Professional Documents
Culture Documents
YNARES-SANTIAGO, J.,
Chairperson,
- versus - AUSTRIA-MARTINEZ,
CALLEJO, SR.,
CHICO-NAZARIO, and
NACHURA, JJ.
DECISION
CHICO-NAZARIO, J.:
Before Us is a petition for review by certiorari assailing the Decision[1] of the Court of Appeals dated 10
August 2004 and its Resolution[2] dated 17 March 2005 in CA-G.R. SP No. 71397 entitled, Eurotech
Industrial Technologies, Inc. v. Hon. Antonio T. Echavez. The assailed Decision and Resolution affirmed
the Order[3] dated 29 January 2002 rendered by Judge Antonio T. Echavez ordering the dropping of
respondent EDWIN Cuizon (EDWIN) as a party defendant in Civil Case No. CEB-19672.
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:
On 8 January 1997, the trial court granted petitioners prayer for the issuance of writ of
preliminary attachment.[13]
On 25 June 1997, respondent EDWIN filed his Answer [14] wherein he admitted petitioners
allegations with respect to the sale transactions entered into by Impact Systems and petitioner between
January and April 1995.[15] He, however, disputed the total amount of Impact Systems indebtedness to
petitioner which, according to him, amounted to only P220,000.00.[16]
By way of special and affirmative defenses, respondent EDWIN alleged that he is not a real party
in interest in this case. According to him, he was acting as mere agent of his principal, which was the
Impact Systems, in his transaction with petitioner and the latter was very much aware of this fact. In
support of this argument, petitioner points to paragraphs 1.2 and 1.3 of petitioners Complaint stating
1.2. Defendant Erwin H. Cuizon, is of legal age, married, a resident of Cebu City. He is
the proprietor of a single proprietorship business known as Impact Systems Sales (Impact
Systems for brevity), with office located at 46-A del Rosario Street, Cebu City, where he
may be served summons and other processes of the Honorable Court.
On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default with Motion
for Summary Judgment. The trial court granted petitioners motion to declare respondent ERWIN in
default for his failure to answer within the prescribed period despite the opportunity granted [18] but it
denied petitioners motion for summary judgment in its Order of 31 August 2001 and scheduled the pre-
trial of the case on 16 October 2001.[19] However, the conduct of the pre-trial conference was deferred
pending the resolution by the trial court of the special and affirmative defenses raised by respondent
EDWIN.[20]
After the filing of respondent EDWINs Memorandum [21] in support of his special and affirmative
defenses and petitioners opposition[22] thereto, the trial court rendered its assailed Order dated 29 January
2002 dropping respondent EDWIN as a party defendant in this case. According to the trial court
In view of the Foregoing, the Court directs that defendant Edwin B. Cuizon be
dropped as party defendant.[23]
Aggrieved by the adverse ruling of the trial court, petitioner brought the matter to the Court of Appeals
which, however, affirmed the 29 January 2002 Order of the court a quo. The dispositive portion of the
now assailed Decision of the Court of Appeals states:
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:
To support its argument, petitioner points to Article 1897 of the New Civil Code which states:
Art. 1897. The agent who acts as such is not personally liable to the party with whom he
contracts, unless he expressly binds himself or exceeds the limits of his authority
without giving such party sufficient notice of his powers.
Petitioner contends that the Court of Appeals failed to appreciate the effect of ERWINs act of collecting
the receivables from the Toledo Power Corporation notwithstanding the existence of the Deed of
Assignment signed by EDWIN on behalf of Impact Systems. While said collection did not revoke the
agency relations of respondents, petitioner insists that ERWINs action repudiated EDWINs power to sign
the Deed of Assignment. As EDWIN did not sufficiently notify it of the extent of his powers as an agent,
petitioner claims that he should be made personally liable for the obligations of his principal. [26]
Petitioner also contends that it fell victim to the fraudulent scheme of respondents who induced it into
selling the one unit of sludge pump to Impact Systems and signing the Deed of Assignment. Petitioner
directs the attention of this Court to the fact that respondents are bound not only by their principal and
agent relationship but are in fact full-blooded brothers whose successive contravening acts bore the
obvious signs of conspiracy to defraud petitioner.[27]
In his Comment,[28] respondent EDWIN again posits the argument that he is not a real party in interest in
this case and it was proper for the trial court to have him dropped as a defendant. He insists that he was a
mere agent of Impact Systems which is owned by ERWIN and that his status as such is known even to
petitioner as it is alleged in the Complaint that he is being sued in his capacity as the sales manager of the
said business venture. Likewise, respondent EDWIN points to the Deed of Assignment which clearly
states that he was acting as a representative of Impact Systems in said transaction.
The elements of the contract of agency are: (1) consent, express or implied, of the parties to establish the
relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent acts
as a representative and not for himself; (4) the agent acts within the scope of his authority. [34]
In this case, the parties do not dispute the existence of the agency relationship between respondents
ERWIN as principal and EDWIN as agent. The only cause of the present dispute is whether respondent
EDWIN exceeded his authority when he signed the Deed of Assignment thereby binding himself
personally to pay the obligations to petitioner. Petitioner firmly believes that respondent EDWIN acted
beyond the authority granted by his principal and he should therefore bear the effect of his deed pursuant
to Article 1897 of the New Civil Code.
We disagree.
Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not personally liable to the
party with whom he contracts. The same provision, however, presents two instances when an agent
becomes personally liable to a third person. The first is when he expressly binds himself to the obligation
and the second is when he exceeds his authority. In the last instance, the agent can be held liable if he
does not give the third party sufficient notice of his powers. We hold that respondent EDWIN does not
fall within any of the exceptions contained in this provision.
The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales manager of
Impact Systems. As discussed elsewhere, the position of manager is unique in that it presupposes the
grant of broad powers with which to conduct the business of the principal, thus:
The powers of an agent are particularly broad in the case of one acting as a
general agent or manager; such a position presupposes a degree of confidence reposed
and investiture with liberal powers for the exercise of judgment and discretion in
transactions and concerns which are incidental or appurtenant to the business entrusted to
his care and management. In the absence of an agreement to the contrary, a managing
agent may enter into any contracts that he deems reasonably necessary or requisite for the
protection of the interests of his principal entrusted to his management. x x x.[35]
Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within his authority
when he signed the Deed of Assignment. To recall, petitioner refused to deliver the one unit of sludge
pump unless it received, in full, the payment for Impact Systems indebtedness. [36] We may very well
assume that Impact Systems desperately needed the sludge pump for its business since after it paid the
amount of fifty thousand pesos (P50,000.00) as down payment on 3 March 1995,[37] it still persisted in
negotiating with petitioner which culminated in the execution of the Deed of Assignment of its
receivables from Toledo Power Company on 28 June 1995. [38] The significant amount of time spent on
the negotiation for the sale of the sludge pump underscores Impact Systems perseverance to get hold of
the said equipment. There is, therefore, no doubt in our mind that respondent EDWINs participation in
the Deed of Assignment was reasonably necessary or was required in order for him to protect the
business of his principal. Had he not acted in the way he did, the business of his principal would have
been adversely affected and he would have violated his fiduciary relation with his principal.
We likewise take note of the fact that in this case, petitioner is seeking to recover both from respondents
ERWIN, the principal, and EDWIN, the agent. It is well to state here that Article 1897 of the New Civil
Code upon which petitioner anchors its claim against respondent EDWIN does not hold that in case of
excess of authority, both the agent and the principal are liable to the other contracting party. [39] To
reiterate, the first part of Article 1897 declares that the principal is liable in cases when the agent acted
within the bounds of his authority. Under this, the agent is completely absolved of any liability. The
second part of the said provision presents the situations when the agent himself becomes liable to a third
party when he expressly binds himself or he exceeds the limits of his authority without giving notice of
his powers to the third person. However, it must be pointed out that in case of excess of authority by the
agent, like what petitioner claims exists here, the law does not say that a third person can recover from
both the principal and the agent.[40]
As we declare that respondent EDWIN acted within his authority as an agent, who did not acquire any
right nor incur any liability arising from the Deed of Assignment, it follows that he is not a real party in
interest who should be impleaded in this case. A real party in interest is one who stands to be benefited or
injured by the judgment in the suit, or the party entitled to the avails of the suit. [41] In this respect, we
sustain his exclusion as a defendant in the suit before the court a quo.
WHEREFORE, premises considered, the present petition is DENIED and the Decision dated 10 August
2004 and Resolution dated 17 March 2005 of the Court of Appeals in CA-G.R. SP No. 71397, affirming
the Order dated 29 January 2002 of the Regional Trial Court, Branch 8, Cebu City, is AFFIRMED.
Let the records of this case be remanded to the Regional Trial Court, Branch 8, Cebu City, for the
continuation of the proceedings against respondent ERWIN CUIZON.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, it is
hereby certified that the conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice
FACTS:
From January to April 1995, petitioner sold to Impact Systems various products allegedly amounting to
P91,338.00 pesos. Subsequently, respondents sought to buy from petitioner one unit of sludge pump
valued at P250,000.00 with respondents making a down payment of P50,000.00. When the sludge pump
arrived from the United Kingdom, petitioner refused to deliver the same to respondents without their
having fully settled their indebtedness to petitioner. Thus, on 28 June 1995, respondent EDWIN and
Alberto de Jesus, general manager of petitioner, executed a Deed of Assignment of receivables in favor of
petitioner. Impact systems is owed by ERWIN Cuizon.
Despite the existence of the Deed of Assignment, respondents proceeded to collect from Toledo Power
Company the amount of P365,135.29. Alarmed by this development, petitioner made several demands
upon respondents to pay their obligations. As a result, respondents were able to make partial payments to
petitioner. On 7 October 1996, petitioner's counsel sent respondents a final demand letter wherein it was
stated that as of 11 June 1996, respondents' total obligations stood at P295,000.00 excluding interests and
attorney's fees. Because of respondents' failure to abide by said final demand letter, petitioner instituted a
complaint for sum of money, damages, with application for preliminary attachment against herein
respondents
By way of special and affirmative defenses, respondent EDWIN alleged that he is not a real party in
interest in this case. According to him, he was acting as mere agent of his principal, which was the Impact
Systems, in his transaction with petitioner and the latter was very much aware of this fact.
ISSUE:
Whether the act of Edwin in signing the Deed of Assignment binds his principal Impact Systems
HELD:
Yes, the act of Edwin in signing the Deed of Assignment binds Impact Systems
The Supreme Court held that in a contract of agency, a person binds himself to render some service or to
do something in representation or on behalf of another with the latter's consent. Its purpose is to extend
the personality of the principal or the party for whom another acts and from whom he or she derives the
authority to act. It is said that the basis of agency is representation, that is, the agent acts for and on behalf
of the principal on matters within the scope of his authority and said acts have the same legal effect as if
they were personally executed by the principal.
In this case at hand, the parties do not dispute the existence of the agency relationship between
respondents ERWIN as principal and EDWIN as agent.
CASE NO. 1
Eurotech Industrial Technologies, Inc. v. Edwin Cuizon, Erwin Cuizon
G.R. No. 167552, April 23, 2007
FACTS
-Petitioner is engaged in the importation and distribution of various European industrial equipment for
customers in the Philippines.
-One of petitioners customers is Impact Systems Sales (ISS), a sole proprietorship owned by respondent
Erwin Cuizon (ERWIN) (NOTE: since its a sole proprietorship, the principal may be ERWIN or
ISS). EDWIN is the manager of ISS and was impleaded in the court in that capacity.
-January to April 1995: petitioner soled to ISS various products allegedly amounting to P91,338.
Respondents also sought to buy from petitioner on unit of sludge pump valued at P250K. Respondents
made a down payment of P50K for said sludge pump.
-Petitioner refused to deliver the sludge pump to respondents without the latter first having settled their
indebtedness.
-June 28, 1995, respondent EDWIN and Alberto the Jesus, general manager of petitioner, executed an
Assignment of receivables in favor of petitioner. The document stated that the assignor (EDWIN in his
capacity as manager of ISS) had oustanding receivables from Toledo Power Corp amounting to P365K
and that it conveyed said receivables to assignee (petitioner).
-Following the assignment, the sludge pump was delivered to respondents.
-Respondents, despite the Deed of Assignment, proceeded to collect from Toledo Power Corp the amount
of P365K (evidenced by a Check Voucher and an official receipt dated August 15, 1995). This was
done without the knowledge of petitioner.
-Petitioner made several demands upon respondents to pay their obligation. Respondents were only able to
make partial payments.
-June 11, 1996: Through counsel, petitioner sent a final demand letter stating that respondents obligations
stood at P295K excluding interests and attorneys fees.
-Petitioner filed a complaint for sum of money, damages, with application for preliminary attachment with
the RTC, Cebu City.
-The RTC granted the prayer for the issuance of writ of preliminary attachment.
-CONTENTION OF RESPONDENT: EDWIN alleged that he is not a real party of interest because he was
acting as a mere agent of his principal (ISS) and that in his transactions with the petitioner, the latter
was aware of that fact.
-CONTENTION OF PETITIONER: EDWIN exceeded his authority as an agent and should bear the effect
of the deed of assignment
-RTC: January 29, 2002 dropped respondent EDWIN as a party defendant on the ground that he was
acting on behalf of ISS in the June 28, 1995 transaction, that the principal (ISS) ratified the act and that
petitioner knew about said ratification. Petitioner cannot claim that the subject contract was entered
into by EDWIN in excess of his powers since ISS made a down payment of P50K two days later
(implied ratification).
-CA: Affirmed decision of RTC
ISSUES
- W/N respondent EDWIN was an agent acting on behalf of ISS, incurred no personal liability and should
be dropped as defendant from the instant case.
RULING
The petition is DENIED and the decision of the RTC is AFFIRMED.
EDWIN acted within his authority as an agent. He did not acquire or incur any liability arising from the
Deed of Assignment. Therefore, he is not a real party in interest in this case. The SC sustain his exclusion
from the suit.
