines, including any United States military installation therein which
are not serviced by an Air Carrier Representation Office (ACRO), for the sale of air
passenger transportation. The services to be performed by Orient Air Services shall
include:

PADILLA, J.:

(a) soliciting and promoting passenger traffic for the services of American and, if
necessary, employing staff competent and sufficient to do so;

This case is a consolidation of two (2) petitions for review on certiorari of a decision
1 of the Court of Appeals in CA-G.R. No. CV-04294, entitled "American Airlines, Inc.
vs. Orient Air Services and Hotel Representatives, Inc." which affirmed, with
modification, the decision 2 of the Regional Trial Court of Manila, Branch IV, which
dismissed the complaint and granted therein defendant's counterclaim for agent's
overriding commission and damages.
The antecedent facts are as follows:
On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American
Air), an air carrier offering passenger and air cargo transportation in the Philippines,
and Orient Air Services and Hotel Representatives (hereinafter referred to as Orient
Air), entered into a General Sales Agency Agreement (hereinafter referred to as the
Agreement), whereby the former authorized the latter to act as its exclusive general
sales agent within the Philippines for the sale of air passenger transportation.
Pertinent provisions of the agreement are reproduced, to wit:
WITNESSETH

1. Representation of American by Orient Air Services

(b) providing and maintaining a suitable area in its place of business to be used
exclusively for the transaction of the business of American;
(c) arranging for distribution of American's timetables, tariffs and promotional
material to sales agents and the general public in the assigned territory;
(d) servicing and supervising of sales agents (including such sub-agents as may be
appointed by Orient Air Services with the prior written consent of American) in the
assigned territory including if required by American the control of remittances and
commissions retained; and
(e) holding out a passenger reservation facility to sales agents and the general public
in the assigned territory.
In connection with scheduled or non-scheduled air passenger transportation within
the United States, neither Orient Air Services nor its sub-agents will perform
services for any other air carrier similar to those to be performed hereunder for
American without the prior written consent of American. Subject to periodic
instructions and continued consent from American, Orient Air Services may sell air

passenger transportation to be performed within the United States by other

scheduled air carriers provided American does not provide substantially equivalent
schedules between the points involved.

(ii) For transportation included in a through ticket covering transportation between

points other than those described above: 8% or such other rate(s) as may be
prescribed by the International Air Transport Association.

xxx

(b) Overriding commission

xxx

xxx

4. Remittances
Orient Air Services shall remit in United States dollars to American the ticket stock
or exchange orders, less commissions to which Orient Air Services is entitled
hereunder, not less frequently than semi-monthly, on the 15th and last days of each
month for sales made during the preceding half month.
All monies collected by Orient Air Services for transportation sold hereunder on
American's ticket stock or on exchange orders, less applicable commissions to which
Orient Air Services is entitled hereunder, are the property of American and shall be
held in trust by Orient Air Services until satisfactorily accounted for to American.
5. Commissions
American will pay Orient Air Services commission on transportation sold hereunder
by Orient Air Services or its sub-agents as follows:
(a) Sales agency commission
American will pay Orient Air Services a sales agency commission for all sales of
transportation by Orient Air Services or its sub-agents over American's services and
any connecting through air transportation, when made on American's ticket stock,
equal to the following percentages of the tariff fares and charges:
(i) For transportation solely between points within the United States and between
such points and Canada: 7% or such other rate(s) as may be prescribed by the Air
Traffic Conference of America.

In addition to the above commission American will pay Orient Air Services an
overriding commission of 3% of the tariff fares and charges for all sales of
transportation over American's service by Orient Air Service or its sub-agents.
xxx

xxx

xxx

10. Default
If Orient Air Services shall at any time default in observing or performing any of the
provisions of this Agreement or shall become bankrupt or make any assignment for
the benefit of or enter into any agreement or promise with its creditors or go into
liquidation, or suffer any of its goods to be taken in execution, or if it ceases to be in
business, this Agreement may, at the option of American, be terminated forthwith
and American may, without prejudice to any of its rights under this Agreement, take
possession of any ticket forms, exchange orders, traffic material or other property
or funds belonging to American.
11. IATA and ATC Rules
The provisions of this Agreement are subject to any applicable rules or resolutions
of the International Air Transport Association and the Air Traffic Conference of
America, and such rules or resolutions shall control in the event of any conflict with
the provisions hereof.
xxx

xxx

13. Termination

xxx

American may terminate the Agreement on two days' notice in the event Orient Air
Services is unable to transfer to the United States the funds payable by Orient Air
Services to American under this Agreement. Either party may terminate the
Agreement without cause by giving the other 30 days' notice by letter, telegram or
cable.
xxx

xxx

x x x3

On 11 May 1981, alleging that Orient Air had reneged on its obligations under the
Agreement by failing to promptly remit the net proceeds of sales for the months of
January to March 1981 in the amount of US $254,400.40, American Air by itself
undertook the collection of the proceeds of tickets sold originally by Orient Air and
terminated forthwith the Agreement in accordance with Paragraph 13 thereof
(Termination). Four (4) days later, or on 15 May 1981, American Air instituted suit
against Orient Air with the Court of First Instance of Manila, Branch 24, for
Accounting with Preliminary Attachment or Garnishment, Mandatory Injunction and
Restraining Order 4 averring the aforesaid basis for the termination of the
Agreement as well as therein defendant's previous record of failures "to promptly
settle past outstanding refunds of which there were available funds in the
possession of the defendant, . . . to the damage and prejudice of plaintiff." 5
In its Answer 6 with counterclaim dated 9 July 1981, defendant Orient Air denied
the material allegations of the complaint with respect to plaintiff's entitlement to
alleged unremitted amounts, contending that after application thereof to the
commissions due it under the Agreement, plaintiff in fact still owed Orient Air a
balance in unpaid overriding commissions. Further, the defendant contended that
the actions taken by American Air in the course of terminating the Agreement as
well as the termination itself were untenable, Orient Air claiming that American Air's
precipitous conduct had occasioned prejudice to its business interests.

Finding that the record and the evidence substantiated the allegations of the
defendant, the trial court ruled in its favor, rendering a decision dated 16 July 1984,
the dispositive portion of which reads:
WHEREFORE, all the foregoing premises considered, judgment is hereby rendered in
favor of defendant and against plaintiff dismissing the complaint and holding the
termination made by the latter as affecting the GSA agreement illegal and improper
and order the plaintiff to reinstate defendant as its general sales agent for
passenger tranportation in the Philippines in accordance with said GSA agreement;
plaintiff is ordered to pay defendant the balance of the overriding commission on
total flown revenue covering the period from March 16, 1977 to December 31, 1980
in the amount of US$84,821.31 plus the additional amount of US$8,000.00 by way
of proper 3% overriding commission per month commencing from January 1, 1981
until such reinstatement or said amounts in its Philippine peso equivalent legally
prevailing at the time of payment plus legal interest to commence from the filing of
the counterclaim up to the time of payment. Further, plaintiff is directed to pay
defendant the amount of One Million Five Hundred Thousand (Pl,500,000.00) pesos
as and for exemplary damages; and the amount of Three Hundred Thousand
(P300,000.00) pesos as and by way of attorney's fees.
Costs against plaintiff. 7
On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision
promulgated on 27 January 1986, affirmed the findings of the court a quo on their
material points but with some modifications with respect to the monetary awards
granted. The dispositive portion of the appellate court's decision is as follows:
WHEREFORE, with the following modifications
1) American is ordered to pay Orient the sum of US$53,491.11 representing the
balance of the latter's overriding commission covering the period March 16, 1977 to
December 31, 1980, or its Philippine peso equivalent in accordance with the official

rate of exchange legally prevailing on July 10, 1981, the date the counterclaim was
filed;
2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's
overriding commission per month starting January 1, 1981 until date of termination,
May 9, 1981 or its Philippine peso equivalent in accordance with the official rate of
exchange legally prevailing on July 10, 1981, the date the counterclaim was filed

Both parties appealed the aforesaid resolution and decision of the respondent
court, Orient Air as petitioner in G.R. No. 76931 and American Air as petitioner in
G.R. No. 76933. By resolution 10 of this Court dated 25 March 1987 both petitions
were consolidated, hence, the case at bar.

3) American is ordered to pay interest of 12% on said amounts from July 10, 1981
the date the answer with counterclaim was filed, until full payment;

The principal issue for resolution by the Court is the extent of Orient Air's right to
the 3% overriding commission. It is the stand of American Air that such commission
is based only on sales of its services actually negotiated or transacted by Orient Air,
otherwise referred to as "ticketed sales." As basis thereof, primary reliance is placed
upon paragraph 5(b) of the Agreement which, in reiteration, is quoted as follows:

4) American is ordered to pay Orient exemplary damages of P200,000.00;

5. Commissions

5) American is ordered to pay Orient the sum of P25,000.00 as attorney's fees.

a) . . .

the rest of the appealed decision is affirmed.

Costs against American.8
American Air moved for reconsideration of the aforementioned decision, assailing
the substance thereof and arguing for its reversal. The appellate court's decision
was also the subject of a Motion for Partial Reconsideration by Orient Air which
prayed for the restoration of the trial court's ruling with respect to the monetary
awards. The Court of Appeals, by resolution promulgated on 17 December 1986,
denied American Air's motion and with respect to that of Orient Air, ruled thus:
Orient's motion for partial reconsideration is denied insofar as it prays for
affirmance of the trial court's award of exemplary damages and attorney's fees, but
granted insofar as the rate of exchange is concerned. The decision of January 27,
1986 is modified in paragraphs (1) and (2) of the dispositive part so that the
payment of the sums mentioned therein shall be at their Philippine peso equivalent
in accordance with the official rate of exchange legally prevailing on the date of
actual payment. 9

b) Overriding Commission
In addition to the above commission, American will pay Orient Air Services an
overriding commission of 3% of the tariff fees and charges for all sales of
transportation over American's services by Orient Air Services or its sub-agents.
(Emphasis supplied)
Since Orient Air was allowed to carry only the ticket stocks of American Air, and the
former not having opted to appoint any sub-agents, it is American Air's contention
that Orient Air can claim entitlement to the disputed overriding commission based
only on ticketed sales. This is supposed to be the clear meaning of the underscored
portion of the above provision. Thus, to be entitled to the 3% overriding
commission, the sale must be made by Orient Air and the sale must be done with
the use of American Air's ticket stocks.
On the other hand, Orient Air contends that the contractual stipulation of a 3%
overriding commission covers the total revenue of American Air and not merely that

derived from ticketed sales undertaken by Orient Air. The latter, in justification of its
submission, invokes its designation as the exclusive General Sales Agent of American
Air, with the corresponding obligations arising from such agency, such as, the
promotion and solicitation for the services of its principal. In effect, by virtue of such
exclusivity, "all sales of transportation over American Air's services are necessarily
by Orient Air." 11
It is a well settled legal principle that in the interpretation of a contract, the entirety
thereof must be taken into consideration to ascertain the meaning of its provisions.
12 The various stipulations in the contract must be read together to give effect to
all. 13 After a careful examination of the records, the Court finds merit in the
contention of Orient Air that the Agreement, when interpreted in accordance with
the foregoing principles, entitles it to the 3% overriding commission based on total
revenue, or as referred to by the parties, "total flown revenue."
As the designated exclusive General Sales Agent of American Air, Orient Air was
responsible for the promotion and marketing of American Air's services for air
passenger transportation, and the solicitation of sales therefor. In return for such
efforts and services, Orient Air was to be paid commissions of two (2) kinds: first, a
sales agency commission, ranging from 7-8% of tariff fares and charges from sales
by Orient Air when made on American Air ticket stock; and second, an overriding
commission of 3% of tariff fares and charges for all sales of passenger transportation
over American Air services. It is immediately observed that the precondition
attached to the first type of commission does not obtain for the second type of
commissions. The latter type of commissions would accrue for sales of American Air
services made not on its ticket stock but on the ticket stock of other air carriers sold
by such carriers or other authorized ticketing facilities or travel agents. To rule
otherwise, i.e., to limit the basis of such overriding commissions to sales from
American Air ticket stock would erase any distinction between the two (2) types of
commissions and would lead to the absurd conclusion that the parties had entered

into a contract with meaningless provisions. Such an interpretation must at all times
be avoided with every effort exerted to harmonize the entire Agreement.
An additional point before finally disposing of this issue. It is clear from the records
that American Air was the party responsible for the preparation of the Agreement.
Consequently, any ambiguity in this "contract of adhesion" is to be taken "contra
proferentem", i.e., construed against the party who caused the ambiguity and could
have avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil
Code provides that the interpretation of obscure words or stipulations in a contract
shall not favor the party who caused the obscurity. 14 To put it differently, when
several interpretations of a provision are otherwise equally proper, that
interpretation or construction is to be adopted which is most favorable to the party
in whose favor the provision was made and who did not cause the ambiguity. 15 We
therefore agree with the respondent appellate court's declaration that:
Any ambiguity in a contract, whose terms are susceptible of different
interpretations, must be read against the party who drafted it. 16
We now turn to the propriety of American Air's termination of the Agreement. The
respondent appellate court, on this issue, ruled thus:
It is not denied that Orient withheld remittances but such action finds justification
from paragraph 4 of the Agreement, Exh. F, which provides for remittances to
American less commissions to which Orient is entitled, and from paragraph 5(d)
which specifically allows Orient to retain the full amount of its commissions. Since,
as stated ante, Orient is entitled to the 3% override. American's premise, therefore,
for the cancellation of the Agreement did not exist. . . ."
We agree with the findings of the respondent appellate court. As earlier established,
Orient Air was entitled to an overriding commission based on total flown revenue.
American Air's perception that Orient Air was remiss or in default of its obligations
under the Agreement was, in fact, a situation where the latter acted in accordance

with the Agreementthat of retaining from the sales proceeds its accrued
commissions before remitting the balance to American Air. Since the latter was still
obligated to Orient Air by way of such commissions. Orient Air was clearly justified
in retaining and refusing to remit the sums claimed by American Air. The latter's
termination of the Agreement was, therefore, without cause and basis, for which it
should be held liable to Orient Air.

respondent appellate court reinstating Orient Air as general sales agent of American
Air.

On the matter of damages, the respondent appellate court modified by reduction

the trial court's award of exemplary damages and attorney's fees. This Court sees no
error in such modification and, thus, affirms the same.

SO ORDERED.

It is believed, however, that respondent appellate court erred in affirming the rest
of the decision of the trial court.1wphi1 We refer particularly to the lower court's
decision ordering American Air to "reinstate defendant as its general sales agent for
passenger transportation in the Philippines in accordance with said GSA
Agreement."
By affirming this ruling of the trial court, respondent appellate court, in effect,
compels American Air to extend its personality to Orient Air. Such would be violative
of the principles and essence of agency, defined by law as a contract whereby "a
person binds himself to render some service or to do something in representation
or on behalf of another, WITH THE CONSENT OR AUTHORITY OF THE LATTER . 17
(emphasis supplied) In an agent-principal relationship, the personality of the
principal is extended through the facility of the agent. In so doing, the agent, by
legal fiction, becomes the principal, authorized to perform all acts which the latter
would have him do. Such a relationship can only be effected with the consent of the
principal, which must not, in any way, be compelled by law or by any court. The
Agreement itself between the parties states that "either party may terminate the
Agreement without cause by giving the other 30 days' notice by letter, telegram or
cable." (emphasis supplied) We, therefore, set aside the portion of the ruling of the

WHEREFORE, with the foregoing modification, the Court AFFIRMS the decision and
resolution of the respondent Court of Appeals, dated 27 January 1986 and 17
December 1986, respectively. Costs against petitioner American Air.

G.R. No. 167552

April 23, 2007

EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner,

vs.
EDWIN CUIZON and ERWIN CUIZON, Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us is a petition for review by certiorari assailing the Decision1 of the Court of
Appeals dated 10 August 2004 and its Resolution2 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 Order3 dated 29
January 2002 rendered by Judge Antonio T. Echavez ordering the dropping of
respondent EDWIN Cuizon (EDWIN) as a party defendant in Civil Case No. CEB19672.
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 ASSIGNOR5 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
ASSIGNEE6 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. 09339 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 Answer14 wherein he admitted
petitioners allegations with respect to the sale transactions entered into by Impact
Systems and petitioner between January and April 1995.15 He, however, disputed
the total amount of Impact Systems indebtedness to petitioner which, according to
him, amounted to only P220,000.00.16
By way of special and affirmative defenses, respondent EDWIN alleged that he is not
a real party in interest in this case. According to him, he was acting as mere agent of
his principal, which was the Impact Systems, in his transaction with petitioner and
the latter was very much aware of this fact. In support of this argument, petitioner
points to paragraphs 1.2 and 1.3 of petitioners Complaint stating
1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of Cebu City. He
is the proprietor of a single proprietorship business known as Impact Systems Sales
("Impact Systems" for brevity), with office located at 46-A del Rosario Street, Cebu
City, where he may be served summons and other processes of the Honorable
Court.

