#9 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, 14 the Court held . . . this court does not hesitate to hold that the judgment in question is null and void ab initio. It is not binding upon and cannot be executed against the petitioners. It is evident that the compromise upon which the judgment was based was not subscribed by them . . . Neither could Attorney Ortega bind them validly in the compromise because he had no special authority . . .

As the judgment in question is null and void ab initio, it is evident that the court acquired no jurisdiction to render it, much less to order the execution thereof . . . . . . A judgment, which is null and void ab initio, rendered by a court without jurisdiction to do so, is without legal efficacy and may properly be impugned in any proceeding by the party against whom it is sought to be enforced . . . This ruling was adopted in Jacinto v. Montesa, 15 by Mr. Justice J. B.L. Reyes, a much-respected authority on civil law, where the Court declared that a judgment based on a compromise entered into by an attorney without specific authority from the client is void. Such judgment may be impugned and its execution restrained in any proceeding by the party against whom it is sought to be enforced. The Court also observed that a defendant against whom a judgment based on a compromise is sought to be enforced may file a petition for certiorari to quash the execution. He could not move to have the compromise set aside and then appeal from the order of denial since he was not a party to the compromise. Thus it would appear that the obiter of the appellate court that the alleged nullity of the compromise agreement should be raised as a defense against its enforcement is not legally feasible. Petitioner could not be in a position to question the compromise agreement in the action to revive the compromise judgment since it was never privy to such agreement. Villamil-Estrada who signed the compromise agreement may have been the attorney-in-fact but she could not legally bind petitioner thereto as she was not entrusted with a special authority to sell the land, as required in Art. 1878, par. (5), of the Civil Code. Under authority of Sec. 9, par. (2), of B.P. Blg. 129, a party may now petition the Court of Appeals to annul and set aside judgments of Regional Trial Courts. 16 "Thus, the Intermediate Appellant Court (now Court of Appeals) shall exercise . . . (2) Exclusive original jurisdiction over action for annulment of judgments of the Regional Trial Courts . . ." However, certain requisites must first be established before a final and executory judgment can be the subject of an action for annulment. It must either be void for want of jurisdiction or for lack of due process of law, or it has been obtained by fraud. 17 Conformably with law and the above-cited authorities, the petition to annul the decision of the trial court in Civil Case No. D-7750 before the Court of Appeals was proper. Emanating as it did from a void compromise agreement, the trial court had no jurisdiction to render a judgment based thereon. 18 It would also appear, and quite contrary to the finding of the appellate court, that the highly reprehensible conduct of attorney-in-fact Villamil-Estrada in Civil Case No. 7750 constituted an extrinsic or collateral fraud by reason of which the judgment rendered thereon should have been struck down. Not all the legal semantics in the world can becloud the unassailable fact that petitioner was deceived and betrayed by its attorney-in-fact, Villamil-Estrada deliberately concealed from petitioner, her principal, that a compromise agreement had been forged with the endresult 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 wellestablished 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. Padilla, Vitug and Hermosisima, Jr., JJ., concur.

#10 G.R. No. 161757 January 25, 2006 SUNACE INTERNATIONAL MANAGEMENT SERVICES, INC.Petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, Second Division; HON. ERNESTO S. DINOPOL, in his capacity as Labor Arbiter, NLRC; NCR, Arbitration Branch, Quezon City and DIVINA A. MONTEHERMOZO, Respondents. DECISION CARPIO MORALES, J.: Petitioner, Sunace International Management Services (Sunace), a corporation duly organized and existing under the laws of the Philippines, deployed to Taiwan Divina A. Montehermozo (Divina) as a domestic helper under a 12-month contract effective February 1, 1997.1 The deployment was with the assistance of a Taiwanese broker, Edmund Wang, President of Jet Crown International Co., Ltd. After her 12-month contract expired on February 1, 1998, Divina continued working for her Taiwanese employer, Hang Rui Xiong, for two more years, after which she returned to the Philippines on February 4, 2000. Shortly after her return or on February 14, 2000, Divina filed a complaint2 before the National Labor Relations Commission (NLRC) against Sunace, one Adelaide Perez, the Taiwanese broker, and the employer-foreign principal alleging that she was jailed for three months and that she was underpaid. The following day or on February 15, 2000, Labor Arbitration Associate Regina T. Gavin issued Summons3 to the Manager of Sunace, furnishing it with a copy of Divinas complaint and directing it to appear for mandatory conference on February 28, 2000. The scheduled mandatory conference was reset. It appears to have been concluded, however. On April 6, 2000, Divina filed her Position Paper4 claiming that under her original one-year contract and the 2-year extended contract which was with the knowledge and consent of Sunace, the following amounts representing income tax and savings were deducted:

