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G.R. No.

167552 April 23, 2007

EUROTECH INDUSTRIAL TECHNOLOGIES, INC., Petitioner,


vs.
EDWIN CUIZON and ERWIN CUIZON, Respondents.

DECISION

CHICO-NAZARIO, J.:

Before Us is a petition for review by certiorari assailing the Decision1 of the Court of Appeals dated
10 August 2004 and its Resolution2 dated 17 March 2005 in CA-G.R. SP No. 71397 entitled,
"Eurotech Industrial Technologies, Inc. v. Hon. Antonio T. Echavez." The assailed Decision and
Resolution affirmed the Order3 dated 29 January 2002 rendered by Judge Antonio T. Echavez
ordering the dropping of respondent EDWIN Cuizon (EDWIN) as a party defendant in Civil Case No.
CEB-19672.

The generative facts of the case are as follows:

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

From January to April 1995, petitioner sold to Impact Systems various products allegedly amounting
to ninety-one thousand three hundred thirty-eight (91,338.00) pesos. Subsequently, respondents
sought to buy from petitioner one unit of sludge pump valued at 250,000.00 with respondents
making a down payment of fifty thousand pesos (50,000.00).4 When the sludge pump arrived from
the United Kingdom, petitioner refused to deliver the same to respondents without their having fully
settled their indebtedness to petitioner. Thus, on 28 June 1995, respondent EDWIN and Alberto de
Jesus, general manager of petitioner, executed a Deed of Assignment of receivables in favor of
petitioner, the pertinent part of which states:

1.) That ASSIGNOR5 has an outstanding receivables from Toledo Power Corporation in the
amount of THREE HUNDRED SIXTY FIVE THOUSAND (365,000.00) PESOS as payment
for the purchase of one unit of Selwood Spate 100D Sludge Pump;

2.) That said ASSIGNOR does hereby ASSIGN, TRANSFER, and CONVEY unto the
ASSIGNEE6 the said receivables from Toledo Power Corporation in the amount of THREE
HUNDRED SIXTY FIVE THOUSAND (365,000.00) PESOS which receivables the
ASSIGNOR is the lawful recipient;

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

Following the execution of the Deed of Assignment, petitioner delivered to respondents the sludge
pump as shown by Invoice No. 12034 dated 30 June 1995.8

Allegedly unbeknownst to petitioner, respondents, despite the existence of the Deed of Assignment,
proceeded to collect from Toledo Power Company the amount of 365,135.29 as evidenced by
Check Voucher No. 09339prepared by said power company and an official receipt dated 15 August
1995 issued by Impact Systems.10Alarmed by this development, petitioner made several demands
upon respondents to pay their obligations. As a result, respondents were able to make partial
payments to petitioner. On 7 October 1996, petitioners counsel sent respondents a final demand
letter wherein it was stated that as of 11 June 1996, respondents total obligations stood at
295,000.00 excluding interests and attorneys fees.11 Because of respondents failure to abide by
said final demand letter, petitioner instituted a complaint for sum of money, damages, with
application for preliminary attachment against herein respondents before the Regional Trial Court of
Cebu City.12

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

On 25 June 1997, respondent EDWIN filed his Answer14 wherein he admitted petitioners allegations
with respect to the sale transactions entered into by Impact Systems and petitioner between January
and April 1995.15 He, however, disputed the total amount of Impact Systems indebtedness to
petitioner which, according to him, amounted to only 220,000.00.16

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

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

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

On 26 June 1998, petitioner filed a Motion to Declare Defendant ERWIN in Default with Motion for
Summary Judgment. The trial court granted petitioners motion to declare respondent ERWIN in
default "for his failure to answer within the prescribed period despite the opportunity granted"18 but it
denied petitioners motion for summary judgment in its Order of 31 August 2001 and scheduled the
pre-trial of the case on 16 October 2001.19 However, the conduct of the pre-trial conference was
deferred pending the resolution by the trial court of the special and affirmative defenses raised by
respondent EDWIN.20

After the filing of respondent EDWINs Memorandum21 in support of his special and affirmative
defenses and petitioners opposition22 thereto, the trial court rendered its assailed Order dated 29
January 2002 dropping respondent EDWIN as a party defendant in this case. According to the trial
court

A study of Annex "G" to the complaint shows that in the Deed of Assignment, defendant Edwin B.
Cuizon acted in behalf of or represented [Impact] Systems Sales; that [Impact] Systems Sale is a
single proprietorship entity and the complaint shows that defendant Erwin H. Cuizon is the
proprietor; that plaintiff corporation is represented by its general manager Alberto de Jesus in the
contract which is dated June 28, 1995. A study of Annex "H" to the complaint reveals that [Impact]
Systems Sales which is owned solely by defendant Erwin H. Cuizon, made a down payment of
50,000.00 that Annex "H" is dated June 30, 1995 or two days after the execution of Annex "G",
thereby showing that [Impact] Systems Sales ratified the act of Edwin B. Cuizon; the records further
show that plaintiff knew that [Impact] Systems Sales, the principal, ratified the act of Edwin B.
Cuizon, the agent, when it accepted the down payment of 50,000.00. Plaintiff, therefore, cannot
say that it was deceived by defendant Edwin B. Cuizon, since in the instant case the principal has
ratified the act of its agent and plaintiff knew about said ratification. Plaintiff could not say that the
subject contract was entered into by Edwin B. Cuizon in excess of his powers since [Impact]
Systems Sales made a down payment of 50,000.00 two days later.

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

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

WHEREFORE, finding no viable legal ground to reverse or modify the conclusions reached by the
public respondent in his Order dated January 29, 2002, it is hereby AFFIRMED.24

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

THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR WHEN IT RULED THAT


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

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

Art. 1897. The agent who acts as such is not personally liable to the party with whom he contracts,
unless he expressly binds himself or exceeds the limits of his authority without giving such party
sufficient notice of his powers.

Petitioner contends that the Court of Appeals failed to appreciate the effect of ERWINs act of
collecting the receivables from the Toledo Power Corporation notwithstanding the existence of the
Deed of Assignment signed by EDWIN on behalf of Impact Systems. While said collection did not
revoke the agency relations of respondents, petitioner insists that ERWINs action repudiated
EDWINs power to sign the Deed of Assignment. As EDWIN did not sufficiently notify it of the extent
of his powers as an agent, petitioner claims that he should be made personally liable for the
obligations of his principal.26

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

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

We do not find merit in the petition.

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


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

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

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

We disagree.

Article 1897 reinforces the familiar doctrine that an agent, who acts as such, is not personally liable
to the party with whom he contracts. The same provision, however, presents two instances when an
agent becomes personally liable to a third person. The first is when he expressly binds himself to the
obligation and the second is when he exceeds his authority. In the last instance, the agent can be
held liable if he does not give the third party sufficient notice of his powers. We hold that respondent
EDWIN does not fall within any of the exceptions contained in this provision.

The Deed of Assignment clearly states that respondent EDWIN signed thereon as the sales
manager of Impact Systems. As discussed elsewhere, the position of manager is unique in that it
presupposes the grant of broad powers with which to conduct the business of the principal, thus:

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

Applying the foregoing to the present case, we hold that Edwin Cuizon acted well-within his authority
when he signed the Deed of Assignment. To recall, petitioner refused to deliver the one unit of
sludge pump unless it received, in full, the payment for Impact Systems indebtedness.36 We may
very well assume that Impact Systems desperately needed the sludge pump for its business since
after it paid the amount of fifty thousand pesos (50,000.00) 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
th G.R. No. L-24332 January 31, 1978

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


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

Seno, Mendoza & Associates for petitioner.

Ramon Duterte for private respondent.

MUOZ PALMA, J.:

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

Hence, this Petition for Review on certiorari.

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

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

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

A. On Plaintiffs Complaint

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

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


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

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

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


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

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

B. On GO CHANTS Cross-Claim:

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


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

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


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

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


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

(1) Dismissing the third-party complaint without prejudice to filing either a complaint
against the regular administrator of the Estate of Gerundia Rallos or a claim in the
Intestate-Estate of Cerundia Rallos, covering the same subject-matter of the third-
party complaint, at bar. (pp. 98-100, Record on Appeal)

Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of Appeals from the
foregoing judgment insofar as it set aside the sale of the one-half (1/2) share of Concepcion Rallos.
The appellate tribunal, as adverted to earlier, resolved the appeal on November 20, 1964 in favor of
the appellant corporation sustaining the sale in question. 1 The appellee administrator, Ramon
Rallos, moved for a reconsider of the decision but the same was denied in a resolution of March 4,
1965. 2

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

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

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

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

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

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

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

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

ART. 1919. Agency is extinguished.

xxx xxx xxx


3. By the death, civil interdiction, insanity or insolvency of the principal or of the
agent; ... (Emphasis supplied)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


quote:

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

In case of a general power which does not specify the persons to whom represents'
on should be made, it is the general opinion that all acts, executed with third persons
who contracted in good faith, Without knowledge of the revocation, are valid. In such
case, the principal may exercise his right against the agent, who, knowing of the
revocation, continued to assume a personality which he no longer had. (Manresa
Vol. 11, pp. 561 and 575; pp. 15-16, rollo)

The above discourse however, treats of revocation by an act of the principal as a mode of
terminating an agency which is to be distinguished from revocation by operation of law such as
death of the principal which obtains in this case. On page six of this Opinion We stressed that by
reason of the very nature of the relationship between principal and agent, agency is
extinguished ipso jure upon the death of either principal or agent. Although a revocation of a power
of attorney to be effective must be communicated to the parties concerned, 18 yet a revocation by
operation of law, such as by death of the principal is, as a rule, instantaneously effective inasmuch
as "by legal fiction the agent's exercise of authority is regarded as an execution of the
principal's continuing will. 19 With death, the principal's will ceases or is the of authority is
extinguished.

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

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

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

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

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


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

As between two innocent persons, one of whom must suffer the


consequence of a breach of trust, the one who made it possible by
his act of coincidence bear the loss. (pp. 19-21)

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

xxx xxx xxx

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


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

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

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

... That a payment may be good today, or bad tomorrow, from the accident
circumstance of the death of the principal, which he did not know, and which by no
possibility could he know? It would be unjust to the agent and unjust to the debtor. In
the civil law, the acts of the agent, done bona fide in ignorance of the death of his
principal are held valid and binding upon the heirs of the latter. The same rule holds
in the Scottish law, and I cannot believe the common law is so unreasonable... (39
Am. Dec. 76, 80, 81; emphasis supplied)

To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may evoke, mention
may be made that the above represents the minority view in American jurisprudence. Thus
in Clayton v. Merrett, the Court said.

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

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

The opinion, therefore, of the learned Judge may be regarded more as an


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

Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in American


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

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

So Ordered.

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

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

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

Let the records of this case be remanded to the Regional Trial Court, Branch 8, Cebu City, for the
continuation of the proceedings against respondent Erwin Cuizon.

SO ORDERED.

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

FABIOLA SEVERINO, plaintiff-appellee,


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

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


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

OSTRAND, J.:

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

The lower court rendered a judgment recognizing the plaintiff Fabiola Severino as the acknowledged
natural child of the said Melecio Severino and ordering the defendant to convey 428 hectares of the
land in question to the intervenor as administratrix of the estate of the said Melecio Severino, to
deliver to her the proceeds in his possession of a certain mortgage placed thereon by him and to pay
the costs. From this judgment only the defendant appeals.
The land described in the complaint forms one continuous tract and consists of lots Nos. 827, 828,
834, and 874 of the cadaster of Silay, Province of Occidental Negros, which measure, respectively,
61 hectares, 74 ares, and 79 centiares; 76 hectares, 34 ares, and 79 centiares; 52 hectares, 86
ares, and 60 centiares and 608 hectares, 77 ares and 28 centiares, or a total of 799 hectares, 75
ares, and 46 centiares.

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

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

The appellant presents the following nine assignments of error:

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

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

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

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

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

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

7. The trial court erred in granting the petition of the plaintiff for an attachment without first
giving the defendant an opportunity to be heard.
8. The trial court erred in ordering the conveyance of 428 hectares of land by defendant to
the administratrix.

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

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

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

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

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

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

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

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

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

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

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

In the case of Massie vs. Watts (6 Cranch, 148), the United States Supreme Court, speaking
through Chief Justice Marshall, said:

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

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

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

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

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

The decree of the court provided, among other things, for the conveyance of the club house and the
land on which it stood from the defendant, Cho Jan Ling, in whose name it was registered, to the
members of the association. In affirming the decree, this court said:
In the case at bar the legal title of the holder of the registered title is not questioned; it is
admitted that the members of the association voluntarily obtained the inscription in the name
of Cho Jan Ling, and that they had no right to have that inscription cancelled; they do not
seek such cancellation, and on the contrary they allege and prove that the duly registered
legal title to the property is in Cho Jan Ling, but they maintain, and we think that they rightly
maintain, that he holds it under an obligation, both express and implied, to deal with it
exclusively for the benefit of the members of the association, and subject to their will.

In the case of Camacho vs. Municipality of Baliuag (28 Phil., 466), the plaintiff, Camacho, took title to
the land in his own name, while acting as agent for the municipality. The court said:

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

xxx xxx xxx

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

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

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

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

We have already shown that before the issuance of the decree of registration it was the undoubted
duty of the defendant to restore the property committed to his custody to his principal, or to the
latter's estate, and that the principal had a right of action in personam to enforce the performance of
this duty and to compel the defendant to execute the necessary conveyance to that effect. The only
question remaining for consideration is, therefore, whether the decree of registration extinguishing
this personal right of action.
In Australia and New Zealand, under statutes in this respect similar to ours, courts of equity exercise
general jurisdiction in matters of fraud and error with reference to Torrens registered lands, and
giving attention to the special provisions of the Torrens acts, will issue such orders and direction to
all the parties to the proceedings as may seem just and proper under the circumstances. They may
order parties to make deeds of conveyance and if the order is disobeyed, they may cause proper
conveyances to be made by a Master in Chancery or Commissioner in accordance with the practice
in equity (Hogg, Australian Torrens System, p. 847).

In the Untied States courts have even gone so far in the exercise of their equity jurisdiction as to set
aside final decrees after the expiration of the statutory period of limitation for the reopening of such
decrees (Baart vs. Martin, 99 Minn., 197). But, considering that equity follows the law and that our
statutes expressly prohibit the reopening of a decree after one year from the date of its entry, this
practice would probably be out of question here, especially so as the ends of justice may be attained
by other equally effective, and less objectionable means.

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

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

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

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

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

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

In Cabanos vs. Register of Deeds of Laguna and Obiana (40 Phil., 620), it was held that, while a
purchaser of land under a pacto de retro cannot institute a real action for the recovery thereof where
the vendor under said sale has caused such lands to be registered in his name without said
vendee's consent, yet he may have his personal action based on the contract of sale to compel the
execution of an unconditional deed for the said lands when the period for repurchase has passed.

Torrens titles being on judicial decrees there is, of course, a strong presumption in favor of their
regularity or validity, and in order to maintain an action such as the present the proof as to the
fiduciary relation of the parties and of the breach of trust must be clear and convincing. Such proof
is, as we have seen, not lacking in this case.

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

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

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

G.R. No. 149353 June 26, 2006

JOCELYN B. DOLES, Petitioner,


vs.
MA. AURA TINA ANGELES, Respondent.
DECISION

AUSTRIA-MARTINEZ, J.:

This refers to the Petition for Review on Certiorari under Rule 45 of the Rules of Court questioning
the Decision1dated April 30, 2001 of the Court of Appeals (CA) in C.A.-G.R. CV No. 66985, which
reversed the Decision dated July 29, 1998 of the Regional Trial Court (RTC), Branch 21, City of
Manila; and the CA Resolution2 dated August 6, 2001 which denied petitioners Motion for
Reconsideration.

The antecedents of the case follow:

On April 1, 1997, Ma. Aura Tina Angeles (respondent) filed with the RTC a complaint for Specific
Performance with Damages against Jocelyn B. Doles (petitioner), docketed as Civil Case No. 97-
82716. Respondent alleged that petitioner was indebted to the former in the concept of a personal
loan amounting to P405,430.00 representing the principal amount and interest; that on October 5,
1996, by virtue of a "Deed of Absolute Sale",3 petitioner, as seller, ceded to respondent, as buyer, a
parcel of land, as well as the improvements thereon, with an area of 42 square meters, covered by
Transfer Certificate of Title No. 382532,4 and located at a subdivision project known as Camella
Townhomes Sorrente in Bacoor, Cavite, in order to satisfy her personal loan with respondent; that
this property was mortgaged to National Home Mortgage Finance Corporation (NHMFC) to secure
petitioners loan in the sum of P337,050.00 with that entity; that as a condition for the foregoing sale,
respondent shall assume the undue balance of the mortgage and pay the monthly amortization
of P4,748.11 for the remainder of the 25 years which began on September 3, 1994; that the property
was at that time being occupied by a tenant paying a monthly rent of P3,000.00; that upon
verification with the NHMFC, respondent learned that petitioner had incurred arrearages amounting
to P26,744.09, inclusive of penalties and interest; that upon informing the petitioner of her arrears,
petitioner denied that she incurred them and refused to pay the same; that despite repeated
demand, petitioner refused to cooperate with respondent to execute the necessary documents and
other formalities required by the NHMFC to effect the transfer of the title over the property; that
petitioner collected rent over the property for the month of January 1997 and refused to remit the
proceeds to respondent; and that respondent suffered damages as a result and was forced to
litigate.

Petitioner, then defendant, while admitting some allegations in the Complaint, denied that she
borrowed money from respondent, and averred that from June to September 1995, she referred her
friends to respondent whom she knew to be engaged in the business of lending money in exchange
for personal checks through her capitalist Arsenio Pua. She alleged that her friends, namely,
Zenaida Romulo, Theresa Moratin, Julia Inocencio, Virginia Jacob, and Elizabeth Tomelden,
borrowed money from respondent and issued personal checks in payment of the loan; that the
checks bounced for insufficiency of funds; that despite her efforts to assist respondent to collect from
the borrowers, she could no longer locate them; that, because of this, respondent became furious
and threatened petitioner that if the accounts were not settled, a criminal case will be filed against
her; that she was forced to issue eight checks amounting to P350,000 to answer for the bounced
checks of the borrowers she referred; that prior to the issuance of the checks she informed
respondent that they were not sufficiently funded but the latter nonetheless deposited the checks
and for which reason they were subsequently dishonored; that respondent then threatened to initiate
a criminal case against her for violation of Batas Pambansa Blg. 22; that she was forced by
respondent to execute an "Absolute Deed of Sale" over her property in Bacoor, Cavite, to avoid
criminal prosecution; that the said deed had no valid consideration; that she did not appear before a
notary public; that the Community Tax Certificate number on the deed was not hers and for which
respondent may be prosecuted for falsification and perjury; and that she suffered damages and lost
rental as a result.

The RTC identified the issues as follows: first, whether the Deed of Absolute Sale is valid; second; if
valid, whether petitioner is obliged to sign and execute the necessary documents to effect the
transfer of her rights over the property to the respondent; and third, whether petitioner is liable for
damages.

On July 29, 1998, the RTC rendered a decision the dispositive portion of which states:

WHEREFORE, premises considered, the Court hereby orders the dismissal of the complaint for
insufficiency of evidence. With costs against plaintiff.

SO ORDERED.

The RTC held that the sale was void for lack of cause or consideration:5

Plaintiff Angeles admission that the borrowers are the friends of defendant Doles and further
admission that the checks issued by these borrowers in payment of the loan obligation negates [sic]
the cause or consideration of the contract of sale executed by and between plaintiff and defendant.
Moreover, the property is not solely owned by defendant as appearing in Entry No. 9055 of Transfer
Certificate of Title No. 382532 (Annex A, Complaint), thus:

"Entry No. 9055. Special Power of Attorney in favor of Jocelyn Doles covering the share of
Teodorico Doles on the parcel of land described in this certificate of title by virtue of the special
power of attorney to mortgage, executed before the notary public, etc."

The rule under the Civil Code is that contracts without a cause or consideration produce no effect
whatsoever. (Art. 1352, Civil Code).

Respondent appealed to the CA. In her appeal brief, respondent interposed her sole assignment of
error:

THE TRIAL COURT ERRED IN DISMISSING THE CASE AT BAR ON THE GROUND OF [sic] THE
DEED OF SALE BETWEEN THE PARTIES HAS NO CONSIDERATION OR INSUFFICIENCY OF
EVIDENCE.6

On April 30, 2001, the CA promulgated its Decision, the dispositive portion of which reads:

WHEREFORE, IN VIEW OF THE FOREGOING, this appeal is hereby GRANTED. The Decision of
the lower court dated July 29, 1998 is REVERSED and SET ASIDE. A new one is entered ordering
defendant-appellee to execute all necessary documents to effect transfer of subject property to
plaintiff-appellant with the arrearages of the formers loan with the NHMFC, at the latters expense.
No costs.

SO ORDERED.

The CA concluded that petitioner was the borrower and, in turn, would "re-lend" the amount
borrowed from the respondent to her friends. Hence, the Deed of Absolute Sale was supported by a
valid consideration, which is the sum of money petitioner owed respondent amounting
to P405,430.00, representing both principal and interest.
The CA took into account the following circumstances in their entirety: the supposed friends of
petitioner never presented themselves to respondent and that all transactions were made by and
between petitioner and respondent;7 that the money borrowed was deposited with the bank account
of the petitioner, while payments made for the loan were deposited by the latter to respondents bank
account;8 that petitioner herself admitted in open court that she was "re-lending" the money loaned
from respondent to other individuals for profit;9 and that the documentary evidence shows that the
actual borrowers, the friends of petitioner, consider her as their creditor and not the respondent.10

Furthermore, the CA held that the alleged threat or intimidation by respondent did not vitiate
consent, since the same is considered just or legal if made to enforce ones claim through competent
authority under Article 133511 of the Civil Code;12 that with respect to the arrearages of petitioner on
her monthly amortization with the NHMFC in the sum of P26,744.09, the same shall be deemed part
of the balance of petitioners loan with the NHMFC which respondent agreed to assume; and that the
amount of P3,000.00 representing the rental for January 1997 supposedly collected by petitioner, as
well as the claim for damages and attorneys fees, is denied for insufficiency of evidence.13

On May 29, 2001, petitioner filed her Motion for Reconsideration with the CA, arguing that
respondent categorically admitted in open court that she acted only as agent or representative of
Arsenio Pua, the principal financier and, hence, she had no legal capacity to sue petitioner; and that
the CA failed to consider the fact that petitioners father, who co-owned the subject property, was not
impleaded as a defendant nor was he indebted to the respondent and, hence, she cannot be made
to sign the documents to effect the transfer of ownership over the entire property.

