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.

Agency, its concept, essential elements and characteristics.—By the relationship of agency, one party
called the principal authorizes another called the agent to act for and in his behalf in transactions with
third persons. The essential elements of agency are:(l) 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 agent acts as a representative and not for himself; and (4) the agent acts within the
scope of his authority. Agency is basically personal, representative, and derivative in nature. The
authority of the agent to act emanates from the powers granted to him by his principal; his act is the act
of the principal if done within the scope of the authority. “He who acts through another acts himself.”

Same: Same; Art. 1930 and Art. 1931 of the Civil Code providing that death of principal or agent
extinguishing agency is only a general rule; Rationale for the provision.—Reason of the very nature of
the relationship between principal and agent, agency is extinguished by the death of the principal.
Manresa explains that the rationale for the law is found in the juridical basis of agency which is
representation. 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 principal to notify the agent of the
fact of death of the former. 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. This is the prevalent rule in American jurisprudence where it is well-settled that a power
without an interest conferred upon an agent is dissolved by the principal’s death, and any attempted
execution of the power afterwards is not binding on the heirs or representatives of the deceased.

Same; Same; Art. 1930 and Art. 1931 of the Civil Code exceptions to general rule provided in Art. 1919 of
the Civil Code, that death of principal revokes ipso jure the agency.—Is the general rule provided for in
Art. 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 x x x Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule
aforementioned.

Same; Same; Same; Contention that despite death of principal the act of attorney-in-fact in selling his
principal’s share of the disputed property is valid and enforceable since the buyer acted in good faith is
untenable because of the established knowledge of the attorney-in-fact of the death of his principal;
Requisites of Art. 1931 that despite death of principal and of agent is valid not complied with.—Under
Art. 1931 of the Civil Code, 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. x x x On the basis of the established knowledge of Simeon 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.

Same; Same; Same; Same; General rule is that an act of agent after death of his principal is void ab initio
unless the same falls under exceptions in Arts. 1930 and 1931 of the Civil Code; Art 1931 being an
exception to the general rule is to be strictly construed.—In sustaining the validity of the sale to
respondent corporation, the Court of Appeals reasoned out that there is no provision in the Civil 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. We cannot see the merits of the foregoing argument as it
ignores the existence of the general rule enunciated in Art. 1919 that the death of the principal
extinguishes the agency. That being the general rule it follows a fortiori that any act of an agent after the
death of his principal is void ab initio unless the same falls under the exceptions 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.

Same; Same; Revocation by an act of the principal as a mode of terminating agency distinguished from
revocation by operation of law such as death of principal.—Revocation by an act of the principal as a
mode of terminating an agency is to be distinguished from revocation by operation of law such as death
of the principal which obtains in this case. The decision 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, 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.” With death, the principal’s will ceases or is
terminated; the source of authority is extinguished.

Same; Same; Law does not impose a duty on the heirs of principal to notify agent of death of principal; If
agent dies, his heirs must notify principal thereof.—The Civil Code does not impose a duty on the heirs
of the principal to notify the agent of the death of said principal. What the Code provides in Article 1932
is that, if the agent dies, 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.

Same; Same; No parallel can be drawn between the case of attorney-in-fact who after death of his
principal sold the latter’s share in the land pursuant to a special power of attorney which the principal
had executed in his favor and that of an innocent purchaser for value of registered land.—Holding that
the good faith of a third person in dealing 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 registered land, stating that if a person purchases a registered land from one who acquired it in bad
faith—even to the extent of forging 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. To support the
correctness of this “parallelism”, respondent corporation, in its brief, cites the case of Blondeau, et al.
vs. Nano and Vallejo, 61 Phil. 625. x x x 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.

Same; Same; Conflict of legal opinion in American jurisprudence does not hold true in Philippine law;
Civil Code of the Philippines expressly provides for two exceptions to general rule that death of the
principal revokes the agency; Agent’s act of executing the sale of property despite notice of death of his
principal is unenforceable against the estate of the principal.—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. x x x
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. x x x 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.

PETITION for review on certiorari of the decision of the Court of Appeals.

The facts are stated in the opinion of the Court.

Seno, Mendoza & Associates for petitioner.