(NOTE: the parties admit of the existence of the agency and all its elements: (1) consent of the parties to
establish the relationship, (2) object is the execution of a juridical act in relation to a third person, (3) the
agent acts as a representative and not for himself, (4) the agent acts within the scope of his authority)
In a contract of agency, an agent is not personally liable to the party with whom he contracts. However,
there are two instances when an agent is personally liable to a third person: (a) when he expressly binds
himself to the obligation or (b) when he exceeds his authority and he does not give the other party
sufficient notice of his powers. EDWIN does not fall within either instance. The Deed of Assignment
clearly stated that EDWIN signed thereon as the sales manager of ISS. The position of sales managers
presupposes the grant of broad powers necessary to conduct the business of the principal. In the absence
of a contrary agreement, a managing agent can enter into contracts that he deems reasonably necessary for
the protection of the interests of the principal entrusted to him.
EDWIn acted within his authority when he signed the Deed of Assignment. Petitioner had refused to
deliver the sludge pump until full payment. It can be assumed that ISS needed the pump for its business
since it paid the down payment of P50K and persisted in negotiating with the petitioner (culminating in
the execution of the Deed ofi Assignment). EDWINs participation in the deed was reasonably
necessary in order for him to protect the business of ISS. Had he not acted in the way he did, the
business of ISS would have been adversely affected.
It was also noted that petitioner sought to recover from both ERWINand EDWIN (agent). Under Art.
1897, NCC, a party may recover from the principal if the agent acted within his authority, or from the
agent in the instances mentioned above. However, the law does not provide that, in case of excess
authority by the agent, the third party can recover from both principal and agent.
CASE NO. 2
RALLOS v FELIX GO CHAN & SONS REALTY CORPORATION
G.R. No. L-24332, January 31, 1978
FACTS:
1. Concepcion and Gerundia Rallos were sisters and registered co-owners of a parcel of land.
2. In 1954, they executed an SPA in favor of their brother, Simeon Rallos, authorizing him to sell for
and in their behalf the said parcel of land.
3. On March 1955, Concepcion died.
4. On September 1955, Simeon sold the undivided shares of his sisters to Felix Go Chan and Sons
realty Corp.
5. The deed of sale was registered and the previous TCT was cancelled.
6. On May 1956, Ramon Rallos, as administrator of the Intestate Estate of Concepcion, filed a
complaint with the CFI of Cebu, praying:
a. that the sale be declared unenforceable, and said share be reconveyed to the deceased estate;
b. that the TCT issued in the name of Felix Go Chan and Sons Realty Corporation be cancelled;
and
c. that the plaintiff be indemnified by way of attorneys fees and payment of costs of suit.
7. The Trial Court- declared that the absolute sale is null and void, insofar as the pro-indiviso
share of Concepcion in the property, cancel the TCT issued to Felix Go Chan and Sons Realty
Corp., and sentencing the defendant Juan Borromeo, the administrator of the estate of Simeon
Rallos, to pay the plaintiff (estate of Concepcion).
8. Felix Go Chan and Sons Realty Corp, appealed to the CA, and resolved in favor of the
corporation.
9. Ramon Rallos filed MR but was denied, hence this petition.
ISSUE:
WON the sale of the undivided share of Concepcion Rallos valid when it was executed by her agent after
Concepcions (principal) death.
HELD:
NO. The sale is null and void.
Extinguishment of Agency:
The general rule in Article 1919 of the NCC is that death is one of the causes for the extinguishment of
agency. There being an integration of the personality of the principal into that of the agent, it is not
possible for the representation to continue once the death of either is established.
Agency:
The relationship of agency is whereby one party called the principal (mandate), authorizes another, called
the agent (mandatario), to act for and his behalf in transactions with 3 rd persons.
DISPOSITION:
in view of all the foregoing, we set aside the decision of respondent appellate court, and affirm en toto the
judgment rendered by then Hon. Amador E. Gomez of the CFI of Cebu, quoted in pages 2 and 3 of this
Opinion, with cost against respondent corporation at all instances. So ordered.
Republic of the Philippines
SUPREME COURT
Manila
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.
The following facts are not disputed. Concepcion and Gerundia both surnamed Rallos were sisters and
registered co-owners of a parcel of land known as Lot No. 5983 of the Cadastral Survey of Cebu covered
by Transfer Certificate of Title No. 11116 of the Registry of Cebu. On April 21, 1954, the sisters executed
a special power of attorney in favor of their brother, Simeon Rallos, authorizing him to sell for and in
their behalf lot 5983. On March 3, 1955, Concepcion Rallos died. On September 12, 1955, Simeon Rallos
sold the undivided shares of his sisters Concepcion and Gerundia in lot 5983 to Felix Go Chan & Sons
Realty Corporation for the sum of P10,686.90. The deed of sale was registered in the Registry of Deeds of
Cebu, TCT No. 11118 was cancelled, and a new transfer certificate of Title No. 12989 was issued in the
named of the vendee.
On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of Concepcion Rallos filed a
complaint docketed as Civil Case No. R-4530 of the Court of First Instance of Cebu, praying (1) that the
sale of the undivided share of the deceased Concepcion Rallos in lot 5983 be d unenforceable, and said
share be reconveyed to her estate; (2) that the Certificate of 'title issued in the name of Felix Go Chan &
Sons Realty Corporation be cancelled and another title be issued in the names of the corporation and the
"Intestate estate of Concepcion Rallos" in equal undivided and (3) that plaintiff be indemnified by way of
attorney's fees and payment of costs of suit. Named party defendants were Felix Go Chan & Sons Realty
Corporation, Simeon Rallos, and the Register of Deeds of Cebu, but subsequently, the latter was dropped
from the complaint. The complaint was amended twice; defendant Corporation's Answer contained a
crossclaim against its co-defendant, Simon Rallos while the latter filed third-party complaint against his
sister, Gerundia Rallos While the case was pending in the trial court, both Simon and his sister Gerundia
died and they were substituted by the respective administrators of their estates.
After trial the court a quo rendered judgment with the following dispositive portion:
A. On Plaintiffs Complaint
(1) Declaring the deed of sale, Exh. "C", null and void insofar as the one-
half pro-indiviso share of Concepcion Rallos in the property in question,
Lot 5983 of the Cadastral Survey of Cebu is concerned;
(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;
(5) Ordering both defendants to pay the costs jointly and severally.
B. On GO CHANTS Cross-Claim:
(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:
Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the rationale for the law is
found in the juridical basis of agency which is representation Them being an in. integration of the
personality of the principal integration that of the agent it is not possible for the representation to continue
to exist once the death of either is establish. Pothier agrees with Manresa that by reason of the nature of
agency, death is a necessary cause for its extinction. Laurent says that the juridical tie between the
principal and the agent is severed ipso jure upon the death of either without necessity for the heirs of the
fact to notify the agent of the fact of death of the former. 9
The same rule prevails at common law the death of the principal effects instantaneous and absolute
revocation of the authority of the agent unless the Power be coupled with an interest. 10 This is the
prevalent rule in American Jurisprudence where it is well-settled that a power without an interest confer.
red upon an agent is dissolved by the principal's death, and any attempted execution of the power
afterward is not binding on the heirs or representatives of the deceased. 11
3. Is the general rule provided for in Article 1919 that the death of the principal or of the agent
extinguishes the agency, subject to any exception, and if so, is the instant case within that exception? That
is the determinative point in issue in this litigation. It is the contention of respondent corporation which
was sustained by respondent court that notwithstanding the death of the principal Concepcion Rallos the
act of the attorney-in-fact, Simeon Rallos in selling the former's sham in the property is valid and
enforceable inasmuch as the corporation acted in good faith in buying the property in question.
Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule afore-mentioned.
ART. 1930. The agency shall remain in full force and effect even after the death of the
principal, if it has been constituted in the common interest of the latter and of the agent,
or in the interest of a third person who has accepted the stipulation in his favor.
ART. 1931. Anything done by the agent, without knowledge of the death of the principal
or of any other cause which extinguishes the agency, is valid and shall be fully effective
with respect to third persons who may have contracted with him in good. faith.
Article 1930 is not involved because admittedly the special power of attorney executed in favor of
Simeon Rallos was not coupled with an interest.
Article 1931 is the applicable law. Under this provision, an act done by the agent after the death of his
principal is valid and effective only under two conditions, viz: (1) that the agent acted without knowledge
of the death of the principal and (2) that the third person who contracted with the agent himself acted in
good faith. Good faith here means that the third person was not aware of the death of the principal at the
time he contracted with said agent. These two requisites must concur the absence of one will render the
act of the agent invalid and unenforceable.
In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the death of his
principal at the time he sold the latter's share in Lot No. 5983 to respondent corporation. The knowledge
of the death is clearly to be inferred from the pleadings filed by Simon Rallos before the trial
court. 12 That Simeon Rallos knew of the death of his sister Concepcion is also a finding of fact of the
court a quo 13 and of respondent appellate court when the latter stated that Simon Rallos 'must have
known of the death of his sister, and yet he proceeded with the sale of the lot in the name of both his
sisters Concepcion and Gerundia Rallos without informing appellant (the realty corporation) of the death
of the former. 14
On the basis of the established knowledge of Simon Rallos concerning the death of his principal
Concepcion Rallos, Article 1931 of the Civil Code is inapplicable. The law expressly requires for its
application lack of knowledge on the part of the agent of the death of his principal; it is not enough that
the third person acted in good faith. Thus in Buason & Reyes v. Panuyas, the Court applying Article 1738
of the old Civil rode now Art. 1931 of the new Civil Code sustained the validity , of a sale made after the
death of the principal because it was not shown that the agent knew of his principal's demise. 15 To the
same effect is the case of Herrera, et al., v. Luy Kim Guan, et al., 1961, where in the words of Justice
Jesus Barrera the Court stated:
... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs presented no
proof and there is no indication in the record, that the agent Luy Kim Guan was aware of
the death of his principal at the time he sold the property. The death 6f the principal does
not render the act of an agent unenforceable, where the latter had no knowledge of such
extinguishment of the agency. (1 SCRA 406, 412)
4. In sustaining the validity of the sale to respondent consideration the Court of Appeals reasoned out that
there is no provision in the Code which provides that whatever is done by an agent having knowledge of
the death of his principal is void even with respect to third persons who may have contracted with him in
good faith and without knowledge of the death of the principal. 16
We cannot see the merits of the foregoing argument as it ignores the existence of the general rule
enunciated in Article 1919 that the death of the principal extinguishes the agency. That being the general
rule it follows a fortiori that any act of an agent after the death of his principal is void ab initio unless the
same fags under the exception provided for in the aforementioned Articles 1930 and 1931. Article 1931,
being an exception to the general rule, is to be strictly construed, it is not to be given an interpretation or
application beyond the clear import of its terms for otherwise the courts will be involved in a process of
legislation outside of their judicial function.
5. Another argument advanced by respondent court is that the vendee acting in good faith relied on the
power of attorney which was duly registered on the original certificate of title recorded in the Register of
Deeds of the province of Cebu, that no notice of the death was aver annotated on said certificate of title
by the heirs of the principal and accordingly they must suffer the consequences of such omission. 17
To support such argument reference is made to a portion in Manresa's Commentaries which We quote:
If the agency has been granted for the purpose of contracting with certain persons, the
revocation must be made known to them. But if the agency is general iii nature, without
reference to particular person with whom the agent is to contract, it is sufficient that the
principal exercise due diligence to make the revocation of the agency publicity known.
In case of a general power which does not specify the persons to whom represents' on
should be made, it is the general opinion that all acts, executed with third persons who
contracted in good faith, Without knowledge of the revocation, are valid. In such case, the
principal may exercise his right against the agent, who, knowing of the revocation,
continued to assume a personality which he no longer had. (Manresa Vol. 11, pp. 561 and
575; pp. 15-16, rollo)
The above discourse however, treats of revocation by an act of the principal as a mode of terminating an
agency which is to be distinguished from revocation by operation of law such as death of the principal
which obtains in this case. On page six of this Opinion We stressed that by reason of the very nature of
the relationship between principal and agent, agency is extinguished ipso jure upon the death of either
principal or agent. Although a revocation of a power of attorney to be effective must be communicated to
the parties concerned, 18 yet a revocation by operation of law, such as by death of the principal is, as a
rule, instantaneously effective inasmuch as "by legal fiction the agent's exercise of authority is regarded
as an execution of the principal's continuing will. 19 With death, the principal's will ceases or is the of
authority is extinguished.
The Civil Code does not impose a duty on the heirs to notify the agent of the death of the principal What
the Code provides in Article 1932 is that, if the agent die his heirs must notify the principal thereof, and in
the meantime adopt such measures as the circumstances may demand in the interest of the latter. Hence,
the fact that no notice of the death of the principal was registered on the certificate of title of the property
in the Office of the Register of Deeds, is not fatal to the cause of the estate of the principal
6. Holding that the good faith of a third person in said with an agent affords the former sufficient
protection, respondent court drew a "parallel" between the instant case and that of an innocent purchaser
for value of a land, stating that if a person purchases a registered land from one who acquired it in bad
faith even to the extent of foregoing or falsifying the deed of sale in his favor the registered owner
has no recourse against such innocent purchaser for value but only against the forger. 20
To support the correctness of this respondent corporation, in its brief, cites the case of Blondeau, et al., v.
Nano and Vallejo, 61 Phil. 625. We quote from the brief:
In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630, one Vallejo was
a co-owner of lands with Agustin Nano. The latter had a power of attorney supposedly
executed by Vallejo Nano in his favor. Vallejo delivered to Nano his land titles. The
power was registered in the Office of the Register of Deeds. When the lawyer-husband of
Angela Blondeau went to that Office, he found all in order including the power of
attorney. But Vallejo denied having executed the power The lower court sustained Vallejo
and the plaintiff Blondeau appealed. Reversing the decision of the court a quo, the
Supreme Court, quoting the ruling in the case of Eliason v. Wilborn, 261 U.S. 457, held:
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:
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.
OSTRAND, J.:
This is an action brought by the plaintiff as the alleged natural daughter and sole heir of one Melecio
Severino, deceased, to compel the defendant Guillermo Severino to convey to her four parcels of land
described in the complaint, or in default thereof to pay her the sum of P800,000 in damages for
wrongfully causing said land to be registered in his own name. Felicitas Villanueva, in her capacity as
administratrix of the estate of Melecio Severino, has filed a complaint in intervention claiming in the
same relief as the original plaintiff, except in so far as she prays that the conveyance be made, or damages
paid, to the estate instead of to the plaintiff Fabiola Severino. The defendant answered both complaints
with a general denial.