On August 6, 2001, the CA issued its Resolution denying the motion on the ground that the
foregoing matters had already been passed upon.

On August 13, 2001, petitioner received a copy of the CA Resolution. On August 28, 2001, petitioner
filed the present Petition and raised the following issues:

I.

WHETHER OR NOT THE PETITIONER CAN BE CONSIDERED AS A DEBTOR OF THE


RESPONDENT.

II.

WHETHER OR NOT AN AGENT WHO WAS NOT AUTHORIZED BY THE PRINCIPAL TO


COLLECT DEBT IN HIS BEHALF COULD DIRECTLY COLLECT PAYMENT FROM THE
DEBTOR.

III.

WHETHER OR NOT THE CONTRACT OF SALE WAS EXECUTED FOR A CAUSE.14

Although, as a rule, it is not the business of this Court to review the findings of fact made by the
lower courts, jurisprudence has recognized several exceptions, at least three of which are present in
the instant case, namely: when the judgment is based on a misapprehension of facts; when the
findings of facts of the courts a quo are conflicting; and when the CA manifestly overlooked certain
relevant facts not disputed by the parties, which, if properly considered, could justify a different
conclusion.15 To arrive at a proper judgment, therefore, the Court finds it necessary to re-examine
the evidence presented by the contending parties during the trial of the case.
The Petition is meritorious.

The principal issue is whether the Deed of Absolute Sale is supported by a valid consideration.

1. Petitioner argues that since she is merely the agent or representative of the alleged debtors, then
she is not a party to the loan; and that the Deed of Sale executed between her and the respondent in
their own names, which was predicated on that pre-existing debt, is void for lack of consideration.

Indeed, the Deed of Absolute Sale purports to be supported by a consideration in the form of a price
certain in money16 and that this sum indisputably pertains to the debt in issue. This Court has
consistently held that a contract of sale is null and void and produces no effect whatsoever where
the same is without cause or consideration.17 The question that has to be resolved for the moment is
whether this debt can be considered as a valid cause or consideration for the sale.

To restate, the CA cited four instances in the record to support its holding that petitioner "re-lends"
the amount borrowed from respondent to her friends: first, the friends of petitioner never presented
themselves to respondent and that all transactions were made by and between petitioner and
respondent;18 second; the money passed through the bank accounts of petitioner and
respondent;19 third, petitioner herself admitted that she was "re-lending" the money loaned to other
individuals for profit;20 and fourth, the documentary evidence shows that the actual borrowers, the
friends of petitioner, consider her as their creditor and not the respondent.21

On the first, third, and fourth points, the CA cites the testimony of the petitioner, then defendant,
during her cross-examination:22

Atty. Diza:

q. You also mentioned that you were not the one indebted to the plaintiff?

witness:

a. Yes, sir.

Atty. Diza:

q. And you mentioned the persons[,] namely, Elizabeth Tomelden, Teresa Moraquin, Maria
Luisa Inocencio, Zenaida Romulo, they are your friends?

witness:

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

Atty. Diza:

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

witness:

a. Yes, sir.
Atty. Diza:

q. What is that transaction?

witness:

a. To refer those persons to Aura and to refer again to Arsenio Pua, sir.

Atty. Diza:

q. Did the plaintiff personally see the transactions with your friends?

witness:

a. No, sir.

Atty. Diza:

q. Your friends and the plaintiff did not meet personally?

witness:

a. Yes, sir.

Atty. Diza:

q. You are intermediaries?

witness:

a. We are both intermediaries. As evidenced by the checks of the debtors they were
deposited to the name of Arsenio Pua because the money came from Arsenio Pua.

xxxx

Atty. Diza:

q. Did the plaintiff knew [sic] that you will lend the money to your friends specifically the one
you mentioned [a] while ago?

witness:

a. Yes, she knows the money will go to those persons.

Atty. Diza:

q. You are re-lending the money?

witness:
a. Yes, sir.

Atty. Diza:

q. What profit do you have, do you have commission?

witness:

a. Yes, sir.

Atty. Diza:

q. How much?

witness:

a. Two percent to Tomelden, one percent to Jacob and then Inocencio and my friends none,
sir.

Based on the foregoing, the CA concluded that petitioner is the real borrower, while the
respondent, the real lender.

But as correctly noted by the RTC, respondent, then plaintiff, made the following admission
during her cross examination:23

Atty. Villacorta:

q. Who is this Arsenio Pua?

witness:

a. Principal financier, sir.

Atty. Villacorta:

q. So the money came from Arsenio Pua?

witness:

a. Yes, because I am only representing him, sir.

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

Atty. Villacorta:

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

witness:

a. Yes, sir.
Court:

q. It is not your money?

witness:

a. Yes, Your Honor.

Atty. Villacorta:

q. Is it not a fact Ms. Witness that the defendant borrowed from you to accommodate
somebody, are you aware of that?

witness:

a. I am aware of that.

Atty. Villacorta:

q. More or less she [accommodated] several friends of the defendant?

witness:

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

xxxx

Atty. Villacorta:

q. And these friends of the defendant borrowed money from you with the assurance of the
defendant?

witness:

a. They go direct to Jocelyn because I dont know them.

xxxx

Atty. Villacorta:

q. And is it not also a fact Madam witness that everytime that the defendant borrowed money
from you her friends who [are] in need of money issued check[s] to you? There were checks
issued to you?

witness:

a. Yes, there were checks issued.

Atty. Villacorta:
q. By the friends of the defendant, am I correct?

witness:

a. Yes, sir.

Atty. Villacorta:

q. And because of your assistance, the friends of the defendant who are in need of money
were able to obtain loan to [sic] Arsenio Pua through your assistance?

witness:

a. Yes, sir.

Atty. Villacorta:

q. So that occasion lasted for more than a year?

witness:

a. Yes, sir.

Atty. Villacorta:

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

witness:

a. Yes, sir.

Atty. Villacorta:

q. And because of that Arsenio Pua got mad with you?

witness:

a. Yes, sir.

Respondent is estopped to deny that she herself acted as agent of a certain Arsenio Pua, her
disclosed principal. She is also estopped to deny that petitioner acted as agent for the alleged
debtors, the friends whom she (petitioner) referred.

This Court has affirmed that, under Article 1868 of the Civil Code, the basis of agency is
representation.25 The question of whether an agency has been created is ordinarily a question which
may be established in the same way as any other fact, either by direct or circumstantial evidence.
The question is ultimately one of intention.26 Agency may even be implied from the words and
conduct of the parties and the circumstances of the particular case.27Though the fact or extent of
authority of the agents may not, as a general rule, be established from the declarations of the agents
alone, if one professes to act as agent for another, she may be estopped to deny her agency both as
against the asserted principal and the third persons interested in the transaction in which he or she
is engaged.28

In this case, petitioner knew that the financier of respondent is Pua; and respondent knew that the
borrowers are friends of petitioner.

The CA is incorrect when it considered the fact that the "supposed friends of [petitioner], the actual
borrowers, did not present themselves to [respondent]" as evidence that negates the agency
relationshipit is sufficient that petitioner disclosed to respondent that the former was acting in
behalf of her principals, her friends whom she referred to respondent. For an agency to arise, it is
not necessary that the principal personally encounter the third person with whom the agent interacts.
The law in fact contemplates, and to a great degree, impersonal dealings where the principal need
not personally know or meet the third person with whom her agent transacts: precisely, the purpose
of agency is to extend the personality of the principal through the facility of the agent.29

In the case at bar, both petitioner and respondent have undeniably disclosed to each other that they
are representing someone else, and so both of them are estopped to deny the same. It is evident
from the record that petitioner merely refers actual borrowers and then collects and disburses the
amounts of the loan upon which she received a commission; and that respondent transacts on
behalf of her "principal financier", a certain Arsenio Pua. If their respective principals do not actually
and personally know each other, such ignorance does not affect their juridical standing as agents,
especially since the very purpose of agency is to extend the personality of the principal through the
facility of the agent.

With respect to the admission of petitioner that she is "re-lending" the money loaned from
respondent to other individuals for profit, it must be stressed that the manner in which the parties
designate the relationship is not controlling. If an act done by one person in behalf of another is in its
essential nature one of agency, the former is the agent of the latter notwithstanding he or she is not
so called.30 The question is to be determined by the fact that one represents and is acting for
another, and if relations exist which will constitute an agency, it will be an agency whether the parties
understood the exact nature of the relation or not.31

That both parties acted as mere agents is shown by the undisputed fact that the friends of petitioner
issued checks in payment of the loan in the name of Pua. If it is true that petitioner was "re-lending",
then the checks should have been drawn in her name and not directly paid to Pua.

With respect to the second point, particularly, the finding of the CA that the disbursements and
payments for the loan were made through the bank accounts of petitioner and respondent,

suffice it to say that in the normal course of commercial dealings and for reasons of convenience
and practical utility it can be reasonably expected that the facilities of the agent, such as a bank
account, may be employed, and that a sub-agent be appointed, such as the bank itself, to carry out
the task, especially where there is no stipulation to the contrary.32

In view of the two agency relationships, petitioner and respondent are not privy to the contract of
loan between their principals. Since the sale is predicated on that loan, then the sale is void for lack
of consideration.

2. A further scrutiny of the record shows, however, that the sale might have been backed up by
another consideration that is separate and distinct from the debt: respondent averred in her
complaint and testified that the parties had agreed that as a condition for the conveyance of the
property the respondent shall assume the balance of the mortgage loan which petitioner allegedly
owed to the NHMFC.33 This Court in the recent past has declared that an assumption of a mortgage
debt may constitute a valid consideration for a sale.34

Although the record shows that petitioner admitted at the time of trial that she owned the property
described in the TCT,35 the Court must stress that the Transfer Certificate of Title No. 38253236 on its
face shows that the owner of the property which admittedly forms the subject matter of the Deed of
Absolute Sale refers neither to the petitioner nor to her father, Teodorico Doles, the alleged co-
owner. Rather, it states that the property is registered in the name of "Household Development
Corporation." Although there is an entry to the effect that the petitioner had been granted a special
power of attorney "covering the shares of Teodorico Doles on the parcel of land described in this
certificate,"37 it cannot be inferred from this bare notation, nor from any other evidence on the record,
that the petitioner or her father held any direct interest on the property in question so as to validly
constitute a mortgage thereon38 and, with more reason, to effect the delivery of the object of the sale
at the consummation stage.39 What is worse, there is a notation that the TCT itself has been
"cancelled."40

In view of these anomalies, the Court cannot entertain the possibility that respondent agreed to
assume the balance of the mortgage loan which petitioner allegedly owed to the NHMFC, especially
since the record is bereft of any factual finding that petitioner was, in the first place, endowed with
any ownership rights to validly mortgage and convey the property. As the complainant who initiated
the case, respondent bears the burden of proving the basis of her complaint. Having failed to
discharge such burden, the Court has no choice but to declare the sale void for lack of cause. And
since the sale is void, the Court finds it unnecessary to dwell on the issue of whether duress or
intimidation had been foisted upon petitioner upon the execution of the sale.

Moreover, even assuming the mortgage validly exists, the Court notes respondents allegation that
the mortgage with the NHMFC was for 25 years which began September 3, 1994. Respondent filed
her Complaint for Specific Performance in 1997. Since the 25 years had not lapsed, the prayer of
respondent to compel petitioner to execute necessary documents to effect the transfer of title is
premature.

WHEREFORE, the petition is granted. The Decision and Resolution of the Court of Appeals
are REVERSED and SET ASIDE. The complaint of respondent in Civil Case No. 97-82716
is DISMISSED.

SO ORDERED.

G.R. No. L-57339 December 29, 1983

AIR FRANCE, petitioner,


vs.
HONORABLE COURT OF APPEALS, JOSE G. GANA (Deceased), CLARA A. GANA, RAMON
GANA, MANUEL GANA, MARIA TERESA GANA, ROBERTO GANA, JAIME JAVIER GANA,
CLOTILDE VDA. DE AREVALO, and EMILY SAN JUAN, respondents.

Benjamin S. Valte for petitioner.

Napoleon Garcia for private respondents.


MELENCIO-HERRERA, J.:

In this petition for review on certiorari, petitioner AIR FRANCE assails the Decision of then
respondent Court of Appeals 1 promulgated on 15 December 1980 in CA-G.R. No. 58164-R, entitled
"Jose G. Gana, et al. vs. Sociedad Nacionale Air France", which reversed the Trial Court's judgment
dismissing the Complaint of private respondents for damages arising from breach of contract of
carriage, and awarding instead P90,000.00 as moral damages.

Sometime in February, 1970, the late Jose G. Gana and his family, numbering nine (the GANAS),
purchased from AIR FRANCE through Imperial Travels, Incorporated, a duly authorized travel agent,
nine (9) "open-dated" air passage tickets for the Manila/Osaka/Tokyo/Manila route. The GANAS paid
a total of US$2,528.85 for their economy and first class fares. Said tickets were bought at the then
prevailing exchange rate of P3.90 per US$1.00. The GANAS also paid travel taxes of P100.00 for
each passenger.

On 24 April 1970, AIR FRANCE exchanged or substituted the aforementioned tickets with other
tickets for the same route. At this time, the GANAS were booked for the Manila/Osaka segment on
AIR FRANCE Flight 184 for 8 May 1970, and for the Tokyo/Manila return trip on AIR FRANCE Flight
187 on 22 May 1970. The aforesaid tickets were valid until 8 May 1971, the date written under the
printed words "Non valuable apres de (meaning, "not valid after the").

The GANAS did not depart on 8 May 1970.

Sometime in January, 1971, Jose Gana sought the assistance of Teresita Manucdoc, a Secretary of
the Sta. Clara Lumber Company where Jose Gana was the Director and Treasurer, for the extension
of the validity of their tickets, which were due to expire on 8 May 1971. Teresita enlisted the help of
Lee Ella Manager of the Philippine Travel Bureau, who used to handle travel arrangements for the
personnel of the Sta. Clara Lumber Company. Ella sent the tickets to Cesar Rillo, Office Manager of
AIR FRANCE. The tickets were returned to Ella who was informed that extension was not possible
unless the fare differentials resulting from the increase in fares triggered by an increase of the
exchange rate of the US dollar to the Philippine peso and the increased travel tax were first paid.
Ella then returned the tickets to Teresita and informed her of the impossibility of extension.

In the meantime, the GANAS had scheduled their departure on 7 May 1971 or one day before the
expiry date. In the morning of the very day of their scheduled departure on the first leg of their trip,
Teresita requested travel agent Ella to arrange the revalidation of the tickets. Ella gave the same
negative answer and warned her that although the tickets could be used by the GANAS if they left
on 7 May 1971, the tickets would no longer be valid for the rest of their trip because the tickets would
then have expired on 8 May 1971. Teresita replied that it will be up to the GANAS to make the
arrangements. With that assurance, Ella on his own, attached to the tickets validating stickers for the
Osaka/Tokyo flight, one a JAL. sticker and the other an SAS (Scandinavian Airways System) sticker.
The SAS sticker indicates thereon that it was "Reevaluated by: the Philippine Travel Bureau, Branch
No. 2" (as shown by a circular rubber stamp) and signed "Ador", and the date is handwritten in the
center of the circle. Then appear under printed headings the notations: JL. 108 (Flight), 16 May
(Date), 1040 (Time), OK (status). Apparently, Ella made no more attempt to contact AIR FRANCE as
there was no more time.

Notwithstanding the warnings, the GANAS departed from Manila in the afternoon of 7 May 1971 on
board AIR FRANCE Flight 184 for Osaka, Japan. There is no question with respect to this leg of the
trip.
However, for the Osaka/Tokyo flight on 17 May 1971, Japan Airlines refused to honor the tickets
because of their expiration, and the GANAS had to purchase new tickets. They encountered the
same difficulty with respect to their return trip to Manila as AIR FRANCE also refused to honor their
tickets. They were able to return only after pre-payment in Manila, through their relatives, of the
readjusted rates. They finally flew back to Manila on separate Air France Frights on 19 May 1971 for
Jose Gana and 26 May 1971 for the rest of the family.

On 25 August 1971, the GANAS commenced before the then Court of First Instance of Manila,
Branch III, Civil Case No. 84111 for damages arising from breach of contract of carriage.

AIR FRANCE traversed the material allegations of the Complaint and alleged that the GANAS
brought upon themselves the predicament they found themselves in and assumed the consequential
risks; that travel agent Ella's affixing of validating stickers on the tickets without the knowledge and
consent of AIR FRANCE, violated airline tariff rules and regulations and was beyond the scope of his
authority as a travel agent; and that AIR FRANCE was not guilty of any fraudulent conduct or bad
faith.

On 29 May 1975, the Trial Court dismissed the Complaint based on Partial and Additional
Stipulations of Fact as wen as on the documentary and testimonial evidence.

The GANAS appealed to respondent Appellate Court. During the pendency of the appeal, Jose
Gana, the principal plaintiff, died.

On 15 December 1980, respondent Appellate Court set aside and reversed the Trial Court's
judgment in a Decision, which decreed:

WHEREFORE, the decision appealed from is set aside. Air France is hereby ordered
to pay appellants moral damages in the total sum of NINETY THOUSAND PESOS
(P90,000.00) plus costs.

SO ORDERED. 2

Reconsideration sought by AIR FRANCE was denied, hence, petitioner's recourse before this
instance, to which we gave due course.

The crucial issue is whether or not, under the environmental milieu the GANAS have made out a
case for breach of contract of carriage entitling them to an award of damages.

We are constrained to reverse respondent Appellate Court's affirmative ruling thereon.

Pursuant to tariff rules and regulations of the International Air Transportation Association (IATA),
included in paragraphs 9, 10, and 11 of the Stipulations of Fact between the parties in the Trial
Court, dated 31 March 1973, an airplane ticket is valid for one year. "The passenger must undertake
the final portion of his journey by departing from the last point at which he has made a voluntary stop
before the expiry of this limit (parag. 3.1.2. ) ... That is the time allowed a passenger to begin and to
complete his trip (parags. 3.2 and 3.3.). ... A ticket can no longer be used for travel if its validity has
expired before the passenger completes his trip (parag. 3.5.1.) ... To complete the trip, the
passenger must purchase a new ticket for the remaining portion of the journey" (ibid.) 3

From the foregoing rules, it is clear that AIR FRANCE cannot be faulted for breach of contract when
it dishonored the tickets of the GANAS after 8 May 1971 since those tickets expired on said date;
nor when it required the GANAS to buy new tickets or have their tickets re-issued for the
Tokyo/Manila segment of their trip. Neither can it be said that, when upon sale of the new tickets, it
imposed additional charges representing fare differentials, it was motivated by self-interest or unjust
enrichment considering that an increase of fares took effect, as authorized by the Civil Aeronautics
Board (CAB) in April, 1971. This procedure is well in accord with the IATA tariff rules which provide:

6. TARIFF RULES

7. APPLICABLE FARE ON THE DATE OF DEPARTURE

3.1 General Rule.

All journeys must be charged for at the fare (or charge) in effect on the date on which
transportation commences from the point of origin. Any ticket sold prior to a change
of fare or charge (increase or decrease) occurring between the date of
commencement of the journey, is subject to the above general rule and must be
adjusted accordingly. A new ticket must be issued and the difference is to be
collected or refunded as the case may be. No adjustment is necessary if the increase
or decrease in fare (or charge) occurs when the journey is already commenced. 4

The GANAS cannot defend by contending lack of knowledge of those rules since the evidence bears
out that Teresita, who handled travel arrangements for the GANAS, was duly informed by travel
agent Ella of the advice of Reno, the Office Manager of Air France, that the tickets in question could
not be extended beyond the period of their validity without paying the fare differentials and additional
travel taxes brought about by the increased fare rate and travel taxes.

ATTY. VALTE

Q What did you tell Mrs. Manucdoc, in turn after being told this by Mr.
Rillo?

A I told her, because that is the reason why they accepted again the
tickets when we returned the tickets spin, that they could not be
extended. They could be extended by paying the additional fare,
additional tax and additional exchange during that time.

Q You said so to Mrs. Manucdoc?

A Yes, sir." ... 5

The ruling relied on by respondent Appellate Court, therefore, in KLM. vs. Court of Appeals, 65
SCRA 237 (1975), holding that it would be unfair to charge respondents therein with automatic
knowledge or notice of conditions in contracts of adhesion, is inapplicable. To all legal intents and
purposes, Teresita was the agent of the GANAS and notice to her of the rejection of the request for
extension of the validity of the tickets was notice to the GANAS, her principals.

The SAS validating sticker for the Osaka/Tokyo flight affixed by Era showing reservations for JAL.
Flight 108 for 16 May 1971, without clearing the same with AIR FRANCE allegedly because of the
imminent departure of the GANAS on the same day so that he could not get in touch with Air
France 6 was certainly in contravention of IATA rules although as he had explained, he did so upon
Teresita's assurance that for the onward flight from Osaka and return, the GANAS would make other
arrangements.

Q Referring you to page 33 of the transcript of the last session, I had


this question which reads as follows: 'But did she say anything to you
when you said that the tickets were about to expire?' Your answer
was: 'I am the one who asked her. At that time I told her if the tickets
being used ... I was telling her what about their bookings on the
return. What about their travel on the return? She told me it is up for
the Ganas to make the arrangement.' May I know from you what did
you mean by this testimony of yours?

A That was on the day when they were asking me on May 7, 1971
when they were checking the tickets. I told Mrs. Manucdoc that I was
going to get the tickets. I asked her what about the tickets onward
from the return from Tokyo, and her answer was it is up for the Ganas
to make the arrangement, because I told her that they could leave on
the seventh, but they could take care of that when they arrived in
Osaka.

Q What do you mean?

A The Ganas will make the arrangement from Osaka, Tokyo and
Manila.

Q What arrangement?

A The arrangement for the airline because the tickets would expire on
May 7, and they insisted on leaving. I asked Mrs. Manucdoc what
about the return onward portion because they would be travelling to
Osaka, and her answer was, it is up to for the Ganas to make the
arrangement.

Q Exactly what were the words of Mrs. Manucdoc when you told her
that? If you can remember, what were her exact words?