Ramon Duterte for private respondent.

MUÑOZ PALMA, J.:

This is a case of an attorney-in-fact, Simeon Rallos, who after the death of his principal, Concepcion
Rallos, sold the latter’s undivided share in a parcel of land pursuant to a special power of attorney which
the principal had executed in his favor. The administrator of the estate of the deceased principal went to
court to have the sale declared unenforceable and to recover the disposed share. The trial court granted
the relief prayed for, but upon appeal, the Court of Appeals upheld the validity of the sale and dismissed
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. 11118 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 declared 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 shares; 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 cross-claim against its co-defendant, Simeon Rallos, while
the latter filed third-party complaint against his sister, Gerundia Rallos. While the case was pending in
the trial court, both Simeon 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 Plaintiff’s 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 CHAN’S Cross-claim:

(1) Sentencing the co-defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to pay
to defendant Felix Go 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 Gerundia 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 reconsideration 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 proceeding to the issues, We shall briefly restate certain principles of law relevant to the matter
under 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 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 has been given no authority or legal
representation or who has acted beyond his powers; x x x.”

Out of the above given principles, sprung the creation and acceptance of the relationship of agency
whereby one party, called 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 per se. “He who acts through another acts
himself.”6
2. There are various ways of extinguishing agency,7 but here 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:

“xx xx xx

“3. By the death, civil interdiction, insanity or insolvency of the principal or of the agent; x x x.”
(Underline 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. There being an integration of the
personality of the principal into 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 principal 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 in-terest.10 This is the
prevalent rule in American Jurisprudence where it is well-settled that a power without an interest
conferred upon an agent is dissolved by the principal’s death, and any attempted execution of the
power afterwards 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 share 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 aforementioned.

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 Simeon 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 quo13 and of respondent appellate court when the latter stated that Simeon 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 Simeon 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 Code 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:

‘x x x even granting arquendo 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 of 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 corporation, the Court of Appeals reasoned out
that there is no provision in the Code which provides that whatever is done by an agent having
knowledge of the death of his principal is void even with respect to third persons who may have
contracted with him in good faith and without knowledge of the death of the principal.16

We cannot see the merits of the foregoing argument as it ignores the existence of the general rule
enunciated in Article 1919 that the death of the principal extinguishes the agency. That being the
general rule it follows a fortiori that any act of an agent after the death of his principal is void ab initio
unless the same falls under the exceptions 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 ever 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 in 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 publicly known.

“In case of a general power which does not specify the persons to whom representation 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.”

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 terminated; the source of autnority 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 dies, 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 dealing 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 registered 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 “parallelism”, 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 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
Cantera, 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 Vellajo
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 lent 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 confidence 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:

“xx xx xx

“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 procured by fraud, the owner may pursue all his legal and equitable remedies
against the parties to such fraud, without prejudice, however, to the rights of any innocent holder for
value of a certificate of title. xx xx xx” (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:

“x x x 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
Ellenborough, 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 no notice of death, or opportunity of notice, I must be
permitted to dissent from it.
“x x x That a payment may be good today, or bad tomorrow, from the accidental 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 AmD 76, where, in an elaborate opinion, this view is
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 proper weight to this opinion, as the judgment of a Court of great respectability, it stands
alone among common law authorities, and is opposed by an array too formidable to permit us to follow
it.’ ”

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 decision 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.
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 Hofileña, 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 Hofileña, 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 Obiñana (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.

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

G.R. No. 76933. May 29, 1991.*

Contracts; The various stipulation in the contract must be read together to give effect to all.—It is a well
settled legal principle that in the interpretation of a contract, the entirety thereof must be taken into
consideration to ascertain the meaning of its provisions. The various stipulations in the contract must be
read together to give effect to all. After a careful examination of the records, the Court finds merit in the
contention of Orient Air that the Agreement, when interpreted in accordance with the foregoing
principles, entitles it to the 3% overriding commission based on total revenue, or as referred to by the
parties, “total flown revenue.”