The lower court rendered a judgment recognizing the plaintiff Fabiola Severino as the acknowledged
natural child of the said Melecio Severino and ordering the defendant to convey 428 hectares of the land
in question to the intervenor as administratrix of the estate of the said Melecio Severino, to deliver to her
the proceeds in his possession of a certain mortgage placed thereon by him and to pay the costs. From this
judgment only the defendant appeals.
The land described in the complaint forms one continuous tract and consists of lots Nos. 827, 828, 834,
and 874 of the cadaster of Silay, Province of Occidental Negros, which measure, respectively, 61 hectares,
74 ares, and 79 centiares; 76 hectares, 34 ares, and 79 centiares; 52 hectares, 86 ares, and 60 centiares and
608 hectares, 77 ares and 28 centiares, or a total of 799 hectares, 75 ares, and 46 centiares.
The evidence shows that Melecio Severino died on the 25th day of May, 1915; that some 428 hectares of
the land were recorded in the Mortgage Law Register in his name in the year 1901 by virtue of possessory
information proceedings instituted on the 9th day of May of that year by his brother Agapito Severino in
his behalf; that during the lifetime of Melecio Severino the land was worked by the defendant, Guillermo
Severino, his brother, as administrator for and on behalf of the said Melecio Severino; that after Melecio's
death, the defendant Guillermo Severino continued to occupy the land; that in 1916 a parcel survey was
made of the lands in the municipality of Silay, including the land here in question, and cadastral
proceedings were instituted for the registration of the lands titles within the surveyed area; that in the
cadastral proceedings the land here in question was described as four separate lots numbered as above
stated; that Roque Hofilea, as lawyer for Guillermo Severino, filed answers in behalf of the latter in said
proceedings claiming the lots mentioned as the property of his client; that no opposition was presented in
the proceedings to the claims of Guillermo Severino and the court therefore decreed the title in his favor,
in pursuance of which decree certificates of title were issued to him in the month of March, 1917.
It may be further observed that at the time of the cadastral proceedings the plaintiff Fabiola Severino was
a minor; that Guillermo Severino did not appear personally in the proceedings and did not there testify;
that the only testimony in support of his claims was that of his attorney Hofilea, who swore that he knew
the land and that he also knew that Guillermo Severino inherited the land from his father and that he, by
himself, and through his predecessors in interest, had possessed the land for thirty years.
1. The trial court erred in admitting the evidence that was offered by plaintiff in order to establish
the fact that said plaintiff was the legally acknowledged natural child of the deceased Melecio
Severino.
2. The trial court erred in finding that, under the evidence presented, plaintiff was the legally
acknowledged natural child of Melecio Severino.
3. The trial court erred in rejecting the evidence offered by defendant to establish the absence of
fraud on his part in securing title to the lands in Nacayao.
4. The trial court erred in concluding that the evidence adduced by plaintiff and intervenor
established that defendant was guilty of fraud in procuring title to the lands in question in his
name.
5. The trial court erred in declaring that the land that was formerly placed in the name of Melecio
Severino had an extent of either 434 or 428 hectares at the time of his death.
6. The trial court erred in declaring that the value of the land in litigation is P500 per hectare.
7. The trial court erred in granting the petition of the plaintiff for an attachment without first
giving the defendant an opportunity to be heard.
8. The trial court erred in ordering the conveyance of 428 hectares of land by defendant to the
administratrix.
9. The trial court erred in failing or refusing to make any finding as to the defendant's contention
that the petition for attachment was utterly devoid of any reasonable ground.
In regard to the first two assignments of error, we agree with the appellant that the trial court erred in
making a declaration in the present case as to the recognition of Fabiola Severino as the natural child of
Melecio Severino. We have held in the case of Briz vs. Briz and Remigio (43 Phil., 763), that "The
legitimate heirs or kin of a deceased person who would be prejudiced by a declaration that another person
is entitled to recognition as the natural child of such decedent, are necessary and indispensable parties to
any action in which a judgment declaring the right to recognition is sought." In the present action only the
widow, the alleged natural child, and one of the brothers of the deceased are parties; the other potential
heirs have not been included. But, inasmuch as the judgment appealed from is in favor of the intervenor
and not of the plaintiff, except to the extent of holding that the latter is a recognized natural child of the
deceased, this question is, from the view we take of the case, of no importance in its final disposition. We
may say, however, in this connection, that the point urged in appellant's brief that it does not appear
affirmatively from the evidence that, at the time of the conception of Fabiola, her mother was a single
woman, may be sufficiently disposed of by a reference to article 130 of the Civil Code and subsection 1
of section 334 of the Code of Civil Procedure which create the presumption that a child born out of
wedlock is natural rather than illegitimate. The question of the status of the plaintiff Fabiola Severino and
her right to share in the inheritance may, upon notice to all the interested parties, be determined in the
probate proceedings for the settlement of the estate of the deceased.
The fifth assignment of error relates to the finding of the trial court that the land belonging to Melecio
Severino had an area of 428 hectares. The appellant contends that the court should have found that there
were only 324 hectares inasmuch as one hundred hectares of the original area were given to Melecio's
brother Donato during the lifetime of the father Ramon Severino. As it appears that Ramon Severino died
in 1896 and that the possessory information proceedings, upon which the finding of the trial court as to
the area of the land is principally based, were not instituted until the year 1901, we are not disposed to
disturb the conclusions of the trial court on this point. Moreover, in the year 1913, the defendant
Guillermo Severino testified under oath, in the case of Montelibano vs. Severino, that the area of the land
owned by Melecio Severino and of which he (Guillermo) was the administrator, embraced an area of 424
hectares. The fact that Melecio Severino, in declaring the land for taxation in 1906, stated that the area
was only 324 hectares and 60 ares while entitled to some weight is not conclusive and is not sufficient to
overcome the positive statement of the defendant and the recitals in the record of the possessory
information proceedings.
The sixth assignment of error is also of minor importance in view of the fact that in the dispositive part of
the decision of the trial court, the only relief given is an order requiring the appellant to convey to the
administratrix the land in question, together with such parts of the proceeds of the mortgage thereon as
remain in his hands. We may say further that the court's estimate of the value of the land does not appear
unreasonable and that, upon the evidence before us, it will not be disturbed.
The seventh and within assignments of error relate to the ex parte granting by the trial court of a
preliminary attachment in the case and the refusal of the court to dissolve the same. We find no merit
whatever in these assignments and a detailed discussion of them is unnecessary.
The third, fourth, and eight assignments of error involve the vital points in the case, are inter-related and
may be conveniently considered together.
The defendant argues that the gist of the instant action is the alleged fraud on his part in causing the land
in question to be registered in his name; that the trial court therefore erred in rejecting his offer of
evidence to the effect that the land was owned in common by all the heirs of Ramon Severino and did not
belong to Melecio Severino exclusively; that such evidence, if admitted, would have shown that he did
not act with fraudulent intent in taking title to the land; that the trial court erred in holding him estopped
from denying Melecio's title; that more than a year having elapsed since the entry of the final decree
adjudicating the land to the defendant, said decree cannot now be reopened; that the ordering of the
defendant to convey the decreed land to the administratrix is, for all practical purposes, equivalent to the
reopening of the decree of registration; that under section 38 of the Land Registration Act the defendant
has an indefeasible title to the land; and that the question of ownership of the land being thus judicially
settled, the question as to the previous relations between the parties cannot now be inquired into.
Upon no point can the defendant's contentions be sustained. It may first be observed that this is not an
action under section 38 of the Land Registration Act to reopen or set aside a decree; it is an action in
personam against an agent to compel him to return, or retransfer, to the heirs or the estate of its principal,
the property committed to his custody as such agent, to execute the necessary documents of conveyance
to effect such retransfer or, in default thereof, to pay damages.
That the defendant came into the possession of the property here in question as the agent of the deceased
Melecio Severino in the administration of the property, cannot be successfully disputed. His testimony in
the case of Montelibano vs. Severino (civil case No. 902 of the Court of First Instance of Occidental
Negros and which forms a part of the evidence in the present case) is, in fact, conclusive in this respect.
He there stated under oath that from the year 1902 up to the time the testimony was given, in the year
1913, he had been continuously in charge and occupation of the land as the encargado or administrator of
Melecio Severino; that he had always known the land as the property of Melecio Severino; and that the
possession of the latter had been peaceful, continuous, and exclusive. In his answer filed in the same case,
the same defendant, through his attorney, disclaimed all personal interest in the land and averred that it
was wholly the property of his brother Melecio.
Neither is it disputed that the possession enjoyed by the defendant at the time of obtaining his decree was
of the same character as that held during the lifetime of his brother, except in so far as shortly before the
trial of the cadastral case the defendant had secured from his brothers and sisters a relinguishment in his
favor of such rights as they might have in the land.
The relations of an agent to his principal are fiduciary and it is an elementary and very old rule that in
regard to property forming the subject-matter of the agency, he is estopped from acquiring or asserting a
title adverse to that of the principal. His position is analogous to that of a trustee and he cannot
consistently, with the principles of good faith, be allowed to create in himself an interest in opposition to
that of his principal or cestui que trust. Upon this ground, and substantially in harmony with the principles
of the Civil Law (see sentence of the supreme court of Spain of May 1, 1900), the English Chancellors
held that in general whatever a trustee does for the advantage of the trust estate inures to the benefit of
the cestui que trust. (Greenlaw vs. King, 5 Jur., 18; Ex parte Burnell, 7 Jur., 116; Ex parte Hughes, 6 Ves.,
617; Ex parte James, 8 Ves., 337; Oliver vs. Court, 8 Price, 127.) The same principle has been
consistently adhered to in so many American cases and is so well established that exhaustive citations of
authorities are superfluous and we shall therefore limit ourselves to quoting a few of the numerous
judicial expressions upon the subject. The principle is well stated in the case of Gilbert vs. Hewetson (79
Minn., 326):
A receiver, trustee, attorney, agent, or any other person occupying fiduciary relations respecting
property or persons, is utterly disabled from acquiring for his own benefit the property committed
to his custody for management. This rule is entirely independent of the fact whether any fraud has
intervened. No fraud in fact need be shown, and no excuse will be heard from the trustee. It is to
avoid the necessity of any such inquiry that the rule takes so general a form. The rule stands on
the moral obligation to refrain from placing one's self in positions which ordinarily excite
conflicts between self-interest and integrity. It seeks to remove the temptation that might arise out
of such a relation to serve one's self-interest at the expense of one's integrity and duty to another,
by making it impossible to profit by yielding to temptation. It applies universally to all who come
within its principle.
In the case of Massie vs. Watts (6 Cranch, 148), the United States Supreme Court, speaking through Chief
Justice Marshall, said:
But Massie, the agent of Oneale, has entered and surveyed a portion of that land for himself and
obtained a patent for it in his own name. According to the clearest and best established principles
of equity, the agent who so acts becomes a trustee for his principal. He cannot hold the land under
an entry for himself otherwise than as trustee for his principal.
In the case of Felix vs. Patrick (145 U. S., 317), the United States Supreme Court, after examining the
authorities, said:
The substance of these authorities is that, wherever a person obtains the legal title to land by any
artifice or concealment, or by making use of facilities intended for the benefit of another, a court
of equity will impress upon the land so held by him a trust in favor of the party who is justly
entitled to them, and will order the trust executed by decreeing their conveyance to the party in
whose favor the trust was created. (Citing Bank of Metropolis vs. Guttschlick, 14 Pet., 19, 31;
Moses vs. Murgatroyd, 1 Johns. Ch., 119; Cumberland vs. Codrington, 3 Johns. Ch., 229, 261;
Neilson vs. Blight, 1 Johns. Cas., 205; Weston vs. Barker, 12 Johns., 276.)
The same doctrine has also been adopted in the Philippines. In the case of Uy Aloc vs. Cho Jan Ling (19
Phil., 202), the facts are stated by the court as follows:
From the facts proven at the trial it appears that a number of Chinese merchants raised a fund by
voluntary subscription with which they purchased a valuable tract of land and erected a large
building to be used as a sort of club house for the mutual benefit of the subscribers to the fund.
The subscribers organized themselves into an irregular association, which had no regular articles
of association, and was not incorporated or registered in the commercial registry or elsewhere.
The association not having any existence as a legal entity, it was agreed to have the title to the
property placed in the name of one of the members, the defendant, Cho Jan Ling, who on his part
accepted the trust, and agreed to hold the property as the agent of the members of the association.
After the club building was completed with the funds of the members of the association, Cho Jan
Ling collected some P25,000 in rents for which he failed and refused to account, and upon
proceedings being instituted to compel him to do so, he set up title in himself to the club property
as well as to the rents accruing therefrom, falsely alleging that he had bought the real estate and
constructed the building with his own funds, and denying the claims of the members of the
association that it was their funds which had been used for that purpose.
The decree of the court provided, among other things, for the conveyance of the club house and the land
on which it stood from the defendant, Cho Jan Ling, in whose name it was registered, to the members of
the association. In affirming the decree, this court said:
In the case at bar the legal title of the holder of the registered title is not questioned; it is admitted
that the members of the association voluntarily obtained the inscription in the name of Cho Jan
Ling, and that they had no right to have that inscription cancelled; they do not seek such
cancellation, and on the contrary they allege and prove that the duly registered legal title to the
property is in Cho Jan Ling, but they maintain, and we think that they rightly maintain, that he
holds it under an obligation, both express and implied, to deal with it exclusively for the benefit
of the members of the association, and subject to their will.
In the case of Camacho vs. Municipality of Baliuag (28 Phil., 466), the plaintiff, Camacho, took title to
the land in his own name, while acting as agent for the municipality. The court said:
There have been a number of cases before this court in which a title to real property was acquired
by a person in his own name, while acting under a fiduciary capacity, and who afterwards sought
to take advantage of the confidence reposed in him by claiming the ownership of the property for
himself. This court has invariably held such evidence competent as between the fiduciary and
the cestui que trust.