A Her words only, it is up for the Ganas to make the arrangement.

Q This was in Tagalog or in English?

A I think it was in English. ... 7

The circumstances that AIR FRANCE personnel at the ticket counter in the airport allowed the
GANAS to leave is not tantamount to an implied ratification of travel agent Ella's irregular actuations.
It should be recalled that the GANAS left in Manila the day before the expiry date of their tickets and
that "other arrangements" were to be made with respect to the remaining segments. Besides, the
validating stickers that Ella affixed on his own merely reflect the status of reservations on the
specified flight and could not legally serve to extend the validity of a ticket or revive an expired one.

The conclusion is inevitable that the GANAS brought upon themselves the predicament they were in
for having insisted on using tickets that were due to expire in an effort, perhaps, to beat the deadline
and in the thought that by commencing the trip the day before the expiry date, they could complete
the trip even thereafter. It should be recalled that AIR FRANCE was even unaware of the validating
SAS and JAL. stickers that Ella had affixed spuriously. Consequently, Japan Air Lines and AIR
FRANCE merely acted within their contractual rights when they dishonored the tickets on the
remaining segments of the trip and when AIR FRANCE demanded payment of the adjusted fare
rates and travel taxes for the Tokyo/Manila flight.

WHEREFORE, the judgment under review is hereby reversed and set aside, and the Amended
Complaint filed by private respondents hereby dismissed.

No costs.

SO ORDERED.

G.R. No. 114311 November 29, 1996

COSMIC LUMBER CORPORATION, petitioner,


vs.
COURT OF APPEAL and ISIDRO PEREZ, respondents.

BELLOSILLO, J.:

COSMIC LUMBER CORPORATION through its General Manager executed on 28 January


1985 a Special Power of Attorney appointing Paz G. Villamil-Estrada as attorney-in-fact

. . . to initiate, institute and file any court action for the ejectment of third persons
and/or squatters of the entire lot 9127 and 443 and covered by TCT Nos. 37648 and
37649, for the said squatters to remove their houses and vacate the premises in
order that the corporation may take material possession of the entire lot, and for this
purpose, to appear at the pre-trial conference and enter into any stipulation of facts
and/or compromise agreement so far as it shall protect the rights and interest of the
corporation in the aforementioned lots. 1

On 11 March 1985 Paz G. Villamil-Estrada, by virtue of her power of attorney, instituted an


action for the ejectment of private respondent Isidro Perez and recover the possession of a
portion of Lot No. 443 before the Regional Trial Court of Dagupan, docketed as Civil Case
No. D-7750. 2

On 25 November 1985 Villamil-Estrada entered into a Compromise Agreement with


respondent Perez, the terms of which follow:

1. That as per relocation sketch plan dated June 5, 1985 prepared by Engineer
Rodolfo dela Cruz the area at present occupied by defendant wherein his house is
located is 333 square meters on the easternmost part of lot 443 and which portion
has been occupied by defendant for several years now;

2. That to buy peace said defendant pays unto the plaintiff through herein attorney-
in-fact the sum of P26,640.00 computed at P80.00/square meter;
3. That plaintiff hereby recognizes ownership and possession of the defendant by
virtue of this compromise agreement over said portion of 333 square m. of lot 443
which portion will be located on the easternmost part as indicated in the sketch as
annex A;

4. Whatever expenses of subdivision, registration, and other incidental expenses


shall be shouldered by the defendant. 3

On 27 November 1985 the "Compromise Agreement" was approved by the trial court and
judgment was rendered in accordance therewith. 4

Although the decision became final and executory it was not executed within the 5-year
period from date of its finality allegedly due to the failure of petitioner to produce the owner's
duplicate copy of Title No. 37649 needed to segregate from Lot No. 443 the portion sold by
the attorney-in-fact, Paz G. Villamil-Estrada, to private respondent under the compromise
agreement. Thus on 25 January 1993 respondent filed a complaint to revive the judgment,
docketed as Civil Case No. D-10459. 5

Petitioner asserts that it was only when the summons in Civil Case No. D-10459 for the
revival of judgment was served upon it that it came to know of the compromise agreement
entered into between Paz G. Villamil-Estrada and respondent Isidro Perez upon which the
trial court based its decision of 26 July 1993 in Civil Case No. D-7750. Forthwith, upon
learning of the fraudulent transaction, petitioner sought annulment of the decision of the trial
court before respondent Court of Appeals on the ground that the compromise agreement
was void because: (a) the attorney-in-fact did not have the authority to dispose of, sell,
encumber or divest the plaintiff of its ownership over its real property or any portion thereof;
(b) the authority of the attorney-in-fact was confined to the institution and filing of an
ejectment case against third persons/squatters on the property of the plaintiff, and to cause
their eviction therefrom; (c) while the special power of attorney made mention of an authority
to enter into a compromise agreement, such authority was in connection with, and limited to,
the eviction of third persons/squatters thereat, in order that "the corporation may take
material possession of the entire lot;" (d) the amount of P26,640.00 alluded to as alleged
consideration of said agreement was never received by the plaintiff; (e) the private defendant
acted in bad faith in. the execution of said agreement knowing fully well the want of authority
of the attorney-in-fact to sell, encumber or dispose of the real property of plaintiff; and, (f) the
disposal of a corporate property indispensably requires a Board Resolution of its Directors, a
fact which is wanting in said Civil Case No. D-7750, and the General Manager is not the
proper officer to encumber a corporate property. 6

On 29 October 1993 respondent court dismissed the complaint on the basis of its finding that
not one of the grounds for annulment, namely, lack of jurisdiction, fraud or illegality was
shown to exist. 7 It also denied the motion for reconsideration filed by petitioner, discoursing
that the alleged nullity of the compromise judgment on the ground that petitioner's attorney-
in-fact Villamil-Estrada was not authorized to sell the subject propety may be raised as a
defense in the execution of the compromise judgment as it does not bind petitioner, but not
as a ground for annulment of judgment because it does not affect the jurisdiction of the trial
court over the action nor does it amount to extrinsic fraud. 8

Petitioner challenges this verdict. It argues that the decision of the trial court is void because
the compromise agreement upon which it was based is void. Attorney-in-fact Villamil-Estrada
did not possess the authority to sell or was she armed with a Board Resolution authorizing
the sale of its property. She was merely empowered to enter into a compromise agreement
in the recovery suit she was authorized to file against persons squatting on Lot No. 443, such
authority being expressly confined to the "ejectment of third persons or squatters of . . . lot . .
. (No.) 443 . . . for the said squatters to remove their houses and vacate the premises in
order that the corporation may take material possession of the entire lot . . ."

We agree with petitioner. The authority granted Villamil-Estrada under the special power of
attorney was explicit and exclusionary: for her to institute any action in court to eject all
persons found on Lots Nos. 9127 and 443 so that petitioner could take material possession
thereof, and for this purpose, to appear at the pre-trial and enter into any stipulation of facts
and/or compromise agreement but only insofar as this was protective of the rights and
interests of petitioner in the property. Nowhere in this authorization was Villamil-Estrada
granted expressly or impliedly any power to sell the subject property nor a portion thereof.
Neither can a conferment of the power to sell be validly inferred from the specific authority
"to enter into a compromise agreement" because of the explicit limitation fixed by the grantor
that the compromise entered into shall only be "so far as it shall protect the rights and
interest of the corporation in the aforementioned lots." In the context of the specific
investiture of powers to Villamil-Estrada, alienation by sale of an immovable certainly cannot
be deemed protective of the right of petitioner to physically possess the same, more so when
the land was being sold for a price of P80.00 per square meter, very much less than its
assessed value of P250.00 per square meter, and considering further that petitioner never
received the proceeds of the sale.

When the sale of a piece of land or any interest thereon is through an agent, the authority of
the latter shall be in writing; otherwise, the sale shall be void. 9 Thus the authority of an agent
to execute a contract for the sale of real estate must be conferred in writing and must give
him specific authority, either to conduct the general business of the principal or to execute a
binding contract containing terms and conditions which are in the contract he did
execute. 10 A special power of attorney is necessary to enter into any contract by which the
ownership of an immovable is transmitted or acquired either gratuitously or for a valuable
consideration. 11The express mandate required by law to enable an appointee of an agency
(couched) in general terms to sell must be one that expressly mentions a sale or that
includes a sale as a necessary ingredient of the act mentioned. 12 For the principal to confer
the right upon an agent to sell real estate, a power of attorney must so express the powers of
the agent in clear and unmistakable language. When there is any reasonable doubt that the
language so used conveys such power, no such construction shall be given the document. 13

It is therefore clear that by selling to respondent Perez a portion of petitioner's land through a
compromise agreement, Villamil-Estrada acted without or in obvious authority. The sale ipso
jure is consequently void. So is the compromise agreement. This being the case, the
judgment based thereon is necessarily void. Antipodal to the opinion expressed by
respondent court in resolving petitioner's motion for reconsideration, the nullity of the
settlement between Villamil-Estrada and Perez impaired the jurisdiction of the trial court to
render its decision based on the compromise agreement. In Alviar v. Court of First Instance
of La Union, 14 the Court held

. . . this court does not hesitate to hold that the judgment in question is null and
void ab initio. It is not binding upon and cannot be executed against the petitioners. It
is evident that the compromise upon which the judgment was based was not
subscribed by them . . . Neither could Attorney Ortega bind them validly in the
compromise because he had no special authority . . .
As the judgment in question is null and void ab initio, it is evident that the court
acquired no jurisdiction to render it, much less to order the execution thereof . . .

. . . A judgment, which is null and void ab initio, rendered by a court without


jurisdiction to do so, is without legal efficacy and may properly be impugned in any
proceeding by the party against whom it is sought to be enforced . . .

This ruling was adopted in Jacinto v. Montesa,15 by Mr. Justice J. B.L. Reyes, a much-
respected authority on civil law, where the Court declared that a judgment based on a
compromise entered into by an attorney without specific authority from the client is void.
Such judgment may be impugned and its execution restrained in any proceeding by the party
against whom it is sought to be enforced. The Court also observed that a defendant against
whom a judgment based on a compromise is sought to be enforced may file a petition
for certiorari to quash the execution. He could not move to have the compromise set aside
and then appeal from the order of denial since he was not a party to the compromise. Thus it
would appear that the obiter of the appellate court that the alleged nullity of the compromise
agreement should be raised as a defense against its enforcement is not legally feasible.
Petitioner could not be in a position to question the compromise agreement in the action to
revive the compromise judgment since it was never privy to such agreement. Villamil-Estrada
who signed the compromise agreement may have been the attorney-in-fact but she could not
legally bind petitioner thereto as she was not entrusted with a special authority to sell the
land, as required in Art. 1878, par. (5), of the Civil Code.

Under authority of Sec. 9, par. (2), of B.P. Blg. 129, a party may now petition the Court of
Appeals to annul and set aside judgments of Regional Trial Courts. 16 "Thus, the Intermediate
Appellant Court (now Court of Appeals) shall exercise . . . (2) Exclusive original jurisdiction
over action for annulment of judgments of the Regional Trial Courts . . ." However, certain
requisites must first be established before a final and executory judgment can be the subject
of an action for annulment. It must either be void for want of jurisdiction or for lack of due
process of law, or it has been obtained by fraud. 17

Conformably with law and the above-cited authorities, the petition to annul the decision of the
trial court in Civil Case No. D-7750 before the Court of Appeals was proper. Emanating as it
did from a void compromise agreement, the trial court had no jurisdiction to render a
judgment based thereon. 18

It would also appear, and quite contrary to the finding of the appellate court, that the highly
reprehensible conduct of attorney-in-fact Villamil-Estrada in Civil Case No. 7750 constituted
an extrinsic or collateral fraud by reason of which the judgment rendered thereon should
have been struck down. Not all the legal semantics in the world can becloud the unassailable
fact that petitioner was deceived and betrayed by its attorney-in-fact, Villamil-Estrada
deliberately concealed from petitioner, her principal, that a compromise agreement had been
forged with the end-result that a portion of petitioner's property was sold to the deforciant,
literally for a song. Thus completely kept unaware of its agent's artifice, petitioner was not
accorded even a fighting chance to repudiate the settlement so much so that the judgment
based thereon became final and executory.

For sure, the Court of Appeals restricted the concept of fraudulent acts within too narrow
limits. Fraud may assume different shapes and be committed in as many different ways and
here lies the danger of attempting to define fraud. For man in his ingenuity and fertile
imagination will always contrive new schemes to fool the unwary.
There is extrinsic fraud within the meaning of Sec. 9, par. (2), of B.P. Blg. 129, where it is
one the effect of which prevents a party from hearing a trial, or real contest, or from
presenting all of his case to the court, or where it operates upon matters, not pertaining to
the judgment itself, but to the manner in which it was procured so that there is not a fair
submission of the controversy. In other words, extrinsic fraud refers to any fraudulent act of
the prevailing party in the litigation which is committed outside of the trial of the case,
whereby the defeated party has been prevented from exhibiting fully his side of the case by
fraud or deception practiced on him by his opponent. 19 Fraud is extrinsic where the
unsuccessful party has been prevented from exhibiting fully his case, by fraud or deception
practiced on him by his opponent, as by keeping him away from court, a false promise of a
compromise; or where the defendant never had knowledge of the suit, being kept in
ignorance by the acts of the plaintiff; or where an attorney fraudulently or without authority
connives at his defeat; these and similar cases which show that there has never been a real
contest in the trial or hearing of the case are reasons for which a new suit may be sustained
to set aside and annul the former judgment and open the case for a new and fair hearing. 20

It may be argued that petitioner knew of the compromise agreement since the principal is
chargeable with and bound by the knowledge of or notice to his agent received while the
agent was acting as such. But the general rule is intended to protect those who exercise
good faith and not as a shield for unfair dealing. Hence there is a well-established exception
to the general rule as where the conduct and dealings of the agent are such as to raise a
clear presumption that he will not communicate to the principal the facts in controversy. 21The
logical reason for this exception is that where the agent is committing a fraud, it would be
contrary to common sense to presume or to expect that he would communicate the facts to
the principal. Verily, when an agent is engaged in the perpetration of a fraud upon his
principal for his own exclusive benefit, he is not really acting for the principal but is really
acting for himself, entirely outside the scope of his agency. 22 Indeed, the basic tenets of
agency rest on the highest considerations of justice, equity and fair play, and an agent will
not be permitted to pervert his authority to his own personal advantage, and his act in secret
hostility to the interests of his principal transcends the power afforded him. 23

WHEREFORE, the petition is GRANTED. The decision and resolution of respondent Court of
Appeals dated 29 October 1993 and 10 March 1994, respectively, as well as the decision of
the Regional Trial Court of Dagupan City in Civil Case No. D-7750 dated 27 November 1985,
are NULLIFIED and SET ASIDE. The "Compromise Agreement" entered into between
Attorney-in-fact Paz G. Villamil-Estrada and respondent Isidro Perez is declared VOID. This
is without prejudice to the right of petitioner to pursue its complaint against private
respondent Isidro Perez in Civil Case No. D-7750 for the recovery of possession of a portion
of Lot No. 443.

SO ORDERED.

G.R. No. L-18377 December 29, 1962

ANASTACIO G. DUGO, petitioner,


vs.
ADRIANO LOPENA, ROSA RAMOS and HON. ANDRES REYES, Judge of the Court of First
Instance of Rizal,respondents.

Gatchalian, Padilla & Sison for petitioner.


Santiago F. Alidio for respondents.
REGALA, J.:

On September 10, 1959, herein petitioner Anastacio Dugo and one Rodrigo S. Gonzales
purchased 3 parcel of land from the respondents Adriano Lopena and Rosa Ramos for the total
price of P269,804.00. Of this amount P28.000.00 was given as down payment with the agreement
that the balance of P241,804.00 would be paid in 6 monthly installments.

To secure the payment of the balance Anastacio Dugo and Rodrigo S. Gonzales, the vendees, on
September 11, 1958, executed over the same 3 parcels of land Deed of Real Estate Mortgage in
favor of the respondent Adriano Lopena and Rosa Ramos. This deed was duly registered with the
Office of the Register of Deeds Rizal, with the condition that failure of the vendees to pay any of the
installments on their maturity dates shall automatically cause the entire unpaid balance to become
due and demandable.

The vendees defaulted on the first installment. It resulted then that on November 7, 1959, the
vendors, herein respondents Adriano Lopena and Rosa Ramos, filed a complaint for the foreclosure
of the aforementioned real estate mortgage with the Court of First Instance of Rizal the Hon. Judge
Andres Reyes, presiding. This complaint was answered by the herein petitioner and the other
vendee, Rodrigo S. Gonzales, on December 7, 1959.

Meanwhile, there were 2 other civil cases filed in the same lower court against the same defendants
Anastacio Dugo and Rodrigo S. Gonzales. The plaintiff in one was a certain Dionisio Lopena, and
in the other case, the complainants were Bernardo Lopena and Maria de la Cruz.

Both complaints involved the same cause of action as that of herein respondents Adriano Lopena
and Rosa Ramos. As a matter of fact all three cases arose out of one transaction. In view of the
identical nature of the above three cases, they were consolidated by the lower court into just one
proceeding.

It must be made clear, however, that this present decision refers solely to the interests and claim of
Adriano Lopena against Anastacio Dugo alone.

Before the cases could be tried, a compromise agreement dated January 15, 1960 was submitted to
the lower court for approval. It was signed by herein respondents Adriano Lopena and Rosa Ramos
on one hand, and Rodrigo S. Gonzales, on the other. It was not signed by the herein petitioner.
However, Rodrigo S. Gonzales represented that his signature was for both himself and the herein
petitioner. Moreover, Anastacio Dugo's counsel of record, Atty. Manuel O. Chan, the same lawyer
who signed and submitted for him the answer to the complaint, was present at the preparation of the
compromise agreement and this counsel affixed his signature thereto.

The text of this agreement is hereunder quoted:

COMPROMISE AGREEMENT

COME NOW the parties in the above entitled cases and unto this Hon. Court respectfully set
forth:

That, the plaintiffs, have agreed to give the defendants up to June 30, 1960 to pay the
mortgage indebtedness in each of the said cases;
That, should the defendants fail to pay the said mortgage indebtedness, judgments of
foreclosure shall thereafter be entered against the said defendants;

That, the defendants hereby waive the period of redemption provided by law after entry of
judgments;

That, in the event of sale of the properties involved in these three cases, the defendants
agree that the said properties shall be sold at one time at public auction, that is, one piece of
property cannot be sold without the others.

This compromise agreement was approved by the lower court on the same day it was
submitted, January 15, 1960.

Subsequently, on May 3, 1960, a so-called Tri-Party Agreement was drawn. The signatories to it
were Anastacio Dugo (herein petitioner) and Rodrigo S. Gonzales as debtors, Adriano Lopena and
Rosa Ramos (herein respondents) as creditors, and, one Emma R. Santos as pay or. The
stipulations of the Tri-Party Agreement were as follows: .

A TRI-PARTY AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

This contract entered into by and between

(1) MMA R. SANTOS, Filipino, of legal age, single, with residence and postal address at
..........., Rizal Avenue, Manila, hereinafter referred to as the PAYOR,

(2) ANASTACIO C. DUGO Filipino, of legal age, single, with residence and postal address
at 137 N. Domingo, Quezon City, and RODRIGO S. GONZALES, Filipino, of legal age,
married to Magdalena Balatbat, with residence and postal address at 73 Maryland, Quezon
City, hereinafter referred to as the DEBTOR,

and

(3) DIONISIO LOPENA, married to Teofila Nofuente, LIBRADA LOPENA, married to


Arellano Cawagas, BERNARDO LOPENA, married to Maria de la Cruz, and ADRIANO
LOPENA, married to Rosa Ramos, all of whom are Filipinos, of legal ages, with residence
and postal address at Sucat, Muntinlupa, Rizal, hereinafter represented by their attorney of
record, ANTONIO LOPENA, hereinafter referred to as the CREDITOR,

W I T N E S S E T H:

WHEREAS, the DEBTOR is indebted to the CREDITOR as of this date in the aggregate
amount of P503,000.00 for the collection of which, the latter as party plaintiffs have institute
foreclosure proceedings against the former as party defendant in Civil Cases Nos. 5872,
5873 and 5874 now pending in the Court of First Instance, Pasig, Rizal;

WHEREAS, the PAYOR, hereby submits and binds herself to the force and effect of the
Order dated January 15, 1960, of the Court of First Instance of Pasig, Rizal, Branch VI,
which order is hereby made an integral part of this agreement as ANNEX "A";
WHEREAS, the PAYOR with due knowledge and consent of the DEBTOR, hereby proposes
to pay the aforesaid indebtedness in the sum of P503,000.00 to the CREDITOR for and in
behalf of the DEBTOR under the following terms and condition petitions:

(a) To pay the said P503,000.00 in installments in the following schedule of amounts and
time: P50,000.00 on or before May 31, 1960 70,000.00 on or before June 30, 1960
70,000.00 on or before July 31, 1960 313,000.00 on or before Aug. 31, 1960.

(b) That the DEBTOR and the PAYOR hereby waive any right to object and oblige
themselves not to oppose the motion that the CREDITOR may file during the first week of
July 1960, or subsequently thereafter, informing the Court of the exact money obligation of
the DEBTOR which shall be P503,000.00 minus whatever payments, if any, made before
June 30, 1960 by the PAYOR and praying for the issuance of an order to sell the property
covered by the mortgage.

(c) That the CREDITOR, once he has the order referred to, should not execute the same by
giving it to the sheriff if the PAYOR is regular and punctual in the payment of all of the
installments stated above. PROVIDED, however, if the PAYOR defaults or fails to pay
anyone of the installments in the manner stated above, the PAYOR and the DEBTOR hereby
permit the CREDITOR to execute the order of sale referred to above, and they (PAYOR and
DEBTOR) hereby waive any and all objection's or oppositions to the propriety of the public
auction sale and to the confirmation of the sale to be made by the court.

(d) That the CREDITOR, at his option, may execute the August installment stated in letter (a)
of this paragraph if the PAYOR has paid regularly the May, June, and July installments, and
provided further that one half () of the August installment in the amount of P156,500.00 is
paid on the said date of August 31, 1960.