1.3. Defendant Edwin B. Cuizon is of legal age, Filipino, married, a resident of Cebu
City. He is the Sales Manager of Impact Systems and is sued in this action in such
capacity.17

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.

On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default

with Motion for Summary Judgment. The trial court granted petitioners motion to
declare respondent ERWIN in default "for his failure to answer within the prescribed
period despite the opportunity granted"18 but it denied petitioners motion for
summary judgment in its Order of 31 August 2001 and scheduled the pre-trial of the
case on 16 October 2001.19 However, the conduct of the pre-trial conference was
deferred pending the resolution by the trial court of the special and affirmative
defenses raised by respondent EDWIN.20

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

After the filing of respondent EDWINs Memorandum21 in support of his special and
affirmative defenses and petitioners opposition22 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

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

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

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

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 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,

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 way he did, the business of his principal would have been adversely affected and
he would have violated his fiduciary relation with his principal.

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:

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

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 wellwithin 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

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. 130148. December 15, 1997]
JOSE BORDADOR and LYDIA BORDADOR, petitioners, vs. BRIGIDA D. LUZ, ERNESTO
M. LUZ and NARCISO DEGANOS, respondents.
DECISION
REGALADO, J.:
In this appeal by certiorari, petitioners assail the judgment of the Court of Appeals in
CA-G.R. CV No. 49175 affirming the adjudication of the Regional Trial Court of
Malolos, Bulacan which found private respondent Narciso Deganos liable to
petitioners for actual damages, but absolved respondent spouses Brigida D. Luz and
Ernesto M. Luz of liability. Petitioners likewise belabor the subsequent resolution of
the Court of Appeals which denied their motion for reconsideration of its challenged
decision.
Petitioners were engaged in the business of purchase and sale of jewelry and
respondent Brigida D. Luz, also known as Aida D. Luz, was their regular customer.
On several occasions during the period from April 27, 1987 to September 4, 1987,
respondent Narciso Deganos, the brother of Brigida D. Luz, received several pieces
of gold and jewelry from petitioners amounting to P382,816.00. i[1] These items
and their prices were indicated in seventeen receipts covering the same. Eleven of
the receipts stated that they were received for a certain Evelyn Aquino, a niece of
Deganos, and the remaining six indicated that they were received for Brigida D. Luz.
ii[2]

Deganos was supposed to sell the items at a profit and thereafter remit the
proceeds and return the unsold items to petitioners. Deganos remitted only the sum
of P53,207.00. He neither paid the balance of the sales proceeds, nor did he return
any unsold item to petitioners. By January 1990, the total of his unpaid account to
petitioners, including interest, reached the sum of P725,463.98. iii[3] Petitioners
eventually filed a complaint in the barangay court against Deganos to recover said
amount.
In the barangay proceedings, Brigida D. Luz, who was not impleaded in the case,
appeared as a witness for Deganos and ultimately, she and her husband, together
with Deganos, signed a compromise agreement with petitioners. In that
compromise agreement, Deganos obligated himself to pay petitioners, on
installment basis, the balance of his account plus interest thereon. However, he
failed to comply with his aforestated undertakings.
On June 25, 1990, petitioners instituted Civil Case No. 412-M-90 in the Regional Trial
Court of Malolos, Bulacan against Deganos and Brigida D. Luz for recovery of a sum
of money and damages, with an application for preliminary attachment.iv[4]
Ernesto Luz was impleaded therein as the spouse of Brigida.
Four years later, or on March 29, 1994, Deganos and Brigida D. Luz were charged
with estafav[5] in the Regional Trial Court of Malolos, Bulacan, which was docketed
as Criminal Case No. 785-M-94. That criminal case appears to be still pending in said
trial court.
During the trial of the civil case, petitioners claimed that Deganos acted as the agent
of Brigida D. Luz when he received the subject items of jewelry and, because he
failed to pay for the same, Brigida, as principal, and her spouse are solidarily liable
with him therefor.
On the other hand, while Deganos admitted that he had an unpaid obligation to
petitioners, he claimed that the same was only in the sum of P382,816.00 and not

P725,463.98. He further asserted that it was he alone who was involved in the
transaction with the petitioners; that he neither acted as agent for nor was he
authorized to act as an agent by Brigida D. Luz, notwithstanding the fact that six of
the receipts indicated that the items were received by him for the latter. He further
claimed that he never delivered any of the items he received from petitioners to
Brigida.
Brigida, on her part, denied that she had anything to do with the transactions
between petitioners and Deganos. She claimed that she never authorized Deganos
to receive any item of jewelry in her behalf and, for that matter, neither did she
actually receive any of the articles in question.
After trial, the court below found that only Deganos was liable to petitioners for the
amount and damages claimed. It held that while Brigida D. Luz did have transactions
with petitioners in the past, the items involved were already paid for and all that
Brigida owed petitioners was the sum of P21,483.00 representing interest on the
principal account which she had previously paid for.vi[6]
The trial court also found that it was petitioner Lydia Bordador who indicated in the
receipts that the items were received by Deganos for Evelyn Aquino and Brigida D.
Luz. vii[7] Said court was persuaded that Brigida D. Luz was behind Deganos, but
because there was no memorandum to this effect, the agreement between the
parties was unenforceable under the Statute of Frauds. viii[8] Absent the required
memorandum or any written document connecting the respondent Luz spouses
with the subject receipts, or authorizing Deganos to act on their behalf, the alleged
agreement between petitioners and Brigida D. Luz was unenforceable.
Deganos was ordered to pay petitioners the amount of P725,463.98, plus legal
interest thereon from June 25, 1990, and attorneys fees. Brigida D. Luz was ordered
to pay P21,483.00 representing the interest on her own personal loan. She and her
co-defendant spouse were absolved from any other or further liability. ix[9]

As stated at the outset, petitioners appealed the judgment of the court a quo to the
Court of Appeals which affirmed said judgment. x[10] The motion for
reconsideration filed by petitioners was subsequently dismissed, xi[11] hence the
present recourse to this Court.
The primary issue in the instant petition is whether or not herein respondent
spouses are liable to petitioners for the latters claim for money and damages in the
sum of P725,463.98, plus interests and attorneys fees, despite the fact that the
evidence does not show that they signed any of the subject receipts or authorized
Deganos to receive the items of jewelry on their behalf.
Petitioners argue that the Court of Appeals erred in adopting the findings of the
court a quo that respondent spouses are not liable to them, as said conclusion of
the trial court is contradicted by the finding of fact of the appellate court that
(Deganos) acted as agent of his sister (Brigida Luz). xii[12] In support of this
contention, petitioners quoted several letters sent to them by Brigida D. Luz
wherein the latter acknowledged her obligation to petitioners and requested for
more time to fulfill the same. They likewise aver that Brigida testified in the trial
court that Deganos took some gold articles from petitioners and delivered the same
to her.
Both the Court of Appeals and the trial court, however, found as a fact that the
aforementioned letters concerned the previous obligations of Brigida to petitioners,
and had nothing to do with the money sought to be recovered in the instant case.
Such concurrent factual findings are entitled to great weight, hence, petitioners
cannot plausibly claim in this appellate review that the letters were in the nature of
acknowledgments by Brigida that she was the principal of Deganos in the subject
transactions.
On the other hand, with regard to the testimony of Brigida admitting delivery of the
gold to her, there is no showing whatsoever that her statement referred to the

items which are the subject matter of this case. It cannot, therefore, be validly said
that she admitted her liability regarding the same.
Petitioners insist that Deganos was the agent of Brigida D. Luz as the latter clothed
him with apparent authority as her agent and held him out to the public as such,
hence Brigida can not be permitted to deny said authority to innocent third parties
who dealt with Deganos under such belief. xiii[13] Petitioners further represent that
the Court of Appeals recognized in its decision that Deganos was an agent of
Brigida.xiv[14]
The evidence does not support the theory of petitioners that Deganos was an agent
of Brigida D. Luz and that the latter should consequently be held solidarily liable
with Deganos in his obligation to petitioners. While the quoted statement in the
findings of fact of the assailed appellate decision mentioned that Deganos
ostensibly acted as an agent of Brigida, the actual conclusion and ruling of the Court
of Appeals categorically stated that, (Brigida Luz) never authorized her brother
(Deganos) to act for and in her behalf in any transaction with Petitioners x x x. xv[15]
It is clear, therefore, that even assuming arguendo that Deganos acted as an agent
of Brigida, the latter never authorized him to act on her behalf with regard to the
transactions subject of this case.
The Civil Code provides:
Art. 1868. By the contract of agency a person binds himself to render some service
or to do something in representation or on behalf of another, with the consent or
authority of the latter.
The basis for agency is representation. Here, there is no showing that Brigida
consented to the acts of Deganos or authorized him to act on her behalf, much less
with respect to the particular transactions involved. Petitioners attempt to foist
liability on respondent spouses through the supposed agency relation with Deganos
is groundless and ill-advised.

Besides, it was grossly and inexcusably negligent of petitioners to entrust to

Deganos, not once or twice but on at least six occasions as evidenced by six receipts,
several pieces of jewelry of substantial value without requiring a written
authorization from his alleged principal. A person dealing with an agent is put upon
inquiry and must discover upon his peril the authority of the agent. xvi[16]
The records show that neither an express nor an implied agency was proven to have
existed between Deganos and Brigida D. Luz. Evidently, petitioners, who were
negligent in their transactions with Deganos, cannot seek relief from the effects of
their negligence by conjuring a supposed agency relation between the two
respondents where no evidence supports such claim.
Petitioners next allege that the Court of Appeals erred in ignoring the fact that the
decision of the court below, which it affirmed, is null and void as it contradicted its
ruling in CA-G.R. SP No. 39445 holding that there is sufficient evidence/proof against
Brigida D. Luz and Deganos for estafa in the pending criminal case. They further aver
that said appellate court erred in ruling against them in this civil action since the
same would result in an inevitable conflict of decisions should the trial court convict
the accused in the criminal case.
By way of backdrop for this argument of petitioners, herein respondents Brigida D.
Luz and Deganos had filed a demurrer to evidence and a motion for reconsideration
in the aforestated criminal case, both of which were denied by the trial court. They
then filed a petition for certiorari in the Court of Appeals to set aside the denial of
their demurrer and motion for reconsideration but, as just stated, their petition
therefor was dismissed.xvii[17]
Petitioners now claim that the aforesaid dismissal by the Court of Appeals of the
petition in CA-G.R. SP No. 39445 with respect to the criminal case is equivalent to a
finding that there is sufficient evidence in the estafa case against Brigida D. Luz and
Deganos. Hence, as already stated, petitioners theorize that the decision and

resolution of the Court of Appeals now being impugned in the case at bar would
result in a possible conflict with the prospective decision in the criminal case.
Instead of promulgating the present decision and resolution under review, so they
suggest, the Court of Appeals should have awaited the decision in the criminal case,
so as not to render academic or preempt the same or, worse, create two conflicting
rulings. xviii[18]
Petitioners have apparently lost sight of Article 33 of the Civil Code which provides
that in cases involving alleged fraudulent acts, a civil action for damages, entirely
separate and distinct from the criminal action, may be brought by the injured party.
Such civil action shall proceed independently of the criminal prosecution and shall
require only a preponderance of evidence.
It is worth noting that this civil case was instituted four years before the criminal
case for estafa was filed, and that although there was a move to consolidate both
cases, the same was denied by the trial court. Consequently, it was the duty of the
two branches of the Regional Trial Court concerned to independently proceed with
the civil and criminal cases. It will also be observed that a final judgment rendered in
a civil action absolving the defendant from civil liability is no bar to a criminal action.
xix[19]
It is clear, therefore, that this civil case may proceed independently of the criminal
case xx[20] especially because while both cases are based on the same facts, the
quantum of proof required for holding the parties liable therein differ. Thus, it is
improvident of petitioners to claim that the decision and resolution of the Court of
Appeals in the present case would be preemptive of the outcome of the criminal
case. Their fancied fear of possible conflict between the disposition of this civil case
and the outcome of the pending criminal case is illusory.
Petitioners surprisingly postulate that the Court of Appeals had lost its jurisdiction
to issue the denial resolution dated August 18, 1997, as the same was tainted with

irregularities and badges of fraud perpetrated by its court officers. xxi[21] They
charge that said appellate court, through conspiracy and fraud on the part of its
officers, gravely abused its discretion in issuing that resolution denying their motion
for reconsideration. They claim that said resolution was drafted by the ponente,
then signed and issued by the members of the Eleventh Division of said court within
one and a half days from the elevation thereof by the division clerk of court to the
office of the ponente.
It is the thesis of petitioners that there was undue haste in issuing the resolution as
the same was made without waiting for the lapse of the ten-day period for
respondents to file their comment and for petitioners to file their reply. It was
allegedly impossible for the Court of Appeals to resolve the issue in just one and a
half days, especially because its ponente, the late Justice Maximiano C. Asuncion,
was then recuperating from surgery and, that, additionally, hundreds of more
important cases were pending. xxii[22]
These lamentable allegation of irregularities in the Court of Appeals and in the
conduct of its officers strikes us as a desperate attempt of petitioners to induce this
Court to give credence to their arguments which, as already found by both the trial
and intermediate appellate courts, are devoid of factual and legal substance. The
regrettably irresponsible attempt to tarnish the image of the intermediate appellate
tribunal and its judicial officers through ad hominem imputations could well be
contumacious, but we are inclined to let that pass with a strict admonition that
petitioners refrain from indulging in such conduct in litigations.
On July 9, 1997, the Court of Appeals rendered judgment in this case affirming the
trial courts decision. xxiii[23] Petitioners moved for reconsideration and the Court of
Appeals ordered respondents to file a comment. Respondents filed the same on
August 5, 1997 xxiv[24] and petitioners filed their reply to said comment on August
15, 1997. xxv[25] The Eleventh Division of said court issued the questioned

resolution denying petitioners motion for reconsideration on August 18,

1997.xxvi[26]
It is ironic that while some litigants malign the judiciary for being supposedly
slothful in disposing of cases, petitioners are making a show of calling out for justice
because the Court of Appeals issued a resolution disposing of a case sooner than
expected of it. They would even deny the exercise of discretion by the appellate
court to prioritize its action on cases in line with the procedure it has adopted in
disposing thereof and in declogging its dockets. It is definitely not for the parties to
determine and dictate when and how a tribunal should act upon those cases since
they are not even aware of the status of the dockets and the internal rules and
policies for acting thereon.
The fact that a resolution was issued by said court within a relatively short period of
time after the records of the case were elevated to the office of the ponente
cannot, by itself, be deemed irregular. There is no showing whatsoever that the
resolution was issued without considering the reply filed by petitioners. In fact, that
brief pleading filed by petitioners does not exhibit any esoteric or ponderous
argument which could not be analyzed within an hour. It is a legal presumption,
born of wisdom and experience, that official duty has been regularly performed;
xxvii[27] that the proceedings of a judicial tribunal are regular and valid, and that
judicial acts and duties have been and will be duly and properly performed.
xxviii[28] The burden of proving irregularity in official conduct is on the part of
petitioners and they have utterly failed to do so. It is thus reprehensible for them to
cast aspersions on a court of law on the bases of conjectures or surmises, especially
since one of the petitioners appears to be a member of the Philippine Bar.
Lastly, petitioners fault the trial courts holding that whatever contract of agency was
established between Brigida D. Luz and Narciso Deganos is unenforceable under the
Statute of Frauds as that aspect of this case allegedly is not covered thereby.
xxix[29] They proceed on the premise that the Statute of Frauds applies only to

executory contracts and not to executed or to partially executed ones. From there,
they move on to claim that the contract involved in this case was an executed
contract as the items had already been delivered by petitioners to Brigida D. Luz,
hence, such delivery resulted in the execution of the contract and removed the
same from the coverage of the Statute of Frauds.
Petitioners claim is speciously unmeritorious. It should be emphasized that neither
the trial court nor the appellate court categorically stated that there was such a
contractual relation between these two respondents. The trial court merely said
that if there was such an agency existing between them, the same is unenforceable
as the contract would fall under the Statute of Frauds which requires the
presentation of a note or memorandum thereof in order to be enforceable in court.
That was merely a preparatory statement of a principle of law. What was finally
proven as a matter of fact is that there was no such contract between Brigida D. Luz
and Narciso Deganos, executed or partially executed, and no delivery of any of the
items subject of this case was ever made to the former.
WHEREFORE, no error having been committed by the Court of Appeals in affirming
the judgment of the court a quo, its challenged decision and resolution are hereby
AFFIRMED and the instant petition is DENIED, with double costs against petitioners
SO ORDERED.