What judgment ought to be entered in this case? The court below simply absolved the defendant
from the complaint. The defendant municipality does not ask for a cancellation of the deed. On
the contrary, the deed is relied upon the supplement the oral evidence showing that the title to the
land is in the defendant. As we have indicated in Consunji vs. Tison, 15 Phil., 81, and Uy Aloc vs.
Cho Jan Ling, 19 Phil., 202, the proper procedure in such a case, so long as the rights of innocent
third persons have not intervened, is to compel a conveyance to the rightful owner. This ought
and can be done under the issues raised and the proof presented in the case at bar.
The case of Sy-Juco and Viardo vs. Sy-Juco (40 Phil., 634) is also in point.
As will be seen from the authorities quoted, and agent is not only estopped from denying his principal's
title to the property, but he is also disable from acquiring interests therein adverse to those of his principal
during the term of the agency. But the defendant argues that his title has become res adjudicata through
the decree of registration and cannot now be disturbed.
This contention may, at first sight, appear to possess some force, but on closer examination it proves
untenable. The decree of registration determined the legal title to the land as the date of the decree; as to
that there is no question. That, under section 38 of the Land Registration Act, this decree became
conclusive after one year from the date of the entry is not disputed and no one attempts to disturb the
decree or the proceedings upon which it is based; the plaintiff in intervention merely contends that in
equity the legal title so acquired inured to the benefit of the estate of Melecio Severino, the defendant's
principal and cestui que trust and asks that this superior equitable right be made effective by compelling
the defendant, as the holder of the legal title, to transfer it to the estate.
We have already shown that before the issuance of the decree of registration it was the undoubted duty of
the defendant to restore the property committed to his custody to his principal, or to the latter's estate, and
that the principal had a right of action in personam to enforce the performance of this duty and to compel
the defendant to execute the necessary conveyance to that effect. The only question remaining for
consideration is, therefore, whether the decree of registration extinguishing this personal right of action.
In Australia and New Zealand, under statutes in this respect similar to ours, courts of equity exercise
general jurisdiction in matters of fraud and error with reference to Torrens registered lands, and giving
attention to the special provisions of the Torrens acts, will issue such orders and direction to all the parties
to the proceedings as may seem just and proper under the circumstances. They may order parties to make
deeds of conveyance and if the order is disobeyed, they may cause proper conveyances to be made by a
Master in Chancery or Commissioner in accordance with the practice in equity (Hogg, Australian Torrens
System, p. 847).
In the Untied States courts have even gone so far in the exercise of their equity jurisdiction as to set aside
final decrees after the expiration of the statutory period of limitation for the reopening of such decrees
(Baart vs. Martin, 99 Minn., 197). But, considering that equity follows the law and that our statutes
expressly prohibit the reopening of a decree after one year from the date of its entry, this practice would
probably be out of question here, especially so as the ends of justice may be attained by other equally
effective, and less objectionable means.
Turning to our own Land Registration Act, we find no indication there of an intention to cut off, through
the issuance of a decree of registration, equitable rights or remedies such as those here in question. On the
contrary, section 70 of the Act provides:
Registered lands and ownership therein, shall in all respects be subject to the same burdens and
incidents attached by law to unregistered land. Nothing contained in this Act shall in any way be
construed to relieve registered land or the owners thereof from any rights incident to the relation
of husband and wife, or from liability to attachment on mesne process or levy on execution, or
from liability to any lien of any description established by law on land and the buildings thereon,
or the interest of the owner in such land or buildings, or to change the laws of descent, or the
rights of partition between coparceners, joint tenants and other cotenants, or the right to take the
same by eminent domain, or to relieve such land from liability to be appropriated in any lawful
manner for the payment of debts, or to change or affect in any other way any other rights or
liabilities created by law and applicable to unregistered land, except as otherwise expressly
provided in this Act or in the amendments hereof.
Section 102 of the Act, after providing for actions for damages in which the Insular Treasurer, as the
Custodian of the Assurance Fund is a party, contains the following proviso:
Provided, however, That nothing in this Act shall be construed to deprive the plaintiff
of any action which he may have against any person for such loss or damage or deprivation of
land or of any estate or interest therein without joining the Treasurer of the Philippine
Archipelago as a defendant therein.
That an action such as the present one is covered by this proviso can hardly admit of doubt. Such was also
the view taken by this court in the case of Medina Ong-Quingco vs. Imaz and Warner, Barnes & Co. (27
Phil., 314), in which the plaintiff was seeking to take advantage of his possession of a certificate of title to
deprive the defendant of land included in that certificate and sold to him by the former owner before the
land was registered. The court decided adversely to plaintiff and in so doing said:
As between them no question as to the indefeasibility of a Torrens title could arise. Such an action
could have been maintained at any time while the property remained in the hands of the
purchaser. The peculiar force of a Torrens title would have been brought into play only when the
purchaser had sold to an innocent third person for value the lands described in his
conveyance. . . . Generally speaking, as between the vendor and the purchaser the same rights and
remedies exist with reference to land registered under Act No. 496, as exist in relation to land not
so registered.
In Cabanos vs. Register of Deeds of Laguna and Obiana (40 Phil., 620), it was held that, while a
purchaser of land under a pacto de retro cannot institute a real action for the recovery thereof where the
vendor under said sale has caused such lands to be registered in his name without said vendee's consent,
yet he may have his personal action based on the contract of sale to compel the execution of an
unconditional deed for the said lands when the period for repurchase has passed.
Torrens titles being on judicial decrees there is, of course, a strong presumption in favor of their regularity
or validity, and in order to maintain an action such as the present the proof as to the fiduciary relation of
the parties and of the breach of trust must be clear and convincing. Such proof is, as we have seen, not
lacking in this case.
But once the relation and the breach of trust on the part of the fiduciary in thus established, there is no
reason, neither practical nor legal, why he should not be compelled to make such reparation as may lie
within his power for the injury caused by his wrong, and as long as the land stands registered in the name
of the party who is guilty of the breach of trust and no rights of innocent third parties are adversely
affected, there can be no reason why such reparation should not, in the proper case, take the form of a
conveyance or transfer of the title to the cestui que trust. No reasons of public policy demand that a
person guilty of fraud or breach of trust be permitted to use his certificate of title as a shield against the
consequences of his own wrong.
The judgment of the trial court is in accordance with the facts and the law. In order to prevent unnecessary
delay and further litigation it may, however, be well to attach some additional directions to its dipositive
clauses. It will be observed that lots Nos. 827, 828, and 834 of a total area of approximately 191 hectares,
lie wholly within the area to be conveyed to the plaintiff in intervention and these lots may, therefore, be
so conveyed without subdivision. The remaining 237 hectares to be conveyed lie within the western part
of lot No. 874 and before a conveyance of this portion can be effected a subdivision of that lot must be
made and a technical description of the portion to be conveyed, as well as of the remaining portion of the
lot, must be prepared. The subdivision shall be made by an authorized surveyor and in accordance with
the provisions of Circular No. 31 of the General Land Registration Office, and the subdivision and
technical descriptions shall be submitted to the Chief of that office for his approval. Within thirty days
after being notified of the approval of said subdivision and technical descriptions, the defendant
Guillermo Severino shall execute good and sufficient deed or deeds of conveyance in favor of the
administratrix of the estate of the deceased Melecio Severino for said lots Nos. 827, 828, 834, and the 237
hectares segregated from the western part of lot No. 874 and shall deliver to the register of deeds his
duplicate certificates of title for all of the four lots in order that said certificates may be cancelled and new
certificates issued. The cost of the subdivision and the fees of the register of deeds will be paid by the
plaintiff in intervention. It is so ordered
With these additional directions the judgment appealed from is affirmed, with the costs against the
appellant. The right of the plaintiff Fabiola Severino to establish in the probate proceedings of the estate
of Melecio Severino her status as his recognized natural child is reserved.
Araullo, C. J., Johnson, Street, Malcolm, Avancea, Villamor, Johns, and Romualdez, JJ., concur.
PADILLA, J.:
This case is a consolidation of two (2) petitions for review on certiorari of a decision 1 of the Court of
Appeals in CA-G.R. No. CV-04294, entitled "American Airlines, Inc. vs. Orient Air Services and Hotel
Representatives, Inc." which affirmed, with modification, the decision 2 of the Regional Trial Court of
Manila, Branch IV, which dismissed the complaint and granted therein defendant's counterclaim for
agent's overriding commission and damages.
The antecedent facts are as follows:
On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American Air), an air carrier
offering passenger and air cargo transportation in the Philippines, and Orient Air Services and Hotel
Representatives (hereinafter referred to as Orient Air), entered into a General Sales Agency Agreement
(hereinafter referred to as the Agreement), whereby the former authorized the latter to act as its exclusive
general sales agent within the Philippines for the sale of air passenger transportation. Pertinent provisions
of the agreement are reproduced, to wit:
WITNESSETH
In consideration of the mutual convenants herein contained, the parties hereto agree as follows:
1. Representation of American by Orient Air Services
Orient Air Services will act on American's behalf as its exclusive General Sales Agent within the
Philippines, including any United States military installation therein which are not serviced by an
Air Carrier Representation Office (ACRO), for the sale of air passenger transportation. The
services to be performed by Orient Air Services shall include:
(a) soliciting and promoting passenger traffic for the services of American and, if
necessary, employing staff competent and sufficient to do so;
(b) providing and maintaining a suitable area in its place of business to be used
exclusively for the transaction of the business of American;
(c) arranging for distribution of American's timetables, tariffs and promotional material to
sales agents and the general public in the assigned territory;
(d) servicing and supervising of sales agents (including such sub-agents as may be
appointed by Orient Air Services with the prior written consent of American) in the
assigned territory including if required by American the control of remittances and
commissions retained; and
(e) holding out a passenger reservation facility to sales agents and the general public in
the assigned territory.
In connection with scheduled or non-scheduled air passenger transportation within the United
States, neither Orient Air Services nor its sub-agents will perform services for any other air
carrier similar to those to be performed hereunder for American without the prior written consent
of American. Subject to periodic instructions and continued consent from American, Orient Air
Services may sell air passenger transportation to be performed within the United States by other
scheduled air carriers provided American does not provide substantially equivalent schedules
between the points involved.
xxx xxx xxx
4. Remittances
Orient Air Services shall remit in United States dollars to American the ticket stock or exchange
orders, less commissions to which Orient Air Services is entitled hereunder, not less frequently
than semi-monthly, on the 15th and last days of each month for sales made during the preceding
half month.
All monies collected by Orient Air Services for transportation sold hereunder on American's
ticket stock or on exchange orders, less applicable commissions to which Orient Air Services is
entitled hereunder, are the property of American and shall be held in trust by Orient Air Services
until satisfactorily accounted for to American.
5. Commissions
American will pay Orient Air Services commission on transportation sold hereunder by Orient
Air Services or its sub-agents as follows:
(a) Sales agency commission
American will pay Orient Air Services a sales agency commission for all sales of transportation
by Orient Air Services or its sub-agents over American's services and any connecting through air
transportation, when made on American's ticket stock, equal to the following percentages of the
tariff fares and charges:
(i) For transportation solely between points within the United States and between such
points and Canada: 7% or such other rate(s) as may be prescribed by the Air Traffic
Conference of America.
(ii) For transportation included in a through ticket covering transportation between points
other than those described above: 8% or such other rate(s) as may be prescribed by the
International Air Transport Association.
(b) Overriding commission
In addition to the above commission American will pay Orient Air Services an overriding
commission of 3% of the tariff fares and charges for all sales of transportation over American's
service by Orient Air Service or its sub-agents.
xxx xxx xxx
10. Default
If Orient Air Services shall at any time default in observing or performing any of the provisions
of this Agreement or shall become bankrupt or make any assignment for the benefit of or enter
into any agreement or promise with its creditors or go into liquidation, or suffer any of its goods
to be taken in execution, or if it ceases to be in business, this Agreement may, at the option of
American, be terminated forthwith and American may, without prejudice to any of its rights under
this Agreement, take possession of any ticket forms, exchange orders, traffic material or other
property or funds belonging to American.
11. IATA and ATC Rules
The provisions of this Agreement are subject to any applicable rules or resolutions of the
International Air Transport Association and the Air Traffic Conference of America, and such rules
or resolutions shall control in the event of any conflict with the provisions hereof.
xxx xxx xxx
13. Termination
American may terminate the Agreement on two days' notice in the event Orient Air Services is
unable to transfer to the United States the funds payable by Orient Air Services to American
under this Agreement. Either party may terminate the Agreement without cause by giving the
other 30 days' notice by letter, telegram or cable.
xxx xxx x x x3
On 11 May 1981, alleging that Orient Air had reneged on its obligations under the Agreement by failing
to promptly remit the net proceeds of sales for the months of January to March 1981 in the amount of US
$254,400.40, American Air by itself undertook the collection of the proceeds of tickets sold originally by
Orient Air and terminated forthwith the Agreement in accordance with Paragraph 13 thereof
(Termination). Four (4) days later, or on 15 May 1981, American Air instituted suit against Orient Air
with the Court of First Instance of Manila, Branch 24, for Accounting with Preliminary Attachment or
Garnishment, Mandatory Injunction and Restraining Order 4 averring the aforesaid basis for the
termination of the Agreement as well as therein defendant's previous record of failures "to promptly settle
past outstanding refunds of which there were available funds in the possession of the defendant, . . . to the
damage and prejudice of plaintiff." 5
In its Answer 6 with counterclaim dated 9 July 1981, defendant Orient Air denied the material allegations
of the complaint with respect to plaintiff's entitlement to alleged unremitted amounts, contending that
after application thereof to the commissions due it under the Agreement, plaintiff in fact still owed Orient
Air a balance in unpaid overriding commissions. Further, the defendant contended that the actions taken
by American Air in the course of terminating the Agreement as well as the termination itself were
untenable, Orient Air claiming that American Air's precipitous conduct had occasioned prejudice to its
business interests.