NOW, THEREFORE, for and in consideration of the foregoing stipulations, the DEBTOR and
CREDITOR hereby accept, approve and ratify the above-mentioned propositions of the
PAYOR and all the parties herein bind and oblige themselves to comply to the covenants
and stipulations aforestated;

That by mutual agreements of all the parties herein, this TRI-PARTY AGREEMENT may be
submitted to Court to form integral parts of the records of the Civil Cases mentioned above;

IN WITNESS WHEREOF, the parties hereunto affix their signature on this 3rd day of May,
1960 in the City of Manila, Philippines.

When Anastacio Dugo (herein petitioner) and Rodrigo S. Gonzales failed to pay the balance of their
indebtedness on June 30, 1960, herein respondents Lopena and Ramos filed on July 5, 1960, a
Motion for the Sale of Mortgaged Property. Although this last motion was filed ex parte, Anastacio
Dugo and Rodrigo S. Gonzales were notified of it by the lower court. Neither of them, however,
despite the notice, filed any opposition thereto. As a result, the lower court granted the above motion
on July 19, 1960, and ordered the sale of the mortgaged property.

On August 25, 1960, the 3 parcels of land above-mentioned were sold by the Sheriff at a public
auction where at herein petitioners, together with the plaintiffs of the other two cases won as the
highest bidders. The said sheriff's sale was later confirmed by the lower court on August 30, 1960. In
this connection, it should also made of record that before confirming the sale, the lower court gave
due notice of the motion for the confirmation to the herein petitioner who filed no opposition
therefore.
On August 31, 1960, Anastacio Dugo filed a motion to set aside all the proceedings on the ground
that the compromise agreement dated January 15, 1960 was void ab initio with respect to him
because he did not sign the same. Consequently, he argued, all subsequent proceedings under and
by virtue of the compromise agreement, including the foreclosure sale of August 25, 1960, were void
and null as regards him. This motion to set aside, however, was denied by the lower court in its
order of December 14, 1960.

Upon denial of the said motion to set aside, Anastacio Dugo filed a Notice of Appeal from the order
of August 31, 1960 approving the foreclosure sale of August 25, 1960, as well as the order of
December 14, 1960, denying his motion to set aside. The approval of the record on appeal however,
was opposed by the herein respondent spouses who claimed that the judgment was not appealable
having been rendered by virtue of the compromise agreement. The opposition was contained in a
motion to dismiss the appeal. Anastacio Dugo filed a reply to the above motion. Soon thereafter,
the lower court dismissed the appeal.

Two issues were raised to this Court for review, to wit:

(1) Was the compromise agreement of January 15, 1960, the Order of the same date approving the
same, and, all the proceedings subsequent thereto, valid or void insofar as the petitioner herein is
concerned?

(2) Did the lower court abuse its discretion when it dismissed the appeal of the herein petitioner?

Petitioner Anastacio Dugo insists that the Compromise Agreement was void ab initio and could
have no effect whatsoever against him because he did not sign the same. Furthermore, as it was
void, all the proceedings subsequent to its execution, including the Order approving it, were similarly
void and could not result to anything adverse to his interest.

The argument was not well taken. It is true that a compromise is, in itself, a contract. It is as such
that the Civil Code speaks of it.

ART. 2028. A compromise is a contract whereby the parties, by making reciprocal


concessions, avoid a litigation or put an end to one already commenced.

Moreover, under Art. 1878 of the Civil Code, a third person cannot bind another to a
compromise agreement unless he, the third person, has obtained a special power of attorney
for that purpose from the party intended to be bound.

ART. 1878. Special powers of attorney are necessary in the following cases:

xxx xxx xxx

xxx xxx xxx

(3) To compromise, to submit questions to arbitration, to renounce the right to appeal from a
judgment, to waive objections to the venue of an action or to abandon a prescription already
acquired;

However, although the Civil Code expressly requires a special power of attorney in order that one
may compromise an interest of another, it is neither accurate nor correct to conclude that its
absence renders the compromise agreement void. In such a case, the compromise is merely
unenforceable. This results from its nature is a contract. It must be governed by the rules and the
law on contracts.

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

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

Logically, then, the next inquiry in this case should be whether the herein petitioner, Anastacio
Dugo had or had not ratified the compromise agreement. If he had, then the compromise
agreement was legally enforced against him; otherwise, he should be sustained in his contention
that it never bound him, nor ever could it be made to bind him.

The ratification of the compromise agreement was conclusively established by the Tri-Party
Agreement of May 1960. It is to be noted that the compromise agreement was submitted to and
approved by the lower court January 15, 1960. Now, the Tri-Party Agreement referred itself to that
order when it stipulated thus:

WHEREAS, the MAYOR, hereby submits and binds herself to the force and effect of the
order dated January 15, 1960, of the Court of First Instance of Pasig, Rizal, Branch which
order is hereby made an integral part of this agreement as Annex "A". lawphil.net

Having so consented to making that court order approving the compromise agreement an
integral part of the Tri-Party Agreement, how can the petitioner herein now repudiate the
compromise agreement and claim he has not authorized it?

When it appears that the client, on becoming aware the compromise and the judgment thereon, fails
to repudiate promptly the action of his attorney, he will not afterwards be heard to contest its validity
(Rivero vs. Rivero, 59 Phil. 15).

Besides, this Court has not overlooked the fact that which indeed Anastacio Dugo was not a
signatory to the compromise agreement, the principal provision of the said instrument was for his
benefit. Originally, Anastacio Dugo's obligation matured and became demandable on October 10,
1959. However, the compromise agreement extended the date of maturity to June 30, 1960. More
than anything, therefore, the compromise agreement operated to benefit the herein petitioner
because it afforded him more time and opportunity to fulfill his monetary obligations under the
contract. If only for this reason, this Court believes that the herein petitioner should not be heard to
repudiate the said agreement.

Lastly, the compromise agreement stated "that, should the defendants fail to pay the said mortgage
indebtedness, judgment of foreclosure shall thereafter be entered against the said defendants:"
Beyond doubt, this was ratified by the Tri-Party Agreement when it covenanted that

If the MAYOR defaults or fails to pay anyone of the installments in the manner stated above,
the MAYOR and the DEBTOR hereby permit the CREDITOR to execute the order of sale
referred to above (the Judgment of Foreclosure), and they (PAYOR and DEBTOR) hereby
waive any and all objections or oppositions to the propriety of the public auction sale and to
the confirmation of the sale to be made by the Court.

Petitioner Dugo finally argued that even assuming that the compromise agreement was valid, it
nevertheless could not be enforced against him because it has been novated by the Tri-Party
Agreement which brought in a third party, namely, Emma R. Santos, who assumed the mortgaged
obligation of the herein petitioner.

This Court cannot accept the argument. Novation by presumption has never been favored. To be
sustained, it need be established that the old and new contracts are incompatible in all points, or that
the will to novate appears by express agreement of the parties or in acts of similar import. (Martinez
v. Cavives, 25 Phil. 581; Tiy Sinco vs. Havana, 45 Phil. 707; Asia Banking Corp. vs. Lacson Co.. 48
Phil. 482; Pascual vs. Lacsamana, 53 O.G. 2467, April 1957).

An obligation to pay a sum of money is not novated, in a new instrument wherein the old is ratified,
by changing only the term of payment and adding other obligations not incompatible with the old one
(Inchausti vs. Yulo, 34 Phil. 978; Pablo vs. Sapungan, 71 Phil. 145) or wherein the old contract is
merely supplemented by the new one Ramos vs. Gibbon, 67 Phil. 371).

Herein petitioner claims that when a third party Emma R. Santos, came in and assumed the
mortgaged obligation, novation resulted thereby inasmuch as a new debtor was substituted in place
of the original one. In this kind of novation, however, it is not enough that the juridical relation of the
parties to the original contract is extended to a third person; it is necessary that the old debtor be
released from the obligation, and the third person or new debtor take his place in the new relation.
Without such release, there is no novation; the third person who has assumed the obligation of the
debtor merely becomes a co-debtor or surety. If there is no agreement as to solidarity, the first and
the new debtors are considered obligation jointly. (IV Tolentino, Civil Code, p. 360, citing Manresa.
There was no such release of the original debtor in the Tri-Party Agreement.

It is a very common thing in the business affairs for a stranger to a contract to assume its
obligations; an while this may have the effect of adding to the number of persons liable, it does not
necessarily imply the extinguishment of the liability of the first debtor (Rios v Jacinto, etc., 49 Phil. 7;
Garcia vs. Khu Yek Ching, 65 Phil. 466). The mere fact that the creditor receives a guaranty or
accepts payments from a third person who has agreed to assume the obligation, when there is no
agreement that the first debtor shall be released from responsibility, do not constitute a novation,
and the creditor can still enforce the obligation against the original debtor (Straight vs. Haskell, 49
Phil. 614; Pacific Commercial Co. vs. Sotto, 34 Phil. 237; Estate of Mota vs. Serra, 47 Phil. 446).

In view of all the foregoing, We hold that the Tri-Party Agreement was an instrument intended to
render effective the compromise agreement. It merely complemented an ratified the same. That a
third person was involved in it is inconsequential. Nowhere in the new agreement may the release of
the herein petitioner be even inferred.

Having held that the compromise agreement was validity and enforceable against the herein
petitioner, it follows that the lower court committed no abuse of discretion when it dismissed the
appeal of the herein petitioner.

WHEREFORE, the petition for certiorari and mandamus filed by the herein petitioner is hereby
dismissed. The order of the lower court dismissing the appeal is her by affirmed, with costs.

G.R. No. L-18377 December 29, 1962

ANASTACIO G. DUGO, petitioner,


vs.
ADRIANO LOPENA, ROSA RAMOS and HON. ANDRES REYES, Judge of the Court of First
Instance of Rizal,respondents.
Gatchalian, Padilla & Sison for petitioner.
Santiago F. Alidio for respondents.

REGALA, J.:

On September 10, 1959, herein petitioner Anastacio Dugo and one Rodrigo S. Gonzales
purchased 3 parcel of land from the respondents Adriano Lopena and Rosa Ramos for the total
price of P269,804.00. Of this amount P28.000.00 was given as down payment with the agreement
that the balance of P241,804.00 would be paid in 6 monthly installments.

To secure the payment of the balance Anastacio Dugo and Rodrigo S. Gonzales, the vendees, on
September 11, 1958, executed over the same 3 parcels of land Deed of Real Estate Mortgage in
favor of the respondent Adriano Lopena and Rosa Ramos. This deed was duly registered with the
Office of the Register of Deeds Rizal, with the condition that failure of the vendees to pay any of the
installments on their maturity dates shall automatically cause the entire unpaid balance to become
due and demandable.

The vendees defaulted on the first installment. It resulted then that on November 7, 1959, the
vendors, herein respondents Adriano Lopena and Rosa Ramos, filed a complaint for the foreclosure
of the aforementioned real estate mortgage with the Court of First Instance of Rizal the Hon. Judge
Andres Reyes, presiding. This complaint was answered by the herein petitioner and the other
vendee, Rodrigo S. Gonzales, on December 7, 1959.

Meanwhile, there were 2 other civil cases filed in the same lower court against the same defendants
Anastacio Dugo and Rodrigo S. Gonzales. The plaintiff in one was a certain Dionisio Lopena, and
in the other case, the complainants were Bernardo Lopena and Maria de la Cruz.

Both complaints involved the same cause of action as that of herein respondents Adriano Lopena
and Rosa Ramos. As a matter of fact all three cases arose out of one transaction. In view of the
identical nature of the above three cases, they were consolidated by the lower court into just one
proceeding.

It must be made clear, however, that this present decision refers solely to the interests and claim of
Adriano Lopena against Anastacio Dugo alone.

Before the cases could be tried, a compromise agreement dated January 15, 1960 was submitted to
the lower court for approval. It was signed by herein respondents Adriano Lopena and Rosa Ramos
on one hand, and Rodrigo S. Gonzales, on the other. It was not signed by the herein petitioner.
However, Rodrigo S. Gonzales represented that his signature was for both himself and the herein
petitioner. Moreover, Anastacio Dugo's counsel of record, Atty. Manuel O. Chan, the same lawyer
who signed and submitted for him the answer to the complaint, was present at the preparation of the
compromise agreement and this counsel affixed his signature thereto.

The text of this agreement is hereunder quoted:

COMPROMISE AGREEMENT

COME NOW the parties in the above entitled cases and unto this Hon. Court respectfully set
forth:
That, the plaintiffs, have agreed to give the defendants up to June 30, 1960 to pay the
mortgage indebtedness in each of the said cases;

That, should the defendants fail to pay the said mortgage indebtedness, judgments of
foreclosure shall thereafter be entered against the said defendants;

That, the defendants hereby waive the period of redemption provided by law after entry of
judgments;

That, in the event of sale of the properties involved in these three cases, the defendants
agree that the said properties shall be sold at one time at public auction, that is, one piece of
property cannot be sold without the others.

This compromise agreement was approved by the lower court on the same day it was
submitted, January 15, 1960.

Subsequently, on May 3, 1960, a so-called Tri-Party Agreement was drawn. The signatories to it
were Anastacio Dugo (herein petitioner) and Rodrigo S. Gonzales as debtors, Adriano Lopena and
Rosa Ramos (herein respondents) as creditors, and, one Emma R. Santos as pay or. The
stipulations of the Tri-Party Agreement were as follows: .

A TRI-PARTY AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

This contract entered into by and between

(1) MMA R. SANTOS, Filipino, of legal age, single, with residence and postal address at
..........., Rizal Avenue, Manila, hereinafter referred to as the PAYOR,

(2) ANASTACIO C. DUGO Filipino, of legal age, single, with residence and postal address
at 137 N. Domingo, Quezon City, and RODRIGO S. GONZALES, Filipino, of legal age,
married to Magdalena Balatbat, with residence and postal address at 73 Maryland, Quezon
City, hereinafter referred to as the DEBTOR,

and

(3) DIONISIO LOPENA, married to Teofila Nofuente, LIBRADA LOPENA, married to


Arellano Cawagas, BERNARDO LOPENA, married to Maria de la Cruz, and ADRIANO
LOPENA, married to Rosa Ramos, all of whom are Filipinos, of legal ages, with residence
and postal address at Sucat, Muntinlupa, Rizal, hereinafter represented by their attorney of
record, ANTONIO LOPENA, hereinafter referred to as the CREDITOR,

W I T N E S S E T H:

WHEREAS, the DEBTOR is indebted to the CREDITOR as of this date in the aggregate
amount of P503,000.00 for the collection of which, the latter as party plaintiffs have institute
foreclosure proceedings against the former as party defendant in Civil Cases Nos. 5872,
5873 and 5874 now pending in the Court of First Instance, Pasig, Rizal;
WHEREAS, the PAYOR, hereby submits and binds herself to the force and effect of the
Order dated January 15, 1960, of the Court of First Instance of Pasig, Rizal, Branch VI,
which order is hereby made an integral part of this agreement as ANNEX "A";

WHEREAS, the PAYOR with due knowledge and consent of the DEBTOR, hereby proposes
to pay the aforesaid indebtedness in the sum of P503,000.00 to the CREDITOR for and in
behalf of the DEBTOR under the following terms and condition petitions:

(a) To pay the said P503,000.00 in installments in the following schedule of amounts and
time: P50,000.00 on or before May 31, 1960 70,000.00 on or before June 30, 1960
70,000.00 on or before July 31, 1960 313,000.00 on or before Aug. 31, 1960.

(b) That the DEBTOR and the PAYOR hereby waive any right to object and oblige
themselves not to oppose the motion that the CREDITOR may file during the first week of
July 1960, or subsequently thereafter, informing the Court of the exact money obligation of
the DEBTOR which shall be P503,000.00 minus whatever payments, if any, made before
June 30, 1960 by the PAYOR and praying for the issuance of an order to sell the property
covered by the mortgage.

(c) That the CREDITOR, once he has the order referred to, should not execute the same by
giving it to the sheriff if the PAYOR is regular and punctual in the payment of all of the
installments stated above. PROVIDED, however, if the PAYOR defaults or fails to pay
anyone of the installments in the manner stated above, the PAYOR and the DEBTOR hereby
permit the CREDITOR to execute the order of sale referred to above, and they (PAYOR and
DEBTOR) hereby waive any and all objection's or oppositions to the propriety of the public
auction sale and to the confirmation of the sale to be made by the court.

(d) That the CREDITOR, at his option, may execute the August installment stated in letter (a)
of this paragraph if the PAYOR has paid regularly the May, June, and July installments, and
provided further that one half () of the August installment in the amount of P156,500.00 is
paid on the said date of August 31, 1960.

NOW, THEREFORE, for and in consideration of the foregoing stipulations, the DEBTOR and
CREDITOR hereby accept, approve and ratify the above-mentioned propositions of the
PAYOR and all the parties herein bind and oblige themselves to comply to the covenants
and stipulations aforestated;

That by mutual agreements of all the parties herein, this TRI-PARTY AGREEMENT may be
submitted to Court to form integral parts of the records of the Civil Cases mentioned above;

IN WITNESS WHEREOF, the parties hereunto affix their signature on this 3rd day of May,
1960 in the City of Manila, Philippines.

When Anastacio Dugo (herein petitioner) and Rodrigo S. Gonzales failed to pay the balance of their
indebtedness on June 30, 1960, herein respondents Lopena and Ramos filed on July 5, 1960, a
Motion for the Sale of Mortgaged Property. Although this last motion was filed ex parte, Anastacio
Dugo and Rodrigo S. Gonzales were notified of it by the lower court. Neither of them, however,
despite the notice, filed any opposition thereto. As a result, the lower court granted the above motion
on July 19, 1960, and ordered the sale of the mortgaged property.

On August 25, 1960, the 3 parcels of land above-mentioned were sold by the Sheriff at a public
auction where at herein petitioners, together with the plaintiffs of the other two cases won as the
highest bidders. The said sheriff's sale was later confirmed by the lower court on August 30, 1960. In
this connection, it should also made of record that before confirming the sale, the lower court gave
due notice of the motion for the confirmation to the herein petitioner who filed no opposition
therefore.

On August 31, 1960, Anastacio Dugo filed a motion to set aside all the proceedings on the ground
that the compromise agreement dated January 15, 1960 was void ab initio with respect to him
because he did not sign the same. Consequently, he argued, all subsequent proceedings under and
by virtue of the compromise agreement, including the foreclosure sale of August 25, 1960, were void
and null as regards him. This motion to set aside, however, was denied by the lower court in its
order of December 14, 1960.

Upon denial of the said motion to set aside, Anastacio Dugo filed a Notice of Appeal from the order
of August 31, 1960 approving the foreclosure sale of August 25, 1960, as well as the order of
December 14, 1960, denying his motion to set aside. The approval of the record on appeal however,
was opposed by the herein respondent spouses who claimed that the judgment was not appealable
having been rendered by virtue of the compromise agreement. The opposition was contained in a
motion to dismiss the appeal. Anastacio Dugo filed a reply to the above motion. Soon thereafter,
the lower court dismissed the appeal.

Two issues were raised to this Court for review, to wit:

(1) Was the compromise agreement of January 15, 1960, the Order of the same date approving the
same, and, all the proceedings subsequent thereto, valid or void insofar as the petitioner herein is
concerned?

(2) Did the lower court abuse its discretion when it dismissed the appeal of the herein petitioner?

Petitioner Anastacio Dugo insists that the Compromise Agreement was void ab initio and could
have no effect whatsoever against him because he did not sign the same. Furthermore, as it was
void, all the proceedings subsequent to its execution, including the Order approving it, were similarly
void and could not result to anything adverse to his interest.

The argument was not well taken. It is true that a compromise is, in itself, a contract. It is as such
that the Civil Code speaks of it.

ART. 2028. A compromise is a contract whereby the parties, by making reciprocal


concessions, avoid a litigation or put an end to one already commenced.

Moreover, under Art. 1878 of the Civil Code, a third person cannot bind another to a
compromise agreement unless he, the third person, has obtained a special power of attorney
for that purpose from the party intended to be bound.

ART. 1878. Special powers of attorney are necessary in the following cases:

xxx xxx xxx

xxx xxx xxx


(3) To compromise, to submit questions to arbitration, to renounce the right to appeal from a
judgment, to waive objections to the venue of an action or to abandon a prescription already
acquired;

However, although the Civil Code expressly requires a special power of attorney in order that one
may compromise an interest of another, it is neither accurate nor correct to conclude that its
absence renders the compromise agreement void. In such a case, the compromise is merely
unenforceable. This results from its nature is a contract. It must be governed by the rules and the
law on contracts.

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

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

Logically, then, the next inquiry in this case should be whether the herein petitioner, Anastacio
Dugo had or had not ratified the compromise agreement. If he had, then the compromise
agreement was legally enforced against him; otherwise, he should be sustained in his contention
that it never bound him, nor ever could it be made to bind him.

The ratification of the compromise agreement was conclusively established by the Tri-Party
Agreement of May 1960. It is to be noted that the compromise agreement was submitted to and
approved by the lower court January 15, 1960. Now, the Tri-Party Agreement referred itself to that
order when it stipulated thus:

WHEREAS, the MAYOR, hereby submits and binds herself to the force and effect of the
order dated January 15, 1960, of the Court of First Instance of Pasig, Rizal, Branch which
order is hereby made an integral part of this agreement as Annex "A". lawphil.net

Having so consented to making that court order approving the compromise agreement an
integral part of the Tri-Party Agreement, how can the petitioner herein now repudiate the
compromise agreement and claim he has not authorized it?

When it appears that the client, on becoming aware the compromise and the judgment thereon, fails
to repudiate promptly the action of his attorney, he will not afterwards be heard to contest its validity
(Rivero vs. Rivero, 59 Phil. 15).

Besides, this Court has not overlooked the fact that which indeed Anastacio Dugo was not a
signatory to the compromise agreement, the principal provision of the said instrument was for his
benefit. Originally, Anastacio Dugo's obligation matured and became demandable on October 10,
1959. However, the compromise agreement extended the date of maturity to June 30, 1960. More
than anything, therefore, the compromise agreement operated to benefit the herein petitioner
because it afforded him more time and opportunity to fulfill his monetary obligations under the
contract. If only for this reason, this Court believes that the herein petitioner should not be heard to
repudiate the said agreement.

Lastly, the compromise agreement stated "that, should the defendants fail to pay the said mortgage
indebtedness, judgment of foreclosure shall thereafter be entered against the said defendants:"
Beyond doubt, this was ratified by the Tri-Party Agreement when it covenanted that
If the MAYOR defaults or fails to pay anyone of the installments in the manner stated above,
the MAYOR and the DEBTOR hereby permit the CREDITOR to execute the order of sale
referred to above (the Judgment of Foreclosure), and they (PAYOR and DEBTOR) hereby
waive any and all objections or oppositions to the propriety of the public auction sale and to
the confirmation of the sale to be made by the Court.