Same; Same; Any ambiguity in the contract, the stipulations of which are susceptible of various
interpretations, shall be construed against the party who drafted it.—An additional point before finally
disposing of this issue. It is clear from the records that American Air was the party responsible for the
preparation of the Agreement. Consequently, any ambiguity in this “contract of adhesion” is to be taken
“contra proferentem”, i.e., construed against the party who caused the ambiguity and could have
avoided it by the exercise of a little more care. Thus, Article 1377 of the Civil Code provides that the
interpretation of obscure words or stipulations in a contract shall not favor the party who caused the
obscurity. To put it differently, when several interpretations of a provision are otherwise equally proper,
that interpretation or construction is to be adopted which is most favorable to the party in whose favor
the provision was made and who did not cause the ambiguity. We therefore agree with the respondent
appellate court’s declaration that: “Any ambiguity in a contract, whose terms are susceptible of different
interpretations, must be read against the party who drafted it.”
Agency; An agent-principal relationship can only be effected with the consent of the principal, and must
not, in any way be compelled by law or by any court.—By affirming this ruling of the trial court,
respondent appellate court, in effect, compels American Air to extend its personality to Orient Air. Such
would be violative of the principles and essence of agency, defined by law as a contract whereby “a
person binds himself to render some service or to do something in representation or on behalf of
another, WITH THE CONSENT OR AUTHORITY OF THE LATTER.” (emphasis supplied) In an agent-principal
relationship, the personality of the principal is extended through the facility of the agent. In so doing,
the agent, by legal fiction, becomes the principal, authorized to perform all acts which the latter would
have him do. Such a relationship can only be effected with the consent of the principal, which must not,
in any way, be compelled by law or by any court. The Agreement itself between the parties states that
“either party may terminate the Agreement without cause by giving the other 30 days’ notice by letter,
telegram or cable.” (emphasis supplied) We, therefore, set aside the portion of the ruling of the
respondent appellate court reinstating Orient Air as general sales agent of American Air.

PETITIONS for certiorari to review the decision of the Court of Appeals. Camilon, J.

The facts are stated in the opinion of the Court.

Francisco A. Lava, Jr. and Andresito X. Fornier for Orient Air Service and Hotel Representatives, Inc.

Sycip, Salazar, Hernandez & Gatmaitan for American Airlines, Inc.

PADILLA, J.:

This case is a consolidation of two (2) petitions for review on certiorari of a decision 1 of the Court of
Appeals in CA-G.R. No. CV-04294, entitled “American Airlines, Inc. vs. Orient Air Services and Hotel
Representatives, Inc.” which affirmed, with modification, the decision2 of the Regional Trial Court of
Manila, Branch IV, which dismissed the complaint and granted therein defendant’s counterclaim for
agent’s overriding commission and damages.

The antecedent facts are as follows:

On 15 January 1977, American Airlines, Inc. (hereinafter referred to as American Air), an air carrier
offering passenger and air cargo transportation in the Philippines, and Orient Air Services and Hotel
Representatives (hereinafter referred to as Orient Air), entered into a General Sales Agency Agreement
(hereinafter referred to as the Agreement), whereby the former authorized the latter to act as its
exclusive general sales agent within the Philippines for the sale of air passenger transportation.
Pertinent provisions of the agreement are reproduced, to wit:

“WITNESSETH

In consideration of the mutual convenants herein contained, the parties hereto agree as follows:

1.Representation of American by Orient Air Services

Orient Air Services will act on American’s behalf as its exclusive General Sales Agent within the
Philippines, including any United States military installation therein which are not serviced by an Air
Carrier Representation Office (ACRO), for the sale of air passenger transportation. The services to be
performed by Orient Air Services shall include:
(a) soliciting and promoting passenger traffic for the services of American and, if necessary, employing
staff competent and sufficient to do so;

(b) providing and maintaining a suitable area in its place of business to be used exclusively for the
transaction of the business of American;

(c) arranging for distribution of American’s timetables, tariffs and promotional material to sales agents
and the general public in the assigned territory;

(d) servicing and supervising of sales agents (including such sub-agents as may be appointed by Orient
Air Services with the prior written consent of American) in the assigned territory including if required by
American the control of remittances and commissions retained; and

(e) holding out a passenger reservation facility to sales agents and the general public in the assigned
territory.