FIRST DIVISION
[G.R. No. 122544. January 28, 1999]
REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA, ESTER
ABAD DIZON and JOSEPH ANTHONY DIZON, RAYMUND A. DIZON,
GERARD A. DIZON, and JOSE A. DIZON, JR., petitioners, vs. COURT OF
APPEALS and OVERLAND EXPRESS LINES, INC., respondents.
[G.R. No. 124741. January 28, 1999]
REGINA P. DIZON, AMPARO D. BARTOLOME, FIDELINA D. BALZA, ESTER
ABAD DIZON and JOSEPH ANTHONY DIZON, RAYMUND A. DIZON,
GERARD A. DIZON, and JOSE A. DIZON, JR., petitioners, vs. COURT OF
APPEALS, HON. MAXIMIANO C. ASUNCION, and OVERLAND EXPRESS
LINES, INC., respondents.
DECISION
MARTINEZ, J.:
Two consolidated petitions were filed before us seeking to set aside
and annul the decisions and resolutions of respondent Court of
Appeals. What seemed to be a simple ejectment suit was juxtaposed
with procedural intricacies which finally found its way to this Court.
G. R. NO. 122544:

On May 23, 1974, private respondent Overland Express Lines, Inc.

(lessee) entered into a Contract of Lease with Option to Buy with
petitionersi[1] (lessors) involving a 1,755.80 square meter parcel of land
situated at corner MacArthur Highway and South "H" Street, Diliman,
Quezon City. The term of the lease was for one (1) year commencing
from May 16, 1974 up to May 15, 1975. During this period, private
respondent was granted an option to purchase for the amount of
P3,000.00 per square meter. Thereafter, the lease shall be on a per
month basis with a monthly rental of P3,000.00.
For failure of private respondent to pay the increased rental of
P8,000.00 per month effective June 1976, petitioners filed an action for
ejectment (Civil Case No. VIII-29155) on November 10, 1976 before the

then City Court (now Metropolitan Trial Court) of Quezon City, Branch
VIII. On November 22, 1982, the City Court rendered judgmenti[2]
ordering private respondent to vacate the leased premises and to pay
the sum of P624,000.00 representing rentals in arrears and/or as
damages in the form of reasonable compensation for the use and
occupation of the premises during the period of illegal detainer from
June 1976 to November 1982 at the monthly rental of P8,000.00, less
payments made, plus 12% interest per annum from November 18,
1976, the date of filing of the complaint, until fully paid, the sum of
P8,000.00 a month starting December 1982, until private respondent
fully vacates the premises, and to pay P20,000.00 as and by way of
attorney's fees.
Private respondent filed a certiorari petition praying for the issuance of
a restraining order enjoining the enforcement of said judgment and
dismissal of the case for lack of jurisdiction of the City Court.
On September 26, 1984, the then Intermediate Appellate Courti[3]
(now Court of Appeals) rendered a decisioni[4] stating that:
"x x x, the alleged question of whether petitioner was
granted an extension of the option to buy the property;
whether such option, if any, extended the lease or whether
petitioner actually paid the alleged P300,000.00 to Fidela Dizon,
as representative of private respondents in consideration of the
option and, whether petitioner thereafter offered to pay the
balance of the supposed purchase price, are all merely
incidental and do not remove the unlawful detainer case from
the jurisdiction of respondent court. In consonance with the
ruling in the case of Teodoro, Jr. vs. Mirasol (supra), the above
matters may be raised and decided in the unlawful detainer
suit as, to rule otherwise, would be a violation of the principle
prohibiting multiplicity of suits. (Original Records, pp. 38-39)."
The motion for reconsideration was denied. On review, this Court
dismissed the petition in a resolution dated June 19, 1985 and likewise

denied private respondent's subsequent motion for reconsideration in

a resolution dated September 9, 1985.i[5]
On October 7, 1985, private respondent filed before the Regional Trial
Court (RTC) of Quezon City (Civil Case No. Q-45541) an action for
Specific Performance and Fixing of Period for Obligation with prayer
for the issuance of a restraining order pending hearing on the prayer
for a writ of preliminary injunction. It sought to compel the execution of
a deed of sale pursuant to the option to purchase and the receipt of
the partial payment, and to fix the period to pay the balance. In an
Order dated October 25, 1985, the trial court denied the issuance of a
writ of preliminary injunction on the ground that the decision of the
then City Court for the ejectment of the private respondent, having
been affirmed by the then Intermediate Appellate Court and the
Supreme Court, has become final and executory.
Unable to secure an injunction, private respondent also filed before
the RTC of Quezon City, Branch 102 (Civil Case No. Q-46487) on
November 15, 1985 a complaint for Annulment of and Relief from
Judgment with injunction and damages. In its decisioni[6] dated May
12, 1986, the trial court dismissed the complaint for annulment on the
ground of res judicata, and the writ of preliminary injunction previously
issued was dissolved. It also ordered private respondent to pay
P3,000.00 as attorney's fees. As a consequence of private respondent's
motion for reconsideration, the preliminary injunction was reinstated,
thereby restraining the execution of the City Court's judgment on the
ejectment case.
The two cases were thereafter consolidated before the RTC of Quezon
City, Branch 77. On April 28, 1989, a decisioni[7] was rendered
dismissing private respondent's complaint in Civil Case No. Q-45541
(specific performance case) and denying its motion for
reconsideration in Civil Case No. 46487 (annulment of the ejectment
case). The motion for reconsideration of said decision was likewise
denied.

On appeal,i[8] respondent Court of Appeals rendered a decisioni[9]

upholding the jurisdiction of the City Court of Quezon City in the
ejectment case. It also concluded that there was a perfected
contract of sale between the parties on the leased premises and that
pursuant to the option to buy agreement, private respondent had
acquired the rights of a vendee in a contract of sale. It opined that
the payment by private respondent of P300,000.00 on June 20, 1975 as
partial payment for the leased property, which petitioners accepted
(through Alice A. Dizon) and for which an official receipt was issued,
was the operative act that gave rise to a perfected contract of sale,
and that for failure of petitioners to deny receipt thereof, private
respondent can therefore assume that Alice A. Dizon, acting as agent
of petitioners, was authorized by them to receive the money in their
behalf. The Court of Appeals went further by stating that in fact, what
was entered into was a "conditional contract of sale" wherein
ownership over the leased property shall not pass to the private
respondent until it has fully paid the purchase price. Since private
respondent did not consign to the court the balance of the purchase
price and continued to occupy the subject premises, it had the
obligation to pay the amount of P1,700.00 in monthly rentals until full
payment of the purchase price. The dispositive portion of said decision
reads:
"WHEREFORE, the appealed decision in Case No. 46487 is
AFFIRMED. The appealed decision in Case No. 45541 is, on the
other hand, ANNULLED and SET ASIDE. The defendantsappellees are ordered to execute the deed of absolute sale of
the property in question, free from any lien or encumbrance
whatsoever, in favor of the plaintiff-appellant, and to deliver to
the latter the said deed of sale, as well as the owner's duplicate
of the certificate of title to said property upon payment of the
balance of the purchase price by the plaintiff-appellant. The
plaintiff-appellant is ordered to pay P1,700.00 per month from
June 1976, plus 6% interest per annum, until payment of the

balance of the purchase price, as previously agreed upon by

the parties.
SO ORDERED."
Upon denial of the motion for partial reconsideration (Civil Case No. Q45541) by respondent Court of Appeals,i[10] petitioners elevated the
case via petition for certiorari questioning the authority of Alice A.
Dizon as agent of petitioners in receiving private respondent's partial
payment amounting to P300,000.00 pursuant to the Contract of Lease
with Option to Buy. Petitioners also assail the propriety of private
respondent's exercise of the option when it tendered the said amount
on June 20, 1975 which purportedly resulted in a perfected contract of
sale.
G. R. NO. 124741:

Petitioners filed with respondent Court of Appeals a motion to remand

the records of Civil Case No. 38-29155 (ejectment case) to the
Metropolitan Trial Court (MTC), then City Court of Quezon City, Branch
38, for execution of the judgmenti[11] dated November 22, 1982 which
was granted in a resolution dated June 29, 1992. Private respondent
filed a motion to reconsider said resolution which was denied.
Aggrieved, private respondent filed a petition for certiorari, prohibition
with preliminary injunction and/or restraining order with this Court (G.R.
Nos. 106750-51) which was dismissed in a resolution dated September
16, 1992 on the ground that the same was a refiled case previously
dismissed for lack of merit. On November 26, 1992, entry of judgment
was issued by this Court.
On July 14, 1993, petitioners filed an urgent ex-parte motion for
execution of the decision in Civil Case No. 38-29155 with the MTC of
Quezon City, Branch 38. On September 13, 1993, the trial court
ordered the issuance of a third alias writ of execution. In denying
private respondent's motion for reconsideration, it ordered the
immediate implementation of the third writ of execution without delay.
On December 22, 1993, private respondent filed with the Regional Trial
Court (RTC) of Quezon City, Branch 104 a petition for certiorari and

prohibition with preliminary injunction/restraining order (SP. PROC. No.

93-18722) challenging the enforceability and validity of the MTC
judgment as well as the order for its execution.
On January 11, 1994, RTC of Quezon City, Branch 104 issued an
orderi[12] granting the issuance of a writ of preliminary injunction upon
private respondent's posting of an injunction bond of P50,000.00.
Assailing the aforequoted order after denial of their motion for partial
reconsideration, petitioners filed a petitioni[13] for certiorari and
prohibition with a prayer for a temporary restraining order and/or
preliminary injunction with the Court of Appeals. In its decision,i[14] the
Court of Appeals dismissed the petition and ruled that:
"The avowed purpose of this petition is to enjoin the
public respondent from restraining the ejectment of the
private respondent. To grant the petition would be to allow
the ejectment of the private respondent. We cannot do that
now in view of the decision of this Court in CA-G.R. CV Nos.
25153-54. Petitioners' alleged right to eject private
respondent has been demonstrated to be without basis in
the said civil case. The petitioners have been shown, after
all, to have no right to eject private respondents.
WHEREFORE, the petition is DENIED due course and is
accordingly DISMISSED.
SO ORDERED."i[15]
Petitioners' motion for reconsideration was denied in a resolutioni[16]
by the Court of Appeals stating that:
"This court in its decision in CA-G.R. CV Nos. 25153-54
declared that the plaintiff-appellant (private respondent herein)
acquired the rights of a vendee in a contract of sale, in effect,
recognizing the right of the private respondent to possess the
subject premises. Considering said decision, we should not allow
ejectment; to do so would disturb the status quo of the parties
since the petitioners are not in possession of the subject
property. It would be unfair and unjust to deprive the private

respondent of its possession of the subject property after its

rights have been established in a subsequent ruling.
WHEREFORE, the motion for reconsideration is DENIED for
lack of merit.
SO ORDERED."i[17]
Hence, this instant petition.
We find both petitions impressed with merit.
First. Petitioners have established a right to evict private respondent
from the subject premises for non-payment of rentals. The term of the
Contract of Lease with Option to Buy was for a period of one (1) year
(May 16, 1974 to May 15, 1975) during which the private respondent
was given an option to purchase said property at P3,000.00 per square
meter. After the expiration thereof, the lease was for P3,000.00 per
month.
Admittedly, no definite period beyond the one-year term of lease was
agreed upon by petitioners and private respondent. However, since
the rent was paid on a monthly basis, the period of lease is considered
to be from month to month in accordance with Article 1687 of the
New Civil Code.i[18] Where the rentals are paid monthly, the lease,
even if verbal may be deemed to be on a monthly basis, expiring at
the end of every month pursuant to Article 1687, in relation to Article
1673 of the Civil Code.i[19] In such case, a demand to vacate is not
even necessary for judicial action after the expiration of every
month.i[20]
When private respondent failed to pay the increased rental of
P8,000.00 per month in June 1976, the petitioners had a cause of
action to institute an ejectment suit against the former with the then
City Court. In this regard, the City Court (now MTC) had exclusive
jurisdiction over the ejectment suit. The filing by private respondent of
a suit with the Regional Trial Court for specific performance to enforce
the option to purchase did not divest the then City Court of its
jurisdiction to take cognizance over the ejectment case. Of note is the

fact that the decision of the City Court was affirmed by both the
Intermediate Appellate Court and this Court.
Second. Having failed to exercise the option within the stipulated oneyear period, private respondent cannot enforce its option to purchase
anymore. Moreover, even assuming arguendo that the right to
exercise the option still subsists at the time private respondent
tendered the amount on June 20, 1975, the suit for specific
performance to enforce the option to purchase was filed only on
October 7, 1985 or more than ten (10) years after accrual of the cause
of action as provided under Article 1144 of the New Civil Code.i[21]
In this case, there was a contract of lease for one (1) year with option
to purchase. The contract of lease expired without the private
respondent, as lessee, purchasing the property but remained in
possession thereof. Hence, there was an implicit renewal of the
contract of lease on a monthly basis. The other terms of the original
contract of lease which are revived in the implied new lease under
Article 1670 of the New Civil Codei[22] are only those terms which are
germane to the lessees right of continued enjoyment of the property
leased.i[23] Therefore, an implied new lease does not ipso facto carry
with it any implied revival of private respondent's option to purchase
(as lessee thereof) the leased premises. The provision entitling the
lessee the option to purchase the leased premises is not deemed
incorporated in the impliedly renewed contract because it is alien to
the possession of the lessee. Private respondents right to exercise the
option to purchase expired with the termination of the original
contract of lease for one year. The rationale of this Court is that:
This is a reasonable construction of the provision, which is based on the
presumption that when the lessor allows the lessee to continue
enjoying possession of the property for fifteen days after the expiration
of the contract he is willing that such enjoyment shall be for the entire
period corresponding to the rent which is customarily paid in this case
up to the end of the month because the rent was paid monthly.
Necessarily, if the presumed will of the parties refers to the enjoyment

of possession the presumption covers the other terms of the contract

related to such possession, such as the amount of rental, the date
when it must be paid, the care of the property, the responsibility for
repairs, etc. But no such presumption may be indulged in with respect
to special agreements which by nature are foreign to the right of
occupancy or enjoyment inherent in a contract of lease.i[24]
Third. There was no perfected contract of sale between petitioners
and private respondent. Private respondent argued that it delivered
the check of P300,000.00 to Alice A. Dizon who acted as agent of
petitioners pursuant to the supposed authority given by petitioner
Fidela Dizon, the payee thereof. Private respondent further contended
that petitioners filing of the ejectment case against it based on the
contract of lease with option to buy holds petitioners in estoppel to
question the authority of petitioner Fidela Dizon. It insisted that the
payment of P300,000.00 as partial payment of the purchase price
constituted a valid exercise of the option to buy.
Under Article 1475 of the New Civil Code, the contract of sale is
perfected at the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price. From that
moment, the parties may reciprocally demand performance, subject
to the provisions of the law governing the form of contracts. Thus, the
elements of a contract of sale are consent, object, and price in
money or its equivalent. It bears stressing that the absence of any of
these essential elements negates the existence of a perfected
contract of sale. Sale is a consensual contract and he who alleges it
must show its existence by competent proof.i[25]
In an attempt to resurrect the lapsed option, private respondent gave
P300,000.00 to petitioners (thru Alice A. Dizon) on the erroneous
presumption that the said amount tendered would constitute a
perfected contract of sale pursuant to the contract of lease with
option to buy. There was no valid consent by the petitioners (as coowners of the leased premises) on the supposed sale entered into by
Alice A. Dizon, as petitioners alleged agent, and private respondent.