Petitioner Dugo finally argued that even assuming that the compromise agreement was valid, it
nevertheless could not be enforced against him because it has been novated by the Tri-Party
Agreement which brought in a third party, namely, Emma R. Santos, who assumed the mortgaged
obligation of the herein petitioner.

This Court cannot accept the argument. Novation by presumption has never been favored. To be
sustained, it need be established that the old and new contracts are incompatible in all points, or that
the will to novate appears by express agreement of the parties or in acts of similar import. (Martinez
v. Cavives, 25 Phil. 581; Tiy Sinco vs. Havana, 45 Phil. 707; Asia Banking Corp. vs. Lacson Co.. 48
Phil. 482; Pascual vs. Lacsamana, 53 O.G. 2467, April 1957).

An obligation to pay a sum of money is not novated, in a new instrument wherein the old is ratified,
by changing only the term of payment and adding other obligations not incompatible with the old one
(Inchausti vs. Yulo, 34 Phil. 978; Pablo vs. Sapungan, 71 Phil. 145) or wherein the old contract is
merely supplemented by the new one Ramos vs. Gibbon, 67 Phil. 371).

Herein petitioner claims that when a third party Emma R. Santos, came in and assumed the
mortgaged obligation, novation resulted thereby inasmuch as a new debtor was substituted in place
of the original one. In this kind of novation, however, it is not enough that the juridical relation of the
parties to the original contract is extended to a third person; it is necessary that the old debtor be
released from the obligation, and the third person or new debtor take his place in the new relation.
Without such release, there is no novation; the third person who has assumed the obligation of the
debtor merely becomes a co-debtor or surety. If there is no agreement as to solidarity, the first and
the new debtors are considered obligation jointly. (IV Tolentino, Civil Code, p. 360, citing Manresa.
There was no such release of the original debtor in the Tri-Party Agreement.

It is a very common thing in the business affairs for a stranger to a contract to assume its
obligations; an while this may have the effect of adding to the number of persons liable, it does not
necessarily imply the extinguishment of the liability of the first debtor (Rios v Jacinto, etc., 49 Phil. 7;
Garcia vs. Khu Yek Ching, 65 Phil. 466). The mere fact that the creditor receives a guaranty or
accepts payments from a third person who has agreed to assume the obligation, when there is no
agreement that the first debtor shall be released from responsibility, do not constitute a novation,
and the creditor can still enforce the obligation against the original debtor (Straight vs. Haskell, 49
Phil. 614; Pacific Commercial Co. vs. Sotto, 34 Phil. 237; Estate of Mota vs. Serra, 47 Phil. 446).

In view of all the foregoing, We hold that the Tri-Party Agreement was an instrument intended to
render effective the compromise agreement. It merely complemented an ratified the same. That a
third person was involved in it is inconsequential. Nowhere in the new agreement may the release of
the herein petitioner be even inferred.

Having held that the compromise agreement was validity and enforceable against the herein
petitioner, it follows that the lower court committed no abuse of discretion when it dismissed the
appeal of the herein petitioner.

WHEREFORE, the petition for certiorari and mandamus filed by the herein petitioner is hereby
dismissed. The order of the lower court dismissing the appeal is her by affirmed, with costs.
G.R. No. 111448 January 16, 2002

AF REALTY & DEVELOPMENT, INC. and ZENAIDA R. RANULLO, petitioners,


vs.
DIESELMAN FREIGHT SERVICES, CO., MANUEL C. CRUZ, JR. and MIDAS DEVELOPMENT
CORPORATION, respondents.

SANDOVAL-GUTIERREZ, J.:

Petition for review on certiorari assailing the Decision dated December 10, 1992 and the Resolution
(Amending Decision) dated August 5, 1993 of the Court of Appeals in CA-G.R. CV No. 30133.

Dieselman Freight Service Co. (Dieselman for brevity) is a domestic corporation and a registered
owner of a parcel of commercial lot consisting of 2,094 square meters, located at 104 E. Rodriguez
Avenue, Barrio Ugong, Pasig City, Metro Manila. The property is covered by Transfer Certificate of
Title No. 39849 issued by the Registry of Deeds of the Province of Rizal.1

On May 10, 1988, Manuel C. Cruz, Jr., a member of the board of directors of Dieselman, issued a
letter denominated as "Authority To Sell Real Estate"2 to Cristeta N. Polintan, a real estate broker of
the CNP Real Estate Brokerage. Cruz, Jr. authorized Polintan "to look for a buyer/buyers and
negotiate the sale" of the lot at P3,000.00 per square meter, or a total of P6,282,000.00. Cruz, Jr.
has no written authority from Dieselman to sell the lot.

In turn, Cristeta Polintan, through a letter3 dated May 19, 1988, authorized Felicisima ("Mimi")
Noble4 to sell the same lot.

Felicisima Noble then offered for sale the property to AF Realty & Development, Inc. (AF Realty) at
P2,500.00 per square meter.5 Zenaida Ranullo, board member and vice-president of AF Realty,
accepted the offer and issued a check in the amount of P300,000.00 payable to the order of
Dieselman. Polintan received the check and signed an "Acknowledgement Receipt"6 indicating that
the amount of P300,000.00 represents the partial payment of the property but refundable within two
weeks should AF Realty disapprove Ranullo's action on the matter.

On June 29, 1988, AF Realty confirmed its intention to buy the lot. Hence, Ranullo asked Polintan
for the board resolution of Dieselman authorizing the sale of the property. However, Polintan could
only give Ranullo the original copy of TCT No. 39849, the tax declaration and tax receipt for the lot,
and a photocopy of the Articles of Incorporation of Dieselman.7

On August 2, 1988, Manuel F. Cruz, Sr., president of Dieselman, acknowledged receipt of the said
P300,000.00 as "earnest money" but required AF Realty to finalize the sale at P4,000.00 per square
meter.8 AF Realty replied that it has paid an initial down payment of P300,000.00 and is willing to pay
the balance.9

However, on August 13, 1988, Mr. Cruz, Sr. terminated the offer and demanded from AF Realty the
return of the title of the lot earlier delivered by Polintan.10

Claiming that there was a perfected contract of sale between them, AF Realty filed with the Regional
Trial Court, Branch 160, Pasig City a complaint for specific performance (Civil Case No. 56278)
against Dieselman and Cruz, Jr.. The complaint prays that Dieselman be ordered to execute and
deliver a final deed of sale in favor of AF Realty.11 In its amended complaint,12 AF Realty asked for
payment of P1,500,000.00 as compensatory damages; P400,000.00 as attorney's fees; and
P500,000.00 as exemplary damages.

In its answer, Dieselman alleged that there was no meeting of the minds between the parties in the
sale of the property and that it did not authorize any person to enter into such transaction on its
behalf.

Meanwhile, on July 30, 1988, Dieselman and Midas Development Corporation (Midas) executed a
Deed of Absolute Sale13 of the same property. The agreed price was P2,800.00 per square meter.
Midas delivered to Dieselman P500,000.00 as down payment and deposited the balance of
P5,300,000.00 in escrow account with the PCIBank.

Constrained to protect its interest in the property, Midas filed on April 3, 1989 a Motion for Leave to
Intervene in Civil Case No. 56278. Midas alleged that it has purchased the property and took
possession thereof, hence Dieselman cannot be compelled to sell and convey it to AF Realty. The
trial court granted Midas' motion.

After trial, the lower court rendered the challenged Decision holding that the acts of Cruz, Jr. bound
Dieselman in the sale of the lot to AF Realty.14 Consequently, the perfected contract of sale between
Dieselman and AF Realty bars Midas' intervention. The trial court also held that Midas acted in bad
faith when it initially paid Dieselman P500,000.00 even without seeing the latter's title to the property.
Moreover, the notarial report of the sale was not submitted to the Clerk of Court of the Quezon City
RTC and the balance of P5,300,000.00 purportedly deposited in escrow by Midas with a bank was
not established.1wphi1.nt

The dispositive portion of the trial court's Decision reads:

"WHEREFORE, foregoing considered, judgment is hereby rendered ordering defendant to


execute and deliver to plaintiffs the final deed of sale of the property covered by the Transfer
Certificate of Title No. 39849 of the Registry of Deed of Rizal, Metro Manila District II,
including the improvements thereon, and ordering defendants to pay plaintiffs attorney's fees
in the amount of P50,000.00 and to pay the costs.

"The counterclaim of defendants is necessarily dismissed.

"The counterclaim and/or the complaint in intervention are likewise dismissed

"SO ORDERED."15

Dissatisfied, all the parties appealed to the Court of Appeals.

AF Realty alleged that the trial court erred in not holding Dieselman liable for moral, compensatory
and exemplary damages, and in dismissing its counterclaim against Midas.

Upon the other hand, Dieselman and Midas claimed that the trial court erred in finding that a contract
of sale between Dieselman and AF Realty was perfected. Midas further averred that there was no
bad faith on its part when it purchased the lot from Dieselman.

In its Decision dated December 10, 1992, the Court of Appeals reversed the judgment of the trial
court holding that since Cruz, Jr. was not authorized in writing by Dieselman to sell the subject
property to AF Realty, the sale was not perfected; and that the Deed of Absolute Sale between
Dieselman and Midas is valid, there being no bad faith on the part of the latter. The Court of Appeals
then declared Dieselman and Cruz, Jr. jointly and severally liable to AF Realty for P100,000.00 as
moral damages; P100,000.00 as exemplary damages; and P100,000.00 as attorney's fees.16

On August 5, 1993, the Court of Appeals, upon motions for reconsideration filed by the parties,
promulgated an Amending Decision, the dispositive portion of which reads:

"WHEREFORE, The Decision promulgated on October 10, 1992, is hereby AMENDED in the
sense that only defendant Mr. Manuel Cruz, Jr. should be made liable to pay the plaintiffs the
damages and attorney's fees awarded therein, plus the amount of P300,000.00 unless, in
the case of the said P300,000.00, the same is still deposited with the Court which should be
restituted to plaintiffs.

"SO ORDERED."17

AF Realty now comes to this Court via the instant petition alleging that the Court of Appeals
committed errors of law.

The focal issue for consideration by this Court is who between petitioner AF Realty and respondent
Midas has a right over the subject lot.

The Court of Appeals, in reversing the judgment of the trial court, made the following ratiocination:

"From the foregoing scenario, the fact that the board of directors of Dieselman never
authorized, verbally and in writing, Cruz, Jr. to sell the property in question or to look for
buyers and negotiate the sale of the subject property is undeniable.

"While Cristeta Polintan was actually authorized by Cruz, Jr. to look for buyers and negotiate
the sale of the subject property, it should be noted that Cruz, Jr. could not confer on Polintan
any authority which he himself did not have. Nemo dat quod non habet. In the same manner,
Felicisima Noble could not have possessed authority broader in scope, being a mere
extension of Polintan's purported authority, for it is a legal truism in our jurisdiction that a
spring cannot rise higher than its source. Succinctly stated, the alleged sale of the subject
property was effected through persons who were absolutely without any authority
whatsoever from Dieselman.

"The argument that Dieselman ratified the contract by accepting the P300,000.00 as partial
payment of the purchase price of the subject property is equally untenable. The sale of land
through an agent without any written authority is void.

xxx xxx xxx

"On the contrary, anent the sale of the subject property by Dieselman to intervenor Midas,
the records bear out that Midas purchased the same from Dieselman on 30 July 1988. The
notice of lis pendens was subsequently annotated on the title of the property by plaintiffs on
15 August 1988. However, this subsequent annotation of the notice of lis pendens certainly
operated prospectively and did not retroact to make the previous sale of the property to
Midas a conveyance in bad faith. A subsequently registered notice of lis pendens surely is
not proof of bad faith. It must therefore be borne in mind that the 30 July 1988 deed of sale
between Midas and Dieselman is a document duly certified by notary public under his hand
and seal. x x x. Such a deed of sale being public document acknowledged before a notary
public is admissible as to the date and fact of its execution without further proof of its due
execution and delivery (Bael vs. Intermediate Appellate Court, 169 SCRA617; Joson vs.
Baltazar, 194 SCRA 114) and to prove the defects and lack of consent in the execution
thereof, the evidence must be strong and not merely preponderant x x x."18

We agree with the Court of Appeals.

Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations
shall be exercised by the board of directors. Just as a natural person may authorize another to do
certain acts in his behalf, so may the board of directors of a corporation validly delegate some of its
functions to individual officers or agents appointed by it.19 Thus, contracts or acts of a corporation
must be made either by the board of directors or by a corporate agent duly authorized by the
board.20 Absent such valid delegation/authorization, the rule is that the declarations of an individual
director relating to the affairs of the corporation, but not in the course of, or connected with, the
performance of authorized duties of such director, are held not binding on the corporation.21

In the instant case, it is undisputed that respondent Cruz, Jr. has no written authority from the board
of directors of respondent Dieselman to sell or to negotiate the sale of the lot, much less to appoint
other persons for the same purpose. Respondent Cruz, Jr.'s lack of such authority precludes him
from conferring any authority to Polintan involving the subject realty. Necessarily, neither could
Polintan authorize Felicisima Noble. Clearly, the collective acts of respondent Cruz, Jr., Polintan and
Noble cannot bind Dieselman in the purported contract of sale.

Petitioner AF Realty maintains that the sale of land by an unauthorized agent may be ratified where,
as here, there is acceptance of the benefits involved. In this case the receipt by respondent Cruz, Jr.
from AF Realty of the P300,000.00 as partial payment of the lot effectively binds respondent
Dieselman.22

We are not persuaded.

Involved in this case is a sale of land through an agent. Thus, the law on agency under the Civil
Code takes precedence. This is well stressed in Yao Ka Sin Trading vs. Court of Appeals:23

"Since a corporation, such as the private respondent, can act only through its officers and
agents, all acts within the powers of said corporation may be performed by agents of its
selection; and, except so far as limitations or restrictions may be imposed by special
charter, by-law, or statutory provisions, the same general principles of law which govern
the relation of agency for a natural person govern the officer or agent of a corporation,
of whatever status or rank, in respect to his power to act for the corporation; and
agents when once appointed, or members acting in their stead, are subject to thesame
rules, liabilities, and incapacities as are agents of individuals and private persons."
(Emphasis supplied)

Pertinently, Article 1874 of the same Code provides:

"ART. 1874. When a sale of piece of land or any interest therein is through an agent,
the authority of the latter shall be in writing; otherwise, the sale shall be void."
(Emphasis supplied)

Considering that respondent Cruz, Jr., Cristeta Polintan and Felicisima Ranullo were not authorized
by respondent Dieselman to sell its lot, the supposed contract is void. Being a void contract, it is not
susceptible of ratification by clear mandate of Article 1409 of the Civil Code, thus:
"ART. 1409. The following contracts are inexistent and void from the very beginning:

xxx

(7) Those expressly prohibited or declared void by law.

"These contracts cannot be ratified. Neither can the right to set up the defense of illegality
be waived." (Emphasis supplied)

Upon the other hand, the validity of the sale of the subject lot to respondent Midas is unquestionable.
As aptly noted by the Court of Appeals,24 the sale was authorized by a board resolution of respondent
Dieselman dated May 27, 1988. 1wphi1.nt

The Court of Appeals awarded attorney's fees and moral and exemplary damages in favor of
petitioner AF Realty and against respondent Cruz, Jr.. The award was made by reason of a breach
of contract imputable to respondent Cruz, Jr. for having acted in bad faith. We are no persuaded. It
bears stressing that petitioner Zenaida Ranullo, board member and vice-president of petitioner AF
Realty who accepted the offer to sell the property, admitted in her testimony25 that a board resolution
from respondent Dieselman authorizing the sale is necessary to bind the latter in the transaction;
and that respondent Cruz, Jr. has no such written authority. In fact, despite demand, such written
authority was not presented to her.26 This notwithstanding, petitioner Ranullo tendered a partial
payment for the unauthorized transaction. Clearly, respondent Cruz, Jr. should not be held liable for
damages and attorney's fees.

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are
hereby AFFIRMED withMODIFICATION in the sense that the award of damages and attorney's fees
is deleted. Respondent Dieselman is ordered to return to petitioner AF Realty its partial payment of
P300,000.00. Costs against petitioners.

SO ORDERED.

G.R. No. 144805 June 8, 2006

EDUARDO V. LINTONJUA, JR. and ANTONIO K. LITONJUA, Petitioners,


vs.
ETERNIT CORPORATION (now ETERTON MULTI-RESOURCES CORPORATION),
ETEROUTREMER, S.A. and FAR EAST BANK & TRUST COMPANY, Respondents.

DECISION

CALLEJO, SR., J.:

On appeal via a Petition for Review on Certiorari is the Decision1 of the Court of Appeals (CA) in CA-
G.R. CV No. 51022, which affirmed the Decision of the Regional Trial Court (RTC), Pasig City,
Branch 165, in Civil Case No. 54887, as well as the Resolution2 of the CA denying the motion for
reconsideration thereof.

The Eternit Corporation (EC) is a corporation duly organized and registered under Philippine laws.
Since 1950, it had been engaged in the manufacture of roofing materials and pipe products. Its
manufacturing operations were conducted on eight parcels of land with a total area of 47,233 square
meters. The properties, located in Mandaluyong City, Metro Manila, were covered by Transfer
Certificates of Title Nos. 451117, 451118, 451119, 451120, 451121, 451122, 451124 and 451125
under the name of Far East Bank & Trust Company, as trustee. Ninety (90%) percent of the shares
of stocks of EC were owned by Eteroutremer S.A. Corporation (ESAC), a corporation organized and
registered under the laws of Belgium.3 Jack Glanville, an Australian citizen, was the General
Manager and President of EC, while Claude Frederick Delsaux was the Regional Director for Asia of
ESAC. Both had their offices in Belgium.

In 1986, the management of ESAC grew concerned about the political situation in the Philippines
and wanted to stop its operations in the country. The Committee for Asia of ESAC instructed Michael
Adams, a member of ECs Board of Directors, to dispose of the eight parcels of land. Adams
engaged the services of realtor/broker Lauro G. Marquez so that the properties could be offered for
sale to prospective buyers. Glanville later showed the properties to Marquez.

Marquez thereafter offered the parcels of land and the improvements thereon to Eduardo B.
Litonjua, Jr. of the Litonjua & Company, Inc. In a Letter dated September 12, 1986, Marquez
declared that he was authorized to sell the properties for P27,000,000.00 and that the terms of the
sale were subject to negotiation.4

Eduardo Litonjua, Jr. responded to the offer. Marquez showed the property to Eduardo Litonjua, Jr.,
and his brother Antonio K. Litonjua. The Litonjua siblings offered to buy the property
for P20,000,000.00 cash. Marquez apprised Glanville of the Litonjua siblings offer and relayed the
same to Delsaux in Belgium, but the latter did not respond. On October 28, 1986, Glanville telexed
Delsaux in Belgium, inquiring on his position/ counterproposal to the offer of the Litonjua siblings. It
was only on February 12, 1987 that Delsaux sent a telex to Glanville stating that, based on the
"Belgian/Swiss decision," the final offer was "US$1,000,000.00 and P2,500,000.00 to cover all
existing obligations prior to final liquidation."5

Marquez furnished Eduardo Litonjua, Jr. with a copy of the telex sent by Delsaux. Litonjua, Jr.
accepted the counterproposal of Delsaux. Marquez conferred with Glanville, and in a Letter dated
February 26, 1987, confirmed that the Litonjua siblings had accepted the counter-proposal of
Delsaux. He also stated that the Litonjua siblings would confirm full payment within 90 days after
execution and preparation of all documents of sale, together with the necessary governmental
clearances.6

The Litonjua brothers deposited the amount of US$1,000,000.00 with the Security Bank & Trust
Company, Ermita Branch, and drafted an Escrow Agreement to expedite the sale.7

Sometime later, Marquez and the Litonjua brothers inquired from Glanville when the sale would be
implemented. In a telex dated April 22, 1987, Glanville informed Delsaux that he had met with the
buyer, which had given him the impression that "he is prepared to press for a satisfactory conclusion
to the sale."8 He also emphasized to Delsaux that the buyers were concerned because they would
incur expenses in bank commitment fees as a consequence of prolonged period of inaction.9

Meanwhile, with the assumption of Corazon C. Aquino as President of the Republic of the
Philippines, the political situation in the Philippines had improved. Marquez received a telephone call
from Glanville, advising that the sale would no longer proceed. Glanville followed it up with a Letter
dated May 7, 1987, confirming that he had been instructed by his principal to inform Marquez that
"the decision has been taken at a Board Meeting not to sell the properties on which Eternit
Corporation is situated."10

Delsaux himself later sent a letter dated May 22, 1987, confirming that the ESAC Regional Office
had decided not to proceed with the sale of the subject land, to wit:
May 22, 1987

Mr. L.G. Marquez


L.G. Marquez, Inc.
334 Makati Stock Exchange Bldg.
6767 Ayala Avenue
Makati, Metro Manila
Philippines

Dear Sir:

Re: Land of Eternit Corporation

I would like to confirm officially that our Group has decided not to proceed with the sale of the land
which was proposed to you.

The Committee for Asia of our Group met recently (meeting every six months) and examined the
position as far as the Philippines are (sic) concerned. Considering [the] new political situation since
the departure of MR. MARCOS and a certain stabilization in the Philippines, the Committee has
decided not to stop our operations in Manila. In fact, production has started again last week, and
(sic) to recognize the participation in the Corporation.

We regret that we could not make a deal with you this time, but in case the policy would change at a
later state, we would consult you again.

xxx

Yours sincerely,

(Sgd.)
C.F. DELSAUX

cc. To: J. GLANVILLE (Eternit Corp.)11

When apprised of this development, the Litonjuas, through counsel, wrote EC, demanding payment
for damages they had suffered on account of the aborted sale. EC, however, rejected their demand.

The Litonjuas then filed a complaint for specific performance and damages against EC (now the
Eterton Multi-Resources Corporation) and the Far East Bank & Trust Company, and ESAC in the
RTC of Pasig City. An amended complaint was filed, in which defendant EC was substituted by
Eterton Multi-Resources Corporation; Benito C. Tan, Ruperto V. Tan, Stock Ha T. Tan and
Deogracias G. Eufemio were impleaded as additional defendants on account of their purchase of
ESAC shares of stocks and were the controlling stockholders of EC.