In connection with scheduled or non-scheduled air passenger transportation within the United States,
neither Orient Air Services nor its sub-agents will perform services for any other air carrier similar to
those to be performed hereunder for American without the prior written consent of American. Subject
to periodic instructions and continued consent from American, Orient Air Services may sell air passenger
transportation to be performed within the United States by other scheduled air carriers provided
American does not provide substantially equivalent schedules between the points involved.

xxx xxx xxx

4.Remittances

Orient Air Services shall remit in United States dollars to American the ticket stock or exchange orders,
less commissions to which Orient Air Services is entitled hereunder, not less frequently than semi-
monthly, on the 15th and last days of each month for sales made during the preceding half month.

All monies collected by Orient Air Services for transportation sold hereunder on American’s ticket stock
or on exchange orders, less applicable commissions to which Orient Air Services is entitled hereunder,
are the property of American and shall be held in trust by Orient Air Services until satisfactorily
accounted for to American.

5.Commissions

American will pay Orient Air Services commission on transportation sold hereunder by Orient Air
Services or its sub-agents as follows:

(a)Sales agency commission

American will pay Orient Air Services a sales agency commission for all sales of transportation by Orient
Air Services or its sub-agents over American’s services and any connecting through air tranportation,
when made on American’s ticket stock, equal to the following percentages of the tariff fares and
charges:
(i) For transportation solely between points within the United States and between such points and
Canada: 7% or such other rate(s) as may be prescribed by the Air Traffic Conference of America.

(ii) For transportation included in a through ticket covering transportation between points other than
those described above: 8% or such other rate(s) as may be prescribed by the International Air Transport
Association.

(b)Overriding commission

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

xxx xxx xxx

10.Default

If Orient Air Services shall at any time default in observing or performing any of the provisions of this
Agreement or shall become bankrupt or make any assignment for the benefit of or enter into any
agreement or promise with its creditors or go into liquidation, or suffer any of its goods to be taken in
execution, or if it ceases to be in business, this Agreement may, at the option of American, be
terminated forthwith and American may, without prejudice to any of its rights under this Agreement,
take possession of any ticket forms, exchange orders, traffic material or other property or funds
belonging to American.

11.IATA and ATC Rules

The provisions of this Agreement are subject to any applicable rules or resolutions of the International
Air Transport Association and the Air Traffic Conference of America, and such rules or resolutions shall
control in the event of any conflict with the provisions hereof.

xxx xxx xxx

13.Termination

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

xxx xxx xxx”3

On 11 May 1981, alleging that Orient Air had reneged on its obligations under the Agreement by failing
to promptly remit the net proceeds of sales for the months of January to March 1981 in the amount of
US $254,400.40, American Air by itself undertook the collection of the proceeds of tickets sold originally
by Orient Air and terminated forthwith the Agreement in accordance with Paragraph 13 thereof
(Termination). Four (4) days later, or on 15 May 1981, American Air instituted suit against Orient Air
with the Court of First Instance of Manila, Branch 24, for Accounting with Preliminary Attachment or
Garnishment, Mandatory Injunction and Restraining Order, 4 averring the aforesaid basis for the
termination of the Agreement as well as therein defendant’s previous record of failures “to promptly
settle past outstanding refunds of which there were available funds in the possession of the defendant,
x x x to the damage and prejudice of plaintiff.”5

In its Answer6 with counterclaim dated 9 July 1981, defendant Orient Air denied the material allegations
of the complaint with respect to plaintiff’s entitlement to alleged unremitted amounts, contending that
after application thereof to the commissions due it under the Agreement, plaintiff in fact still owed
Orient Air a balance in unpaid overriding commissions. Further, the defendant contended that the
actions taken by American Air in the course of terminating the Agreement as well as the termination
itself were untenable, Orient Air claiming that American Air’s precipitous conduct had occasioned
prejudice to its business interests.

