Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
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, petitioner’s 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
attorney’s 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 petitioner’s prayer for the
issuance of writ of preliminary attachment.13
On 25 June 1997, respondent EDWIN filed his Answer14 wherein he
admitted petitioner’s 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 petitioner’s 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 petitioner’s motion to declare respondent ERWIN in
default "for his failure to answer within the prescribed period
despite the opportunity granted"18 but it denied petitioner’s motion
for summary judgment in its Order of 31 August 2001 and scheduled
the pre-trial of the case on 16 October 2001.19However, 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 EDWIN’s Memorandum21 in support of
his special and affirmative defenses and petitioner’s
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
Petitioner’s 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 ERWIN’s 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 ERWIN’s action repudiated
EDWIN’s 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 latter’s 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 1995.38The 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 EDWIN’s participation in the
Deed of Assignment was "reasonably necessary" or was required in
order for him to protect the business of his principal. Had he not
acted in the way he did, the business of his principal would have
been adversely affected and he would have violated his fiduciary
relation with his principal.
We likewise take note of the fact that in this case, petitioner is
seeking to recover both from respondents ERWIN, the principal, and
EDWIN, the agent. It is well to state here that Article 1897 of the
New Civil Code upon which petitioner anchors its claim against
respondent EDWIN "does not hold that in case of excess of
authority, both the agent and the principal are liable to the other
contracting party."39 To reiterate, the first part of Article 1897
declares that the principal is liable in cases when the agent acted
within the bounds of his authority. Under this, the agent is
completely absolved of any liability. The second part of the said
provision presents the situations when the agent himself becomes
liable to a third party when he expressly binds himself or he exceeds
the limits of his authority without giving notice of his powers to the
third person. However, it must be pointed out that in case of excess
of authority by the agent, like what petitioner claims exists here, the
law does not say that a third person can recover from both the
principal and the agent.40
As we declare that respondent EDWIN acted within his authority as
an agent, who did not acquire any right nor incur any liability arising
from the Deed of Assignment, it follows that he is not a real party in
interest who should be impleaded in this case. A real party in
interest is one who "stands to be benefited or injured by the
judgment in the suit, or the party entitled to the avails of the
suit."41 In this respect, we sustain his exclusion as a defendant in the
suit before the court a quo.
WHEREFORE, premises considered, the present petition is DENIED
and the Decision dated 10 August 2004 and Resolution dated 17
March 2005 of the Court of Appeals in CA-G.R. SP No. 71397,
affirming the Order dated 29 January 2002 of the Regional Trial
Court, Branch 8, Cebu City, is AFFIRMED.
Let the records of this case be remanded to the Regional Trial Court,
Branch 8, Cebu City, for the continuation of the proceedings against
respondent Erwin Cuizon.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
G.R. No. L-24332 January 31, 1978
RAMON RALLOS, Administrator of the Estate of CONCEPCION
RALLOS, petitioner,
vs.
FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF
APPEALS, respondents.
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 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. 19With
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.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
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.
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 petitioner’s 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 petitioner’s 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
former’s loan with the NHMFC, at the latter’s 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
respondent’s 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 one’s claim through competent
authority under Article 133511of 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 petitioner’s 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 attorney’s 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
petitioner’s 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 fourth, the documentary evidence shows that the actual borrowers,
considered, could justify a different conclusion.15 To arrive at a the friends of petitioner, consider her as their creditor and not the
proper judgment, therefore, the Court finds it necessary to re- respondent.21
examine the evidence presented by the contending parties during
the trial of the case. On the first, third, and fourth points, the CA cites the testimony of
the petitioner, then defendant, during her cross-examination:22
The Petition is meritorious.
Atty. Diza:
The principal issue is whether the Deed of Absolute Sale is
supported by a valid consideration. q. You also mentioned that you were not the one indebted
to the plaintiff?
1. Petitioner argues that since she is merely the agent or
representative of the alleged debtors, then she is not a party to the witness:
loan; and that the Deed of Sale executed between her and the
respondent in their own names, which was predicated on that pre- a. Yes, sir.
existing debt, is void for lack of consideration.
Atty. Diza:
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 q. And you mentioned the persons[,] namely, Elizabeth
sum indisputably pertains to the debt in issue. This Court has Tomelden, Teresa Moraquin, Maria Luisa Inocencio, Zenaida
consistently held that a contract of sale is null and void and Romulo, they are your friends?
produces no effect whatsoever where the same is without cause or
consideration.17 The question that has to be resolved for the witness:
moment is whether this debt can be considered as a valid cause or
consideration for the sale. a. Inocencio and Moraquin are my friends while [as to]
Jacob and Tomelden[,] they were just referred.
To restate, the CA cited four instances in the record to support its
holding that petitioner "re-lends" the amount borrowed from Atty. Diza:
respondent to her friends: first, the friends of petitioner never
presented themselves to respondent and that all transactions were q. And you have transact[ed] with the plaintiff?
made by and between petitioner and respondent;18 second; the
money passed through the bank accounts of petitioner and witness:
respondent;19 third, petitioner herself admitted that she was "re-
lending" the money loaned to other individuals for profit;20 and a. Yes, sir.
Atty. Diza: a. We are both intermediaries. As evidenced by the checks
of the debtors they were deposited to the name of Arsenio
q. What is that transaction? Pua because the money came from Arsenio Pua.