The basis for agency is representation and a person dealing with an

agent is put upon inquiry and must discover upon his peril the authority
of the agent.i[26] As provided in Article 1868 of the New Civil
Code,i[27] there was no showing that petitioners consented to the act
of Alice A. Dizon nor authorized her to act on their behalf with regard
to her transaction with private respondent. The most prudent thing
private respondent should have done was to ascertain the extent of
the authority of Alice A. Dizon. Being negligent in this regard, private
respondent cannot seek relief on the basis of a supposed agency.
In Bacaltos Coal Mines vs. Court of Appeals,i[28] we explained the rule
in dealing with an agent:
Every person dealing with an agent is put upon inquiry and must
discover upon his peril the authority of the agent. If he does not make
such inquiry, he is chargeable with knowledge of the agents authority,
and his ignorance of that authority will not be any excuse. Persons
dealing with an assumed agent, whether the assumed agency be a
general or special one, are bound at their peril, if they would hold the
principal, to ascertain not only the fact of the agency but also the
nature and extent of the authority, and in case either is controverted,
the burden of proof is upon them to establish it.
For the long years that private respondent was able to thwart the
execution of the ejectment suit rendered in favor of petitioners, we
now write finis to this controversy and shun further delay so as to ensure
that this case would really attain finality.
WHEREFORE, in view of the foregoing, both petitions are GRANTED. The
decision dated March 29, 1994 and the resolution dated October 19,
1995 in CA-G.R. CV No. 25153-54, as well as the decision dated
December 11, 1995 and the resolution dated April 23, 1997 in CA-G.R.
SP No. 33113 of the Court of Appeals are hereby REVERSED and SET
ASIDE.
Let the records of this case be remanded to the trial court for
immediate execution of the judgment dated November 22, 1982 in
Civil Case No. VIII-29155 of the then City Court (now Metropolitan Trial

Court) of Quezon City, Branch VIII as affirmed in the decision dated

September 26, 1984 of the then Intermediate Appellate Court (now
Court of Appeals) and in the resolution dated June 19, 1985 of this
Court.
However, petitioners are ordered to REFUND to private respondent the
amount of P300,000.00 which they received through Alice A. Dizon on
June 20, 1975.
SO ORDERED.
SECOND DIVISION
[G.R. No. 117356. June 19, 2000]
VICTORIAS MILLING CO., INC., petitioner, vs. COURT OF APPEALS
and CONSOLIDATED SUGAR CORPORATION, respondents.
DECISION
QUISUMBING, J.:
Before us is a petition for review on certiorari under Rule 45 of
the Rules of Court assailing the decision of the Court of Appeals
dated February 24, 1994, in CA-G.R. CV No. 31717, as well as the
respondent court's resolution of September 30, 1994 modifying
said decision. Both decision and resolution amended the
judgment dated February 13, 1991, of the Regional Trial Court of
Makati City, Branch 147, in Civil Case No. 90-118.
The facts of this case as found by both the trial and appellate
courts are as follows:
St. Therese Merchandising (hereafter STM) regularly bought
sugar from petitioner Victorias Milling Co., Inc., (VMC). In the
course of their dealings, petitioner issued several Shipping
List/Delivery Receipts (SLDRs) to STM as proof of purchases.
Among these was SLDR No. 1214M, which gave rise to the
instant case. Dated October 16, 1989, SLDR No. 1214M covers
25,000 bags of sugar. Each bag contained 50 kilograms and
priced at P638.00 per bag as "per sales order VMC Marketing

No. 042 dated October 16, 1989."i[1] The transaction it covered

was a "direct sale."i[2] The SLDR also contains an additional note
which reads: "subject for (sic) availability of a (sic) stock at
NAWACO (warehouse)."i[3]
On October 25, 1989, STM sold to private respondent
Consolidated Sugar Corporation (CSC) its rights in SLDR No.
1214M for P 14,750,000.00. CSC issued one check dated
October 25, 1989 and three checks postdated November 13,
1989 in payment. That same day, CSC wrote petitioner that it
had been authorized by STM to withdraw the sugar covered by
SLDR No. 1214M. Enclosed in the letter were a copy of SLDR No.
1214M and a letter of authority from STM authorizing CSC "to
withdraw for and in our behalf the refined sugar covered by
Shipping List/Delivery Receipt-Refined Sugar (SDR) No. 1214
dated October 16, 1989 in the total quantity of 25,000 bags."i[4]
On October 27, 1989, STM issued 16 checks in the total amount
of P31,900,000.00 with petitioner as payee. The latter, in turn,
issued Official Receipt No. 33743 dated October 27, 1989
acknowledging receipt of the said checks in payment of 50,000
bags. Aside from SLDR No. 1214M, said checks also covered
SLDR No. 1213.
Private respondent CSC surrendered SLDR No. 1214M to the
petitioner's NAWACO warehouse and was allowed to withdraw
sugar. However, after 2,000 bags had been released, petitioner
refused to allow further withdrawals of sugar against SLDR No.
1214M. CSC then sent petitioner a letter dated January 23, 1990
informing it that SLDR No. 1214M had been "sold and endorsed"
to it but that it had been refused further withdrawals of sugar
from petitioner's warehouse despite the fact that only 2,000
bags had been withdrawn.i[5] CSC thus inquired when it would
be allowed to withdraw the remaining 23,000 bags.
On January 31, 1990, petitioner replied that it could not allow
any further withdrawals of sugar against SLDR No. 1214M

because STM had already dwithdrawn all the sugar covered by

the cleared checks.i[6]
On March 2, 1990, CSC sent petitioner a letter demanding the
release of the balance of 23,000 bags.
Seven days later, petitioner reiterated that all the sugar
corresponding to the amount of STM's cleared checks had
been fully withdrawn and hence, there would be no more
deliveries of the commodity to STM's account. Petitioner also
noted that CSC had represented itself to be STM's agent as it
had withdrawn the 2,000 bags against SLDR No. 1214M "for and
in behalf" of STM.
On April 27, 1990, CSC filed a complaint for specific
performance, docketed as Civil Case No. 90-1118. Defendants
were Teresita Ng Sy (doing business under the name of St.
Therese Merchandising) and herein petitioner. Since the former
could not be served with summons, the case proceeded only
against the latter. During the trial, it was discovered that Teresita
Ng Go who testified for CSC was the same Teresita Ng Sy who
could not be reached through summons.i[7] CSC, however, did
not bother to pursue its case against her, but instead used her
as its witness.
CSC's complaint alleged that STM had fully paid petitioner for
the sugar covered by SLDR No. 1214M. Therefore, the latter had
no justification for refusing delivery of the sugar. CSC prayed
that petitioner be ordered to deliver the 23,000 bags covered
by SLDR No. 1214M and sought the award of P1,104,000.00 in
unrealized profits, P3,000,000.00 as exemplary damages,
P2,200,000.00 as attorney's fees and litigation expenses.
Petitioner's primary defense a quo was that it was an unpaid
seller for the 23,000 bags.i[8] Since STM had already drawn in full
all the sugar corresponding to the amount of its cleared checks,
it could no longer authorize further delivery of sugar to CSC.

Petitioner also contended that it had no privity of contract with

CSC.
Petitioner explained that the SLDRs, which it had issued, were
not documents of title, but mere delivery receipts issued
pursuant to a series of transactions entered into between it and
STM. The SLDRs prescribed delivery of the sugar to the party
specified therein and did not authorize the transfer of said
party's rights and interests.
Petitioner also alleged that CSC did not pay for the SLDR and
was actually STM's co-conspirator to defraud it through a
misrepresentation that CSC was an innocent purchaser for
value and in good faith. Petitioner then prayed that CSC be
ordered to pay it the following sums: P10,000,000.00 as moral
damages; P10,000,000.00 as exemplary damages; and
P1,500,000.00 as attorney's fees. Petitioner also prayed that
cross-defendant STM be ordered to pay it P10,000,000.00 in
exemplary damages, and P1,500,000.00 as attorney's fees.
Since no settlement was reached at pre-trial, the trial court
heard the case on the merits.
As earlier stated, the trial court rendered its judgment favoring
private respondent CSC, as follows:
"WHEREFORE, in view of the foregoing, the Court hereby
renders judgment in favor of the plaintiff and against
defendant Victorias Milling Company:
"1) Ordering defendant Victorias Milling Company to
deliver to the plaintiff 23,000 bags of refined sugar due
under SLDR No. 1214;
"2) Ordering defendant Victorias Milling Company to pay
the amount of P920,000.00 as unrealized profits, the
amount of P800,000.00 as exemplary damages and the
amount of P1,357,000.00, which is 10% of the acquisition
value of the undelivered bags of refined sugar in the

amount of P13,570,000.00, as attorney's fees, plus the

costs.
"SO ORDERED."i[9]
It made the following observations:
"[T]he testimony of plaintiff's witness Teresita Ng Go, that
she had fully paid the purchase price of P15,950,000.00 of
the 25,000 bags of sugar bought by her covered by SLDR
No. 1214 as well as the purchase price of P15,950,000.00
for the 25,000 bags of sugar bought by her covered by
SLDR No. 1213 on the same date, October 16, 1989 (date
of the two SLDRs) is duly supported by Exhibits C to C-15
inclusive which are post-dated checks dated October
27, 1989 issued by St. Therese Merchandising in favor of
Victorias Milling Company at the time it purchased the
50,000 bags of sugar covered by SLDR No. 1213 and
1214. Said checks appear to have been honored and
duly credited to the account of Victorias Milling
Company because on October 27, 1989 Victorias Milling
Company issued official receipt no. 34734 in favor of St.
Therese Merchandising for the amount of P31,900,000.00
(Exhibits B and B-1). The testimony of Teresita Ng Go is
further supported by Exhibit F, which is a computer
printout of defendant Victorias Milling Company showing
the quantity and value of the purchases made by St.
Therese Merchandising, the SLDR no. issued to cover the
purchase, the official reciept no. and the status of
payment. It is clear in Exhibit 'F' that with respect to the
sugar covered by SLDR No. 1214 the same has been fully
paid as indicated by the word 'cleared' appearing under
the column of 'status of payment.'
"On the other hand, the claim of defendant Victorias
Milling Company that the purchase price of the 25,000
bags of sugar purchased by St. Therese Merchandising

covered by SLDR No. 1214 has not been fully paid is

supported only by the testimony of Arnulfo Caintic,
witness for defendant Victorias Milling Company. The
Court notes that the testimony of Arnulfo Caintic is
merely a sweeping barren assertion that the purchase
price has not been fully paid and is not corroborated by
any positive evidence. There is an insinuation by Arnulfo
Caintic in his testimony that the postdated checks issued
by the buyer in payment of the purchased price were
dishonored. However, said witness failed to present in
Court any dishonored check or any replacement check.
Said witness likewise failed to present any bank record
showing that the checks issued by the buyer, Teresita Ng
Go, in payment of the purchase price of the sugar
covered by SLDR No. 1214 were dishonored."i[10]
Petitioner appealed the trial courts decision to the Court of
Appeals.
On appeal, petitioner averred that the dealings between it and
STM were part of a series of transactions involving only one
account or one general contract of sale. Pursuant to this
contract, STM or any of its authorized agents could withdraw
bags of sugar only against cleared checks of STM. SLDR No.
21214M was only one of 22 SLDRs issued to STM and since the
latter had already withdrawn its full quota of sugar under the
said SLDR, CSC was already precluded from seeking delivery of
the 23,000 bags of sugar.
Private respondent CSC countered that the sugar purchases
involving SLDR No. 1214M were separate and independent
transactions and that the details of the series of purchases were
contained in a single statement with a consolidated summary
of cleared check payments and sugar stock withdrawals
because this a more convenient system than issuing separate
statements for each purchase.

The appellate court considered the following issues: (a) Whether

or not the transaction between petitioner and STM involving
SLDR No. 1214M was a separate, independent, and single
transaction; (b) Whether or not CSC had the capacity to sue on
its own on SLDR No. 1214M; and (c) Whether or not CSC as
buyer from STM of the rights to 25,000 bags of sugar covered by
SLDR No. 1214M could compel petitioner to deliver 23,000 bags
allegedly unwithdrawn.
On February 24, 1994, the Court of Appeals rendered its
decision modifying the trial court's judgment, to wit:
"WHEREFORE, the Court hereby MODIFIES the assailed
judgment and orders defendant-appellant to:
"1) Deliver to plaintiff-appellee 12,586 bags of sugar
covered by SLDR No. 1214M;
" 2) Pay to plaintiff-appellee P792,918.00 which is 10% of
the value of the undelivered bags of refined sugar, as
attorneys fees;
"3) Pay the costs of suit.
"SO ORDERED."i[11]
Both parties then seasonably filed separate motions for
reconsideration.
In its resolution dated September 30, 1994, the appellate court
modified its decision to read:
"WHEREFORE, the Court hereby modifies the assailed
judgment and orders defendant-appellant to:
"(1) Deliver to plaintiff-appellee 23,000 bags of refined
sugar under SLDR No. 1214M;
"(2) Pay costs of suit.
"SO ORDERED."i[12]
The appellate court explained the rationale for the modification
as follows:
"There is merit in plaintiff-appellee's position.

"Exhibit F' We relied upon in fixing the number of bags of

sugar which remained undelivered as 12,586 cannot be
made the basis for such a finding. The rule is explicit that
courts should consider the evidence only for the purpose
for which it was offered. (People v. Abalos, et al, 1 CA
Rep 783). The rationale for this is to afford the party
against whom the evidence is presented to object
thereto if he deems it necessary. Plaintiff-appellee is,
therefore, correct in its argument that Exhibit F' which was
offered to prove that checks in the total amount of
P15,950,000.00 had been cleared. (Formal Offer of
Evidence for Plaintiff, Records p. 58) cannot be used to
prove the proposition that 12,586 bags of sugar remained
undelivered.
"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10
October 1990, p. 33] and Marianito L. Santos [TSN, 17
October 1990, pp. 16, 18, and 36]) presented by plaintiffappellee was to the effect that it had withdrawn only
2,000 bags of sugar from SLDR after which it was not
allowed to withdraw anymore. Documentary evidence
(Exhibit I, Id., p. 78, Exhibit K, Id., p. 80) show that plaintiffappellee had sent demand letters to defendantappellant asking the latter to allow it to withdraw the
remaining 23,000 bags of sugar from SLDR 1214M.
Defendant-appellant, on the other hand, alleged that
sugar delivery to the STM corresponded only to the value
of cleared checks; and that all sugar corresponded to
cleared checks had been withdrawn. Defendantappellant did not rebut plaintiff-appellee's assertions. It
did not present evidence to show how many bags of
sugar had been withdrawn against SLDR No. 1214M,
precisely because of its theory that all sales in question

were a series of one single transaction and withdrawal of

sugar depended on the clearing of checks paid therefor.
"After a second look at the evidence, We see no reason
to overturn the findings of the trial court on this point."i[13]
Hence, the instant petition, positing the following errors as
grounds for review:
"1. The Court of Appeals erred in not holding that STM's
and private respondent's specially informing petitioner
that respondent was authorized by buyer STM to
withdraw sugar against SLDR No. 1214M "for and in our
(STM) behalf," (emphasis in the original) private
respondent's withdrawing 2,000 bags of sugar for STM,
and STM's empowering other persons as its agents to
withdraw sugar against the same SLDR No. 1214M,
rendered respondent like the other persons, an agent of
STM as held in Rallos v. Felix Go Chan & Realty Corp., 81
SCRA 252, and precluded it from subsequently claiming
and proving being an assignee of SLDR No. 1214M and
from suing by itself for its enforcement because it was
conclusively presumed to be an agent (Sec. 2, Rule 131,
Rules of Court) and estopped from doing so. (Art. 1431,
Civil Code).
" 2. The Court of Appeals erred in manifestly and
arbitrarily ignoring and disregarding certain relevant and
undisputed facts which, had they been considered,
would have shown that petitioner was not liable, except
for 69 bags of sugar, and which would justify review of its
conclusion of facts by this Honorable Court.
" 3. The Court of Appeals misapplied the law on
compensation under Arts. 1279, 1285 and 1626 of the
Civil Code when it ruled that compensation applied only
to credits from one SLDR or contract and not to those
from two or more distinct contracts between the same

parties; and erred in denying petitioner's right to setoff all

its credits arising prior to notice of assignment from other
sales or SLDRs against private respondent's claim as
assignee under SLDR No. 1214M, so as to extinguish or
reduce its liability to 69 bags, because the law on
compensation applies precisely to two or more distinct
contracts between the same parties (emphasis in the
original).
"4. The Court of Appeals erred in concluding that the
settlement or liquidation of accounts in Exh. F between
petitioner and STM, respondent's admission of its
balance, and STM's acquiescence thereto by silence for
almost one year did not render Exh. `F' an account
stated and its balance binding.
"5. The Court of Appeals erred in not holding that the
conditions of the assigned SLDR No. 1214, namely, (a) its
subject matter being generic, and (b) the sale of sugar
being subject to its availability at the Nawaco
warehouse, made the sale conditional and prevented
STM or private respondent from acquiring title to the
sugar; and the non-availability of sugar freed petitioner
from further obligation.
"6. The Court of Appeals erred in not holding that the
"clean hands" doctrine precluded respondent from
seeking judicial reliefs (sic) from petitioner, its only remedy
being against its assignor."i[14]
Simply stated, the issues now to be resolved are:
(1)....Whether or not the Court of Appeals erred in not
ruling that CSC was an agent of STM and hence,
estopped to sue upon SLDR No. 1214M as an assignee.
(2)....Whether or not the Court of Appeals erred in
applying the law on compensation to the transaction

under SLDR No. 1214M so as to preclude petitioner from

offsetting its credits on the other SLDRs.
(3)....Whether or not the Court of Appeals erred in not
ruling that the sale of sugar under SLDR No. 1214M was a
conditional sale or a contract to sell and hence freed
petitioner from further obligations.
(4)....Whether or not the Court of Appeals committed an
error of law in not applying the "clean hands doctrine" to
preclude CSC from seeking judicial relief.
The issues will be discussed in seriatim.
Anent the first issue, we find from the records that petitioner
raised this issue for the first time on appeal. It is settled that an
issue which was not raised during the trial in the court below
could not be raised for the first time on appeal as to do so
would be offensive to the basic rules of fair play, justice, and
due process.i[15] Nonetheless, the Court of Appeals opted to
address this issue, hence, now a matter for our consideration.
Petitioner heavily relies upon STM's letter of authority allowing
CSC to withdraw sugar against SLDR No. 1214M to show that the
latter was STM's agent. The pertinent portion of said letter reads:
"This is to authorize Consolidated Sugar Corporation or its
representative to withdraw for and in our behalf (stress
supplied) the refined sugar covered by Shipping
List/Delivery Receipt = Refined Sugar (SDR) No. 1214
dated October 16, 1989 in the total quantity of 25, 000
bags."i[16]
The Civil Code defines a contract of agency as follows:
"Art. 1868. By the contract of agency a person binds
himself to render some service or to do something in
representation or on behalf of another, with the consent
or authority of the latter."
It is clear from Article 1868 that the basis of agency is
representation.i[17] On the part of the principal, there must be