Finding that the record and the evidence substantiated the allegations of the defendant, the trial court
ruled in its favor, rendering a decision dated 16 July 1984, the dispositive portion of which reads:

“WHEREFORE, all the foregoing premises considered, judgment is hereby rendered in favor of
defendant and against plaintiff dismissing the complaint and holding the termination made by the latter
as affecting the GSA agreement illegal and improper and order the plaintiff to reinstate defendant as its
general sales agent for passenger tranportation in the Philippines in accordance with said GSA
agreement; plaintiff is ordered to pay defendant the balance of the overriding commission on total
flown revenue covering the period from March 16, 1977 to December 31, 1980 in the amount of
US$84,821.31 plus the additional amount of US$8,000.00 by way of proper 3% overriding commission
per month commencing from January 1, 1981 until such reinstatement or said amounts in its Philippine
peso equivalent legally prevailing at the time of payment plus legal interest to commence from the filing
of the counterclaim up to the time of payment. Further, plaintiff is directed to pay defendant the
amount of One Million Five Hundred Thousand (P1,500,000.00) pesos as and for exemplary damages;
and the amount of Three Hundred Thousand (P300,000.00) pesos as and by way of attorney’s fees.

Costs against plaintiff.”7

On appeal, the Intermediate Appellate Court (now Court of Appeals) in a decision promulgated on 27
January 1986, affirmed the findings of the court a quo on their material points but with some
modifications with respect to the monetary awards granted. The dispositive portion of the appellate
court’s decision is as follows:

“WHEREFORE, with the following modifications—

1) American is ordered to pay Orient the sum of US$53,491.11 representing the balance of the latter’s
overriding commission covering the period March 16, 1977 to December 31, 1980, or its Philippine peso
equivalent in accordance with the official rate of exchange legally prevailing on July 10, 1981, the date
the counterclaim was filed;

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

3) American is ordered to pay interest of 12% on said amounts from July 10, 1981 the date the answer
with counterclaim was filed, until full payment;
4) American is ordered to pay Orient exemplary damages of P200,000.00;

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

the rest of the appealed decision is affirmed.

Costs against American.”8

American Air moved for reconsideration of the aforementioned decision, assailing the substance thereof
and arguing for its reversal. The appellate court’s decision was also the subject of a Motion for Partial
Reconsideration by Orient Air which prayed for the restoration of the trial court’s ruling with respect to
the monetary awards. The Court of Appeals, by resolution promulgated on 17 December 1986, denied
American Air’s motion and with respect to that of Orient Air, ruled thus:

“Orient’s motion for partial reconsideration is denied insofar as it prays for affirmance of the trial court’s
award of exemplary damages and attorney’s fees, but granted insofar as the rate of exchange is
concerned. The decision of January 27, 1986 is modified in paragraphs (1) and (2) of the dispositive part
so that the payment of the sums mentioned therein shall be at their Philippine peso equivalent in
accordance with the official rate of exchange legally prevailing on the date of actual payment.”9

Both parties appealed the aforesaid resolution and decision of the respondent court, Orient Air as
petitioner in G.R. No. 76931 and American Air as petitioner in G.R. No. 76933. By resolution10 of this
Court dated 25 March 1987 both petitions were consolidated, hence, the case at bar.

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

“5. Commissions

a) xxx xxx

b)Overriding Commission

In addition to the above commission, American will pay Orient Air Services an overriding commission of
3% of the tariff fees and charges for all sales of transportation over American’s services by Orient Air
Services or its sub-agents.” (italics supplied)

Since Orient Air was allowed to carry only the ticket stocks of American Air, and the former not having
opted to appoint any sub-agents, it is American Air’s contention that Orient Air can claim entitlement to
the disputed overriding commission based only on ticketed sales. This is supposed to be the clear
meaning of the underscored portion of the above provision. Thus, to be entitled to the 3% overriding
commission, the sale must be made by Orient Air and the sale must be done with the use of American
Air’s ticket stocks.

On the other hand, Orient Air contends that the contractual stipulation of a 3% overriding commission
covers the total revenue of American Air and not merely that derived from ticketed sales undertaken by
Orient Air. The latter, in justification of its submission, invokes its designation as the exclusive General
Sales Agent of American Air, with the corresponding obligations arising from such agency, such as, the
promotion and solicitation for the services of its principal. In effect, by virtue of such exclusivity, “all
sales of transportation over American Air’s services are necessarily by Orient Air.”11

It is a well settled legal principle that in the interpretation of a contract, the entirety thereof must be
taken into consideration to ascertain the meaning of its provisions.12 The various stipulations in the
contract must be read together to give effect to all.13 After a careful examination of the records, the
Court finds merit in the contention of Orient Air that the Agreement, when interpreted in accordance
with the foregoing principles, entitles it to the 3% overriding commission based on total revenue, or as
referred to by the parties, “total flown revenue.”