witness: xxxx

a. To refer those persons to Aura and to refer again to Atty. Diza:

Arsenio Pua, sir.
q. Did the plaintiff knew [sic] that you will lend the money
Atty. Diza: to your friends specifically the one you mentioned [a] while
ago?
q. Did the plaintiff personally see the transactions with your
friends? witness:

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

a. No, sir. Atty. Diza:

Atty. Diza: q. You are re-lending the money?

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

witness: a. Yes, sir.

a. Yes, sir. Atty. Diza:

Atty. Diza: q. What profit do you have, do you have commission?

q. You are intermediaries? witness:

witness: a. Yes, sir.

Atty. Diza:
q. How much? q. So it is not actually your money but the money of Arsenio
Pua?
witness:
witness:
a. Two percent to Tomelden, one percent to Jacob and then
Inocencio and my friends none, sir. a. Yes, sir.

Based on the foregoing, the CA concluded that petitioner is Court:

the real borrower, while the respondent, the real lender.
q. It is not your money?
But as correctly noted by the RTC, respondent, then
plaintiff, made the following admission during her cross witness:
examination:23
a. Yes, Your Honor.
Atty. Villacorta:
Atty. Villacorta:
q. Who is this Arsenio Pua?
q. Is it not a fact Ms. Witness that the defendant borrowed
witness: from you to accommodate somebody, are you aware of
that?
a. Principal financier, sir.
witness:
Atty. Villacorta:
a. I am aware of that.
q. So the money came from Arsenio Pua?
Atty. Villacorta:
witness:
q. More or less she [accommodated] several friends of the
a. Yes, because I am only representing him, sir. defendant?

Other portions of the testimony of respondent must witness:

likewise be considered:24
a. Yes, sir, I am aware of that.
Atty. Villacorta:
xxxx q. And because of your assistance, the friends of the
defendant who are in need of money were able to obtain
Atty. Villacorta: loan to [sic] Arsenio Pua through your assistance?

q. And these friends of the defendant borrowed money witness:

from you with the assurance of the defendant?
a. Yes, sir.
witness:
Atty. Villacorta:
a. They go direct to Jocelyn because I don’t know them.
q. So that occasion lasted for more than a year?
xxxx
witness:
Atty. Villacorta:
a. Yes, sir.
q. And is it not also a fact Madam witness that everytime
that the defendant borrowed money from you her friends Atty. Villacorta:
who [are] in need of money issued check[s] to you? There
were checks issued to you? q. And some of the checks that were issued by the friends of
the defendant bounced, am I correct?
witness:
witness:
a. Yes, there were checks issued.
a. Yes, sir.
Atty. Villacorta:
Atty. Villacorta:
q. By the friends of the defendant, am I correct?
q. And because of that Arsenio Pua got mad with you?
witness:
witness:
a. Yes, sir.
a. Yes, sir.
Atty. Villacorta:
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.26Agency may even be implied from the words and
conduct of the parties and the circumstances of the particular
case.27 Though 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
relationship—it 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 respondent’s 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.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
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
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?