Finding that the record and the evidence substantiated the allegations of the defendant, the trial court
ruled in its favor, rendering a decision dated 16 July 1984, the dispositive portion of which reads:
WHEREFORE, all the foregoing premises considered, judgment is hereby rendered in favor of
defendant and against plaintiff dismissing the complaint and holding the termination made by the
latter as affecting the GSA agreement illegal and improper and order the plaintiff to reinstate
defendant as its general sales agent for passenger tranportation in the Philippines in accordance
with said GSA agreement; plaintiff is ordered to pay defendant the balance of the overriding
commission on total flown revenue covering the period from March 16, 1977 to December 31,
1980 in the amount of US$84,821.31 plus the additional amount of US$8,000.00 by way of
proper 3% overriding commission per month commencing from January 1, 1981 until such
reinstatement or said amounts in its Philippine peso equivalent legally prevailing at the time of
payment plus legal interest to commence from the filing of the counterclaim up to the time of
payment. Further, plaintiff is directed to pay defendant the amount of One Million Five Hundred
Thousand (Pl,500,000.00) pesos as and for exemplary damages; and the amount of Three
Hundred Thousand (P300,000.00) pesos as and by way of attorney's fees.
Costs against plaintiff. 7
On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision promulgated on 27
January 1986, affirmed the findings of the court a quo on their material points but with some
modifications with respect to the monetary awards granted. The dispositive portion of the appellate court's
decision is as follows:
WHEREFORE, with the following modifications
1) American is ordered to pay Orient the sum of US$53,491.11 representing the balance of the
latter's overriding commission covering the period March 16, 1977 to December 31, 1980, or its
Philippine peso equivalent in accordance with the official rate of exchange legally prevailing on
July 10, 1981, the date the counterclaim was filed;
2) American is ordered to pay Orient the sum of US$7,440.00 as the latter's overriding
commission per month starting January 1, 1981 until date of termination, May 9, 1981 or its
Philippine peso equivalent in accordance with the official rate of exchange legally prevailing on
July 10, 1981, the date the counterclaim was filed
3) American is ordered to pay interest of 12% on said amounts from July 10, 1981 the date the
answer with counterclaim was filed, until full payment;
4) American is ordered to pay Orient exemplary damages of P200,000.00;
5) American is ordered to pay Orient the sum of P25,000.00 as attorney's fees.
the rest of the appealed decision is affirmed.
Costs against American.8
American Air moved for reconsideration of the aforementioned decision, assailing the substance thereof
and arguing for its reversal. The appellate court's decision was also the subject of a Motion for Partial
Reconsideration by Orient Air which prayed for the restoration of the trial court's ruling with respect to
the monetary awards. The Court of Appeals, by resolution promulgated on 17 December 1986, denied
American Air's motion and with respect to that of Orient Air, ruled thus:
Orient's motion for partial reconsideration is denied insofar as it prays for affirmance of the trial
court's award of exemplary damages and attorney's fees, but granted insofar as the rate of
exchange is concerned. The decision of January 27, 1986 is modified in paragraphs (1) and (2) of
the dispositive part so that the payment of the sums mentioned therein shall be at their Philippine
peso equivalent in accordance with the official rate of exchange legally prevailing on the date of
actual payment. 9
Both parties appealed the aforesaid resolution and decision of the respondent court, Orient Air as
petitioner in G.R. No. 76931 and American Air as petitioner in G.R. No. 76933. By resolution 10 of this
Court dated 25 March 1987 both petitions were consolidated, hence, the case at bar.
The principal issue for resolution by the Court is the extent of Orient Air's right to the 3% overriding
commission. It is the stand of American Air that such commission is based only on sales of its services
actually negotiated or transacted by Orient Air, otherwise referred to as "ticketed sales." As basis thereof,
primary reliance is placed upon paragraph 5(b) of the Agreement which, in reiteration, is quoted as
follows:
5. Commissions
a) . . .
b) Overriding Commission
In addition to the above commission, American will pay Orient Air Services an overriding
commission of 3% of the tariff fees and charges for all sales of transportation over American's
services by Orient Air Services or its sub-agents. (Emphasis supplied)
Since Orient Air was allowed to carry only the ticket stocks of American Air, and the former not having
opted to appoint any sub-agents, it is American Air's contention that Orient Air can claim entitlement to
the disputed overriding commission based only on ticketed sales. This is supposed to be the clear meaning
of the underscored portion of the above provision. Thus, to be entitled to the 3% overriding commission,
the sale must be made by Orient Air and the sale must be done with the use of American Air's ticket
stocks.
On the other hand, Orient Air contends that the contractual stipulation of a 3% overriding commission
covers the total revenue of American Air and not merely that derived from ticketed sales undertaken by
Orient Air. The latter, in justification of its submission, invokes its designation as the exclusive General
Sales Agent of American Air, with the corresponding obligations arising from such agency, such as, the
promotion and solicitation for the services of its principal. In effect, by virtue of such exclusivity, "all
sales of transportation over American Air's services are necessarily by Orient Air." 11
It is a well settled legal principle that in the interpretation of a contract, the entirety thereof must be taken
into consideration to ascertain the meaning of its provisions. 12 The various stipulations in the contract
must be read together to give effect to all. 13 After a careful examination of the records, the Court finds
merit in the contention of Orient Air that the Agreement, when interpreted in accordance with the
foregoing principles, entitles it to the 3% overriding commission based on total revenue, or as referred to
by the parties, "total flown revenue."
As the designated exclusive General Sales Agent of American Air, Orient Air was responsible for the
promotion and marketing of American Air's services for air passenger transportation, and the solicitation
of sales therefor. In return for such efforts and services, Orient Air was to be paid commissions of two (2)
kinds: first, a sales agency commission, ranging from 7-8% of tariff fares and charges from sales by
Orient Air when made on American Air ticket stock; and second, an overriding commission of 3% of tariff
fares and charges for all sales of passenger transportation over American Air services. It is immediately
observed that the precondition attached to the first type of commission does not obtain for the second type
of commissions. The latter type of commissions would accrue for sales of American Air services made
not on its ticket stock but on the ticket stock of other air carriers sold by such carriers or other authorized
ticketing facilities or travel agents. To rule otherwise, i.e., to limit the basis of such overriding
commissions to sales from American Air ticket stock would erase any distinction between the two (2)
types of commissions and would lead to the absurd conclusion that the parties had entered into a contract
with meaningless provisions. Such an interpretation must at all times be avoided with every effort exerted
to harmonize the entire Agreement.
An additional point before finally disposing of this issue. It is clear from the records that American Air
was the party responsible for the preparation of the Agreement. Consequently, any ambiguity in this
"contract of adhesion" is to be taken "contra proferentem", i.e., construed against the party who caused
the ambiguity and could have avoided it by the exercise of a little more care. Thus, Article 1377 of the
Civil Code provides that the interpretation of obscure words or stipulations in a contract shall not favor
the party who caused the obscurity. 14 To put it differently, when several interpretations of a provision are
otherwise equally proper, that interpretation or construction is to be adopted which is most favorable to
the party in whose favor the provision was made and who did not cause the ambiguity. 15 We therefore
agree with the respondent appellate court's declaration that:
Any ambiguity in a contract, whose terms are susceptible of different interpretations, must be
read against the party who drafted it. 16
We now turn to the propriety of American Air's termination of the Agreement. The respondent appellate
court, on this issue, ruled thus:
It is not denied that Orient withheld remittances but such action finds justification from paragraph
4 of the Agreement, Exh. F, which provides for remittances to American less commissions to
which Orient is entitled, and from paragraph 5(d) which specifically allows Orient to retain the
full amount of its commissions. Since, as stated ante, Orient is entitled to the 3% override.
American's premise, therefore, for the cancellation of the Agreement did not exist. . . ."
We agree with the findings of the respondent appellate court. As earlier established, Orient Air was
entitled to an overriding commission based on total flown revenue. American Air's perception that Orient
Air was remiss or in default of its obligations under the Agreement was, in fact, a situation where the
latter acted in accordance with the Agreementthat of retaining from the sales proceeds its accrued
commissions before remitting the balance to American Air. Since the latter was still obligated to Orient
Air by way of such commissions. Orient Air was clearly justified in retaining and refusing to remit the
sums claimed by American Air. The latter's termination of the Agreement was, therefore, without cause
and basis, for which it should be held liable to Orient Air.
On the matter of damages, the respondent appellate court modified by reduction the trial court's award of
exemplary damages and attorney's fees. This Court sees no error in such modification and, thus, affirms
the same.
It is believed, however, that respondent appellate court erred in affirming the rest of the decision of the
trial court.1wphi1 We refer particularly to the lower court's decision ordering American Air to "reinstate
defendant as its general sales agent for passenger transportation in the Philippines in accordance with said
GSA Agreement."
By affirming this ruling of the trial court, respondent appellate court, in effect, compels American Air to
extend its personality to Orient Air. Such would be violative of the principles and essence of agency,
defined by law as a contract whereby "a person binds himself to render some service or to do something
in representation or on behalf of another, WITH THE CONSENT OR AUTHORITY OF THE
LATTER . 17 (emphasis supplied) In an agent-principal relationship, the personality of the principal is
extended through the facility of the agent. In so doing, the agent, by legal fiction, becomes the principal,
authorized to perform all acts which the latter would have him do. Such a relationship can only be
effected with the consent of the principal, which must not, in any way, be compelled by law or by any
court. The Agreement itself between the parties states that "either party may terminate the
Agreement without cause by giving the other 30 days' notice by letter, telegram or cable." (emphasis
supplied) We, therefore, set aside the portion of the ruling of the respondent appellate court reinstating
Orient Air as general sales agent of American Air.
WHEREFORE, with the foregoing modification, the Court AFFIRMS the decision and resolution of the
respondent Court of Appeals, dated 27 January 1986 and 17 December 1986, respectively. Costs against
petitioner American Air.
SO ORDERED.
Melencio-Herrera, and Regalado, JJ., concur.
Paras, J., took no part. Son is a partner in one of the counsel.
Sarmiento, J., is on leave.
SECOND DIVISION
REGALADO, J.:
In this appeal by certiorari, petitioners assail the judgment of the Court of Appeals in CA-G.R. CV No.
49175 affirming the adjudication of the Regional Trial Court of Malolos, Bulacan which found private
respondent Narciso Deganos liable to petitioners for actual damages, but absolved respondent spouses
Brigida D. Luz and Ernesto M. Luz of liability. Petitioners likewise belabor the subsequent resolution of
the Court of Appeals which denied their motion for reconsideration of its challenged decision.
Petitioners were engaged in the business of purchase and sale of jewelry and respondent Brigida D. Luz,
also known as Aida D. Luz, was their regular customer. On several occasions during the period from April
27, 1987 to September 4, 1987, respondent Narciso Deganos, the brother to Brigida D. Luz, received
several pieces of gold and jewelry from petitioner amounting to P382,816.00. 1 These items and their
prices were indicated in seventeen receipts covering the same. Eleven of the receipts stated that they were
received for a certain Evelyn Aquino, a niece of Deganos, and the remaining six indicated that they were
received for Brigida D. Luz. 2
Deganos was supposed to sell the items at a profit and thereafter remit the proceeds and return the unsold
items to petitioners. Deganos remitted only the sum of P53,207.00. He neither paid the balance of the
sales proceeds, nor did he return any unsold item to petitioners. By January 1990, the total of his unpaid
account to petitioners, including interest, reached the sum of P725,463.98. 3 Petitioners eventually filed a
complaint in the barangay court against Deganos to recover said amount.
In the barangay proceedings, Brigida D. Luz, who was not impleaded in the case, appeared as a witness
for Deganos and ultimately, she and her husband, together with Deganos, signed a compromise agreement
with petitioners. In that compromise agreement, Deganos obligated himself to pay petitioners, on
installment basis, the balance of his account plus interest thereon. However, he failed to comply with his
aforestated undertakings.
On June 25, 1990, petitioners instituted Civil Case No. 412-M-90 in the Regional Trial Court of Malolos,
Bulacan against Deganos and Brigida, D. Luz for recovery of a sum of money and damages, with an
application for preliminary attachment. 4 Ernesto Luz was impleaded therein as the spouse of Brigida.
Four years later, or on March 29, 1994, Deganos and Brigida D. Luz were charged with estafa 5 in the
Regional Trial Court of Malolos, Bulacan, which was docketed as Criminal Case No. 785-M-94. That
criminal case appears to be still pending in said trial court.
During the trial of the civil case, petitioners claimed that Deganos acted as the agent of Brigida D. Luz
when he received the subject items of jewelry and, because he failed to pay for the same, Brigida, as
principal, and her spouse are solidarily liable with him therefor.
On the other hand, while Deganos admitted that he had an unpaid obligation to petitioners, he claimed
that the same was only in the sum of P382,816.00 and not P725,463.98. He further asserted that it was he
alone who was involved in the transaction with the petitioners; that he neither acted as agent for nor was
he authorized to act as an agent by Brigida D. Luz, notwithstanding the fact that six of the receipts
indicated that the items were received by him for the latter. He further claimed that he never delivered any
of the items he received from petitioners to Brigida.
Brigida, on her part, denied that she had anything to do with the transactions between petitioners and
Dangerous. She claimed that she never authorized Deganos to receive any item of jewelry in her behalf
and, for that matter, neither did she actually receive any of the articles in question.
After trial, the court below found that only Deganos was liable to petitioners for the amount and damages
claimed. It held that while Brigida D. Luz did have transactions with petitioners in the past, the items
involved were already paid for and all that Brigida owed petitioners was the sum of P21,483.00
representing interest on the principal account which she had previously paid for. 6
The trial court also found that it was petitioner Lydia Bordador who indicated in the receipts that the
items were received by Deganos for Evelyn Aquino and Brigida D. Luz. 7 Said court was "persuaded that
Brigida D. Luz was behind Deganos," but because there was no memorandum to this effect, the
agreement between the parties was unenforceable under the Statute of Frauds. 8 Absent the required
memorandum or any written document connecting the respondent Luz spouses with the subject receipts,
or authorizing Deganos to act on their behalf, the alleged agreement between petitioners and Brigida D.
Luz was unenforceable.