In their answer to the complaint, EC and ESAC alleged that since Eteroutremer was not doing
business in the Philippines, it cannot be subject to the jurisdiction of Philippine courts; the Board and
stockholders of EC never approved any resolution to sell subject properties nor authorized Marquez
to sell the same; and the telex dated October 28, 1986 of Jack Glanville was his own personal
making which did not bind EC.
On July 3, 1995, the trial court rendered judgment in favor of defendants and dismissed the
amended complaint.12The fallo of the decision reads:

WHEREFORE, the complaint against Eternit Corporation now Eterton Multi-Resources Corporation
and Eteroutremer, S.A. is dismissed on the ground that there is no valid and binding sale between
the plaintiffs and said defendants.

The complaint as against Far East Bank and Trust Company is likewise dismissed for lack of cause
of action.

The counterclaim of Eternit Corporation now Eterton Multi-Resources Corporation and Eteroutremer,
S.A. is also dismissed for lack of merit.13

The trial court declared that since the authority of the agents/realtors was not in writing, the sale is
void and not merely unenforceable, and as such, could not have been ratified by the principal. In any
event, such ratification cannot be given any retroactive effect. Plaintiffs could not assume that
defendants had agreed to sell the property without a clear authorization from the corporation
concerned, that is, through resolutions of the Board of Directors and stockholders. The trial court
also pointed out that the supposed sale involves substantially all the assets of defendant EC which
would result in the eventual total cessation of its operation.14

The Litonjuas appealed the decision to the CA, alleging that "(1) the lower court erred in concluding
that the real estate broker in the instant case needed a written authority from appellee corporation
and/or that said broker had no such written authority; and (2) the lower court committed grave error
of law in holding that appellee corporation is not legally bound for specific performance and/or
damages in the absence of an enabling resolution of the board of directors."15 They averred that
Marquez acted merely as a broker or go-between and not as agent of the corporation; hence, it was
not necessary for him to be empowered as such by any written authority. They further claimed that
an agency by estoppel was created when the corporation clothed Marquez with apparent authority to
negotiate for the sale of the properties. However, since it was a bilateral contract to buy and sell, it
was equivalent to a perfected contract of sale, which the corporation was obliged to consummate.

In reply, EC alleged that Marquez had no written authority from the Board of Directors to bind it;
neither were Glanville and Delsaux authorized by its board of directors to offer the property for sale.
Since the sale involved substantially all of the corporations assets, it would necessarily need the
authority from the stockholders.

On June 16, 2000, the CA rendered judgment affirming the decision of the RTC. 16 The Litonjuas
filed a motion for reconsideration, which was also denied by the appellate court.

The CA ruled that Marquez, who was a real estate broker, was a special agent within the purview of
Article 1874 of the New Civil Code. Under Section 23 of the Corporation Code, he needed a special
authority from ECs board of directors to bind such corporation to the sale of its properties. Delsaux,
who was merely the representative of ESAC (the majority stockholder of EC) had no authority to
bind the latter. The CA pointed out that Delsaux was not even a member of the board of directors of
EC. Moreover, the Litonjuas failed to prove that an agency by estoppel had been created between
the parties.

In the instant petition for review, petitioners aver that

I
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PERFECTED
CONTRACT OF SALE.

II

THE APPELLATE COURT COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT MARQUEZ
NEEDED A WRITTEN AUTHORITY FROM RESPONDENT ETERNIT BEFORE THE SALE CAN BE
PERFECTED.

III

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT GLANVILLE AND DELSAUX HAVE
THE NECESSARY AUTHORITY TO SELL THE SUBJECT PROPERTIES, OR AT THE VERY
LEAST, WERE KNOWINGLY PERMITTED BY RESPONDENT ETERNIT TO DO ACTS WITHIN
THE SCOPE OF AN APPARENT AUTHORITY, AND THUS HELD THEM OUT TO THE PUBLIC AS
POSSESSING POWER TO SELL THE SAID PROPERTIES.17

Petitioners maintain that, based on the facts of the case, there was a perfected contract of sale of
the parcels of land and the improvements thereon for "US$1,000,000.00 plus P2,500,000.00 to
cover obligations prior to final liquidation." Petitioners insist that they had accepted the counter-offer
of respondent EC and that before the counter-offer was withdrawn by respondents, the acceptance
was made known to them through real estate broker Marquez.

Petitioners assert that there was no need for a written authority from the Board of Directors of EC for
Marquez to validly act as broker/middleman/intermediary. As broker, Marquez was not an ordinary
agent because his authority was of a special and limited character in most respects. His only job as
a broker was to look for a buyer and to bring together the parties to the transaction. He was not
authorized to sell the properties or to make a binding contract to respondent EC; hence, petitioners
argue, Article 1874 of the New Civil Code does not apply.

In any event, petitioners aver, what is important and decisive was that Marquez was able to
communicate both the offer and counter-offer and their acceptance of respondent ECs counter-
offer, resulting in a perfected contract of sale.

Petitioners posit that the testimonial and documentary evidence on record amply shows that
Glanville, who was the President and General Manager of respondent EC, and Delsaux, who was
the Managing Director for ESAC Asia, had the necessary authority to sell the subject property or, at
least, had been allowed by respondent EC to hold themselves out in the public as having the power
to sell the subject properties. Petitioners identified such evidence, thus:

1. The testimony of Marquez that he was chosen by Glanville as the then President and
General Manager of Eternit, to sell the properties of said corporation to any interested party,
which authority, as hereinabove discussed, need not be in writing.

2. The fact that the NEGOTIATIONS for the sale of the subject properties
spanned SEVERAL MONTHS, from 1986 to 1987;

3. The COUNTER-OFFER made by Eternit through GLANVILLE to sell its properties to the
Petitioners;
4. The GOOD FAITH of Petitioners in believing Eternits offer to sell the properties as
evidenced by the Petitioners ACCEPTANCE of the counter-offer;

5. The fact that Petitioners DEPOSITED the price of [US]$1,000,000.00 with the Security
Bank and that an ESCROW agreement was drafted over the subject properties;

6. Glanvilles telex to Delsaux inquiring "WHEN WE (Respondents) WILL IMPLEMENT


ACTION TO BUY AND SELL";

7. More importantly, Exhibits "G" and "H" of the Respondents, which evidenced the fact that
Petitioners offer was allegedly REJECTED by both Glanville and Delsaux.18

Petitioners insist that it is incongruous for Glanville and Delsaux to make a counter-offer to
petitioners offer and thereafter reject such offer unless they were authorized to do so by respondent
EC. Petitioners insist that Delsaux confirmed his authority to sell the properties in his letter to
Marquez, to wit:

Dear Sir,

Re: Land of Eternit Corporation

I would like to confirm officially that our Group has decided not to proceed with the sale of the land
which was proposed to you.

The Committee for Asia of our Group met recently (meeting every six months) and examined the
position as far as the Philippines are (sic) concerned. Considering the new political situation since
the departure of MR. MARCOS and a certain stabilization in the Philippines, the Committee has
decided not to stop our operations in Manila[.] [I]n fact production started again last week, and (sic)
to reorganize the participation in the Corporation.

We regret that we could not make a deal with you this time, but in case the policy would change at a
later stage we would consult you again.

In the meantime, I remain

Yours sincerely,

C.F. DELSAUX19

Petitioners further emphasize that they acted in good faith when Glanville and Delsaux were
knowingly permitted by respondent EC to sell the properties within the scope of an apparent
authority. Petitioners insist that respondents held themselves to the public as possessing power to
sell the subject properties.

By way of comment, respondents aver that the issues raised by the petitioners are factual, hence,
are proscribed by Rule 45 of the Rules of Court. On the merits of the petition, respondents EC (now
EMC) and ESAC reiterate their submissions in the CA. They maintain that Glanville, Delsaux and
Marquez had no authority from the stockholders of respondent EC and its Board of Directors to offer
the properties for sale to the petitioners, or to any other person or entity for that matter. They assert
that the decision and resolution of the CA are in accord with law and the evidence on record, and
should be affirmed in toto.
Petitioners aver in their subsequent pleadings that respondent EC, through Glanville and Delsaux,
conformed to the written authority of Marquez to sell the properties. The authority of Glanville and
Delsaux to bind respondent EC is evidenced by the fact that Glanville and Delsaux negotiated for the
sale of 90% of stocks of respondent EC to Ruperto Tan on June 1, 1997. Given the significance of
their positions and their duties in respondent EC at the time of the transaction, and the fact that
respondent ESAC owns 90% of the shares of stock of respondent EC, a formal resolution of the
Board of Directors would be a mere ceremonial formality. What is important, petitioners maintain, is
that Marquez was able to communicate the offer of respondent EC and the petitioners acceptance
thereof. There was no time that they acted without the knowledge of respondents. In fact,
respondent EC never repudiated the acts of Glanville, Marquez and Delsaux.

The petition has no merit.

Anent the first issue, we agree with the contention of respondents that the issues raised by petitioner
in this case are factual. Whether or not Marquez, Glanville, and Delsaux were authorized by
respondent EC to act as its agents relative to the sale of the properties of respondent EC, and if so,
the boundaries of their authority as agents, is a question of fact. In the absence of express written
terms creating the relationship of an agency, the existence of an agency is a fact
question.20 Whether an agency by estoppel was created or whether a person acted within the
bounds of his apparent authority, and whether the principal is estopped to deny the apparent
authority of its agent are, likewise, questions of fact to be resolved on the basis of the evidence on
record.21 The findings of the trial court on such issues, as affirmed by the CA, are conclusive on the
Court, absent evidence that the trial and appellate courts ignored, misconstrued, or misapplied facts
and circumstances of substance which, if considered, would warrant a modification or reversal of the
outcome of the case.22

It must be stressed that issues of facts may not be raised in the Court under Rule 45 of the Rules of
Court because the Court is not a trier of facts. It is not to re-examine and assess the evidence on
record, whether testimonial and documentary. There are, however, recognized exceptions where the
Court may delve into and resolve factual issues, namely:

(1) When the conclusion is a finding grounded entirely on speculations, surmises, or conjectures; (2)
when the inference made is manifestly mistaken, absurd, or impossible; (3) when there is grave
abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the
findings of fact are conflicting; (6) when the Court of Appeals, in making its findings, went beyond the
issues of the case and the same is contrary to the admissions of both appellant and appellee; (7)
when the findings of the Court of Appeals are contrary to those of the trial court; (8) when the
findings of fact are conclusions without citation of specific evidence on which they are based; (9)
when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties,
which, if properly considered, would justify a different conclusion; and (10) when the findings of fact
of the Court of Appeals are premised on the absence of evidence and are contradicted by the
evidence on record.23

We have reviewed the records thoroughly and find that the petitioners failed to establish that the
instant case falls under any of the foregoing exceptions. Indeed, the assailed decision of the Court of
Appeals is supported by the evidence on record and the law.

It was the duty of the petitioners to prove that respondent EC had decided to sell its properties and
that it had empowered Adams, Glanville and Delsaux or Marquez to offer the properties for sale to
prospective buyers and to accept any counter-offer. Petitioners likewise failed to prove that their
counter-offer had been accepted by respondent EC, through Glanville and Delsaux. It must be
stressed that when specific performance is sought of a contract made with an agent, the agency
must be established by clear, certain and specific proof.24

Section 23 of Batas Pambansa Bilang 68, otherwise known as the Corporation Code of the
Philippines, provides:

SEC. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held by the board of directors or
trustees to be elected from among the holders of stocks, or where there is no stock, from among the
members of the corporation, who shall hold office for one (1) year and until their successors are
elected and qualified.

Indeed, a corporation is a juridical person separate and distinct from its members or stockholders
and is not affected by the personal rights,

obligations and transactions of the latter.25 It may act only through its board of directors or, when
authorized either by its by-laws or by its board resolution, through its officers or agents in the normal
course of business. The general principles of agency govern the relation between the corporation
and its officers or agents, subject to the articles of incorporation, by-laws, or relevant provisions of
law.26

Under Section 36 of the Corporation Code, a corporation may sell or convey its real properties,
subject to the limitations prescribed by law and the Constitution, as follows:

SEC. 36. Corporate powers and capacity. Every corporation incorporated under this Code has the
power and capacity:

xxxx

7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise
deal with such real and personal property, including securities and bonds of other corporations, as
the transaction of a lawful business of the corporation may reasonably and necessarily require,
subject to the limitations prescribed by the law and the Constitution.

The property of a corporation, however, is not the property of the stockholders or members, and as
such, may not be sold without express authority from the board of directors.27 Physical acts, like the
offering of the properties of the corporation for sale, or the acceptance of a counter-offer of
prospective buyers of such properties and the execution of the deed of sale covering such property,
can be performed by the corporation only by officers or agents duly authorized for the purpose by
corporate by-laws or by specific acts of the board of directors.28 Absent such valid
delegation/authorization, the rule is that the declarations of an individual director relating to the
affairs of the corporation, but not in the course of, or connected with, the performance of authorized
duties of such director, are not binding on the corporation.29

While a corporation may appoint agents to negotiate for the sale of its real properties, the final say
will have to be with the board of directors through its officers and agents as authorized by a board
resolution or by its by-laws.30 An unauthorized act of an officer of the corporation is not binding on it
unless the latter ratifies the same expressly or impliedly by its board of directors. Any sale of real
property of a corporation by a person purporting to be an agent thereof but without written authority
from the corporation is null and void. The declarations of the agent alone are generally insufficient to
establish the fact or extent of his/her authority.31
By the contract of agency, a person binds himself to render some service or to do something in
representation on behalf of another, with the consent or authority of the latter.32 Consent of both
principal and agent is necessary to create an agency. The principal must intend that the agent shall
act for him; the agent must intend to accept the authority and act on it, and the intention of the
parties must find expression either in words or conduct between them.33

An agency may be expressed or implied from the act of the principal, from his silence or lack of
action, or his failure to repudiate the agency knowing that another person is acting on his behalf
without authority. Acceptance by the agent may be expressed, or implied from his acts which carry
out the agency, or from his silence or inaction according to the circumstances.34 Agency may be oral
unless the law requires a specific form.35 However, to create or convey real rights over immovable
property, a special power of attorney is necessary.36 Thus, when a sale of a piece of land or any
portion thereof is through an agent, the authority of the latter shall be in writing, otherwise, the sale
shall be void.37

In this case, the petitioners as plaintiffs below, failed to adduce in evidence any resolution of the
Board of Directors of respondent EC empowering Marquez, Glanville or Delsaux as its agents, to
sell, let alone offer for sale, for and in its behalf, the eight parcels of land owned by respondent EC
including the improvements thereon. The bare fact that Delsaux may have been authorized to sell to
Ruperto Tan the shares of stock of respondent ESAC, on June 1, 1997, cannot be used as basis for
petitioners claim that he had likewise been authorized by respondent EC to sell the parcels of land.

Moreover, the evidence of petitioners shows that Adams and Glanville acted on the authority of
Delsaux, who, in turn, acted on the authority of respondent ESAC, through its Committee for
Asia,38 the Board of Directors of respondent ESAC,39 and the Belgian/Swiss component of the
management of respondent ESAC.40 As such, Adams and Glanville engaged the services of
Marquez to offer to sell the properties to prospective buyers. Thus, on September 12, 1986,
Marquez wrote the petitioner that he was authorized to offer for sale the property for P27,000,000.00
and the other terms of the sale subject to negotiations. When petitioners offered to purchase the
property for P20,000,000.00, through Marquez, the latter relayed petitioners offer to Glanville;
Glanville had to send a telex to Delsaux to inquire the position of respondent ESAC to petitioners
offer. However, as admitted by petitioners in their Memorandum, Delsaux was unable to reply
immediately to the telex of Glanville because Delsaux had to wait for confirmation from respondent
ESAC.41 When Delsaux finally responded to Glanville on February 12, 1987, he made it clear that,
based on the "Belgian/Swiss decision" the final offer of respondent ESAC was US$1,000,000.00
plus P2,500,000.00 to cover all existing obligations prior to final liquidation.42 The offer of Delsaux
emanated only from the "Belgian/Swiss decision," and not the entire management or Board of
Directors of respondent ESAC. While it is true that petitioners accepted the counter-offer of
respondent ESAC, respondent EC was not a party to the transaction between them; hence, EC was
not bound by such acceptance.

While Glanville was the President and General Manager of respondent EC, and Adams and Delsaux
were members of its Board of Directors, the three acted for and in behalf of respondent ESAC, and
not as duly authorized agents of respondent EC; a board resolution evincing the grant of such
authority is needed to bind EC to any agreement regarding the sale of the subject properties. Such
board resolution is not a mere formality but is a condition sine qua non to bind respondent EC.
Admittedly, respondent ESAC owned 90% of the shares of stocks of respondent EC; however, the
mere fact that a corporation owns a majority of the shares of stocks of another, or even all of such
shares of stocks, taken alone, will not justify their being treated as one corporation.43

It bears stressing that in an agent-principal relationship, the personality of the principal is extended
through the facility of the agent. In so doing, the agent, by legal fiction, becomes the principal,
authorized to perform all acts which the latter would have him do. Such a relationship can only be
effected with the consent of the principal, which must not, in any way, be compelled by law or by any
court.44

The petitioners cannot feign ignorance of the absence of any regular and valid authority of
respondent EC empowering Adams, Glanville or Delsaux to offer the properties for sale and to sell
the said properties to the petitioners. A person dealing with a known agent is not authorized, under
any circumstances, blindly to trust the agents; statements as to the extent of his powers; such
person must not act negligently but must use reasonable diligence and prudence to ascertain
whether the agent acts within the scope of his authority.45 The settled rule is that, persons dealing
with an assumed agent are bound at their peril, and if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to prove it.46 In this case, the petitioners failed to
discharge their burden; hence, petitioners are not entitled to damages from respondent EC.

It appears that Marquez acted not only as real estate broker for the petitioners but also as their
agent. As gleaned from the letter of Marquez to Glanville, on February 26, 1987, he confirmed, for
and in behalf of the petitioners, that the latter had accepted such offer to sell the land and the
improvements thereon. However, we agree with the ruling of the appellate court that Marquez had
no authority to bind respondent EC to sell the subject properties. A real estate broker is one who
negotiates the sale of real properties. His business, generally speaking, is only to find a purchaser
who is willing to buy the land upon terms fixed by the owner. He has no authority to bind the principal
by signing a contract of sale. Indeed, an authority to find a purchaser of real property does not
include an authority to sell.47

Equally barren of merit is petitioners contention that respondent EC is estopped to deny the
existence of a principal-agency relationship between it and Glanville or Delsaux. For an agency by
estoppel to exist, the following must be established: (1) the principal manifested a representation of
the agents authority or knowlingly allowed the agent to assume such authority; (2) the third person,
in good faith, relied upon such representation; (3) relying upon such representation, such third
person has changed his position to his detriment.48 An agency by estoppel, which is similar to the
doctrine of apparent authority, requires proof of reliance upon the representations, and that, in turn,
needs proof that the representations predated the action taken in reliance.49 Such proof is lacking in
this case. In their communications to the petitioners, Glanville and Delsaux positively and
unequivocally declared that they were acting for and in behalf of respondent ESAC.

Neither may respondent EC be deemed to have ratified the transactions between the petitioners and
respondent ESAC, through Glanville, Delsaux and Marquez. The transactions and the various
communications inter se were never submitted to the Board of Directors of respondent EC for
ratification.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. Costs against the
petitioners.

SO ORDERED.

G.R. No. 118375 October 3, 2003

CELESTINA T. NAGUIAT, petitioner,


vs.
COURT OF APPEALS and AURORA QUEAO, respondents.
DECISION

TINGA, J.:

Before us is a Petition for Review on Certiorari under Rule 45, assailing the decision of the Sixteenth
Division of the respondent Court of Appeals promulgated on 21 December 19941 , which affirmed in
toto the decision handed down by the Regional Trial Court (RTC) of Pasay City.2

The case arose when on 11 August 1981, private respondent Aurora Queao (Queao) filed a
complaint before the Pasay City RTC for cancellation of a Real Estate Mortgage she had entered
into with petitioner Celestina Naguiat (Naguiat). The RTC rendered a decision, declaring the
questioned Real Estate Mortgage void, which Naguiat appealed to the Court of Appeals. After the
Court of Appeals upheld the RTC decision, Naguiat instituted the present petition. 1vvphi1.nt

The operative facts follow:

Queao applied with Naguiat for a loan in the amount of Two Hundred Thousand Pesos
(200,000.00), which Naguiat granted. On 11 August 1980, Naguiat indorsed to Queao Associated
Bank Check No. 090990 (dated 11 August 1980) for the amount of Ninety Five Thousand Pesos
(95,000.00), which was earlier issued to Naguiat by the Corporate Resources Financing
Corporation. She also issued her own Filmanbank Check No. 065314, to the order of Queao, also
dated 11 August 1980 and for the amount of Ninety Five Thousand Pesos (95,000.00). The
proceeds of these checks were to constitute the loan granted by Naguiat to Queao.3

To secure the loan, Queao executed a Deed of Real Estate Mortgage dated 11 August 1980 in
favor of Naguiat, and surrendered to the latter the owners duplicates of the titles covering the
mortgaged properties.4 On the same day, the mortgage deed was notarized, and Queao issued to
Naguiat a promissory note for the amount of TWO HUNDRED THOUSAND PESOS (200,000.00),
with interest at 12% per annum, payable on 11 September 1980.5Queao also issued a Security
Bank and Trust Company check, postdated 11 September 1980, for the amount of TWO HUNDRED
THOUSAND PESOS (200,000.00) and payable to the order of Naguiat.