an actual intention to appointi[18] or an intention naturally

inferable from his words or actions;i[19] and on the part of the
agent, there must be an intention to accept the appointment
and act on it,i[20] and in the absence of such intent, there is
generally no agency.i[21] One factor which most clearly
distinguishes agency from other legal concepts is control; one
person - the agent - agrees to act under the control or direction
of another - the principal. Indeed, the very word "agency" has
come to connote control by the principal.i[22] The control
factor, more than any other, has caused the courts to put
contracts between principal and agent in a separate
category.i[23] The Court of Appeals, in finding that CSC, was
not an agent of STM, opined:
"This Court has ruled that where the relation of agency is
dependent upon the acts of the parties, the law makes
no presumption of agency, and it is always a fact to be
proved, with the burden of proof resting upon the
persons alleging the agency, to show not only the fact of
its existence, but also its nature and extent (Antonio vs.
Enriquez [CA], 51 O.G. 3536]. Here, defendant-appellant
failed to sufficiently establish the existence of an agency
relation between plaintiff-appellee and STM. The fact
alone that it (STM) had authorized withdrawal of sugar by
plaintiff-appellee "for and in our (STM's) behalf" should not
be eyed as pointing to the existence of an agency
relation ...It should be viewed in the context of all the
circumstances obtaining. Although it would seem STM
represented plaintiff-appellee as being its agent by the
use of the phrase "for and in our (STM's) behalf" the
matter was cleared when on 23 January 1990, plaintiffappellee informed defendant-appellant that SLDFR No.
1214M had been "sold and endorsed" to it by STM (Exhibit
I, Records, p. 78). Further, plaintiff-appellee has shown

that the 25, 000 bags of sugar covered by the SLDR No.
1214M were sold and transferred by STM to it ...A
conclusion that there was a valid sale and transfer to
plaintiff-appellee may, therefore, be made thus
capacitating plaintiff-appellee to sue in its own name,
without need of joining its imputed principal STM as coplaintiff."i[24]
In the instant case, it appears plain to us that private
respondent CSC was a buyer of the SLDFR form, and not an
agent of STM. Private respondent CSC was not subject to STM's
control. The question of whether a contract is one of sale or
agency depends on the intention of the parties as gathered
from the whole scope and effect of the language
employed.i[25] That the authorization given to CSC contained
the phrase "for and in our (STM's) behalf" did not establish an
agency. Ultimately, what is decisive is the intention of the
parties.i[26] That no agency was meant to be established by
the CSC and STM is clearly shown by CSC's communication to
petitioner that SLDR No. 1214M had been "sold and endorsed"
to it.i[27] The use of the words "sold and endorsed" means that
STM and CSC intended a contract of sale, and not an agency.
Hence, on this score, no error was committed by the
respondent appellate court when it held that CSC was not STM's
agent and could independently sue petitioner.
On the second issue, proceeding from the theory that the
transactions entered into between petitioner and STM are but
serial parts of one account, petitioner insists that its debt has
been offset by its claim for STM's unpaid purchases, pursuant to
Article 1279 of the Civil Code.i[28] However, the trial court
found, and the Court of Appeals concurred, that the purchase
of sugar covered by SLDR No. 1214M was a separate and
independent transaction; it was not a serial part of a single
transaction or of one account contrary to petitioner's insistence.

Evidence on record shows, without being rebutted, that

petitioner had been paid for the sugar purchased under SLDR
No. 1214M. Petitioner clearly had the obligation to deliver said
commodity to STM or its assignee. Since said sugar had been
fully paid for, petitioner and CSC, as assignee of STM, were not
mutually creditors and debtors of each other. No reversible error
could thereby be imputed to respondent appellate court when,
it refused to apply Article 1279 of the Civil Code to the present
case.
Regarding the third issue, petitioner contends that the sale of
sugar under SLDR No. 1214M is a conditional sale or a contract
to sell, with title to the sugar still remaining with the vendor.
Noteworthy, SLDR No. 1214M contains the following terms and
conditions:
"It is understood and agreed that by payment by
buyer/trader of refined sugar and/or receipt of this
document by the buyer/trader personally or through a
representative, title to refined sugar is transferred to
buyer/trader and delivery to him/it is deemed effected
and completed (stress supplied) and buyer/trader
assumes full responsibility therefore"i[29]
The aforequoted terms and conditions clearly show that
petitioner transferred title to the sugar to the buyer or his
assignee upon payment of the purchase price. Said terms
clearly establish a contract of sale, not a contract to sell.
Petitioner is now estopped from alleging the contrary. The
contract is the law between the contracting parties.i[30] And
where the terms and conditions so stipulated are not contrary
to law, morals, good customs, public policy or public order, the
contract is valid and must be upheld.i[31] Having transferred
title to the sugar in question, petitioner is now obliged to deliver
it to the purchaser or its assignee.

As to the fourth issue, petitioner submits that STM and private

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

DECISION
PANGANIBAN, J.:
Stripped of nonessentials, the present case involves the collection of a
sum of money. Specifically, this case arose from the failure of
petitioners to pay respondents predecessor-in-interest. This fact was
shown by the non-encashment of checks issued by a third person, but
indorsed by herein Petitioner Maria Tuazon in favor of the said
predecessor. Under these circumstances, to enable respondents to
collect on the indebtedness, the check drawer need not be
impleaded in the Complaint. Thus, the suit is directed, not against the
drawer, but against the debtor who indorsed the checks in payment
of the obligation.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court,
challenging the July 31, 2002 Decision2 of the Court of Appeals (CA) in
CA-GR CV No. 46535. The decretal portion of the assailed Decision
reads:

Republic of the Philippines

SUPREME COURT
THIRD DIVISION
G.R. No. 156262 July 14, 2005
MARIA TUAZON, ALEJANDRO P. TUAZON, MELECIO P. TUAZON, Spouses
ANASTACIO and MARY T. BUENAVENTURA, Petitioners,
vs.
HEIRS OF BARTOLOME RAMOS, Respondents.

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

AFFIRMED."
On the other hand, the affirmed Decision3 of Branch 34 of the Regional
Trial Court (RTC) of Gapan, Nueva Ecija, disposed as follows:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and
against the defendants, ordering the defendants spouses Leonilo
Tuazon and Maria Tuazon to pay the plaintiffs, as follows:

"1. The sum of P1,750,050.00, with interests from the filing of the second
amended complaint;
"2. The sum of P50,000.00, as attorneys fees;
"3. The sum of P20,000.00, as moral damages
"4. And to pay the costs of suit.
x x x x x x x x x"4
The Facts
The facts are narrated by the CA as follows:
"[Respondents] alleged that between the period of May 2, 1988 and
June 5, 1988, spouses Leonilo and Maria Tuazon purchased a total of
8,326 cavans of rice from [the deceased Bartolome] Ramos
[predecessor-in-interest of respondents]. That of this [quantity,] x x x
only 4,437 cavans [have been paid for so far], leaving unpaid 3,889
cavans valued at P1,211,919.00. In payment therefor, the spouses
Tuazon issued x x x [several] Traders Royal Bank checks.
xxxxxxxxx
[B]ut when these [checks] were encashed, all of the checks bounced
due to insufficiency of funds. [Respondents] advanced that before
issuing said checks[,] spouses Tuazon already knew that they had no
available fund to support the checks, and they failed to provide for
the payment of these despite repeated demands made on them.
"[Respondents] averred that because spouses Tuazon anticipated that
they would be sued, they conspired with the other [defendants] to

defraud them as creditors by executing x x x fictitious sales of their

properties. They executed x x x simulated sale[s] [of three lots] in favor
of the x x x spouses Buenaventura x x x[,] as well as their residential lot
and the house thereon[,] all located at Nueva Ecija, and another
simulated deed of sale dated July 12, 1988 of a Stake Toyota
registered with the Land Transportation Office of Cabanatuan City on
September 7, 1988. [Co-petitioner] Melecio Tuazon, a son of spouses
Tuazon, registered a fictitious Deed of Sale on July 19, 1988 x x x over a
residential lot located at Nueva Ecija. Another simulated sale of a
Toyota Willys was executed on January 25, 1988 in favor of their other
son, [co-petitioner] Alejandro Tuazon x x x. As a result of the said sales,
the titles of these properties issued in the names of spouses Tuazon
were cancelled and new ones were issued in favor of the [co]defendants spouses Buenaventura, Alejandro Tuazon and Melecio
Tuazon. Resultantly, by the said ante-dated and simulated sales and
the corresponding transfers there was no more property left registered
in the names of spouses Tuazon answerable to creditors, to the
damage and prejudice of [respondents].
"For their part, defendants denied having purchased x x x rice from
[Bartolome] Ramos. They alleged that it was Magdalena Ramos, wife
of said deceased, who owned and traded the merchandise and
Maria Tuazon was merely her agent. They argued that it was
Evangeline Santos who was the buyer of the rice and issued the
checks to Maria Tuazon as payments therefor. In good faith[,] the
checks were received [by petitioner] from Evangeline Santos and
turned over to Ramos without knowing that these were not funded.
And it is for this reason that [petitioners] have been insisting on the
inclusion of Evangeline Santos as an indispensable party, and her noninclusion was a fatal error. Refuting that the sale of several properties
were fictitious or simulated, spouses Tuazon contended that these
were sold because they were then meeting financial difficulties but
the disposals were made for value and in good faith and done before

the filing of the instant suit. To dispute the contention of plaintiffs that
they were the buyers of the rice, they argued that there was no sales
invoice, official receipts or like evidence to prove this. They assert that
they were merely agents and should not be held answerable."5
The corresponding civil and criminal cases were filed by respondents
against Spouses Tuazon. Those cases were later consolidated and
amended to include Spouses Anastacio and Mary Buenaventura, with
Alejandro Tuazon and Melecio Tuazon as additional defendants.
Having passed away before the pretrial, Bartolome Ramos was
substituted by his heirs, herein respondents.
Contending that Evangeline Santos was an indispensable party in the
case, petitioners moved to file a third-party complaint against her.
Allegedly, she was primarily liable to respondents, because she was
the one who had purchased the merchandise from their predecessor,
as evidenced by the fact that the checks had been drawn in her
name. The RTC, however, denied petitioners Motion.
Since the trial court acquitted petitioners in all three of the
consolidated criminal cases, they appealed only its decision finding
them civilly liable to respondents.
Ruling of the Court of Appeals
Sustaining the RTC, the CA held that petitioners had failed to prove the
existence of an agency between respondents and Spouses Tuazon.
The appellate court disbelieved petitioners contention that
Evangeline Santos should have been impleaded as an indispensable
party. Inasmuch as all the checks had been indorsed by Maria Tuazon,
who thereby became liable to subsequent holders for the amounts
stated in those checks, there was no need to implead Santos.

Hence, this Petition.6

Issues
Petitioners raise the following issues for our consideration:
"1. Whether or not the Honorable Court of Appeals erred in ruling that
petitioners are not agents of the respondents.
"2. Whether or not the Honorable Court of Appeals erred in rendering
judgment against the petitioners despite x x x the failure of the
respondents to include in their action Evangeline Santos, an
indispensable party to the suit."7
The Courts Ruling
The Petition is unmeritorious.
First Issue:
Agency
Well-entrenched is the rule that the Supreme Courts role in a petition
under Rule 45 is limited to reviewing errors of law allegedly committed
by the Court of Appeals. Factual findings of the trial court, especially
when affirmed by the CA, are conclusive on the parties and this
Court.8 Petitioners have not given us sufficient reasons to deviate from
this rule.
In a contract of agency, one binds oneself to render some service or
to do something in representation or on behalf of another, with the
latters consent or authority.9 The following are the elements of
agency: (1) the parties consent, express or implied, to establish the

relationship; (2) the object, which is the execution of a juridical act in

relation to a third person; (3) the representation, by which the one who
acts as an agent does so, not for oneself, but as a representative; (4)
the limitation that the agent acts within the scope of his or her
authority.10 As the basis of agency is representation, there must be, on
the part of the principal, an actual intention to appoint, an intention
naturally inferable from the principals words or actions. In the same
manner, there must be an intention on the part of the agent to accept
the appointment and act upon it. Absent such mutual intent, there is
generally no agency.11
This Court finds no reversible error in the findings of the courts a quo
that petitioners were the rice buyers themselves; they were not mere
agents of respondents in their rice dealership. The question of whether
a contract is one of sale or of agency depends on the intention of the
parties.12
The declarations of agents alone are generally insufficient to establish
the fact or extent of their authority.13 The law makes no presumption of
agency; proving its existence, nature and extent is incumbent upon
the person alleging it.14 In the present case, petitioners raise the fact of
agency as an affirmative defense, yet fail to prove its existence.
The Court notes that petitioners, on their own behalf, sued Evangeline
Santos for collection of the amounts represented by the bounced
checks, in a separate civil case that they sought to be consolidated
with the current one. If, as they claim, they were mere agents of
respondents, petitioners should have brought the suit against Santos
for and on behalf of their alleged principal, in accordance with
Section 2 of Rule 3 of the Rules on Civil Procedure.15 Their filing a suit
against her in their own names negates their claim that they acted as
mere agents in selling the rice obtained from Bartolome Ramos.

Second Issue:
Indispensable Party
Petitioners argue that the lower courts erred in not allowing Evangeline
Santos to be impleaded as an indispensable party. They insist that
respondents Complaint against them is based on the bouncing
checks she issued; hence, they point to her as the person primarily
liable for the obligation.
We hold that respondents cause of action is clearly founded on
petitioners failure to pay the purchase price of the rice. The trial court
held that Petitioner Maria Tuazon had indorsed the questioned checks
in favor of respondents, in accordance with Sections 31 and 63 of the
Negotiable Instruments Law.16 That Santos was the drawer of the
checks is thus immaterial to the respondents cause of action.
As indorser, Petitioner Maria Tuazon warranted that upon due
presentment, the checks were to be accepted or paid, or both,
according to their tenor; and that in case they were dishonored, she
would pay the corresponding amount.17 After an instrument is
dishonored by nonpayment, indorsers cease to be merely secondarily
liable; they become principal debtors whose liability becomes
identical to that of the original obligor. The holder of a negotiable
instrument need not even proceed against the maker before suing the
indorser.18 Clearly, Evangeline Santos -- as the drawer of the checks -- is
not an indispensable party in an action against Maria Tuazon, the
indorser of the checks.
Indispensable parties are defined as "parties in interest without whom
no final determination can be had."19 The instant case was originally
one for the collection of the purchase price of the rice bought by
Maria Tuazon from respondents predecessor. In this case, it is clear

that there is no privity of contract between respondents and Santos.

Hence, a final determination of the rights and interest of the parties
may be made without any need to implead her.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED.
Costs against petitioners.
SO ORDERED.
ARTEMIO V. PANGANIBAN
G.R. No. 187769

June 4, 2014

ALVIN PATRIMONIO, Petitioner,

vs.
NAPOLEON GUTIERREZ and OCTAVIO MARASIGAN III, Respondents.
DECISION
BRION, J.:
Assailed in this petition for review on certiorari1 under Rule 45 of the
Revised Rules of Court is the decision2 dated September 24, 2008 and
the resolution3 dated April 30, 2009 of the Court of Appeals (CA) in
CA-G.R. CV No. 82301. The appellate court affirmed the decision of
the Regional Trial Court (RTC) of Quezon City, Branch 77, dismissing the
complaint for declaration of nullity of loan filed by petitioner Alvin
Patrimonio and ordering him to pay respondent Octavio Marasigan III
(Marasigan) the sum of P200,000.00.
The Factual Background

The facts of the case, as shown by the records, are briefly summarized
below.
The petitioner and the respondent Napoleon Gutierrez (Gutierrez)
entered into a business venture under the name of Slam Dunk
Corporation (Slum Dunk), a production outfit that produced miniconcerts and shows related to basketball. Petitioner was already then
a decorated professional basketball player while Gutierrez was a wellknown sports columnist.
In the course of their business, the petitioner pre-signed several checks
to answer for the expenses of Slam Dunk. Although signed, these
checks had no payees name, date or amount. The blank checks
were entrusted to Gutierrez with the specific instruction not to fill them
out without previous notification to and approval by the petitioner.
According to petitioner, the arrangement was made so that he could
verify the validity of the payment and make the proper arrangements
to fund the account.
In the middle of 1993, without the petitioners knowledge and consent,
Gutierrez went to Marasigan (the petitioners former teammate), to
secure a loan in the amount of P200,000.00 on the excuse that the
petitioner needed the money for the construction of his house. In
addition to the payment of the principal, Gutierrez assured Marasigan
that he would be paid an interest of 5% per month from March to May
1994.
After much contemplation and taking into account his relationship
with the petitioner and Gutierrez, Marasigan acceded to Gutierrez
request and gave him P200,000.00 sometime in February 1994.
Gutierrez simultaneously delivered to Marasigan one of the blank
checks the petitioner pre-signed with Pilipinas Bank, Greenhills Branch,
Check No. 21001764 with the blank portions filled out with the words

"Cash" "Two Hundred Thousand Pesos Only", and the amount of

"P200,000.00". The upper right portion of the check corresponding to
the date was also filled out with the words "May 23, 1994" but the
petitioner contended that the same was not written by Gutierrez.

had the prima facie authority to complete the checks by filling up the
blanks therein, the RTC ruled that he deliberately violated petitioners
specific instructions and took advantage of the trust reposed in him by
the latter.