Deganos was ordered to pay petitioners the amount of P725,463.98, plus legal interest thereon June 25,
1990, and attorney's fees. Brigida D. Luz was ordered to pay P21,483.00 representing the interest on her
own personal loan. She and her co-defendant spouse were absolved from any other or further liability. 9
As stated at the outset, petitioners appealed the judgment of the court a quo to the Court Appeals which
affirmed said judgment. 10 The motion for reconsideration filed by petitioners was subsequently
dismissed, 11 hence the present recourse to this Court.
The primary issue in the instant petition is whether or not herein respondent spouses are liable to
petitioners for the latter's claim for money and damages in the sum of P725,463.98, plus interests and
attorney's fees, despite the fact that the evidence does not show that they signed any of the subject receipts
or authorized Deganos to received the items of jewelry on their behalf.
Petitioners argue that the Court of Appeals erred in adopting the findings of the court a quo that
respondent spouses are not liable to them, as said conclusion of the trial court is contradicted by the
finding of fact of the appellate court that "(Deganos) acted as agent of his sister (Brigida Luz)." 12 In
support of this contention, petitioners quoted several letters sent to them by Brigida D. Luz wherein the
latter acknowledged her obligation to petitioners and requested for more time to fulfill the same. They
likewise aver that Brigida testified in the trial court that Deganos took some gold articles from petitioners
and delivered the same to her.
Both the Court of Appeals and the trial court, however, found as a fact that the aforementioned letters
concerned the previous obligations of Brigida to petitioners, and had nothing to do with the money sought
to be recovered in the instant case. Such concurrent factual findings are entitled to great weight, hence,
petitioners cannot plausibly claim in this appellate review that the letters were in the nature of
acknowledgments by Brigida that she was the principal of Deganos in the subject transactions.
On the other hand, with regard to the testimony of Brigida admitting delivery of the gold to her, there is
no showing whatsoever that her statement referred to the items which are the subject matter of this case. It
cannot, therefore, be validly said that she admitted her liability regarding the same.
Petitioners insist that Deganos was the agent of Brigida D. Luz as the latter clothed him with apparent
authority as her agent and held him out to the public as such, hence Brigida can not be permitted to deny
said authority to innocent third parties who dealt with Deganos under such belief. 13 Petitioners further
represent that the Court of Appeals recognized in its decision that Deganos was an agent of Brigida. 14
The evidence does not support the theory of petitioners that Deganos was an agent of Brigida D. Luz and
that the latter should consequently be held solidarily liable with Deganos in his obligation to petitioners.
While the quoted statement in the findings of fact of the assailed appellate decision mentioned that
Deganos ostensibly acted as an agent of Brigida, the actual conclusion and ruling of the Court of Appeals
categorically stated that, "(Brigida Luz) never authorized her brother (Deganos) to act for and in her
behalf in any transaction with Petitioners . . . . 15 It is clear, therefore, that even assuming arguendo that
Deganos acted as an agent of Brigida, the latter never authorized him to act on her behalf with regard to
the transaction subject of this case.
The Civil Code provides:
Art. 1868. By the contract of agency a person binds himself to render some service or to
do something in representation or on behalf of another, with the consent or authority of
the latter.
The basis for agency is representation. Here, there is no showing that Brigida consented to the
acts of Deganos or authorized him to act on her behalf, much less with respect to the particular
transactions involved. Petitioners' attempt to foist liability on respondent spouses through the
supposed agency relation with Deganos is groundless and ill-advised.
Besides, it was grossly and inexcusably negligent of petitioners to entrust to Deganos, not once or twice
but on at least six occasions as evidenced by six receipts, several pieces of jewelry of substantial value
without requiring a written authorization from his alleged principal. A person dealing with an agent is put
upon inquiry and must discover upon his peril the authority of the agent. 16
The records show that neither an express nor an implied agency was proven to have existed between
Deganos and Brigida D. Luz. Evidently, petitioners, who were negligent in their transactions with
Deganos, cannot seek relief from the effects of their negligence by conjuring a supposed agency relation
between the two respondents where no evidence supports such claim.
Petitioners next allege that the Court of Appeals erred in ignoring the fact that the decision of the court
below, which it affirmed, is "null and void" as it contradicted its ruling in CA-G.R. SP No. 39445 holding
that there is "sufficient evidence/proof" against Brigida D. Luz and Deganos for estafa in the pending
criminal case. They further aver that said appellate court erred in ruling against them in this civil action
since the same would result in an inevitable conflict of decisions should be trial court convict the accused
in the criminal case.
By way of backdrop for this argument of petitioners, herein respondents Brigida D. Luz and Deganos had
filed a demurrer to evidence and a motion for reconsideration in the aforestated criminal case, both of
which were denied by the trial court. They then filed a petition for certiorari in the Court of Appeals to
set aside the denial of their demurrer and motion for reconsideration but, as just stated, their petition
therefor was dismissed. 17
Petitioners now claim that the aforesaid dismissal by the Court of Appeals of the petition in CA-G.R. SP
No. 39445 with respect to the criminal case is equivalent to a finding that there is sufficient evidence in
the estafa case against Brigida D. Luz and Deganos. Hence, as already stated, petitioners theorize that the
decision and resolution of the Court of Appeals now being impugned in the case at bar would result in a
possible conflict with the prospective decision in the criminal case. Instead of promulgating the present
decision and resolution under review, so they suggest, the Court of Appeals should have awaited the
decision in the criminal case, so as not to render academic or preempt the same or, worse, create two
conflicting rulings. 18
Petitioners have apparently lost sight of Article 33 of the Civil Code which provides that in cases
involving alleged fraudulent acts, a civil action for damages, entirely separate and distinct from the
criminal action, may be brought by the injured party. Such civil action shall proceed independently of the
criminal prosecution and shall require only a preponderance of evidence.
It is worth noting that this civil case was instituted four years before the criminal case for estafa was filed,
and that although there was a move to consolidate both cases, the same was denied by the trial court.
Consequently, it was the duty of the two branches of the Regional Trial Court concerned to independently
proceed with the civil and criminal cases. It will also be observed that a final judgment rendered in a civil
action absolving the defendant from civil liability is no bar to a criminal action. 19
It is clear, therefore, that this civil case may proceed independently of the criminal case 20 especially
because while both cases are based on the same facts, the quantum of proof required for holding the
parties liable therein differ. Thus, it is improvident of petitioners to claim that the decision and resolution
of the Court of Appeals in the present case would be preemptive of the outcome of the criminal case.
Their fancied fear of possible conflict between the disposition of this civil case and the coutcome of the
pending criminal case is illusory.
Petitioners surprisingly postulate that the Court of Appeals had lost its jurisdiction to issue the denial
resolution dated August 18, 1997, as the same was tainted with irregularities and badges of fraud
perpetrated by its court officers. 21 They charge that said appellate court, through conspiracy and fraud on
the part of its officers, gravely abused its discretion in issuing that resolution denying their motion for
reconsideration. They claim that said resolution was drafted by the ponente, then signed and issued by the
members of the Eleventh Division of said court within one and a half days from the elevation thereof by
the division clerk of court to the office of the ponente.
It is the thesis of petitioners that there was undue haste in issuing the resolution as the same was made
without waiting for the lapse of the ten-day period for respondents to file their comment and for
petitioners to file their reply. It was allegedly impossible for the Court of Appeals to resolve the issue in
just one and a half days, especially because its ponente, the late Justice Maximiano C. Asuncion, was then
recuperating from surgery and, that, additionally, "hundreds of more important cases were pending." 22
These lamentable allegation of irregularities in the Court of Appeals and in the conduct of its officers
strikes us as a desperate attempt of petitioners to induce this Court to give credence to their arguments
which, as already found by both the trial and intermediate appellate courts, are devoid of factual and legal
substance. The regrettably irresponsible attempt to tarnish the image of the intermediate appellate tribunal
and its judicial officers through ad hominem imputations could well be contumacious, but we are inclined
to let that pass with a strict admonition that petitioners refrain from indulging in such conduct in
litigations.
On July 9, 1997, the Court of Appeals rendered judgment in this case affirming the trial court's
decision. 23Petitioners moved for reconsideration and the Court of Appeals ordered respondents to file a
comment. Respondents filed the same on August 5, 1997 24 and petitioners filed their reply to said
comment on August 15, 1997. 25 The Eleventh Division of said court issued the questioned resolution
denying petitioner's motion for reconsideration on August 18, 1997. 26
It is ironic that while some litigants malign the judiciary for being supposedly slothful in disposing of
cases, petitioners are making a show of calling out for justice because the Court of Appeals issued a
resolution disposing of a case sooner than expected of it. They would even deny the exercise of discretion
by the appellate court to prioritize its action on cases in line with the procedure it has adopted in disposing
thereof and in declogging its dockets. It is definitely not for the parties to determine and dictate when and
how a tribunal should act upon those cases since they are not even aware of the status of the dockets and
the internal rules and policies for acting thereon.
The fact that a resolution was issued by said court within a relatively short period of time after the records
of the case were elevated to the office of the ponente cannot, by itself, be deemed irregular. There is no
showing whatsoever that the resolution was issued without considering the reply filed by petitioners. In
fact, that brief pleading filed by petitioners does not exhibit any esoteric or ponderous argument which
could not be analyzed within an hour. It is a legal presumption, born of wisdom and experience, that
official duty has been regularly performed; 27that the proceedings of a judicial tribunal are regular and
valid, and that judicial acts and duties have been and will be duly and properly performed. 28 The burden
of proving irregularity in official conduct is on the part of petitioners and they have utterly failed to do so.
It is thus reprehensible for them to cast aspersions on a court of law on the bases of conjectures or
surmises, especially since one of the petitioners appears to be a member of the Philippine Bar.
Lastly, petitioners fault the trial court's holding that whatever contract of agency was established between
Brigida D. Luz and Narciso Deganos is unenforceable under the Statute of Frauds as that aspect of this
case allegedly is not covered thereby. 29 They proceed on the premise that the Statute of Frauds applies
only to executory contracts and not to executed or to partially executed ones. From there, they move on to
claim that the contract involved in this case was an executed contract as the items had already been
delivered by petitioners to Brigida D. Luz, hence, such delivery resulted in the execution of the contract
and removed the same from the coverage of the Statute of Frauds.
Petitioners' claim is speciously unmeritorious. It should be emphasized that neither the trial court nor the
appellate court categorically stated that there was such a contractual relation between these two
respondents. The trial court merely said that if there was such an agency existing between them, the same
is unenforceable as the contract would fall under the Statute of Frauds which requires the presentation of
a note or memorandum thereof in order to be enforceable in court. That was merely a preparatory
statement of a principle of law. What was finally proven as a matter of fact is that there was no such
contract between Brigida D. Luz and Narciso Deganos, executed or partially executed, and no delivery of
any of the items subject of this case was ever made to the former.
WHEREFORE, no error having been committed by the Court of Appeals in affirming the judgment of the
court a quo, its challenged decision and resolution are hereby AFFIRMED and the instant petition is
DENIED, with double costs against petitioners.
SO ORDERED.
EN BANC
MONTEMAYOR, J.:
The facts in this case based on an agreed statement of facts are simple. In the year 1941 the Northern
Theatrical Enterprises Inc., a domestic corporation operated a movie house in Laoag, Ilocos Norte, and
among the persons employed by it was the plaintiff DOMINGO DE LA CRUZ, hired as a special guard
whose duties were to guard the main entrance of the cine, to maintain peace and order and to report the
commission of disorders within the premises. As such guard he carried a revolver. In the afternoon of July
4, 1941, one Benjamin Martin wanted to crash the gate or entrance of the movie house. Infuriated by the
refusal of plaintiff De la Cruz to let him in without first providing himself with a ticket, Martin attacked
him with a bolo. De la Cruz defendant himself as best he could until he was cornered, at which moment to
save himself he shot the gate crasher, resulting in the latter's death.
For the killing, De la Cruz was charged with homicide in Criminal Case No. 8449 of the Court of First
Instance of Ilocos Norte. After a re-investigation conducted by the Provincial Fiscal the latter filed a
motion to dismiss the complaint, which was granted by the court in January 1943. On July 8, 1947, De la
Cruz was again accused of the same crime of homicide, in Criminal Case No. 431 of the same Court.
After trial, he was finally acquitted of the charge on January 31, 1948. In both criminal cases De la Cruz
employed a lawyer to defend him. He demanded from his former employer reimbursement of his
expenses but was refused, after which he filed the present action against the movie corporation and the
three members of its board of directors, to recover not only the amounts he had paid his lawyers but also
moral damages said to have been suffered, due to his worry, his neglect of his interests and his family as
well in the supervision of the cultivation of his land, a total of P15,000. On the basis of the complaint and
the answer filed by defendants wherein they asked for the dismissal of the complaint, as well as the
agreed statement of facts, the Court of First Instance of Ilocos Norte after rejecting the theory of the
plaintiff that he was an agent of the defendants and that as such agent he was entitled to reimbursement of
the expenses incurred by him in connection with the agency (Arts. 1709-1729 of the old Civil Code),
found that plaintiff had no cause of action and dismissed the complaint without costs. De la Cruz appealed
directly to this Tribunal for the reason that only questions of law are involved in the appeal.
We agree with the trial court that the relationship between the movie corporation and the plaintiff was not
that of principal and agent because the principle of representation was in no way involved. Plaintiff was
not employed to represent the defendant corporation in its dealings with third parties. He was a mere
employee hired to perform a certain specific duty or task, that of acting as special guard and staying at the
main entrance of the movie house to stop gate crashers and to maintain peace and order within the
premises. The question posed by this appeal is whether an employee or servant who in line of duty and
while in the performance of the task assigned to him, performs an act which eventually results in his
incurring in expenses, caused not directly by his master or employer or his fellow servants or by reason of
his performance of his duty, but rather by a third party or stranger not in the employ of his employer, may
recover said damages against his employer.