Upon presentment on its maturity date, the Security Bank check was dishonored for insufficiency of
funds. On the following day, 12 September 1980, Queao requested Security Bank to stop payment
of her postdated check, but the bank rejected the request pursuant to its policy not to honor such
requests if the check is drawn against insufficient funds.6

On 16 October 1980, Queao received a letter from Naguiats lawyer, demanding settlement of the
loan. Shortly thereafter, Queao and one Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat. At the
meeting, Queao told Naguiat that she did not receive the proceeds of the loan, adding that the
checks were retained by Ruebenfeldt, who purportedly was Naguiats agent.7

Naguiat applied for the extrajudicial foreclosure of the mortgage with the Sheriff of Rizal Province,
who then scheduled the foreclosure sale on 14 August 1981. Three days before the scheduled sale,
Queao filed the case before the Pasay City RTC,8 seeking the annulment of the mortgage deed.
The trial court eventually stopped the auction sale.9

On 8 March 1991, the RTC rendered judgment, declaring the Deed of Real Estate Mortgage null and
void, and ordering Naguiat to return to Queao the owners duplicates of her titles to the mortgaged
lots.10 Naguiat appealed the decision before the Court of Appeals, making no less than eleven
assignments of error. The Court of Appeals promulgated the decision now assailed before us that
affirmed in toto the RTC decision. Hence, the present petition.
Naguiat questions the findings of facts made by the Court of Appeals, especially on the issue of
whether Queao had actually received the loan proceeds which were supposed to be covered by the
two checks Naguiat had issued or indorsed. Naguiat claims that being a notarial instrument or public
document, the mortgage deed enjoys the presumption that the recitals therein are true. Naguiat also
questions the admissibility of various representations and pronouncements of Ruebenfeldt, invoking
the rule on the non-binding effect of the admissions of third persons.11

The resolution of the issues presented before this Court by Naguiat involves the determination of
facts, a function which this Court does not exercise in an appeal by certiorari. Under Rule 45 which
governs appeal by certiorari, only questions of law may be raised12 as the Supreme Court is not a
trier of facts.13 The resolution of factual issues is the function of lower courts, whose findings on these
matters are received with respect and are in fact generally binding on the Supreme Court.14 A
question of law which the Court may pass upon must not involve an examination of the probative
value of the evidence presented by the litigants.15 There is a question of law in a given case when the
doubt or difference arises as to what the law is on a certain state of facts; there is a question of fact
when the doubt or difference arises as to the truth or the falsehood of alleged facts.16

Surely, there are established exceptions to the rule on the conclusiveness of the findings of facts of
the lower courts.17 But Naguiats case does not fall under any of the exceptions. In any event, both
the decisions of the appellate and trial courts are supported by the evidence on record and the
applicable laws.

Against the common finding of the courts below, Naguiat vigorously insists that Queao received the
loan proceeds. Capitalizing on the status of the mortgage deed as a public document, she cites the
rule that a public document enjoys the presumption of validity and truthfulness of its contents. The
Court of Appeals, however, is correct in ruling that the presumption of truthfulness of the recitals in a
public document was defeated by the clear and convincing evidence in this case that pointed to the
absence of consideration.18 This Court has held that the presumption of truthfulness engendered by
notarized documents is rebuttable, yielding as it does to clear and convincing evidence to the
contrary, as in this case.19

On the other hand, absolutely no evidence was submitted by Naguiat that the checks she issued or
endorsed were actually encashed or deposited. The mere issuance of the checks did not result in
the perfection of the contract of loan. For the Civil Code provides that the delivery of bills of
exchange and mercantile documents such as checks shall produce the effect of payment only when
they have been cashed.20 It is only after the checks have produced the effect of payment that the
contract of loan may be deemed perfected. Art. 1934 of the Civil Code provides:

"An accepted promise to deliver something by way of commodatum or simple loan is binding upon
the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the
object of the contract."

A loan contract is a real contract, not consensual, and, as such, is perfected only upon the delivery
of the object of the contract.21 In this case, the objects of the contract are the loan proceeds which
Queao would enjoy only upon the encashment of the checks signed or indorsed by Naguiat. If
indeed the checks were encashed or deposited, Naguiat would have certainly presented the
corresponding documentary evidence, such as the returned checks and the pertinent bank records.
Since Naguiat presented no such proof, it follows that the checks were not encashed or credited to
Queaos account. 1aw phi 1.nt

Naguiat questions the admissibility of the various written representations made by Ruebenfeldt on
the ground that they could not bind her following the res inter alia acta alteri nocere non debet rule.
The Court of Appeals rejected the argument, holding that since Ruebenfeldt was an authorized
representative or agent of Naguiat the situation falls under a recognized exception to the rule.22 Still,
Naguiat insists that Ruebenfeldt was not her agent.

Suffice to say, however, the existence of an agency relationship between Naguiat and Ruebenfeldt
is supported by ample evidence. As correctly pointed out by the Court of Appeals, Ruebenfeldt was
not a stranger or an unauthorized person. Naguiat instructed Ruebenfeldt to withhold from Queao
the checks she issued or indorsed to Queao, pending delivery by the latter of additional collateral.
Ruebenfeldt served as agent of Naguiat on the loan application of Queaos friend, Marilou
Farralese, and it was in connection with that transaction that Queao came to know Naguiat.23 It was
also Ruebenfeldt who accompanied Queao in her meeting with Naguiat and on that occasion, on
her own and without Queao asking for it, Reubenfeldt actually drew a check for the sum of
220,000.00 payable to Naguiat, to cover for Queaos alleged liability to Naguiat under the loan
agreement.24

The Court of Appeals recognized the existence of an "agency by estoppel25 citing Article 1873 of the
Civil Code.26Apparently, it considered that at the very least, as a consequence of the interaction
between Naguiat and Ruebenfeldt, Queao got the impression that Ruebenfeldt was the agent of
Naguiat, but Naguiat did nothing to correct Queaos impression. In that situation, the rule is clear.
One who clothes another with apparent authority as his agent, and holds him out to the public as
such, cannot be permitted to deny the authority of such person to act as his agent, to the prejudice
of innocent third parties dealing with such person in good faith, and in the honest belief that he is
what he appears to be.27 The Court of Appeals is correct in invoking the said rule on agency by
estoppel.1awphi1.nt

More fundamentally, whatever was the true relationship between Naguiat and Ruebenfeldt is
irrelevant in the face of the fact that the checks issued or indorsed to Queao were never encashed
or deposited to her account of Naguiat.

All told, we find no compelling reason to disturb the finding of the courts a quo that the lender did not
remit and the borrower did not receive the proceeds of the loan. That being the case, it follows that
the mortgage which is supposed to secure the loan is null and void. The consideration of the
mortgage contract is the same as that of the principal contract from which it receives life, and without
which it cannot exist as an independent contract.28 A mortgage contract being a mere accessory
contract, its validity would depend on the validity of the loan secured by it.29

WHEREFORE, the petition is denied and the assailed decision is affirmed. Costs against petitioner.

SO ORDERED.

G.R. No. 113074 January 22, 1997

ALFRED HAHN, petitioner,


vs.
COURT OF APPEALS and BAYERSCHE MOTOREN WERKE AKTIENGSELLSCHAFT
(BMW), respondents.

MENDOZA, J.:
This is a petition for review of the decision1 of the Court of Appeals dismissing a complaint for
specific performance which petitioner had filed against private respondent on the ground that the
Regional Trial Court of Quezon City did not acquire jurisdiction over private respondent, a
nonresident foreign corporation, and of the appellate court's order denying petitioner's motion for
reconsideration.

The following are the facts:

Petitioner Alfred Hahn is a Filipino citizen doing business under the name and style "Hahn-Manila."
On the other hand, private respondent Bayerische Motoren Werke Aktiengesellschaft (BMW) is a
nonresident foreign corporation existing under the laws of the former Federal Republic of Germany,
with principal office at Munich, Germany.

On March 7, 1967, petitioner executed in favor of private respondent a "Deed of Assignment with
Special Power of Attorney," which reads in full as follows:

WHEREAS, the ASSIGNOR is the present owner and holder of the BMW trademark and
device in the Philippines which ASSIGNOR uses and has been using on the products
manufactured by ASSIGNEE, and for which ASSIGNOR is the authorized exclusive Dealer
of the ASSIGNEE in the Philippines, the same being evidenced by certificate of registration
issued by the Director of Patents on 12 December 1963 and is referred to as Trademark No.
10625;

WHEREAS, the ASSIGNOR has agreed to transfer and consequently record said transfer of
the said BMW trademark and device in favor of the ASSIGNEE herein with the Philippines
Patent Office;

NOW THEREFORE, in view of the foregoing and in consideration of the stipulations


hereunder stated, the ASSIGNOR hereby affirms the said assignment and transfer in favor of
the ASSIGNEE under the following terms and conditions:

1. The ASSIGNEE shall take appropriate steps against any user other than ASSIGNOR or
infringer of the BMW trademark in the Philippines; for such purpose, the ASSIGNOR shall
inform the ASSIGNEE immediately of any such use or infringement of the said trademark
which comes to his knowledge and upon such information the ASSIGNOR shall
automatically act as Attorney-In-Fact of the ASSIGNEE for such case, with full power,
authority and responsibility to prosecute unilaterally or in concert with ASSIGNEE, any such
infringer of the subject mark and for purposes hereof the ASSIGNOR is hereby named and
constituted as ASSIGNEE's Attorney-In-Fact, but any such suit without ASSIGNEE's consent
will exclusively be the responsibility and for the account of the ASSIGNOR,

2. That the ASSIGNOR and the ASSIGNEE shall continue business relations as has been
usual in the past without a formal contract, and for that purpose, the dealership of
ASSIGNOR shall cover the ASSIGNEE's complete production program with the only
limitation that, for the present, in view of ASSIGNEE's limited production, the latter shall not
be able to supply automobiles to ASSIGNOR.

Per the agreement, the parties "continue[d] business relations as has been usual in the past without
a formal contract." But on February 16, 1993, in a meeting with a BMW representative and the
president of Columbia Motors Corporation (CMC), Jose Alvarez, petitioner was informed that BMW
was arranging to grant the exclusive dealership of BMW cars and products to CMC, which had
expressed interest in acquiring the same. On February 24, 1993, petitioner received confirmation of
the information from BMW which, in a letter, expressed dissatisfaction with various aspects of
petitioner's business, mentioning among other things, decline in sales, deteriorating services, and
inadequate showroom and warehouse facilities, and petitioner's alleged failure to comply with the
standards for an exclusive BMW dealer.2 Nonetheless, BMW expressed willingness to continue
business relations with the petitioner on the basis of a "standard BMW importer" contract, otherwise,
it said, if this was not acceptable to petitioner, BMW would have no alternative but to terminate
petitioner's exclusive dealership effective June 30, 1993.

Petitioner protested, claiming that the termination of his exclusive dealership would be a breach of
the Deed of Assignment.3 Hahn insisted that as long as the assignment of its trademark and device
subsisted, he remained BMW's exclusive dealer in the Philippines because the assignment was
made in consideration of the exclusive dealership. In the same letter petitioner explained that the
decline in sales was due to lower prices offered for BMW cars in the United States and the fact that
few customers returned for repairs and servicing because of the durability of BMW parts and the
efficiency of petitioner's service.

Because of Hahn's insistence on the former business relation, BMW withdrew on March 26, 1993 its
offer of a "standard importer contract" and terminated the exclusive dealer relationship effective June
30, 1993. 4 At a conference of BMW Regional Importers held on April 26, 1993 in Singapore, Hahn
was surprised to find Alvarez among those invited from the Asian region. On April 29, 1993, BMW
proposed that Hahn and CMC jointly import and distribute BMW cars and parts.

Hahn found the proposal unacceptable. On May 14, 1993, he filed a complaint for specific
performance and damages against BMW to compel it to continue the exclusive dealership. Later he
filed an amended complaint to include an application for temporary restraining order and for writs of
preliminary, mandatory and prohibitory injunction to enjoin BMW from terminating his exclusive
dealership. Hahn's amended complaint alleged in pertinent parts:

2. Defendant [BMW] is a foreign corporation doing business in the Philippines with principal
offices at Munich, Germany. It may be served with summons and other court processes
through the Secretary of the Department of Trade and Industry of the Philippines. . . .

xxx xxx xxx

5. On March 7, 1967, Plaintiff executed in favor of defendant BMW a Deed of Assignment


with Special Power of Attorney covering the trademark and in consideration thereof, under its
first whereas clause, Plaintiff was duly acknowledged as the "exclusive Dealer of the
Assignee in the Philippines. . . .

xxx xxx xxx

8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in the
Philippines up to the present, Plaintiff, through its firm name "HAHN MANILA" and without
any monetary contribution from defendant BMW, established BMW's goodwill and market
presence in the Philippines. Pursuant thereto, Plaintiff has invested a lot of money and
resources in order to single-handedly compete against other motorcycle and car companies.
. . . Moreover, Plaintiff has built buildings and other infrastructures such as service centers
and showrooms to maintain and promote the car and products of defendant BMW.

xxx xxx xxx


10. In a letter dated February 24, 1993, defendant BMW advised Plaintiff that it was willing to
maintain with Plaintiff a relationship but only "on the basis of a standard BMW importer
contract as adjusted to reflect the particular situation in the Philippines" subject to certain
conditions, otherwise, defendant BMW would terminate Plaintiffs exclusive dealership and
any relationship for cause effective June 30, 1993. . . .

xxx xxx xxx

15. The actuations of defendant BMW are in breach of the assignment agreement between
itself and plaintiff since the consideration for the assignment of the BMW trademark is the
continuance of the exclusive dealership agreement. It thus, follows that the exclusive
dealership should continue for so long as defendant BMW enjoys the use and ownership of
the trademark assigned to it by Plaintiff.

The case was docketed as Civil Case No. Q-93-15933 and raffled to Branch 104 of the Quezon City
Regional Trial Court, which on June 14, 1993 issued a temporary restraining order. Summons and
copies of the complaint and amended complaint were thereafter served on the private respondent
through the Department of Trade and Industry, pursuant to Rule 14, 14 of the Rules of Court. The
order, summons and copies of the complaint and amended complaint were later sent by the DTI to
BMW via registered mail on June 15, 19935 and received by the latter on June 24, 1993.

On June 17, 1993, without proof of service on BMW, the hearing on the application for the writ of
preliminary injunction proceeded ex parte, with petitioner Hahn testifying. On June 30, 1993, the trial
court issued an order granting the writ of preliminary injunction upon the filing of a bond of
P100,000.00. On July 13, 1993, following the posting of the required bond, a writ of preliminary
injunction was issued.

On July 1, 1993, BMW moved to dismiss the case, contending that the trial court did not acquire
jurisdiction over it through the service of summons on the Department of Trade and Industry,
because it (BMW) was a foreign corporation and it was not doing business in the Philippines. It
contended that the execution of the Deed of Assignment was an isolated transaction; that Hahn was
not its agent because the latter undertook to assemble and sell BMW cars and products without the
participation of BMW and sold other products; and that Hahn was an indentor or middleman
transacting business in his own name and for his own account.

Petitioner Alfred Hahn opposed the motion. He argued that BMW was doing business in the
Philippines through him as its agent, as shown by the fact that BMW invoices and order forms were
used to document his transactions; that he gave warranties as exclusive BMW dealer; that BMW
officials periodically inspected standards of service rendered by him; and that he was described in
service booklets and international publications of BMW as a "BMW Importer" or "BMW Trading
Company" in the Philippines.

The trial court6 deferred resolution of the motion to dismiss until after trial on the merits for the reason
that the grounds advanced by BMW in its motion did not seem to be indubitable.

Without seeking reconsideration of the aforementioned order, BMW filed a petition for certiorari with
the Court of Appeals alleging that:

I. THE RESPONDENT JUDGE ACTED WITH UNDUE HASTE OR OTHERWISE


INJUDICIOUSLY IN PROCEEDINGS LEADING TOWARD THE ISSUANCE OF THE WRIT
OF PRELIMINARY INJUNCTION, AND IN PRESCRIBING THE TERMS FOR THE
ISSUANCE THEREOF.
II. THE RESPONDENT JUDGE PATENTLY ERRED IN DEFERRING RESOLUTION OF
THE MOTION TO DISMISS ON THE GROUND OF LACK OF JURISDICTION, AND
THEREBY FAILING TO IMMEDIATELY DISMISS THE CASE A QUO.

BMW asked for the immediate issuance of a temporary restraining order and, after hearing, for a writ
of preliminary injunction, to enjoin the trial court from proceeding further in Civil Case No. Q-93-
15933. Private respondent pointed out that, unless the trial court's order was set aside, it would be
forced to submit to the jurisdiction of the court by filing its answer or to accept judgment in default,
when the very question was whether the court had jurisdiction over it.

The Court of Appeals enjoined the trial court from hearing petitioner's complaint. On December 20,
1993, it rendered judgment finding the trial court guilty of grave abuse of discretion in deferring
resolution of the motion to dismiss. It stated:

Going by the pleadings already filed with the respondent court before it came out with its
questioned order of July 26, 1993, we rule and so hold that petitioner's (BMW) motion to
dismiss could be resolved then and there, and that the respondent judge's deferment of his
action thereon until after trial on the merit constitutes, to our mind, grave abuse of discretion.

xxx xxx xxx

. . . [T]here is not much appreciable disagreement as regards the factual matters relating to
the motion to dismiss. What truly divide (sic) the parties and to which they greatly differ is the
legal conclusions they respectively draw from such facts, (sic) with Hahn maintaining that on
the basis thereof, BMW is doing business in the Philippines while the latter asserts that it is
not.

Then, after stating that any ruling which the trial court might make on the motion to dismiss would
anyway be elevated to it on appeal, the Court of Appeals itself resolved the motion. It ruled that
BMW was not doing business in the country and, therefore, jurisdiction over it could not be acquired
through service of summons on the DTI pursuant to Rule 14, 14. 'The court upheld private
respondent's contention that Hahn acted in his own name and for his own account and
independently of BMW, based on Alfred Hahn's allegations that he had invested his own money and
resources in establishing BMW's goodwill in the Philippines and on BMW's claim that Hahn sold
products other than those of BMW. It held that petitioner was a mere indentor or broker and not an
agent through whom private respondent BMW transacted business in the Philippines. Consequently,
the Court of Appeals dismissed petitioner's complaint against BMW.

Hence, this appeal. Petitioner contends that the Court of Appeals erred (1) in finding that the trial
court gravely abused its discretion in deferring action on the motion to dismiss and (2) in finding that
private respondent BMW is not doing business in the Philippines and, for this reason, dismissing
petitioner's case.

Petitioner's appeal is well taken. Rule 14, 14 provides:

14. Service upon private foreign corporations. If the defendant is a foreign corporation, or
a nonresident joint stock company or association, doing business in the Philippines, service
may be made on its resident agent designated in accordance with law for that purpose, or, if
there be no such agent, on the government official designated by law to that effect, or on any
of its officers or agents within the Philippines. (Emphasis added).
What acts are considered "doing business in the Philippines" are enumerated in 3(d) of the Foreign
Investments Act of 1991 (R.A. No. 7042) as follows:7

d) the phrase "doing business" shall include soliciting orders, service contracts, opening
offices, whether called "liaison" offices or branches; appointing representatives or distributors
domiciled in the Philippines or who in any calendar year stay in the country for a period or
periods totalling one hundred eighty (180) days or more; participating in the management,
supervision or control of any domestic business, firm, entity or corporation in the
Philippines; and any other act or acts that imply a continuity of commercial dealings or
arrangements, and contemplate to that extent the performance of acts or works, or the
exercise of some of the functions normally incident to, and in progressive prosecution of,
commercial gain or of the purpose and object of the business organization: Provided,
however, That the phrase "doing business" shall not be deemed to include mere investment
as a shareholder by a foreign entity in domestic corporations duly registered to do business,
and/or the exercise of rights as such investor; nor having a nominee director or officer to
represent its interests in such corporation; nor appointing a representative or distributor
domiciled in the Philippines which transacts business in its own name and for its own
account. (Emphasis supplied)

Thus, the phrase includes "appointing representatives or distributors in the Philippines" but not when
the representative or distributor "transacts business in its name and for its own account." In addition,
1(f)(1) of the Rules and Regulations implementing (IRR) the Omnibus Investment Code of 1987
(E.O. No. 226) provided:

(f) "Doing business" shall be any act or combination of acts, enumerated in Article 44 of the
Code. In particular, "doing business" includes:

(1) . . . A foreign firm which does business through middlemen acting in their own names,
such as indentors, commercial brokers or commission merchants, shall not be deemed doing
business in the Philippines. But such indentors, commercial brokers or commission
merchants shall be the ones deemed to be doing business in the Philippines.

The question is whether petitioner Alfred Hahn is the agent or distributor in the Philippines of private
respondent BMW. If he is, BMW may be considered doing business in the Philippines and the trial
court acquired jurisdiction over it (BMW) by virtue of the service of summons on the Department of
Trade and Industry. Otherwise, if Hahn is not the agent of BMW but an independent dealer, albeit of
BMW cars and products, BMW, a foreign corporation, is not considered doing business in the
Philippines within the meaning of the Foreign Investments Act of 1991 and the IRR, and the trial
court did not acquire jurisdiction over it (BMW).

The Court of Appeals held that petitioner Alfred Hahn acted in his own name and for his own
account and not as agent or distributor in the Philippines of BMW on the ground that "he alone had
contacts with individuals or entities interested in acquiring BMW vehicles. Independence
characterizes Hahn's undertakings, for which reason he is to be considered, under governing
statutes, as doing business." (p. 13) In support of this conclusion, the appellate court cited the
following allegations in Hahn's amended complaint:

8. From the time the trademark "BMW & DEVICE" was first used by the Plaintiff in the
Philippines up to the present, Plaintiff, through its firm name "HAHN MANILA" and without
any monetary contributions from defendant BMW, established BMW's goodwill and market
presence in the Philippines. Pursuant thereto, Plaintiff invested a lot of money and resources
in order to single-handedly compete against other motorcycle and car companies. . . .
Moreover, Plaintiff has built buildings and other infrastructures such as service centers and
showrooms to maintain and promote the car and products of defendant BMW.

As the above quoted allegations of the amended complaint show, however, there is nothing to
support the appellate court's finding that Hahn solicited orders alone and for his own account and
without "interference from, let alone direction of, BMW." (p. 13) To the contrary, Hahn claimed he
took orders for BMW cars and transmitted them to BMW. Upon receipt of the orders, BMW fixed the
downpayment and pricing charges, notified Hahn of the scheduled production month for the orders,
and reconfirmed the orders by signing and returning to Hahn the acceptance sheets. Payment was
made by the buyer directly to BMW. Title to cars purchased passed directly to the buyer and Hahn
never paid for the purchase price of BMW cars sold in the Philippines. Hahn was credited with a
commission equal to 14% of the purchase price upon the invoicing of a vehicle order by BMW. Upon
confirmation in writing that the vehicles had been registered in the Philippines and serviced by him,
Hahn received an additional 3% of the full purchase price. Hahn performed after-sale services,
including warranty services, for which he received reimbursement from BMW. All orders were on
invoices and forms of BMW.8

These allegations were substantially admitted by BMW which, in its petition for certiorari before the
Court of Appeals, stated:9

9.4. As soon as the vehicles are fully manufactured and full payment of the purchase prices
are made, the vehicles are shipped to the Philippines. (The payments may be made by the
purchasers or third-persons or even by Hahn.) The bills of lading are made up in the name of
the purchasers, but Hahn-Manila is therein indicated as the person to be notified.