The ruling relied on by respondent Appellate Court, therefore, A That was on the day when they
in KLM. vs. Court of Appeals, 65 SCRA 237 (1975), holding that it were asking me on May 7, 1971
would be unfair to charge respondents therein with automatic when they were checking the
knowledge or notice of conditions in contracts of adhesion, is tickets. I told Mrs. Manucdoc that I
inapplicable. To all legal intents and purposes, Teresita was the was going to get the tickets. I asked
agent of the GANAS and notice to her of the rejection of the request her what about the tickets onward
for extension of the validity of the tickets was notice to the GANAS, from the return from Tokyo, and
her principals. her answer was it is up for the
Ganas to make the arrangement,
The SAS validating sticker for the Osaka/Tokyo flight affixed by Era because I told her that they could
showing reservations for JAL. Flight 108 for 16 May 1971, without leave on the seventh, but they
clearing the same with AIR FRANCE allegedly because of the could take care of that when they
imminent departure of the GANAS on the same day so that he could arrived in Osaka.
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 Q What do you mean?
assurance that for the onward flight from Osaka and return, the
GANAS would make other arrangements. A The Ganas will make the
arrangement from Osaka, Tokyo
Q Referring you to page 33 of the and Manila.
transcript of the last session, I had
this question which reads as Q What arrangement?
follows: 'But did she say anything to
you when you said that the tickets
 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?
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.

A Her words only, it is up for the No costs.

Ganas to make the arrangement.
SO ORDERED.
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
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. 11 The express mandate required by
law to enable an appointee of an agency (couched) in
general terms to sell must be one that expressly mentions a
sale or that includes a sale as a necessary ingredient of the
act mentioned. 12 For the principal to confer the right upon
an agent to sell real estate, a power of attorney must so
express the powers of the agent in clear and unmistakable
language. When there is any reasonable doubt that the
language so used conveys such power, no such construction
shall be given the document. 13
It is therefore clear that by selling to respondent Perez a
portion of 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, 14the 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. 21 The logical reason for
this exception is that where the agent is committing a fraud,
it would be contrary to common sense to presume or to
expect that he would communicate the facts to the
principal. Verily, when an agent is engaged in the
perpetration of a fraud upon his principal for his own
exclusive benefit, he is not really acting for the principal but
is really acting for himself, entirely outside the scope of his
agency. 22 Indeed, the basic tenets of agency rest on the
highest considerations of justice, equity and fair play, and
an agent will not be permitted to pervert his authority to his
own personal advantage, and his act in secret hostility to
the interests of his principal transcends the power afforded
him. 23
WHEREFORE, the petition is GRANTED. The decision and
resolution of respondent Court of Appeals dated 29 October
1993 and 10 March 1994, respectively, as well as the
decision of the Regional Trial Court of Dagupan City in Civil
Case No. D-7750 dated 27 November 1985, are NULLIFIED
and SET ASIDE. The "Compromise Agreement" entered into
between Attorney-in-fact Paz G. Villamil-Estrada and
respondent Isidro Perez is declared VOID. This is without
prejudice to the right of petitioner to pursue its complaint
against private respondent Isidro Perez in Civil Case No. D-
7750 for the recovery of possession of a portion of Lot No.
443.

SO ORDERED.
G.R. No. L-18377 December 29, 1962
ANASTACIO G. DUÑGO, 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 Duñgo 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 Duñgo 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 Duñgo 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 Duñgo 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 Duñgo'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 Duñgo (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. DUÑGO 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 (½) 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 Duñgo (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 Duñgo 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 Duñgo 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 Duñgo 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 Duñgo 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 Duñgo 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 Duñgo 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 Duñgo was not a signatory to the compromise
agreement, the principal provision of the said instrument was for his
benefit. Originally, Anastacio Duñgo'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 Duñgo 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.1âwphi1.nêt
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 the same 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:
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.

xxx SO ORDERED.