The learned trial court in the last paragraph of its decision dismissing the complaint said that "after
studying many laws or provisions of law to find out what law is applicable to the facts submitted and
admitted by the parties, has found none and it has no other alternative than to dismiss the complaint." The
trial court is right. We confess that we are not aware of any law or judicial authority that is directly
applicable to the present case, and realizing the importance and far-reaching effect of a ruling on the
subject-matter we have searched, though vainly, for judicial authorities and enlightenment. All the laws
and principles of law we have found, as regards master and servants, or employer and employee, refer to
cases of physical injuries, light or serious, resulting in loss of a member of the body or of any one of the
senses, or permanent physical disability or even death, suffered in line of duty and in the course of the
performance of the duties assigned to the servant or employee, and these cases are mainly governed by
the Employer's Liability Act and the Workmen's Compensation Act. But a case involving damages caused
to an employee by a stranger or outsider while said employee was in the performance of his duties,
presents a novel question which under present legislation we are neither able nor prepared to decide in
favor of the employee.
In a case like the present or a similar case of say a driver employed by a transportation company, who
while in the course of employment runs over and inflicts physical injuries on or causes the death of a
pedestrian; and such driver is later charged criminally in court, one can imagine that it would be to the
interest of the employer to give legal help to and defend its employee in order to show that the latter was
not guilty of any crime either deliberately or through negligence, because should the employee be finally
held criminally liable and he is found to be insolvent, the employer would be subsidiarily liable. That is
why, we repeat, it is to the interest of the employer to render legal assistance to its employee. But we are
not prepared to say and to hold that the giving of said legal assistance to its employees is a legal
obligation. While it might yet and possibly be regarded as a normal obligation, it does not at present count
with the sanction of man-made laws.
If the employer is not legally obliged to give, legal assistance to its employee and provide him with a
lawyer, naturally said employee may not recover the amount he may have paid a lawyer hired by him.
Viewed from another angle it may be said that the damage suffered by the plaintiff by reason of the
expenses incurred by him in remunerating his lawyer, is not caused by his act of shooting to death the
gate crasher but rather by the filing of the charge of homicide which made it necessary for him to defend
himself with the aid of counsel. Had no criminal charge been filed against him, there would have been no
expenses incurred or damage suffered. So the damage suffered by plaintiff was caused rather by the
improper filing of the criminal charge, possibly at the instance of the heirs of the deceased gate crasher
and by the State through the Fiscal. We say improper filing, judging by the results of the court
proceedings, namely, acquittal. In other words, the plaintiff was innocent and blameless. If despite his
innocence and despite the absence of any criminal responsibility on his part he was accused of homicide,
then the responsibility for the improper accusation may be laid at the door of the heirs of the deceased and
the State, and so theoretically, they are the parties that may be held responsible civilly for damages and if
this is so, we fail to see now this responsibility can be transferred to the employer who in no way
intervened, much less initiated the criminal proceedings and whose only connection or relation to the
whole affairs was that he employed plaintiff to perform a special duty or task, which task or duty was
performed lawfully and without negligence.
Still another point of view is that the damages incurred here consisting of the payment of the lawyer's fee
did not flow directly from the performance of his duties but only indirectly because there was an efficient,
intervening cause, namely, the filing of the criminal charges. In other words, the shooting to death of the
deceased by the plaintiff was not the proximate cause of the damages suffered but may be regarded as
only a remote cause, because from the shooting to the damages suffered there was not that natural and
continuous sequence required to fix civil responsibility.
In view of the foregoing, the judgment of the lower court is affirmed. No costs.
Bengzon, Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, and Reyes, J.B.L., JJ., concur.
Republic of the Philippines
SUPREME COURT
THIRD DIVISION
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:
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;
x x x x x x x x x"4
The Facts
"[Respondents] alleged that between the period of May 2, 1988 and June 5, 1988, spouses Leonilo and
Maria Tuazon purchased a total of 8,326 cavans of rice from [the deceased Bartolome] Ramos
[predecessor-in-interest of respondents]. That of this [quantity,] x x x only 4,437 cavans [have been paid
for so far], leaving unpaid 3,889 cavans valued at P1,211,919.00. In payment therefor, the spouses Tuazon
issued x x x [several] Traders Royal Bank checks.
xxxxxxxxx
[B]ut when these [checks] were encashed, all of the checks bounced due to insufficiency of funds.
[Respondents] advanced that before issuing said checks[,] spouses Tuazon already knew that they had no
available fund to support the checks, and they failed to provide for the payment of these despite repeated
demands made on them.
"[Respondents] averred that because spouses Tuazon anticipated that they would be sued, they conspired
with the other [defendants] to defraud them as creditors by executing x x x fictitious sales of their
properties. They executed x x x simulated sale[s] [of three lots] in favor of the x x x spouses
Buenaventura x x x[,] as well as their residential lot and the house thereon[,] all located at Nueva Ecija,
and another simulated deed of sale dated July 12, 1988 of a Stake Toyota registered with the Land
Transportation Office of Cabanatuan City on September 7, 1988. [Co-petitioner] Melecio Tuazon, a son
of spouses Tuazon, registered a fictitious Deed of Sale on July 19, 1988 x x x over a residential lot located
at Nueva Ecija. Another simulated sale of a Toyota Willys was executed on January 25, 1988 in favor of
their other son, [co-petitioner] Alejandro Tuazon x x x. As a result of the said sales, the titles of these
properties issued in the names of spouses Tuazon were cancelled and new ones were issued in favor of the
[co-]defendants spouses Buenaventura, Alejandro Tuazon and Melecio Tuazon. Resultantly, by the said
ante-dated and simulated sales and the corresponding transfers there was no more property left registered
in the names of spouses Tuazon answerable to creditors, to the damage and prejudice of [respondents].
"For their part, defendants denied having purchased x x x rice from [Bartolome] Ramos. They alleged that
it was Magdalena Ramos, wife of said deceased, who owned and traded the merchandise and Maria
Tuazon was merely her agent. They argued that it was Evangeline Santos who was the buyer of the rice
and issued the checks to Maria Tuazon as payments therefor. In good faith[,] the checks were received [by
petitioner] from Evangeline Santos and turned over to Ramos without knowing that these were not
funded. And it is for this reason that [petitioners] have been insisting on the inclusion of Evangeline
Santos as an indispensable party, and her non-inclusion was a fatal error. Refuting that the sale of several
properties were fictitious or simulated, spouses Tuazon contended that these were sold because they were
then meeting financial difficulties but the disposals were made for value and in good faith and done
before the filing of the instant suit. To dispute the contention of plaintiffs that they were the buyers of the
rice, they argued that there was no sales invoice, official receipts or like evidence to prove this. They
assert that they were merely agents and should not be held answerable." 5
The corresponding civil and criminal cases were filed by respondents against Spouses Tuazon. Those
cases were later consolidated and amended to include Spouses Anastacio and Mary Buenaventura, with
Alejandro Tuazon and Melecio Tuazon as additional defendants. Having passed away before the pretrial,
Bartolome Ramos was substituted by his heirs, herein respondents.
Contending that Evangeline Santos was an indispensable party in the case, petitioners moved to file a
third-party complaint against her. Allegedly, she was primarily liable to respondents, because she was the
one who had purchased the merchandise from their predecessor, as evidenced by the fact that the checks
had been drawn in her name. The RTC, however, denied petitioners Motion.
Since the trial court acquitted petitioners in all three of the consolidated criminal cases, they appealed
only its decision finding them civilly liable to respondents.
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.
Issues
"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
First Issue:
Agency
Well-entrenched is the rule that the Supreme Courts role in a petition under Rule 45 is limited to
reviewing errors of law allegedly committed by the Court of Appeals. Factual findings of the trial court,
especially when affirmed by the CA, are conclusive on the parties and this Court. 8 Petitioners have not
given us sufficient reasons to deviate from this rule.
In a contract of agency, one binds oneself to render some service or to do something in representation or
on behalf of another, with the latters consent or authority.9 The following are the elements of agency: (1)
the parties consent, express or implied, to establish the relationship; (2) the object, which is the execution
of a juridical act in relation to a third person; (3) the representation, by which the one who acts as an
agent does so, not for oneself, but as a representative; (4) the limitation that the agent acts within the
scope of his or her authority.10 As the basis of agency is representation, there must be, on the part of the
principal, an actual intention to appoint, an intention naturally inferable from the principals words or
actions. In the same manner, there must be an intention on the part of the agent to accept the appointment
and act upon it. Absent such mutual intent, there is generally no agency.11
This Court finds no reversible error in the findings of the courts a quo that petitioners were the rice buyers
themselves; they were not mere agents of respondents in their rice dealership. The question of whether a
contract is one of sale or of agency depends on the intention of the parties. 12
The declarations of agents alone are generally insufficient to establish the fact or extent of their
authority.13 The law makes no presumption of agency; proving its existence, nature and extent is
incumbent upon the person alleging it.14 In the present case, petitioners raise the fact of agency as an
affirmative defense, yet fail to prove its existence.
The Court notes that petitioners, on their own behalf, sued Evangeline Santos for collection of the
amounts represented by the bounced checks, in a separate civil case that they sought to be consolidated
with the current one. If, as they claim, they were mere agents of respondents, petitioners should have
brought the suit against Santos for and on behalf of their alleged principal, in accordance with Section 2
of Rule 3 of the Rules on Civil Procedure.15 Their filing a suit against her in their own names negates their
claim that they acted as mere agents in selling the rice obtained from Bartolome Ramos.
Second Issue:
Indispensable Party
Petitioners argue that the lower courts erred in not allowing Evangeline Santos to be impleaded as an
indispensable party. They insist that respondents Complaint against them is based on the bouncing checks
she issued; hence, they point to her as the person primarily liable for the obligation.
We hold that respondents cause of action is clearly founded on petitioners failure to pay the purchase
price of the rice. The trial court held that Petitioner Maria Tuazon had indorsed the questioned checks in
favor of respondents, in accordance with Sections 31 and 63 of the Negotiable Instruments Law.16 That
Santos was the drawer of the checks is thus immaterial to the respondents cause of action.
As indorser, Petitioner Maria Tuazon warranted that upon due presentment, the checks were to be
accepted or paid, or both, according to their tenor; and that in case they were dishonored, she would pay
the corresponding amount.17After an instrument is dishonored by nonpayment, indorsers cease to be
merely secondarily liable; they become principal debtors whose liability becomes identical to that of the
original obligor. The holder of a negotiable instrument need not even proceed against the maker before
suing the indorser.18 Clearly, Evangeline Santos -- as the drawer of the checks -- is not an indispensable
party in an action against Maria Tuazon, the indorser of the checks.
Indispensable parties are defined as "parties in interest without whom no final determination can be
had."19 The instant case was originally one for the collection of the purchase price of the rice bought by
Maria Tuazon from respondents predecessor. In this case, it is clear that there is no privity of contract
between respondents and Santos. Hence, a final determination of the rights and interest of the parties may
be made without any need to implead her.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against
petitioners.
SO ORDERED.
ARTEMIO V. PANGANIBAN
Associate Justice
WECONCUR:
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.
ARTEMIO V. PANGANIBAN
Associate Justice
Chairman, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairmans Attestation, it is
hereby certified that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.
Chief Justice
SECOND DIVISION
QUISUMBING, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the decision
of the Court of Appeals dated February 24, 1994, in CA-G.R. CV No. 31717, as well as the respondent
court's resolution of September 30, 1994 modifying said decision. Both decision and resolution amended
the judgment dated February 13, 1991, of the Regional Trial Court of Makati City, Branch 147, in Civil
Case No. 90-118.
The facts of this case as found by both the trial and appellate courts are as follows:
St. Therese Merchandising (hereafter STM) regularly bought sugar from petitioner Victorias Milling Co.,
Inc., (VMC). In the course of their dealings, petitioner issued several Shipping List/Delivery Receipts
(SLDRs) to STM as proof of purchases. Among these was SLDR No. 1214M, which gave rise to the
instant case. Dated October 16, 1989, SLDR No. 1214M covers 25,000 bags of sugar. Each bag contained
50 kilograms and priced at P638.00 per bag as "per sales order VMC Marketing No. 042 dated October
16, 1989."1 The transaction it covered was a "direct sale." 2The SLDR also contains an additional note
which reads: "subject for (sic) availability of a (sic) stock at NAWACO (warehouse)." 3
On October 25, 1989, STM sold to private respondent Consolidated Sugar Corporation (CSC) its rights in
SLDR No. 1214M for P 14,750,000.00. CSC issued one check dated October 25, 1989 and three checks
postdated November 13, 1989 in payment. That same day, CSC wrote petitioner that it had been
authorized by STM to withdraw the sugar covered by SLDR No. 1214M. Enclosed in the letter were a
copy of SLDR No. 1214M and a letter of authority from STM authorizing CSC "to withdraw for and in
our behalf the refined sugar covered by Shipping List/Delivery Receipt-Refined Sugar (SDR) No. 1214
dated October 16, 1989 in the total quantity of 25,000 bags."4
On October 27, 1989, STM issued 16 checks in the total amount of P31,900,000.00 with petitioner as
payee. The latter, in turn, issued Official Receipt No. 33743 dated October 27, 1989 acknowledging
receipt of the said checks in payment of 50,000 bags. Aside from SLDR No. 1214M, said checks also
covered SLDR No. 1213.
Private respondent CSC surrendered SLDR No. 1214M to the petitioner's NAWACO warehouse and was
allowed to withdraw sugar. However, after 2,000 bags had been released, petitioner refused to allow
further withdrawals of sugar against SLDR No. 1214M. CSC then sent petitioner a letter dated January
23, 1990 informing it that SLDR No. 1214M had been "sold and endorsed" to it but that it had been
refused further withdrawals of sugar from petitioner's warehouse despite the fact that only 2,000 bags had
been withdrawn.5 CSC thus inquired when it would be allowed to withdraw the remaining 23,000 bags.
On January 31, 1990, petitioner replied that it could not allow any further withdrawals of sugar against
SLDR No. 1214M because STM had already dwithdrawn all the sugar covered by the cleared checks. 6
On March 2, 1990, CSC sent petitioner a letter demanding the release of the balance of 23,000 bags.
Seven days later, petitioner reiterated that all the sugar corresponding to the amount of STM's cleared
checks had been fully withdrawn and hence, there would be no more deliveries of the commodity to
STM's account. Petitioner also noted that CSC had represented itself to be STM's agent as it had
withdrawn the 2,000 bags against SLDR No. 1214M "for and in behalf" of STM.