On May 24, 1994, Marasigan deposited the check but it was

dishonored for the reason "ACCOUNT CLOSED." It was later revealed
that petitioners account with the bank had been closed since May
28, 1993.

Nonetheless, the RTC declared Marasigan as a holder in due course

and accordingly dismissed the petitioners complaint for declaration of
nullity of the loan. It ordered the petitioner to pay Marasigan the face
value of the check with a right to claim reimbursement from Gutierrez.

Marasigan sought recovery from Gutierrez, to no avail. He thereafter

sent several demand letters to the petitioner asking for the payment of
P200,000.00, but his demands likewise went unheeded. Consequently,
he filed a criminal case for violation of B.P. 22 against the petitioner,
docketed as Criminal Case No. 42816.

The petitioner elevated the case to the Court of Appeals (CA), insisting
that Marasigan is not a holder in due course. He contended that when
Marasigan received the check, he knew that the same was without a
date, and hence, incomplete. He also alleged that the loan was
actually between Marasigan and Gutierrez with his check being used
only as a security.

On September 10, 1997, the petitioner filed before the Regional Trial
Court (RTC) a Complaint for Declaration of Nullity of Loan and
Recovery of Damages against Gutierrez and co-respondent
Marasigan. He completely denied authorizing the loan or the checks
negotiation, and asserted that he was not privy to the parties loan
agreement.
Only Marasigan filed his answer to the complaint. In the RTCs order
dated December 22, 1997,Gutierrez was declared in default.
The Ruling of the RTC
The RTC ruled on February 3,2003 in favor of Marasigan.4 It found that
the petitioner, in issuing the pre-signed blank checks, had the intention
of issuing a negotiable instrument, albeit with specific instructions to
Gutierrez not to negotiate or issue the check without his approval.
While under Section 14 of the Negotiable Instruments Law Gutierrez

The Ruling of the CA

On September 24, 2008, the CA affirmed the RTC ruling, although
premised on different factual findings. After careful analysis, the CA
agreed with the petitioner that Marasigan is not a holder in due course
as he did not receive the check in good faith.
The CA also concluded that the check had been strictly filled out by
Gutierrez in accordance with the petitioners authority. It held that the
loan may not be nullified since it is grounded on an obligation arising
from law and ruled that the petitioner is still liable to pay Marasigan the
sum of P200,000.00.
After the CA denied the subsequent motion for reconsideration that
followed, the petitioner filed the present petition for review on
certiorari under Rule 45 of the Revised Rules of Court.

The Petition
The petitioner argues that: (1) there was no loan between him and
Marasigan since he never authorized the borrowing of money nor the
checks negotiation to the latter; (2) under Article 1878 of the Civil
Code, a special power of attorney is necessary for an individual to
make a loan or borrow money in behalf of another; (3) the loan
transaction was between Gutierrez and Marasigan, with his check
being used only as a security; (4) the check had not been completely
and strictly filled out in accordance with his authority since the
condition that the subject check can only be used provided there is
prior approval from him, was not complied with; (5) even if the check
was strictly filled up as instructed by the petitioner, Marasigan is still not
entitled to claim the checks value as he was not a holder in due
course; and (6) by reason of the bad faith in the dealings between the
respondents, he is entitled to claim for damages.
The Issues
Reduced to its basics, the case presents to us the following issues:
1. Whether the contract of loan in the amount of P200,000.00
granted by respondent Marasigan to petitioner, through
respondent Gutierrez, may be nullified for being void;

The Courts Ruling

The petition is impressed with merit.
We note at the outset that the issues raised in this petition are
essentially factual in nature. The main point of inquiry of whether the
contract of loan may be nullified, hinges on the very existence of the
contract of loan a question that, as presented, is essentially, one of
fact. Whether the petitioner authorized the borrowing; whether
Gutierrez completely filled out the subject check strictly under the
petitioners authority; and whether Marasigan is a holder in due course
are also questions of fact, that, as a general rule, are beyond the
scope of a Rule 45 petition.
The rule that questions of fact are not the proper subject of an appeal
by certiorari, as a petition for review under Rule 45 is limited only to
questions of law, is not an absolute rule that admits of no exceptions.
One notable exception is when the findings off act of both the trial
court and the CA are conflicting, making their review necessary.5 In
the present case, the tribunals below arrived at two conflicting factual
findings, albeit with the same conclusion, i.e., dismissal of the
complaint for nullity of the loan. Accordingly, we will examine the
parties evidence presented.
I. Liability Under the Contract of Loan

2. Whether there is basis to hold the petitioner liable for the

payment of the P200,000.00 loan;
3. Whether respondent Gutierrez has completely filled out the
subject check strictly under the authority given by the
petitioner; and
4. Whether Marasigan is a holder in due course.

The petitioner seeks to nullify the contract of loan on the ground that
he never authorized the borrowing of money. He points to Article 1878,
paragraph 7 of the Civil Code, which explicitly requires a written
authority when the loan is contracted through an agent. The petitioner
contends that absent such authority in writing, he should not be held
liable for the face value of the check because he was not a party or
privy to the agreement.

Contracts of Agency May be Oral Unless The Law Requires a Specific

Form
Article 1868 of the Civil Code defines a contract of agency as a
contract whereby a person "binds himself to render some service or to
do something in representation or on behalf of another, with the
consent or authority of the latter." Agency may be express, or implied
from the acts 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.
As a general rule, a contract of agency may be oral.6 However, it
must be written when the law requires a specific form, for example, in
a sale of a piece of land or any interest therein through an agent.
Article 1878 paragraph 7 of the Civil Code expressly requires a special
power of authority before an agent can loan or borrow money in
behalf of the principal, to wit:
Art. 1878. Special powers of attorney are necessary in the following
cases:
xxxx
(7) To loan or borrow money, unless the latter act be urgent and
indispensable for the preservation of the things which are under
administration. (emphasis supplied)
Article 1878 does not state that the authority be in writing. As long as
the mandate is express, such authority may be either oral or written.
We unequivocably declared in Lim Pin v. Liao Tian, et al.,7 that the
requirement under Article 1878 of the Civil Code refers to the nature of
the authorization and not to its form. Be that as it may, the authority

must be duly established by competent and convincing evidence

other than the self serving assertion of the party claiming that such
authority was verbally given, thus:
The requirements of a special power of attorney in Article 1878 of the
Civil Code and of a special authority in Rule 138 of the Rules of Court
refer to the nature of the authorization and not its form. The
requirements are met if there is a clear mandate from the principal
specifically authorizing the performance of the act. As early as 1906,
this Court in Strong v. Gutierrez-Repide (6 Phil. 680) stated that such a
mandate may be either oral or written, the one vital thing being that it
shall be express. And more recently, We stated that, if the special
authority is not written, then it must be duly established by evidence:
x x x the Rules require, for attorneys to compromise the litigation of their
clients, a special authority. And while the same does not state that the
special authority be in writing the Court has every reason to expect
that, if not in writing, the same be duly established by evidence other
than the self-serving assertion of counsel himself that such authority
was verbally given him.(Home Insurance Company vs. United States
lines Company, et al., 21 SCRA 863; 866: Vicente vs. Geraldez, 52 SCRA
210; 225). (emphasis supplied).
The Contract of Loan Entered Into by Gutierrez in Behalf of the
Petitioner Should be Nullified for Being Void; Petitioner is Not Bound by
the Contract of Loan.
A review of the records reveals that Gutierrez did not have any
authority to borrow money in behalf of the petitioner.1wphi1 Records
do not show that the petitioner executed any special power of
attorney (SPA) in favor of Gutierrez. In fact, the petitioners testimony
confirmed that he never authorized Gutierrez (or anyone for that

matter), whether verbally or in writing, to borrow money in his behalf,

nor was he aware of any such transaction:
ALVIN PATRIMONIO (witness)
ATTY. DE VERA: Did you give Nap Gutierrez any Special Power of
Attorney in writing authorizing him to borrow using your money?

xxxx
Therefore, on the first issue, the loan was personal to de Villa. There was
no basis to hold the corporation liable since there was no authority,
express, implied or apparent, given to de Villa to borrow money from
petitioner. Neither was there any subsequent ratification of his act.
xxxx

WITNESS: No, sir. (T.S.N., Alvin Patrimonio, Nov. 11, 1999, p. 105)8
xxxx
Marasigan however submits that the petitioners acts of pre-signing the
blank checks and releasing them to Gutierrez suffice to establish that
the petitioner had authorized Gutierrez to fill them out and contract
the loan in his behalf.

The liability arising from the loan was the sole indebtedness of de Villa
(or of his estate after his death). (citations omitted; emphasis supplied).
This principle was also reiterated in the case of Gozun v. Mercado,10
where this court held:
Petitioner submits that his following testimony suffices to establish that
respondent had authorized Lilian to obtain a loan from him.

Marasigans submission fails to persuade us.

xxxx
In the absence of any authorization, Gutierrez could not enter into a
contract of loan in behalf of the petitioner. As held in Yasuma v. Heirs
of De Villa,9 involving a loan contracted by de Villa secured by real
estate mortgages in the name of East Cordillera Mining Corporation, in
the absence of an SPA conferring authority on de Villa, there is no
basis to hold the corporation liable, to wit:
The power to borrow money is one of those cases where corporate
officers as agents of the corporation need a special power of
attorney. In the case at bar, no special power of attorney conferring
authority on de Villa was ever presented. x x x There was no showing
that respondent corporation ever authorized de Villa to obtain the
loans on its behalf.

Petitioners testimony failed to categorically state, however, whether

the loan was made on behalf of respondent or of his wife. While
petitioner claims that Lilian was authorized by respondent, the
statement of account marked as Exhibit "A" states that the amount
was received by Lilian "in behalf of Mrs. Annie Mercado.
It bears noting that Lilian signed in the receipt in her name alone,
without indicating therein that she was acting for and in behalf of
respondent. She thus bound herself in her personal capacity and not
as an agent of respondent or anyone for that matter.
It is a general rule in the law of agency that, in order to bind the
principal by a mortgage on real property executed by an agent, it

must upon its face purport to be made, signed and sealed in the
name of the principal, otherwise, it will bind the agent only. It is not
enough merely that the agent was in fact authorized to make the
mortgage, if he has not acted in the name of the principal. x x x
(emphasis supplied).
In the absence of any showing of any agency relations or special
authority to act for and in behalf of the petitioner, the loan agreement
Gutierrez entered into with Marasigan is null and void. Thus, the
petitioner is not bound by the parties loan agreement.
Furthermore, that the petitioner entrusted the blank pre-signed checks
to Gutierrez is not legally sufficient because the authority to enter into
a loan can never be presumed. The contract of agency and the
special fiduciary relationship inherent in this contract must exist as a
matter of fact. The person alleging it has the burden of proof to show,
not only the fact of agency, but also its nature and extent.11 As we
held in People v. Yabut:12
Modesto Yambao's receipt of the bad checks from Cecilia Que Yabut
or Geminiano Yabut, Jr., in Caloocan City cannot, contrary to the
holding of the respondent Judges, be licitly taken as delivery of the
checks to the complainant Alicia P. Andan at Caloocan City to fix the
venue there. He did not take delivery of the checks as holder, i.e., as
"payee" or "indorsee." And there appears to beno contract of agency
between Yambao and Andan so as to bind the latter for the acts of
the former. Alicia P. Andan declared in that sworn testimony before
the investigating fiscal that Yambao is but her "messenger" or "parttime employee." There was no special fiduciary relationship that
permeated their dealings. For a contract of agency to exist, the
consent of both parties is essential, the principal consents that the
other party, the agent, shall act on his behalf, and the agent consents
so to act. It must exist as a fact. The law makes no presumption

thereof. The person alleging it has the burden of proof to show, not
only the fact of its existence, but also its nature and extent. This is more
imperative when it is considered that the transaction dealt with
involves checks, which are not legal tender, and the creditor may
validly refuse the same as payment of obligation.(at p. 630). (emphasis
supplied)
The records show that Marasigan merely relied on the words of
Gutierrez without securing a copy of the SPA in favor of the latter and
without verifying from the petitioner whether he had authorized the
borrowing of money or release of the check. He was thus bound by
the risk accompanying his trust on the mere assurances of Gutierrez.
No Contract of Loan Was Perfected Between Marasigan And
Petitioner, as The Latters Consent Was Not Obtained.
Another significant point that the lower courts failed to consider is that
a contract of loan, like any other contract, is subject to the rules
governing the requisites and validity of contracts in general.13 Article
1318 of the Civil Code14 enumerates the essential requisites for a valid
contract, namely:
1. consent of the contracting parties;
2. object certain which is the subject matter of the contract;
and
3. cause of the obligation which is established.
In this case, the petitioner denied liability on the ground that the
contract lacked the essential element of consent. We agree with the
petitioner. As we explained above, Gutierrez did not have the
petitioners written/verbal authority to enter into a contract of loan.

While there may be a meeting of the minds between Gutierrez and

Marasigan, such agreement cannot bind the petitioner whose consent
was not obtained and who was not privy to the loan agreement.
Hence, only Gutierrez is bound by the contract of loan.
True, the petitioner had issued several pre-signed checks to Gutierrez,
one of which fell into the hands of Marasigan. This act, however, does
not constitute sufficient authority to borrow money in his behalf and
neither should it be construed as petitioners grant of consent to the
parties loan agreement. Without any evidence to prove Gutierrez
authority, the petitioners signature in the check cannot be taken,
even remotely, as sufficient authorization, much less, consent to the
contract of loan. Without the consent given by one party in a
purported contract, such contract could not have been perfected;
there simply was no contract to speak of.15
With the loan issue out of the way, we now proceed to determine
whether the petitioner can be made liable under the check he signed.
II. Liability Under the Instrument
The answer is supplied by the applicable statutory provision found in
Section 14 of the Negotiable Instruments Law (NIL) which states:
Sec. 14. Blanks; when may be filled.- Where the instrument is wanting in
any material particular, the person in possession thereof has a prima
facie authority to complete it by filling up the blanks therein. And a
signature on a blank paper delivered by the person making the
signature in order that the paper may be converted into a negotiable
instrument operates as a prima facie authority to fill it up as such for
any amount. In order, however, that any such instrument when
completed may be enforced against any person who became a
party thereto prior to its completion, it must be filled up strictly in

accordance with the authority given and within a reasonable time.

But if any such instrument, after completion, is negotiated to a holder
in due course, it is valid and effectual for all purposes in his hands, and
he may enforce it as if it had been filled up strictly in accordance with
the authority given and within a reasonable time.
This provision applies to an incomplete but delivered instrument. Under
this rule, if the maker or drawer delivers a pre-signed blank paper to
another person for the purpose of converting it into a negotiable
instrument, that person is deemed to have prima facie authority to fill it
up. It merely requires that the instrument be in the possession of a
person other than the drawer or maker and from such possession,
together with the fact that the instrument is wanting in a material
particular, the law presumes agency to fill up the blanks.16
In order however that one who is not a holder in due course can
enforce the instrument against a party prior to the instruments
completion, two requisites must exist: (1) that the blank must be filled
strictly in accordance with the authority given; and (2) it must be filled
up within a reasonable time. If it was proven that the instrument had
not been filled up strictly in accordance with the authority given and
within a reasonable time, the maker can set this up as a personal
defense and avoid liability. However, if the holder is a holder in due
course, there is a conclusive presumption that authority to fill it up had
been given and that the same was not in excess of authority.17
In the present case, the petitioner contends that there is no legal basis
to hold him liable both under the contract and loan and under the
check because: first, the subject check was not completely filled out
strictly under the authority he has given and second, Marasigan was
not a holder in due course.
Marasigan is Not a Holder in Due Course

The Negotiable Instruments Law (NIL) defines a holder in due course,

thus:
Sec. 52 A holder in due course is a holder who has taken the
instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holder of it before it was overdue, and
without notice that it had been previously dishonored, if such
was the fact;
(c) That he took it in good faith and for value;
(d) That at the time it was negotiated to him he had no notice
of any infirmity in the instrument or defect in the title of the
person negotiating it.(emphasis supplied)
Section 52(c) of the NIL states that a holder in due course is one who
takes the instrument "in good faith and for value." It also provides in
Section 52(d) that in order that one may be a holder in due course, it is
necessary that at the time it was negotiated to him he had no notice
of any infirmity in the instrument or defect in the title of the person
negotiating it.
Acquisition in good faith means taking without knowledge or notice of
equities of any sort which could beset up against a prior holder of the
instrument.18 It means that he does not have any knowledge of fact
which would render it dishonest for him to take a negotiable paper.
The absence of the defense, when the instrument was taken, is the
essential element of good faith.19
As held in De Ocampo v. Gatchalian:20

In order to show that the defendant had "knowledge of such facts that
his action in taking the instrument amounted to bad faith," it is not
necessary to prove that the defendant knew the exact fraud that was
practiced upon the plaintiff by the defendant's assignor, it being
sufficient to show that the defendant had notice that there was
something wrong about his assignor's acquisition of title, although he
did not have notice of the particular wrong that was committed.
It is sufficient that the buyer of a note had notice or knowledge that
the note was in some way tainted with fraud. It is not necessary that he
should know the particulars or even the nature of the fraud, since all
that is required is knowledge of such facts that his action in taking the
note amounted bad faith.
The term bad faith does not necessarily involve furtive motives, but
means bad faith in a commercial sense. The manner in which the
defendants conducted their Liberty Loan department provided an
easy way for thieves to dispose of their plunder. It was a case of "no
questions asked." Although gross negligence does not of itself
constitute bad faith, it is evidence from which bad faith may be
inferred. The circumstances thrust the duty upon the defendants to
make further inquiries and they had no right to shut their eyes
deliberately to obvious facts. (emphasis supplied).
In the present case, Marasigans knowledge that the petitioner is not a
party or a privy to the contract of loan, and correspondingly had no
obligation or liability to him, renders him dishonest, hence, in bad faith.
The following exchange is significant on this point:
WITNESS: AMBET NABUS
Q: Now, I refer to the second call after your birthday. Tell us what you
talked about?