(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, 1988.1âwphi1.nêt

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.
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 EC’s 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 corporation’s 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 EC’s 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 character in most respects. His only job as a broker was to look for a
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
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 EC’s 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 Eternit’s 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. Glanville’s 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.30An 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 agent’s 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 QUEAÑO, 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
Queaño (Queaño) 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.1ªvvphi1.nét
The operative facts follow:
Queaño 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 Queaño 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 Queaño,
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 Queaño.3
To secure the loan, Queaño executed a Deed of Real Estate
Mortgage dated 11 August 1980 in favor of Naguiat, and
surrendered to the latter the owner’s duplicates of the titles
covering the mortgaged properties.4 On the same day, the mortgage
deed was notarized, and Queaño 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 1980.5Queaño 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, Queaño 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, Queaño received a letter from Naguiat’s
lawyer, demanding settlement of the loan. Shortly thereafter,
Queaño and one Ruby Ruebenfeldt (Ruebenfeldt) met with Naguiat.
At the meeting, Queaño told Naguiat that she did not receive the
proceeds of the loan, adding that the checks were retained by
Ruebenfeldt, who purportedly was Naguiat’s 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, Queaño 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 Queaño the owner’s 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 Queaño 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
Naguiat’s 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 Queaño 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
Queaño 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
Queaño’s account.1awphi1.nét
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 Queaño the checks she issued or
indorsed to Queaño, pending delivery by the latter of additional
collateral. Ruebenfeldt served as agent of Naguiat on the loan
application of Queaño’s friend, Marilou Farralese, and it was in
connection with that transaction that Queaño came to know
Naguiat.23 It was also Ruebenfeldt who accompanied Queaño in her
meeting with Naguiat and on that occasion, on her own and without
Queaño asking for it, Reubenfeldt actually drew a check for the sum
of ₱220,000.00 payable to Naguiat, to cover for Queaño’s 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, Queaño got the
impression that Ruebenfeldt was the agent of Naguiat, but Naguiat
did nothing to correct Queaño’s 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.nét
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 Queaño 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 certain Mr. Gumar to prepare his travel plans. The latter, in turn,
injunction was issued ex parte, the fact is that BMW was purchased a ticket from BA where the following itinerary was
subsequently heard on its defense by filing a motion to dismiss. indicated:3

WHEREFORE, the decision of the Court of Appeals is REVERSED and CARRIER FLIGHT DATE TIME STATUS
the case is REMANDED to the trial court for further proceedings.
MANILA MNL PR 310 Y 16 APR. 1730 OK
SO ORDERED.
HONGKONG HKG BA 20 M 16 APR. 2100 OK

BOMBAY BOM BA 19 M 23 APR. 0840 OK

G.R. No. 121824 January 29, 1998 HONGKONG HKG PR 311 Y

BRITISH AIRWAYS, petitioner, MANILA MNL

vs.
COURT OF APPEALS, GOP MAHTANI, and PHILIPPINE
Since BA had no direct flights from Manila to Bombay, Mahtani had
AIRLINES, respondents.
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

ROMERO, J.:
Manila his two pieces of luggage containing his clothings and
personal effects, confident that upon reaching Hongkong, the same
In this appeal by certiorari, petitioner British Airways (BA) seeks to would be transferred to the BA flight bound for Bombay.
set aside the decision of respondent Court of Appeals1 promulgated
on September 7, 1995, which affirmed the award of damages and
Unfortunately, when Mahtani arrived in Bombay he discovered that
attorney's fees made by the Regional Trial Court of Cebu, 7th
his luggage was missing and that upon inquiry from the BA
Judicial Region, Branch 17, in favor of private respondent GOP
representatives, he was told that the same might have been
Mahtani as well as the dismissal of its third-party complaint against
diverted to London. After patiently waiting for his luggage for one
Philippine Airlines (PAL).2
week, BA finally advised him to file a claim by accomplishing the
"Property Irregularity Report."4
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
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.
6
On September 4, 1990, BA filed its answer with counter claim 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 cases16we 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.25BA 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 ticket32 issued 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,37while 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.