On April 27, 1990, CSC filed a complaint for specific performance, docketed as Civil Case No. 90-1118.
Defendants were Teresita Ng Sy (doing business under the name of St. Therese Merchandising) and
herein petitioner. Since the former could not be served with summons, the case proceeded only against the
latter. During the trial, it was discovered that Teresita Ng Go who testified for CSC was the same Teresita
Ng Sy who could not be reached through summons.7 CSC, however, did not bother to pursue its case
against her, but instead used her as its witness.
CSC's complaint alleged that STM had fully paid petitioner for the sugar covered by SLDR No. 1214M.
Therefore, the latter had no justification for refusing delivery of the sugar. CSC prayed that petitioner be
ordered to deliver the 23,000 bags covered by SLDR No. 1214M and sought the award of P1,104,000.00
in unrealized profits, P3,000,000.00 as exemplary damages, P2,200,000.00 as attorney's fees and
litigation expenses.
Petitioner's primary defense a quo was that it was an unpaid seller for the 23,000 bags. 8 Since STM had
already drawn in full all the sugar corresponding to the amount of its cleared checks, it could no longer
authorize further delivery of sugar to CSC. Petitioner also contended that it had no privity of contract with
CSC.
Petitioner explained that the SLDRs, which it had issued, were not documents of title, but mere delivery
receipts issued pursuant to a series of transactions entered into between it and STM. The SLDRs
prescribed delivery of the sugar to the party specified therein and did not authorize the transfer of said
party's rights and interests.
Petitioner also alleged that CSC did not pay for the SLDR and was actually STM's co-conspirator to
defraud it through a misrepresentation that CSC was an innocent purchaser for value and in good faith.
Petitioner then prayed that CSC be ordered to pay it the following sums: P10,000,000.00 as moral
damages; P10,000,000.00 as exemplary damages; and P1,500,000.00 as attorney's fees. Petitioner also
prayed that cross-defendant STM be ordered to pay it P10,000,000.00 in exemplary damages, and
P1,500,000.00 as attorney's fees.
Since no settlement was reached at pre-trial, the trial court heard the case on the merits.
As earlier stated, the trial court rendered its judgment favoring private respondent CSC, as follows:
"WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the plaintiff and
against defendant Victorias Milling Company:
"1) Ordering defendant Victorias Milling Company to deliver to the plaintiff 23,000 bags of
refined sugar due under SLDR No. 1214;
"2) Ordering defendant Victorias Milling Company to pay the amount of P920,000.00 as
unrealized profits, the amount of P800,000.00 as exemplary damages and the amount of
P1,357,000.00, which is 10% of the acquisition value of the undelivered bags of refined sugar in
the amount of P13,570,000.00, as attorney's fees, plus the costs.
"SO ORDERED."9
"On the other hand, the claim of defendant Victorias Milling Company that the purchase price of the
25,000 bags of sugar purchased by St. Therese Merchandising covered by SLDR No. 1214 has not been
fully paid is supported only by the testimony of Arnulfo Caintic, witness for defendant Victorias Milling
Company. The Court notes that the testimony of Arnulfo Caintic is merely a sweeping barren assertion
that the purchase price has not been fully paid and is not corroborated by any positive evidence. There is
an insinuation by Arnulfo Caintic in his testimony that the postdated checks issued by the buyer in
payment of the purchased price were dishonored. However, said witness failed to present in Court any
dishonored check or any replacement check. Said witness likewise failed to present any bank record
showing that the checks issued by the buyer, Teresita Ng Go, in payment of the purchase price of the
sugar covered by SLDR No. 1214 were dishonored."10
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;
"SO ORDERED."11
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;
"SO ORDERED."12
The appellate court explained the rationale for the modification as follows:
"Exhibit F' We relied upon in fixing the number of bags of sugar which remained undelivered as 12,586
cannot be made the basis for such a finding. The rule is explicit that courts should consider the evidence
only for the purpose for which it was offered. (People v. Abalos, et al, 1 CA Rep 783). The rationale for
this is to afford the party against whom the evidence is presented to object thereto if he deems it
necessary. Plaintiff-appellee is, therefore, correct in its argument that Exhibit F' which was offered to
prove that checks in the total amount of P15,950,000.00 had been cleared. (Formal Offer of Evidence for
Plaintiff, Records p. 58) cannot be used to prove the proposition that 12,586 bags of sugar remained
undelivered.
"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October 1990, p. 33] and Marianito L.
Santos [TSN, 17 October 1990, pp. 16, 18, and 36]) presented by plaintiff-appellee was to the effect that
it had withdrawn only 2,000 bags of sugar from SLDR after which it was not allowed to withdraw
anymore. Documentary evidence (Exhibit I, Id., p. 78, Exhibit K, Id., p. 80) show that plaintiff-appellee
had sent demand letters to defendant-appellant asking the latter to allow it to withdraw the remaining
23,000 bags of sugar from SLDR 1214M. Defendant-appellant, on the other hand, alleged that sugar
delivery to the STM corresponded only to the value of cleared checks; and that all sugar corresponded to
cleared checks had been withdrawn. Defendant-appellant did not rebut plaintiff-appellee's assertions. It
did not present evidence to show how many bags of sugar had been withdrawn against SLDR No. 1214M,
precisely because of its theory that all sales in question were a series of one single transaction and
withdrawal of sugar depended on the clearing of checks paid therefor.
"After a second look at the evidence, We see no reason to overturn the findings of the trial court on this
point."13
Hence, the instant petition, positing the following errors as grounds for review:
"1. The Court of Appeals erred in not holding that STM's and private respondent's specially
informing petitioner that respondent was authorized by buyer STM to withdraw sugar against
SLDR No. 1214M "for and in our (STM) behalf," (emphasis in the original) private respondent's
withdrawing 2,000 bags of sugar for STM, and STM's empowering other persons as its agents to
withdraw sugar against the same SLDR No. 1214M, rendered respondent like the other persons,
an agent of STM as held in Rallos v. Felix Go Chan & Realty Corp., 81 SCRA 252, and
precluded it from subsequently claiming and proving being an assignee of SLDR No. 1214M and
from suing by itself for its enforcement because it was conclusively presumed to be an agent
(Sec. 2, Rule 131, Rules of Court) and estopped from doing so. (Art. 1431, Civil Code).
"2. The Court of Appeals erred in manifestly and arbitrarily ignoring and disregarding certain
relevant and undisputed facts which, had they been considered, would have shown that petitioner
was not liable, except for 69 bags of sugar, and which would justify review of its conclusion of
facts by this Honorable Court.
"3. The Court of Appeals misapplied the law on compensation under Arts. 1279, 1285 and 1626
of the Civil Code when it ruled that compensation applied only to credits from one SLDR or
contract and not to those from two or more distinct contracts between the same parties; and erred
in denying petitioner's right to setoff all its credits arising prior to notice of assignment from other
sales or SLDRs against private respondent's claim as assignee under SLDR No. 1214M, so as to
extinguish or reduce its liability to 69 bags, because the law on compensation applies precisely to
two or more distinct contracts between the same parties (emphasis in the original).
"4. The Court of Appeals erred in concluding that the settlement or liquidation of accounts in
Exh. F between petitioner and STM, respondent's admission of its balance, and STM's
acquiescence thereto by silence for almost one year did not render Exh. `F' an account stated and
its balance binding.
"5. The Court of Appeals erred in not holding that the conditions of the assigned SLDR No. 1214,
namely, (a) its subject matter being generic, and (b) the sale of sugar being subject to its
availability at the Nawaco warehouse, made the sale conditional and prevented STM or private
respondent from acquiring title to the sugar; and the non-availability of sugar freed petitioner
from further obligation.
"6. The Court of Appeals erred in not holding that the "clean hands" doctrine precluded
respondent from seeking judicial reliefs (sic) from petitioner, its only remedy being against its
assignor."14
(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.
Anent the first issue, we find from the records that petitioner raised this issue for the first time on
appeal.1avvphi1 It is settled that an issue which was not raised during the trial in the court below could
not be raised for the first time on appeal as to do so would be offensive to the basic rules of fair play,
justice, and due process.15 Nonetheless, the Court of Appeals opted to address this issue, hence, now a
matter for our consideration.
Petitioner heavily relies upon STM's letter of authority allowing CSC to withdraw sugar against SLDR
No. 1214M to show that the latter was STM's agent. The pertinent portion of said letter reads:
"This is to authorize Consolidated Sugar Corporation or its representative to withdraw for and in our
behalf (stress supplied) the refined sugar covered by Shipping List/Delivery Receipt = Refined Sugar
(SDR) No. 1214 dated October 16, 1989 in the total quantity of 25, 000 bags." 16
"Art. 1868. By the contract of agency a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter."
It is clear from Article 1868 that the basis of agency is representation. 17 On the part of the principal, there
must be an actual intention to appoint18 or an intention naturally inferable from his words or actions; 19 and
on the part of the agent, there must be an intention to accept the appointment and act on it, 20 and in the
absence of such intent, there is generally no agency.21 One factor which most clearly distinguishes agency
from other legal concepts is control; one person - the agent - agrees to act under the control or direction of
another - the principal. Indeed, the very word "agency" has come to connote control by the
principal.22 The control factor, more than any other, has caused the courts to put contracts between
principal and agent in a separate category.23 The Court of Appeals, in finding that CSC, was not an agent
of STM, opined:
"This Court has ruled that where the relation of agency is dependent upon the acts of the parties, the law
makes no presumption of agency, and it is always a fact to be proved, with the burden of proof resting
upon the persons alleging the agency, to show not only the fact of its existence, but also its nature and
extent (Antonio vs. Enriquez [CA], 51 O.G. 3536]. Here, defendant-appellant failed to sufficiently
establish the existence of an agency relation between plaintiff-appellee and STM. The fact alone that it
(STM) had authorized withdrawal of sugar by plaintiff-appellee "for and in our (STM's) behalf" should
not be eyed as pointing to the existence of an agency relation ...It should be viewed in the context of all
the circumstances obtaining. Although it would seem STM represented plaintiff-appellee as being its
agent by the use of the phrase "for and in our (STM's) behalf" the matter was cleared when on 23 January
1990, plaintiff-appellee informed defendant-appellant that SLDFR No. 1214M had been "sold and
endorsed" to it by STM (Exhibit I, Records, p. 78). Further, plaintiff-appellee has shown that the 25, 000
bags of sugar covered by the SLDR No. 1214M were sold and transferred by STM to it ...A conclusion
that there was a valid sale and transfer to plaintiff-appellee may, therefore, be made thus capacitating
plaintiff-appellee to sue in its own name, without need of joining its imputed principal STM as co-
plaintiff."24
In the instant case, it appears plain to us that private respondent CSC was a buyer of the SLDFR form,
and not an agent of STM. Private respondent CSC was not subject to STM's control. The question of
whether a contract is one of sale or agency depends on the intention of the parties as gathered from the
whole scope and effect of the language employed. 25 That the authorization given to CSC contained the
phrase "for and in our (STM's) behalf" did not establish an agency. Ultimately, what is decisive is the
intention of the parties.26 That no agency was meant to be established by the CSC and STM is clearly
shown by CSC's communication to petitioner that SLDR No. 1214M had been "sold and endorsed" to
it.27 The use of the words "sold and endorsed" means that STM and CSC intended a contract of sale, and
not an agency. Hence, on this score, no error was committed by the respondent appellate court when it
held that CSC was not STM's agent and could independently sue petitioner.
On the second issue, proceeding from the theory that the transactions entered into between petitioner and
STM are but serial parts of one account, petitioner insists that its debt has been offset by its claim for
STM's unpaid purchases, pursuant to Article 1279 of the Civil Code. 28 However, the trial court found, and
the Court of Appeals concurred, that the purchase of sugar covered by SLDR No. 1214M was a separate
and independent transaction; it was not a serial part of a single transaction or of one account contrary to
petitioner's insistence. Evidence on record shows, without being rebutted, that petitioner had been paid for
the sugar purchased under SLDR No. 1214M. Petitioner clearly had the obligation to deliver said
commodity to STM or its assignee. Since said sugar had been fully paid for, petitioner and CSC, as
assignee of STM, were not mutually creditors and debtors of each other. No reversible error could thereby
be imputed to respondent appellate court when, it refused to apply Article 1279 of the Civil Code to the
present case.
Regarding the third issue, petitioner contends that the sale of sugar under SLDR No. 1214M is a
conditional sale or a contract to sell, with title to the sugar still remaining with the vendor. Noteworthy,
SLDR No. 1214M contains the following terms and conditions:
"It is understood and agreed that by payment by buyer/trader of refined sugar and/or receipt of this
document by the buyer/trader personally or through a representative, title to refined sugar is transferred
to buyer/trader and delivery to him/it is deemed effected and completed (stress supplied) and buyer/trader
assumes full responsibility therefore"29
The aforequoted terms and conditions clearly show that petitioner transferred title to the sugar to the
buyer or his assignee upon payment of the purchase price. Said terms clearly establish a contract of sale,
not a contract to sell. Petitioner is now estopped from alleging the contrary. The contract is the law
between the contracting parties.30 And where the terms and conditions so stipulated are not contrary to
law, morals, good customs, public policy or public order, the contract is valid and must be
upheld.31 Having transferred title to the sugar in question, petitioner is now obliged to deliver it to the
purchaser or its assignee.
As to the fourth issue, petitioner submits that STM and private respondent CSC have entered into a
conspiracy to defraud it of its sugar. This conspiracy is allegedly evidenced by: (a) the fact that STM's
selling price to CSC was below its purchasing price; (b) CSC's refusal to pursue its case against Teresita
Ng Go; and (c) the authority given by the latter to other persons to withdraw sugar against SLDR No.
1214M after she had sold her rights under said SLDR to CSC. Petitioner prays that the doctrine of "clean
hands" should be applied to preclude CSC from seeking judicial relief. However, despite careful scrutiny,
we find here the records bare of convincing evidence whatsoever to support the petitioner's allegations of
fraud. We are now constrained to deem this matter purely speculative, bereft of concrete proof.
WHEREFORE, the instant petition is DENIED for lack of merit. Costs against petitioner.
SO ORDERED.