A: Since I celebrated my birthday in that place where Nap and I live

together with the other crew, there were several visitors that included
Danny Espiritu. So a week after my birthday, Bong Marasigan called
me up again and he was fuming mad. Nagmumura na siya.
Hinahanap niya si hinahanap niya si Nap, dahil pinagtataguan na
siya at sinabi na niya na kailangan I-settle na niya yung utang ni Nap,
dahil
xxxx
WITNESS: Yes. Sinabi niya sa akin na kailangan ayusin na bago pa
mauwi sa kung saan ang tsekeng tumalbog (He told me that we
have to fix it up before it) mauwi pa kung saan
xxxx
Q: What was your reply, if any?
A: I actually asked him. Kanino ba ang tseke na sinasabi mo?
(Whose check is it that you are referring to or talking about?)
Q: What was his answer?
A: It was Alvins check.

Q: What was his reply?

A: Yes, it was Nap, pero tseke pa rin ni Alvin ang hawak ko at si Alvin
ang maiipit dito.(T.S.N., Ambet Nabus, July 27, 2000; pp.65-71;
emphasis supplied)21
Since he knew that the underlying obligation was not actually for the
petitioner, the rule that a possessor of the instrument is prima facie a
holder in due course is inapplicable. As correctly noted by the CA, his
inaction and failure to verify, despite knowledge of that the petitioner
was not a party to the loan, may be construed as gross negligence
amounting to bad faith.
Yet, it does not follow that simply because he is not a holder in due
course, Marasigan is already totally barred from recovery. The NIL does
not provide that a holder who is not a holder in due course may not in
any case recover on the instrument.22 The only disadvantage of a
holder who is not in due course is that the negotiable instrument is
subject to defenses as if it were non-negotiable.23 Among such
defenses is the filling up blank not within the authority.
On this point, the petitioner argues that the subject check was not
filled up strictly on the basis of the authority he gave. He points to his
instruction not to use the check without his prior approval and argues
that the check was filled up in violation of said instruction.
Check Was Not Completed Strictly Under The Authority Given by The
Petitioner

Q: What was your reply, if any?

A: I told him do you know that it is not really Alvin who borrowed
money from you or what you want to appear
xxxx

Our own examination of the records tells us that Gutierrez has

exceeded the authority to fill up the blanks and use the
check.1wphi1 To repeat, petitioner gave Gutierrez pre-signed checks
to be used in their business provided that he could only use them upon

his approval. His instruction could not be any clearer as Gutierrez

authority was limited to the use of the checks for the operation of their
business, and on the condition that the petitioners prior approval be
first secured.

A: No, sir.

While under the law, Gutierrez had a prima facie authority to

complete the check, such prima facie authority does not extend to its
use (i.e., subsequent transfer or negotiation)once the check is
completed. In other words, only the authority to complete the check is
presumed. Further, the law used the term "prima facie" to underscore
the fact that the authority which the law accords to a holder is a
presumption juris tantumonly; hence, subject to subject to contrary
proof. Thus, evidence that there was no authority or that the authority
granted has been exceeded may be presented by the maker in order
to avoid liability under the instrument.

A: No, sir. (T.S.N., Alvin Patrimonio, November 11, 1999).24

In the present case, no evidence is on record that Gutierrez ever

secured prior approval from the petitioner to fill up the blank or to use
the check. In his testimony, petitioner asserted that he never
authorized nor approved the filling up of the blank checks, thus:
ATTY. DE VERA: Did you authorize anyone including Nap Gutierrez to
write the date, May 23, 1994?
WITNESS: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to put the word
cash? In the check?

Q: And lastly, did you authorize anyone including Nap Gutierrez to

write the words P200,000 only xx in this check?

Notably, Gutierrez was only authorized to use the check for business
expenses; thus, he exceeded the authority when he used the check to
pay the loan he supposedly contracted for the construction of
petitioner's house. This is a clear violation of the petitioner's instruction
to use the checks for the expenses of Slam Dunk. It cannot therefore
be validly concluded that the check was completed strictly in
accordance with the authority given by the petitioner.
Considering that Marasigan is not a holder in due course, the
petitioner can validly set up the personal defense that the blanks were
not filled up in accordance with the authority he gave. Consequently,
Marasigan has no right to enforce payment against the petitioner and
the latter cannot be obliged to pay the face value of the check.
WHEREFORE, in view of the foregoing, judgment is hereby rendered
GRANTING the petitioner Alvin Patrimonio's petition for review on
certiorari. The appealed Decision dated September 24, 2008 and the
Resolution dated April 30, 2009 of the Court of Appeals are
consequently ANNULLED AND SET ASIDE. Costs against the
respondents.
SO ORDERED.

A: No, sir.
Q: Did you authorize anyone including Nap Gutierrez to write the
figure P200,000 in this check?

ARTURO D. BRION
Associate Justice

G.R. No. 174978

July 31, 2013

SALLY YOSHIZAKI, Petitioner,

vs.
JOY TRAINING CENTER OF AURORA, INC., Respondent.
DECISION
BRION, J.:
We resolve the petition for review on certiorari1 filed by petitioner Sally
Yoshizaki to challenge the February 14, 2006 Decision2 and the
October 3, 2006 Resolution3 of the Court of Appeals (CA) in CA-G.R.
CV No. 83773.
The Factual Antecedents
Respondent Joy Training Center of Aurora, Inc. (Joy Training) is a nonstock, non-profit religious educational institution. It was the registered
owner of a parcel of land and the building thereon (real properties)
located in San Luis Extension Purok No. 1, Barangay Buhangin, Baler,
Aurora. The parcel of land was designated as Lot No. 125-L and was
covered by Transfer Certificate of Title (TCT) No. T-25334.4
On November 10, 1998, the spouses Richard and Linda Johnson sold
the real properties, a Wrangler jeep, and other personal properties in
favor of the spouses Sally and Yoshio Yoshizaki. On the same date, a
Deed of Absolute Sale5 and a Deed of Sale of Motor Vehicle6 were
executed in favor of the spouses Yoshizaki. The spouses Johnson were
members of Joy Trainings board of trustees at the time of sale. On
December 7, 1998, TCT No. T-25334 was cancelled and TCT No. T260527 was issued in the name of the spouses Yoshizaki.

On December 8, 1998, Joy Training, represented by its Acting

Chairperson Reuben V. Rubio, filed an action for the Cancellation of
Sales and Damages with prayer for the issuance of a Temporary
Restraining Order and/or Writ of Preliminary Injunction against the
spouses Yoshizaki and the spouses Johnson before the Regional Trial
Court of Baler, Aurora (RTC).8 On January 4, 1999, Joy Training filed a
Motion to Amend Complaint with the attached Amended Complaint.
The amended complaint impleaded Cecilia A. Abordo, officer-incharge of the Register of Deeds of Baler, Aurora, as additional
defendant. The RTC granted the motion on the same date.9
In the complaint, Joy Training alleged that the spouses Johnson sold its
properties without the requisite authority from the board of directors.10
It assailed the validity of a board resolution dated September 1, 199811
which purportedly granted the spouses Johnson the authority to sell its
real properties. It averred that only a minority of the board, composed
of the spouses Johnson and Alexander Abadayan, authorized the sale
through the resolution. It highlighted that the Articles of Incorporation
provides that the board of trustees consists of seven members, namely:
the spouses Johnson, Reuben, Carmencita Isip, Dominador Isip,
Miraflor Bolante, and Abelardo Aquino.12
Cecilia and the spouses Johnson were declared in default for their
failure to file an Answer within the reglementary period.13 On the other
hand, the spouses Yoshizaki filed their Answer with Compulsory
Counterclaims on June 23, 1999. They claimed that Joy Training
authorized the spouses Johnson to sell the parcel of land. They
asserted that a majority of the board of trustees approved the
resolution. They maintained that the actual members of the board of
trustees consist of five members, namely: the spouses Johnson,
Reuben, Alexander, and Abelardo. Moreover, Connie Dayot, the
corporate secretary, issued a certification dated February 20, 199814
authorizing the spouses Johnson to act on Joy Trainings behalf.

Furthermore, they highlighted that the Wrangler jeep and other

personal properties were registered in the name of the spouses
Johnson.15 Lastly, they assailed the RTCs jurisdiction over the case.
They posited that the case is an intra-corporate dispute cognizable by
the Securities and Exchange Commission (SEC).16
After the presentation of their testimonial evidence, the spouses
Yoshizaki formally offered in evidence photocopies of the resolution
and certification, among others.17 Joy Training objected to the formal
offer of the photocopied resolution and certification on the ground
that they were not the best evidence of their contents.18 In an Order19
dated May 18, 2004, the RTC denied the admission of the offered
copies.
The RTC Ruling
The RTC ruled in favor of the spouses Yoshizaki. It found that Joy
Training owned the real properties. However, it held that the sale was
valid because Joy Training authorized the spouses Johnson to sell the
real properties. It recognized that there were only five actual members
of the board of trustees; consequently, a majority of the board of
trustees validly authorized the sale. It also ruled that the sale of
personal properties was valid because they were registered in the
spouses Johnsons name.20

It also ruled that the resolution is void because it was not approved by
a majority of the board of trustees. It stated that under Section 25 of
the Corporation Code, the basis for determining the composition of
the board of trustees is the list fixed in the articles of incorporation.
Furthermore, Section 23 of the Corporation Code provides that the
board of trustees shall hold office for one year and until their
successors are elected and qualified. Seven trustees constitute the
board since Joy Training did not hold an election after its
incorporation.
The CA did not also give any probative value to the certification. It
stated that the certification failed to indicate the date and the names
of the trustees present in the meeting. Moreover, the spouses Yoshizaki
did not present the minutes that would prove that the certification had
been issued pursuant to a board resolution.21 The CA also denied22 the
spouses Yoshizakis motion for reconsideration, prompting Sally23 to file
the present petition.
The Petition
Sally avers that the RTC has no jurisdiction over the case. She points out
that the complaint was principally for the nullification of a corporate
act. The transfer of the SECs original and exclusive jurisdiction to the
RTC24 does not have any retroactive application because jurisdiction is
a substantive matter.

Joy Training appealed the RTC decision to the CA.

The CA Ruling
The CA upheld the RTCs jurisdiction over the case but reversed its
ruling with respect to the sale of real properties. It maintained that the
present action is cognizable by the RTC because it involves recovery
of ownership from third parties.

She argues that the spouses Johnson were authorized to sell the parcel
of land and that she was a buyer in good faith because she merely
relied on TCT No. T-25334. The title states that the spouses Johnson are
Joy Trainings representatives.
She also argues that it is a basic principle that a party dealing with a
registered land need not go beyond the certificate of title to

determine the condition of the property. In fact, the resolution and the
certification are mere reiterations of the spouses Johnsons authority in
the title to sell the real properties. She further claims that the resolution
and the certification are not even necessary to clothe the spouses
Johnson with the authority to sell the disputed properties. Furthermore,
the contract of agency was subsisting at the time of sale because
Section 108 of Presidential Decree No. (PD) 1529 requires that the
revocation of authority must be approved by a court of competent
jurisdiction and no revocation was reflected in the certificate of title.25
The Case for the Respondent
In its Comment26 and Memorandum,27 Joy Training takes the opposite
view that the RTC has jurisdiction over the case. It posits that the action
is essentially for recovery of property and is therefore a case
cognizable by the RTC. Furthermore, Sally is estopped from questioning
the RTCs jurisdiction because she seeks to reinstate the RTC ruling in
the present case.
Joy Training maintains that it did not authorize the spouses Johnson to
sell its real properties. TCT No. T-25334 does not specifically grant the
authority to sell the parcel of land to the spouses Johnson. It further
asserts that the resolution and the certification should not be given any
probative value because they were not admitted in evidence by the
RTC. It argues that the resolution is void for failure to comply with the
voting requirements under Section 40 of the Corporation Code. It also
posits that the certification is void because it lacks material particulars.
The Issues
The case comes to us with the following issues:

1) Whether or not the RTC has jurisdiction over the present case;
and
2) Whether or not there was a contract of agency to sell the
real properties between Joy Training and the spouses Johnson.
3) As a consequence of the second issue, whether or not there
was a valid contract of sale of the real properties between Joy
Training and the spouses Yoshizaki.
Our Ruling
We find the petition unmeritorious.
The RTC has jurisdiction over disputes concerning the application of
the Civil Code
Jurisdiction over the subject matter is the power to hear and
determine cases of the general class to which the proceedings before
a court belong.28 It is conferred by law. The allegations in the
complaint and the status or relationship of the parties determine which
court has jurisdiction over the nature of an action.29 The same test
applies in ascertaining whether a case involves an intra-corporate
controversy.30
The CA correctly ruled that the RTC has jurisdiction over the present
case. Joy Training seeks to nullify the sale of the real properties on the
ground that there was no contract of agency between Joy Training
and the spouses Johnson. This was beyond the ambit of the SECs
original and exclusive jurisdiction prior to the enactment of Republic
Act No. 8799 which only took effect on August 3, 2000. The
determination of the existence of a contract of agency and the
validity of a contract of sale requires the application of the relevant

provisions of the Civil Code. It is a well-settled rule that "disputes

concerning the application of the Civil Code are properly cognizable
by courts of general jurisdiction."31 Indeed, no special skill requiring the
SECs technical expertise is necessary for the disposition of this issue
and of this case.

1874 of the Civil Code provides that the contract of agency must be
written for the validity of the sale of a piece of land or any interest
therein. Otherwise, the sale shall be void. A related provision, Article
1878 of the Civil Code, states that special powers of attorney are
necessary to convey real rights over immovable properties.