9.5. It is Hahn who picks up the vehicles from the Philippine ports, for purposes of
conducting pre-delivery inspections. Thereafter, he delivers the vehicles to the purchasers.

9.6. As soon as BMW invoices the vehicle ordered, Hahn is credited with a commission of
fourteen percent (14%) of the full purchase price thereof, and as soon as he confirms in
writing that the vehicles have been registered in the Philippines and have been serviced by
him, he will receive an additional three percent (3%) of the full purchase prices as
commission.

Contrary to the appellate court's conclusion, this arrangement shows an agency. An agent receives
a commission upon the successful conclusion of a sale. On the other hand, a broker earns his pay
merely by bringing the buyer and the seller together, even if no sale is eventually made.

As to the service centers and showrooms which he said he had put up at his own expense, Hahn
said that he had to follow BMW specifications as exclusive dealer of BMW in the Philippines.
According to Hahn, BMW periodically inspected the service centers to see to it that BMW standards
were maintained. Indeed, it would seem from BMW's letter to Hahn that it was for Hahn's alleged
failure to maintain BMW standards that BMW was terminating Hahn's dealership.

The fact that Hahn invested his own money to put up these service centers and showrooms does not
necessarily prove that he is not an agent of BMW. For as already noted, there are facts in the record
which suggest that BMW exercised control over Hahn's activities as a dealer and made regular
inspections of Hahn's premises to enforce compliance with BMW standards and specifications.10 For
example, in its letter to Hahn dated February 23, 1996, BMW stated:
In the last years we have pointed out to you in several discussions and letters that we have
to tackle the Philippine market more professionally and that we are through your present
activities not adequately prepared to cope with the forthcoming challenges.11

In effect, BMW was holding Hahn accountable to it under the 1967 Agreement.

This case fits into the mould of Communications Materials, Inc. v. Court of Appeals,12 in which the
foreign corporation entered into a "Representative Agreement" and a "Licensing Agreement" with a
domestic corporation, by virtue of which the latter was appointed "exclusive representative" in the
Philippines for a stipulated commission. Pursuant to these contracts, the domestic corporation sold
products exported by the foreign corporation and put up a service center for the products sold
locally. This Court held that these acts constituted doing business in the Philippines. The
arrangement showed that the foreign corporation's purpose was to penetrate the Philippine market
and establish its presence in the Philippines.

In addition, BMW held out private respondent Hahn as its exclusive distributor in the Philippines,
even as it announced in the Asian region that Hahn was the "official BMW agent" in the Philippines.13

The Court of Appeals also found that petitioner Alfred Hahn dealt in other products, and not
exclusively in BMW products, and, on this basis, ruled that Hahn was not an agent of BMW. (p. 14)
This finding is based entirely on allegations of BMW in its motion to dismiss filed in the trial court and
in its petition for certiorari before the Court of Appeals.14 But this allegation was denied by Hahn15 and
therefore the Court of Appeals should not have cited it as if it were the fact.

Indeed this is not the only factual issue raised, which should have indicated to the Court of Appeals
the necessity of affirming the trial court's order deferring resolution of BMW's motion to dismiss.
Petitioner alleged that whether or not he is considered an agent of BMW, the fact is that BMW did
business in the Philippines because it sold cars directly to Philippine buyers. 16 This was denied by
BMW, which claimed that Hahn was not its agent and that, while it was true that it had sold cars to
Philippine buyers, this was done without solicitation on its part.17

It is not true then that the question whether BMW is doing business could have been resolved simply
by considering the parties' pleadings. There are genuine issues of facts which can only be
determined on the basis of evidence duly presented. BMW cannot short circuit the process on the
plea that to compel it to go to trial would be to deny its right not to submit to the jurisdiction of the trial
court which precisely it denies. Rule 16, 3 authorizes courts to defer the resolution of a motion to
dismiss until after the trial if the ground on which the motion is based does not appear to be
indubitable. Here the record of the case bristles with factual issues and it is not at all clear whether
some allegations correspond to the proof.

Anyway, private respondent need not apprehend that by responding to the summons it would be
waiving its objection to the trial court's jurisdiction. It is now settled that, for purposes of having
summons served on a foreign corporation in accordance with Rule 14, 14, it is sufficient that it be
alleged in the complaint that the foreign corporation is doing business in the Philippines. The court
need not go beyond the allegations of the complaint in order to determine whether it has
Jurisdiction.18 A determination that the foreign corporation is doing business is only tentative and is
made only for the purpose of enabling the local court to acquire jurisdiction over the foreign
corporation through service of summons pursuant to Rule 14, 14. Such determination does not
foreclose a contrary finding should evidence later show that it is not transacting business in the
country. As this Court has explained:
This is not to say, however, that the petitioner's right to question the jurisdiction of the court
over its person is now to be deemed a foreclosed matter. If it is true, as Signetics claims, that
its only involvement in the Philippines was through a passive investment in Sigfil, which it
even later disposed of, and that TEAM Pacific is not its agent, then it cannot really be said to
be doing business in the Philippines. It is a defense, however, that requires the contravention
of the allegations of the complaint, as well as a full ventilation, in effect, of the main merits of
the case, which should not thus be within the province of a mere motion to dismiss. So, also,
the issue posed by the petitioner as to whether a foreign corporation which has done
business in the country, but which has ceased to do business at the time of the filing of a
complaint, can still be made to answer for a cause of action which accrued while it was doing
business, is another matter that would yet have to await the reception and admission of
evidence. Since these points have seasonably been raised by the petitioner, there should be
no real cause for what may understandably be its apprehension, i.e., that by its participation
during the trial on the merits, it may, absent an invocation of separate or independent reliefs
of its own, be considered to have voluntarily submitted itself to the court's jurisdiction.19

Far from committing an abuse of discretion, the trial court properly deferred resolution of the motion
to dismiss and thus avoided prematurely deciding a question which requires a factual basis, with the
same result if it had denied the motion and conditionally assumed jurisdiction. It is the Court of
Appeals which, by ruling that BMW is not doing business on the basis merely of uncertain
allegations in the pleadings, disposed of the whole case with finality and thereby deprived petitioner
of his right to be heard on his cause of action. Nor was there justification for nullifying the writ of
preliminary injunction issued by the trial court. Although the injunction was issued ex parte, the fact
is that BMW was subsequently heard on its defense by filing a motion to dismiss.

WHEREFORE, the decision of the Court of Appeals is REVERSED and the case is REMANDED to
the trial court for further proceedings.

SO ORDERED.

G.R. No. 121824 January 29, 1998

BRITISH AIRWAYS, petitioner,


vs.
COURT OF APPEALS, GOP MAHTANI, and PHILIPPINE AIRLINES, respondents.

ROMERO, J.:

In this appeal by certiorari, petitioner British Airways (BA) seeks to set aside the decision of
respondent Court of Appeals1 promulgated on September 7, 1995, which affirmed the award of
damages and attorney's fees made by the Regional Trial Court of Cebu, 7th Judicial Region,
Branch 17, in favor of private respondent GOP Mahtani as well as the dismissal of its third-
party complaint against Philippine Airlines (PAL).2

The material and relevant facts are as follows:

On April 16, 1989, Mahtani decided to visit his relatives in Bombay, India. In anticipation of
his visit, he obtained the services of a certain Mr. Gumar to prepare his travel plans. The
latter, in turn, purchased a ticket from BA where the following itinerary was indicated:3
CARRIER FLIGHT DATE TIME STATUS

MANILA MNL PR 310 Y 16 APR. 1730 OK

HONGKONG HKG BA 20 M 16 APR. 2100 OK

BOMBAY BOM BA 19 M 23 APR. 0840 OK

HONGKONG HKG PR 311 Y

MANILA MNL

Since BA had no direct flights from Manila to Bombay, Mahtani had to take a flight to
Hongkong via PAL, and upon arrival in Hongkong he had to take a connecting flight to
Bombay on board BA.

Prior to his departure, Mahtani checked in at the PAL counter in Manila his two pieces of
luggage containing his clothings and personal effects, confident that upon reaching
Hongkong, the same would be transferred to the BA flight bound for Bombay.

Unfortunately, when Mahtani arrived in Bombay he discovered that his luggage was missing
and that upon inquiry from the BA representatives, he was told that the same might have
been diverted to London. After patiently waiting for his luggage for one week, BA finally
advised him to file a claim by accomplishing the "Property Irregularity Report."4

Back in the Philippines, specifically on June 11, 1990, Mahtani filed his complaint for
damages and attorney's fees 5 against BA and Mr. Gumar before the trial court, docketed as
Civil Case No. CEB-9076.

On September 4, 1990, BA filed its answer with counter claim6 to the complaint raising, as
special and affirmative defenses, that Mahtani did not have a cause of action against it.
Likewise, on November 9, 1990, BA filed a third-party complaint 7 against PAL alleging that
the reason for the non-transfer of the luggage was due to the latter's late arrival in Hongkong,
thus leaving hardly any time for the proper transfer of Mahtani's luggage to the BA aircraft
bound for Bombay.

On February 25, 1991, PAL filed its answer to the third-party complaint, wherein it disclaimed
any liability, arguing that there was, in fact, adequate time to transfer the luggage to BA
facilities in Hongkong. Furthermore, the transfer of the luggage to Hongkong authorities
should be considered as transfer to BA.8

After appropriate proceedings and trial, on March 4, 1993, the trial court rendered its decision
in favor of Mahtani, 9 the dispositive portion of which reads as follows:

WHEREFORE, premises considered, judgment is rendered for the plaintiff and against
the defendant for which defendant is ordered to pay plaintiff the sum of Seven
Thousand (P7,000.00) Pesos for the value of the two (2) suit cases; Four Hundred U.S.
($400.00) Dollars representing the value of the contents of plaintiff's luggage; Fifty
Thousand (P50,000.00) Pesos for moral and actual damages and twenty percent (20%)
of the total amount imposed against the defendant for attorney's fees and costs of this
action.
The Third-Party Complaint against third-party defendant Philippine Airlines is
DISMISSED for lack of cause of action.

SO ORDERED.

Dissatisfied, BA appealed to the Court of Appeals, which however, affirmed the trial court's
findings. Thus:

WHEREFORE, in view of all the foregoing considerations, finding the Decision


appealed from to be in accordance with law and evidence, the same is hereby
AFFIRMED in toto, with costs against defendant-appellant.

SO ORDERED. 10

BA is now before us seeking the reversal of the Court of Appeals' decision.

In essence, BA assails the award of compensatory damages and attorney's fees, as well as
the dismissal of its third-party complaint against PAL.11

Regarding the first assigned issue, BA asserts that the award of compensatory damages in
the separate sum of P7,000.00 for the loss of Mahtani's two pieces of luggage was without
basis since Mahtani in his complaint12 stated the following as the value of his personal
belongings:

8. On the said travel, plaintiff took with him the following items and its corresponding
value, to wit:

1. personal belonging P10,000.00

2. gifts for his parents and relatives $5,000.00

Moreover, he failed to declare a higher valuation with respect to his luggage, a condition
provided for in the ticket, which reads:13

Liability for loss, delay, or damage to baggage is limited unless a higher value is
declared in advance and additional charges are paid:

1. For most international travel (including domestic corporations of international


journeys) the liability limit is approximately U.S. $9.07 per pound (U.S. $20.000) per
kilo for checked baggage and U.S. $400 per passenger for unchecked baggage.

Before we resolve the issues raised by BA, it is needful to state that the nature of an airline's
contract of carriage partakes of two types, namely: a contract to deliver a cargo or
merchandise to its destination and a contract to transport passengers to their destination. A
business intended to serve the traveling public primarily, it is imbued with public interest,
hence, the law governing common carriers imposes an exacting standard.14 Neglect or
malfeasance by the carrier's employees could predictably furnish bases for an action for
damages.15

In the instant case, it is apparent that the contract of carriage was between Mahtani and BA.
Moreover, it is indubitable that his luggage never arrived in Bombay on time. Therefore, as in
a number of cases16 we have assessed the airlines' culpability in the form of damages for
breach of contract involving misplaced luggage.

In determining the amount of compensatory damages in this kind of cases, it is vital that the
claimant satisfactorily prove during the trial the existence of the factual basis of the damages
and its causal connection to defendant's acts.17

In this regard, the trial court granted the following award as compensatory damages:

Since plaintiff did not declare the value of the contents in his luggage and even failed
to show receipts of the alleged gifts for the members of his family in Bombay, the
most that can be expected for compensation of his lost luggage (2 suit cases) is
Twenty U.S. Dollars ($20.00) per kilo, or combined value of Four Hundred ($400.00)
U.S. Dollars for Twenty kilos representing the contents plus Seven Thousand
(P7,000.00) Pesos representing the purchase price of the two (2) suit cases.

However, as earlier stated, it is the position of BA that there should have been no separate
award for the luggage and the contents thereof since Mahtani failed to declare a separate
higher valuation for the luggage,18 and therefore, its liability is limited, at most, only to the
amount stated in the ticket.

Considering the facts of the case, we cannot assent to such specious argument.

Admittedly, in a contract of air carriage a declaration by the passenger of a higher value is


needed to recover a greater amount. Article 22(1) of the Warsaw Convention,19 provides as
follows:

xxx xxx xxx

(2) In the transportation of checked baggage and goods, the liability of the carrier
shall be limited to a sum of 250 francs per kilogram, unless the consignor has made,
at time the package was handed over to the carrier, a special declaration of the value
at delivery and has paid a supplementary sum if the case so requires. In that case the
carrier will be liable to pay a sum not exceeding the declared sum, unless he proves
that the sum is greater than the actual value to the consignor at delivery.

American jurisprudence provides that an air carrier is not liable for the loss of baggage in an
amount in excess of the limits specified in the tariff which was filed with the proper
authorities, such tariff being binding, on the passenger regardless of the passenger's lack of
knowledge thereof or assent thereto.20 This doctrine is recognized in this jurisdiction.21

Notwithstanding the foregoing, we have, nevertheless, ruled against blind reliance on


adhesion contracts where the facts and circumstances justify that they should be
disregarded.22

In addition, we have held that benefits of limited liability are subject to waiver such as when
the air carrier failed to raise timely objections during the trial when questions and answers
regarding the actual claims and damages sustained by the passenger were asked.23

Given the foregoing postulates, the inescapable conclusion is that BA had waived the
defense of limited liability when it allowed Mahtani to testify as to the actual damages he
incurred due to the misplacement of his luggage, without any objection. In this regard, we
quote the pertinent transcript of stenographic notes of Mahtani's direct testimony:24

Q How much are you going to ask from this court?

A P100,000.00.

Q What else?

A Exemplary damages.

Q How much?

A P100,000.00.

Q What else?

A The things I lost, $5,000.00 for the gifts I lost and my personal
belongings, P10,000.00.

Q What about the filing of this case?

A The court expenses and attorney's fees is 30%.

Indeed, it is a well-settled doctrine that where the proponent offers evidence deemed by
counsel of the adverse party to be inadmissible for any reason, the latter has the right to
object. However, such right is a mere privilege which can be waived. Necessarily, the
objection must be made at the earliest opportunity, lest silence when there is opportunity to
speak may operate as a waiver of objections.25 BA has precisely failed in this regard.

To compound matters for BA, its counsel failed, not only to interpose a timely objection, but
even conducted his own cross-examination as well.26 In the early case of Abrenica
v. Gonda,27 we ruled that:

. . . (I)t has been repeatedly laid down as a rule of evidence that a protest or objection
against the admission of any evidence must be made at the proper time, and that if
not so made it will be understood to have been waived. The proper time to make a
protest or objection is when, from the question addressed to the witness, or from the
answer thereto, or from the presentation of proof, the inadmissibility of evidence is, or
may be inferred.

Needless to say, factual findings of the trial court, as affirmed by the Court of Appeals, are
entitled to great respect.28 Since the actual value of the luggage involved appreciation of
evidence, a task within the competence of the Court of Appeals, its ruling regarding the
amount is assuredly a question of fact, thus, a finding not reviewable by this Court.29

As to the issue of the dismissal of BA's third-party complaint against PAL, the Court of
Appeals justified its ruling in this wise, and we quote:30

Lastly, we sustain the trial court's ruling dismissing appellant's third-party complaint
against PAL.
The contract of air transportation in this case pursuant to the ticket issued by
appellant to plaintiff-appellee was exclusively between the plaintiff Mahtani and
defendant-appellant BA. When plaintiff boarded the PAL plane from Manila to
Hongkong, PAL was merely acting as a subcontractor or agent of BA. This is shown
by the fact that in the ticket issued by appellant to plaintiff-appellee, it is specifically
provided on the "Conditions of Contract," paragraph 4 thereof that:

4. . . . carriage to be performed hereunder by several successive


carriers is regarded as a single operation.

The rule that carriage by plane although performed by successive carriers is regarded as a
single operation and that the carrier issuing the passenger's ticket is considered the principal
party and the other carrier merely subcontractors or agent, is a settled issue.

We cannot agree with the dismissal of the third-complaint.

In Firestone Tire and Rubber Company of the Philippines v. Tempengko,31 we expounded on


the nature of a third-party complaint thus:

The third-party complaint is, therefore, a procedural device whereby a "third party"
who is neither a party nor privy to the act or deed complained of by the plaintiff, may
be brought into the case with leave of court, by the defendant, who acts, as third-party
plaintiff to enforce against such third-party defendant a right for contribution,
indemnity, subrogation or any other relief, in respect of the plaintiff's claim. The third-
party complaint is actually independent of and separate and distinct from the
plaintiff's complaint. Were it not for this provision of the Rules of Court, it would have
to be filed independently and separately from the original complaint by the defendant
against the third-party. But the Rules permit defendant to bring in a third-party
defendant or so to speak, to litigate his separate cause of action in respect of
plaintiff's claim against a third-party in the original and principal case with the object
of avoiding circuitry of action and unnecessary proliferation of law suits and of
disposing expeditiously in one litigation the entire subject matter arising from one
particular set of facts.

Undeniably, for the loss of his luggage, Mahtani is entitled to damages from BA, in view of
their contract of carriage. Yet, BA adamantly disclaimed its liability and instead imputed it to
PAL which the latter naturally denies. In other words, BA and PAL are blaming each other for
the incident.

In resolving this issue, it is worth observing that the contract of air transportation was
exclusively between Mahtani and BA, the latter merely endorsing the Manila to Hongkong leg
of the former's journey to PAL, as its subcontractor or agent. In fact, the fourth paragraph of
the "Conditions of Contracts" of the ticket32issued by BA to Mahtani confirms that the
contract was one of continuous air transportation from Manila to Bombay.

4. . . . carriage to be performed hereunder by several successive carriers is regarded


as a single operation.

Prescinding from the above discussion, it is undisputed that PAL, in transporting Mahtani
from Manila to Hongkong acted as the agent of BA.
Parenthetically, the Court of Appeals should have been cognizant of the well-settled rule that
an agent is also responsible for any negligence in the performance of its function.33 and is
liable for damages which the principal may suffer by reason of its negligent act.34 Hence, the
Court of Appeals erred when it opined that BA, being the principal, had no cause of action
against PAL, its agent or sub-contractor.

Also, it is worth mentioning that both BA and PAL are members of the International Air
Transport Association (IATA), wherein member airlines are regarded as agents of each other
in the issuance of the tickets and other matters pertaining to their relationship.35 Therefore, in
the instant case, the contractual relationship between BA and PAL is one of agency, the
former being the principal, since it was the one which issued the confirmed ticket, and the
latter the agent.

Our pronouncement that BA is the principal is consistent with our ruling in Lufthansa
German Airlines v.Court of Appeals.36 In that case, Lufthansa issued a confirmed ticket to
Tirso Antiporda covering five-leg trip aboard different airlines. Unfortunately, Air Kenya, one
of the airlines which was to carry Antiporda to a specific destination "bumped" him off.

An action for damages was filed against Lufthansa which, however, denied any liability,
contending that its responsibility towards its passenger is limited to the occurrence of a
mishap on its own line. Consequently, when Antiporda transferred to Air Kenya, its obligation
as a principal in the contract of carriage ceased; from there on, it merely acted as a ticketing
agent for Air Kenya.

In rejecting Lufthansa's argument, we ruled:

In the very nature of their contract, Lufthansa is clearly the principal in the contract of
carriage with Antiporda and remains to be so, regardless of those instances when
actual carriage was to be performed by various carriers. The issuance of confirmed
Lufthansa ticket in favor of Antiporda covering his entire five-leg trip abroad
successive carriers concretely attest to this.

Since the instant petition was based on breach of contract of carriage, Mahtani can only sue
BA alone, and not PAL, since the latter was not a party to the contract. However, this is not to
say that PAL is relieved from any liability due to any of its negligent acts. In China Air Lines,
Ltd. v. Court of Appeals,37 while not exactly in point, the case, however, illustrates the
principle which governs this particular situation. In that case, we recognized that a carrier
(PAL), acting as an agent of another carrier, is also liable for its own negligent acts or
omission in the performance of its duties.

Accordingly, to deny BA the procedural remedy of filing a third-party complaint against PAL
for the purpose of ultimately determining who was primarily at fault as between them, is
without legal basis. After all, such proceeding is in accord with the doctrine against
multiplicity of cases which would entail receiving the same or similar evidence for both cases
and enforcing separate judgments therefor. It must be borne in mind that the purpose of a
third-party complaint is precisely to avoid delay and circuitry of action and to enable the
controversy to be disposed of in one suit.38 It is but logical, fair and equitable to allow BA to
sue PAL for indemnification, if it is proven that the latter's negligence was the proximate
cause of Mahtani's unfortunate experience, instead of totally absolving PAL from any liability.
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals in CA-G.R. CV
No. 43309 dated September 7, 1995 is hereby MODIFIED, reinstating the third-party complaint
filed by British Airways dated November 9, 1990 against Philippine Airlines. No costs.

SO ORDERED.