As the designated exclusive General Sales Agent of American Air, Orient Air was responsible for the
promotion and marketing of American Air’s services for air passenger transportation, and the
solicitation of sales therefor. In return for such efforts and services, Orient Air was to be paid
commissions of two (2) kinds: first, a sales agency commission, ranging from 7-8% of tariff fares and
charges from sales by Orient Air when made on American Air ticket stock; and second, an overriding
commission of 3% of tariff fares and charges for all sales of passenger transportation over American Air
services. It is immediately observed that the precondition attached to the first type of commission does
not obtain for the second type of commissions. The latter type of commissions would accrue for sales of
American Air services made not on its ticket stock but on the ticket stock of other air carriers sold by
such carriers or other authorized ticketing facilities or travel agents. To rule otherwise, i.e., to limit the
basis of such overriding commissions to sales from American Air ticket stock would erase any distinction
between the two (2) types of commissions and would lead to the absurd conclusion that the parties had
entered into a contract with meaningless provisions. Such an interpretation must at all times be avoided
with every effort exerted to harmonize the entire Agreement.

An additional point before finally disposing of this issue. It is clear from the records that American Air
was the party responsible for the preparation of the Agreement. Consequently, any ambiguity in this
“contract of adhesion” is to be taken “contra proferentem”, i.e., construed against the party who caused
the September 1987, 153 SCRA 657. ambiguity and could have avoided it by the exercise of a little more
care. Thus, Article 1377 of the Civil Code provides that the interpretation of obscure words or
stipulations in a contract shall not favor the party who caused the obscurity.14 To put it differently,
when several interpretations of a provision are otherwise equally proper, that interpretation or
construction is to be adopted which is most favorable to the party in whose favor the provision was
made and who did not cause the ambiguity.15 We therefore agree with the respondent appellate
court’s declaration that:

“Any ambiguity in a contract, whose terms are susceptible of different interpretations, must be read
against the party who drafted it.”16

We now turn to the propriety of American Air’s termination of the Agreement. The respondent
appellate court, on this issue, ruled thus:

“It is not denied that Orient withheld remittances but such action finds justification from paragraph 4 of
the Agreement, Exh. F, which provides for remittances to American less commissions to which Orient is
entitled, and from paragraph 5(d) which specifically allows Orient to retain the full amount of its
commissions. Since, as stated ante, Orient is entitled to the 3% override. American’s premise, therefore,
for the cancellation of the Agreement did not exist. x x x.”

We agree with the findings of the respondent appellate court. As earlier established, Orient Air was
entitled to an overriding commission based on total flown revenue. American Air’s perception that
Orient Air was remiss or in default of its obligations under the Agreement was, in fact, a situation where
the latter acted in accordance with the Agreement—that of retaining from the sales proceeds its
accrued commissions before remitting the balance to American Air. Since the latter was still obligated to
Orient Air by way of such commissions. Orient Air was clearly justified in retaining and refusing to remit
the sums claimed by American Air. The latter’s termination of the Agreement was, therefore, without
cause and basis, for which it should be held liable to Orient Air.

On the matter of damages, the respondent appellate court modified by reduction the trial court’s award
of exemplary damages and attorney’s fees. This Court sees no error in such modification and, thus,
affirms the same.

It is believed, however, that respondent appellate court erred in affirming the rest of the decision of the
trial court. We refer particularly to the lower court’s decision ordering American Air to “reinstate
defendant as its general sales agent for passenger transportation in the Philippines in accordance with
said GSA Agreement.”

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

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

SO ORDERED. Orient-Air Services and Hotel Representatives vs. Court of Appeals, 197 SCRA 645, G.R.
No. 76931, G.R. No. 76933 May 29, 1991