The Supreme Court may review questions of fact in a petition for

review on certiorari when the findings of fact by the lower courts are
conflicting

The special power of attorney mandated by law must be one that

expressly mentions a sale or that includes a sale as a necessary
ingredient of the authorized act. We unequivocably declared in
Cosmic Lumber Corporation v. Court of Appeals34 that a special
power of attorneymust express the powers of the agent in clear and
unmistakable language for the principal to confer the right upon an
agent to sell real estate. When there is any reasonable doubt that the
language so used conveys such power, no such construction shall be
given the document. The purpose of the law in requiring a special
power of attorney in the disposition of immovable property is to
protect the interest of an unsuspecting owner from being prejudiced
by the unwarranted act of another and to caution the buyer to assure
himself of the specific authorization of the putative agent.35

We are aware that the issues at hand require us to review the pieces
of evidence presented by the parties before the lower courts. As a
general rule, a petition for review on certiorari precludes this Court
from entertaining factual issues; we are not duty-bound to analyze
again and weigh the evidence introduced in and considered by the
lower courts. However, the present case falls under the recognized
exception that a review of the facts is warranted when the findings of
the lower courts are conflicting.32 Accordingly, we will examine the
relevant pieces of evidence presented to the lower court.
There is no contract of agency between Joy Training and the spouses
Johnson to sell the parcel of land with its improvements
Article 1868 of the Civil Code defines a contract of agency as a
contract whereby a person "binds himself to render some service or to
do something in representation or on behalf of another, with the
consent or authority of the latter." It may be express, or implied from
the acts 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.
As a general rule, a contract of agency may be oral. However, it must
be written when the law requires a specific form.33 Specifically, Article

In the present case, Sally presents three pieces of evidence which

allegedly prove that Joy Training specially authorized the spouses
Johnson to sell the real properties: (1) TCT No. T-25334, (2) the
resolution, (3) and the certification. We quote the pertinent portions of
these documents for a thorough examination of Sallys claim. TCT No.
T-25334, entered in the Registry of Deeds on March 5, 1998, states:
A parcel of land x x x is registered in accordance with the provisions of
the Property Registration Decree in the name of JOY TRAINING CENTER
OF AURORA, INC., Rep. by Sps. RICHARD A. JOHNSON and LINDA S.
JOHNSON, both of legal age, U.S. Citizen, and residents of P.O. Box
3246, Shawnee, Ks 66203, U.S.A.36 (emphasis ours)

On the other hand, the fifth paragraph of the certification provides:

Further, Richard A. and Linda J. Johnson were given FULL AUTHORITY
for ALL SIGNATORY purposes for the corporation on ANY and all
matters and decisions regarding the property and ministry here. They
will follow guidelines set forth according to their appointment and
ministerial and missionary training and in that, they will formulate and
come up with by-laws which will address and serve as governing
papers over the center and corporation. They are to issue monthly and
quarterly statements to all members of the corporation.37 (emphasis
ours)
The resolution states:
We, the undersigned Board of Trustees (in majority) have authorized
the sale of land and building owned by spouses Richard A. and Linda
J. Johnson (as described in the title SN No. 5102156 filed with the
Province of Aurora last 5th day of March, 1998. These proceeds are
going to pay outstanding loans against the project and the dissolution
of the corporation shall follow the sale. This is a religious, non-profit
corporation and no profits or stocks are issued.38 (emphasis ours)
The above documents do not convince us of the existence of the
contract of agency to sell the real properties. TCT No. T-25334 merely
states that Joy Training is represented by the spouses Johnson. The title
does not explicitly confer to the spouses Johnson the authority to sell
the parcel of land and the building thereon. Moreover, the phrase
"Rep. by Sps. RICHARD A. JOHNSON and LINDA S. JOHNSON"39 only
means that the spouses Johnson represented Joy Training in land
registration.
The lower courts should not have relied on the resolution and the
certification in resolving the case.1wphi1 The spouses Yoshizaki did

not produce the original documents during trial. They also failed to
show that the production of pieces of secondary evidence falls under
the exceptions enumerated in Section 3, Rule 130 of the Rules of
Court.40 Thus, the general rule that no evidence shall be admissible
other than the original document itself when the subject of inquiry is
the contents of a document applies.41
Nonetheless, if only to erase doubts on the issues surrounding this case,
we declare that even if we consider the photocopied resolution and
certification, this Court will still arrive at the same conclusion.
The resolution which purportedly grants the spouses Johnson a special
power of attorney is negated by the phrase "land and building owned
by spouses Richard A. and Linda J. Johnson."42 Even if we disregard
such phrase, the resolution must be given scant consideration. We
adhere to the CAs position that the basis for determining the board of
trustees composition is the trustees as fixed in the articles of
incorporation and not the actual members of the board. The second
paragraph of Section 2543 of the Corporation Code expressly provides
that a majority of the number of trustees as fixed in the articles of
incorporation shall constitute a quorum for the transaction of
corporate business.
Moreover, the certification is a mere general power of attorney which
comprises all of Joy Trainings business.44 Article 1877 of the Civil Code
clearly states that "an agency couched in general terms comprises
only acts of administration, even if the principal should state that he
withholds no power or that the agent may execute such acts as he
may consider appropriate, or even though the agency should
authorize a general and unlimited management."45
The contract of sale is unenforceable

Necessarily, the absence of a contract of agency renders the

contract of sale unenforceable;46 Joy Training effectively did not enter
into a valid contract of sale with the spouses Yoshizaki. Sally cannot
also claim that she was a buyer in good faith. She misapprehended
the rule that persons dealing with a registered land have the legal right
to rely on the face of the title and to dispense with the need to inquire
further, except when the party concerned has actual knowledge of
facts and circumstances that would impel a reasonably cautious man
to make such inquiry.47 This rule applies when the ownership of a
parcel of land is disputed and not when the fact of agency is
contested.
At this point, we reiterate the established principle that persons dealing
with an agent must ascertain not only the fact of agency, but also the
nature and extent of the agents authority.48 A third person with whom
the agent wishes to contract on behalf of the principal may require
the presentation of the power of attorney, or the instructions as
regards the agency.49 The basis for agency is representation and a
person dealing with an agent is put upon inquiry and must discover on
his own peril the authority of the agent.50 Thus, Sally bought the real
properties at her own risk; she bears the risk of injury occasioned by her
transaction with the spouses Johnson.
WHEREFORE, premises considered, the assailed Decision dated
February 14, 2006 and Resolution dated October 3, 2006 of the Court
of Appeals are hereby AFFIRMED and the petition is hereby DENIED for
lack of merit.
SO ORDERED.

G.R. No. 163928

January 21, 2015

MANUEL JUSAYAN, ALFREDO JUSAYAN, AND MICHAEL JUSAYAN

Petitioners,
vs.
JORGE SOMBILLA, Respondent.
DECISION
BERSAMIN, J.:
The Court resolves whether a lease of agricultural land between the
respondent and the predecessor of the petitioners was a civil law
lease or an agricultural lease. The resolution is determinative of
whether or not the Regional Trial Court (RTC) had original exclusive
jurisdiction over the action commenced by the predecessor of the
petitioners against the respondent. The Case
Under review on certiorari is the decision promulgated on October 20,
2003,1 whereby the Court of Appeals (CA) reversed the judgment in
favor of the petitioners rendered on April 13, 1999 in CAR Case No.
17117 entitled Timoteo Jusayan, Manuel Jusayan, Alfredo Jusayan and
Michael Jusayan v. Jorge Sombillaby the RTC, Branch 30, in Iloilo City.2
Antecedents
Wilson Jesena (Wilson) owned four parcels of land situated in New
Lucena, Iloilo. On June 20, 1970, Wilson entered into an agreement
with respondent Jorge Sombilla (Jorge),3 wherein Wilson designated
Jorge as his agent to supervise the tilling and farming of his riceland in

crop year 1970-1971. On August 20, 1971, before the expiration of the
agreement, Wilson sold the four parcels of land to Timoteo Jusayan
(Timoteo).4 Jorge and Timoteo verbally agreed that Jorge would
retain possession of the parcels of land and would deliver 110 cavans
of palay annually to Timoteo without need for accounting of the
cultivation expenses provided that Jorge would pay the irrigation fees.
From 1971 to 1983, Timoteo and Jorge followed the arrangement. In
1975, the parcels of land were transferred in the names of Timoteos
sons, namely; Manuel, Alfredo and Michael (petitioners). In 1984,
Timoteo sent several letters to Jorge terminating his administration and
demanding the return of the possession of the parcels of land.5

In the judgment promulgated on October 20, 2003,8 the CA reversed

the RTC and dismissed the case, declaring that the contractual
relationship between the parties was one of agricultural tenancy; and
that the demand of Timoteo for the delivery of his share in the harvest
and the payment of irrigation fees constituted an agrarian dispute that
was outside the jurisdiction of the RTC, and well within the exclusive
jurisdiction of the Department of Agriculture (DAR) pursuant to Section
3(d) of Republic Act No. 6657 (Comprehensive Agrarian Reform Law of
1988).

Due to the failure of Jorge to render accounting and to return the

possession of the parcels of land despite demands, Timoteo filed on
June 30, 1986 a complaint for recovery of possession and accounting
against Jorge in the RTC (CAR Case No. 17117). Following Timoteos
death on October 4, 1991, the petitioners substituted him as the
plaintiffs.

The petitioners now appeal upon the following issues, namely:

In his answer,6 Jorge asserted that he enjoyed security of tenure as the

agricultural lessee of Timoteo; and that he could not be dispossessed
of his landholding without valid cause.
Ruling of the RTC
In its decision rendered on April 13, 1999,7 the RTC upheld the
contractual relationship of agency between Timoteo and Jorge; and
ordered Jorge to deliver the possession of the parcels of land to the
petitioners.
Judgment of the CA
Jorge appealed to the CA.

Issues

a.) Whether or not the relationship between the petitioners and

respondent is that of agency or agricultural leasehold; and
b.) Whether or not RTC, Branch 30, Iloilo City as Regional Trial
Court and Court of Agrarian Relations, had jurisdiction over the
herein case.9
Ruling of the Court
The petition for review lacks merit.
To properly resolve whether or not the relationship between Timoteo
and Jorge was that of an agency or a tenancy, an analysis of the
concepts of agency and tenancy is in order.
In agency, the agent binds himself to render some service or to do
something in representation or on behalf of the principal, with the
consent or authority of the latter.10 The basis of the civil law
relationship of agency is representation,11 the elements of which are,

namely: (a) the relationship is established by the parties consent,

express or implied; (b) the object is the execution of a juridical act in
relation to a third person; (c) the agent acts as representative and not
for himself; and (d) the agent acts within the scope of his authority.12
Whether or not an agency has been created is determined by the
fact that one is representing and acting for another.13 The law does
not presume agency; hence, proving its existence, nature and extent
is incumbent upon the person alleging it.14
The claim of Timoteo that Jorge was his agent contradicted the verbal
agreement he had fashioned with Jorge. By assenting to Jorges
possession of the land sans accounting of the cultivation expenses and
actual produce of the land provided that Jorge annually delivered to
him 110 cavans of palay and paid the irrigation fees belied the very
nature of agency, which was representation. The verbal agreement
between Timoteo and Jorge left all matters of agricultural production
to the sole discretion of Jorge and practically divested Timoteo of the
right to exercise his authority over the acts to be performed by Jorge.
While inpossession of the land, therefore, Jorge was acting for himself
instead offor Timoteo. Unlike Jorge, Timoteo did not benefit whenever
the production increased, and did not suffer whenever the production
decreased. Timoteos interest was limited to the delivery of the 110
cavans of palay annually without any concern about how the
cultivation could be improved in order to yield more produce.
On the other hand, to prove the tenancy relationship, Jorge presented
handwritten receipts15 indicating that the sacks of palay delivered to
and received by one Corazon Jusayan represented payment of
rental. In this regard, rental was the legal term for the consideration of
the lease.16 Consequently, the receipts substantially proved that the
contractual relationship between Jorge and Timoteo was a lease.

Yet, the lease of an agricultural land can be either a civil law or an

agricultural lease.1wphi1 In the civil law lease, one of the parties
binds himself to give to another the enjoyment or use ofa thing for a
price certain, and for a period that may be definite or indefinite.17 In
the agricultural lease, also termed as a lease hold tenancy, the
physical possession of the land devoted to agriculture is given by its
owner or legal possessor (landholder) to another (tenant) for the
purpose of production through labor of the latter and of the members
of his immediate farm household, in consideration of which the latter
agrees to share the harvest with the landholder, or to pay a price
certain or ascertainable, either in produce or in money, or in both.18
Specifically, in Gabriel v. Pangilinan,19 this Court differentiated
between a leasehold tenancy and a civil law lease in the following
manner, namely: (1) the subject matter of a leasehold tenancy is
limited to agricultural land, but that of a civil law lease may be rural or
urban property; (2) as to attention and cultivation, the law requires the
leasehold tenant to personally attend to and cultivate the agricultural
land; the civil law lessee need not personally cultivate or work the
thing leased; (3) as to purpose, the landholding in leasehold tenancy is
devoted to agriculture; in civil law lease, the purpose may be for any
other lawful pursuits; and(4) as to the law that governs, the civil law
lease is governed by the Civil Code, but the leasehold tenancy is
governed by special laws.
The sharing of the harvest in proportion to the respective contributions
of the landholder and tenant, otherwise called share tenancy,20 was
abolished on August 8, 1963 under Republic Act No. 3844. To date, the
only permissible system of agricultural tenancy is leasehold tenancy,21
a relationship wherein a fixed consideration is paid instead of
proportionately sharing the harvest as in share tenancy.
In Teodoro v. Macaraeg,22 this Court has synthesized the elements of
agricultural tenancy to wit: (1) the object of the contract or the

relationship is an agricultural land that is leased or rented for the

purpose of agricultural production; (2) the size of the landholding is
such that it is susceptible of personal cultivation by a single person with
the assistance of the members of his immediate farm household; (3)
the tenant-lessee must actually and personally till, cultivate or operate
the land, solely or with the aid of labor from his immediate farm
household; and (4) the landlord-lessor, who is either the lawful owner or
the legal possessor of the land, leases the same to the tenant-lessee
for a price certain or ascertainable either in an amount of money or
produce.
It can be gleaned that in both civil law lease of an agricultural land
and agricultural lease, the lessor gives to the lessee the use and
possession of the land for a price certain. Although the purpose of the
civil law lease and the agricultural lease may be agricultural
cultivation and production, the distinctive attribute that sets a civil law
lease apart from an agricultural lease is the personal cultivation by the
lessee. An agricultural lessee cultivates by himself and with the aid of
those of his immediate farm household. Conversely, even when the
lessee is in possession of the leased agricultural land and paying a
consideration for it but is not personally cultivating the land, he or she is
a civil law lessee.
The only issue remaining to be resolved is whether or not Jorge
personally cultivated the leased agricultural land.
Cultivation is not limited to the plowing and harrowing of the land, but
includes the various phases of farm labor such as the maintenance,
repair and weeding of dikes, paddies and irrigation canals in the
landholding. Moreover, it covers attending to the care of the growing
plants,23 and grown plants like fruit trees that require watering,
fertilizing, uprooting weeds, turning the soil, fumigating to eliminate
plant pests24 and all other activities designed to promote the growth

and care of the plants or trees and husbanding the earth, by general
industry, so that it may bring forth more products or fruits.25 In Tarona v.
Court of Appeals,26 this Court ruled that a tenant is not required to be
physically present in the land at all hours of the day and night
provided that he lives close enough to the land to be cultivated to
make it physically possible for him to cultivate it with some degree of
constancy.
Nor was there any question that the parcels of agricultural land with a
total area of 7.9 hectares involved herein were susceptible of
cultivation by a single person with the help of the members of his
immediate farm household. As the Court has already observed, an
agricultural land of an area of four hectares,27 or even of an area as
large as 17 hectares,28 could be personally cultivated by a tenant by
himself or with help of the members of his farm household.
It is elementary that he who alleges the affirmative of the issue has the
burden of proof.29 Hence, Jorge, as the one claiming to be an
agricultural tenant, had to prove all the requisites of his agricultural
tenancy by substantial evidence.30 In that regard, his knowledge of
and familiarity with the landholding, its production and the instances
when the landholding was struck by drought definitely established that
he personally cultivated the land.31 His ability to farm the seven
hectares of land despite his regular employment as an Agricultural
Technician at the Municipal Agriculture Office32 was not physically
impossible for him to accomplish considering that his daughter, a
member of his immediate farm household, was cultivating one of the
parcels of the land.33 Indeed, the law did not prohibit him as the
agricultural lessee who generally worked the land himself or with the
aid of member of his immediate household from availing himself
occasionally or temporarily of the help of others in specific jobs.34 In
short, the claim of the petitioners that the employment of Jorge as an

Agricultural Technician at the Municipal Agriculture Office disqualified

him as a tenant lacked factual or legal basis.

Therefore, the RTC still had jurisdiction over the dispute at the time the
complaint was filed in the RTC on June 30, 1986.

Section 7 of Republic Act No. 3844 provides that once there is an

agricultural tenancy, the agricultural tenants right to security of tenure
is recognized and protected. The landowner cannot eject the
agricultural tenant from the land unless authorized by the proper court
for causes provided by law. Section 36 of Republic Act No. 3844, as
amended by Republic Act No. 6389, enumerates the several grounds
for the valid dispossession of the tenant.35 It is underscored, however,
that none of such grounds for valid dispossession of landholding was
attendant in Jorges case.

WHEREFORE, the Court GRANTS the petition for review on certiorari by

PARTIALLY AFFIRMING the decision of the Court of Appeals to the
extent that it upheld the tenancy relationship of the parties; DISMISSES
the complaint for recovery of possession and accounting; and ORDERS
the petitioners to pay the costs of suit.

Although the CA has correctly categorized Jorges case as an

agrarian dispute, it ruled that the RTC lacked jurisdiction over the case
based on Section 50 of Republic Act No. 6657, which vested in the
Department of Agrarian Reform (DAR) the "primary jurisdiction to
determine and adjudicate agrarian reform matters" and the "exclusive
original jurisdiction over all matters involving the implementation of
agrarian reform" except disputes falling under the exclusive jurisdiction
of the Department of Agriculture and the Department of Environment
and Natural Resources.
We hold that the CA gravely erred. The rule is settled that the
jurisdiction of a court is determined by the statute in force at the time
of the commencement of an action.36 In 1980, upon the passage of
Batas Pambansa Blg. 129 (Judiciary Reorganization Act), the Courts of
Agrarian Relations were integrated into the Regional Trial Courts and
the jurisdiction of the Courts of Agrarian Relations was vested in the
Regional Trial Courts.37 It was only on August 29, 1987, when Executive
Order No. 229 took effect, that the general jurisdiction of the Regional
Trial Courts to try agrarian reform matters was transferred to the DAR.

The parties are ordered to comply with their undertakings as

agricultural lessor and agricultural lessee.
SO ORDERED.
LUCAS P. BERSAMIN
Associate Justice