Year 1997 1998 1999

Deduction for Income Tax NT10,450.00 NT9,500.00 NT13,300.00

Deduction for Savings NT23,100.00 NT36,000.00 NT36,000.00;5

and while the amounts deducted in 1997 were refunded to her, those deducted in 1998 and 1999 were not. On even date, Sunace, by its Proprietor/General Manager Maria Luisa Olarte, filed its Verified Answer and Position Paper,6 claiming as follows, quoted verbatim: COMPLAINANT IS NOT ENTITLED FOR THE REFUND OF HER 24 MONTHS SAVINGS 3. Complainant could not anymore claim nor entitled for the refund of her 24 months savings as she already took back her saving already last year and the employer did not deduct any money from her salary, in accordance with a Fascimile Message from the respondent SUNACEs employer, Jet Crown International Co. Ltd., a xerographic copy of which is herewith attached as ANNEX "2" hereof; COMPLAINANT IS NOT ENTITLED TO REFUND OF HER 14 MONTHS TAX AND PAYMENT OF ATTORNEYS FEES 4. There is no basis for the grant of tax refund to the complainant as the she finished her one year contract and hence, was not illegally dismissed by her employer. She could only lay claim over the tax refund or much more be awarded of damages such as attorneys fees as said reliefs are available only when the dismissal of a migrant worker is without just valid or lawful cause as defined by law or contract. The rationales behind the award of tax refund and payment of attorneys fees is not to enrich the complainant but to compensate him for actual injury suffered. Complainant did not suffer injury, hence, does not deserve to be compensated for whatever kind of damages. Hence, the complainant has NO cause of action against respondent SUNACE for monetary claims, considering that she has been totally paid of all the monetary benefits due her under her Employment Contract to her full satisfaction. 6. Furthermore, the tax deducted from her salary is in compliance with the Taiwanese law, which respondent SUNACE has no control and complainant has to obey and this Honorable Office has no authority/jurisdiction to intervene because the power to tax is a sovereign power which the Taiwanese Government is supreme in its own territory. The sovereign power of taxation of a state is recognized under international law and among sovereign states. 7. That respondent SUNACE respectfully reserves the right to file supplemental Verified Answer and/or Position Paper to substantiate its prayer for the dismissal of the above case against the herein respondent. AND BY WAY OF x x x x (Emphasis and underscoring supplied) Reacting to Divinas Position Paper, Sunace filed on April 25, 2000 an ". . . answer to complainants position paper" 7 alleging that Divinas 2-year extension of her contract was without its knowledge and consent, hence, it had no liability attaching to any claim arising therefrom, and Divina in fact executed a Waiver/Quitclaim and Release of Responsibility and an Affidavit of Desistance, copy of each document was annexed to said ". . . answer to complainants position paper." To Sunaces ". . . answer to complainants position paper," Divina filed a 2-page reply,8 without, however, refuting Sunaces disclaimer of knowledge of the extension of her contract and without saying anything about the Release, Waiver and Quitclaim and Affidavit of Desistance. The Labor Arbiter, rejected Sunaces claim that the extension of Divinas contract for two more years was without its knowledge and consent in this wise: We reject Sunaces submission that it should not be held responsible for the amount withheld because her contract was extended for 2 more years without its knowledge and consent because as Annex "B"9 shows, Sunace and Edmund Wang have not stopped communicating with each other and yet the matter of the contracts extension and Sunaces alleged nonconsent thereto has not been categorically established. What Sunace should have done was to write to POEA about the extension and its objection thereto, copy furnished the complainant herself, her foreign employer, Hang Rui Xiong and the Taiwanese broker, Edmund Wang.

And because it did not, it is presumed to have consented to the extension and should be liable for anything that resulted thereform (sic).10 (Underscoring supplied) The Labor Arbiter rejected too Sunaces argument that it is not liable on account of Divinas execution of a Waiver and Quitclaim and an Affidavit of Desistance. Observed the Labor Arbiter: Should the parties arrive at any agreement as to the whole or any part of the dispute, the same shall be reduced to writing and signed by the parties and their respective counsel (sic), if any, before the Labor Arbiter. The settlement shall be approved by the Labor Arbiter after being satisfied that it was voluntarily entered into by the parties and after having explained to them the terms and consequences thereof. A compromise agreement entered into by the parties not in the presence of the Labor Arbiter before whom the case is pending shall be approved by him, if after confronting the parties, particularly the complainants, he is satisfied that they understand the terms and conditions of the settlement and that it was entered into freely voluntarily (sic) by them and the agreement is not contrary to law, morals, and public policy. And because no consideration is indicated in the documents, we strike them down as contrary to law, morals, and public policy.11 He accordingly decided in favor of Divina, by decision of October 9, 2000,12 the dispositive portion of which reads: Wherefore, judgment is hereby rendered ordering respondents SUNACE INTERNATIONAL SERVICES and its owner ADELAIDA PERGE, both in their personal capacities and as agent of Hang Rui Xiong/Edmund Wang to jointly and severally pay complainant DIVINA A. MONTEHERMOZO the sum of NT91,950.00 in its peso equivalent at the date of payment, as refund for the amounts which she is hereby adjudged entitled to as earlier discussed plus 10% thereof as attorneys fees since compelled to litigate, complainant had to engage the services of counsel. SO ORDERED. 13 (Underescoring supplied) On appeal of Sunace, the NLRC, by Resolution of April 30, 2002,14 affirmed the Labor Arbiters decision. Via petition for certiorari,15 Sunace elevated the case to the Court of Appeals which dismissed it outright by Resolution of November 12, 2002,16 the full text of which reads: The petition for certiorari faces outright dismissal. The petition failed to allege facts constitutive of grave abuse of discretion on the part of the public respondent amounting to lack of jurisdiction when the NLRC affirmed the Labor Arbiters finding that petitioner Sunace International Management Services impliedly consented to the extension of the contract of private respondent Divina A. Montehermozo. It is undisputed that petitioner was continually communicating with private respondents foreign employer (sic). As agent of the foreign principal, "petitioner cannot profess ignorance of such extension as obviously, the act of the principal extending complainant (sic) employment contract necessarily bound it." Grave abuse of discretion is not present in the case at bar. ACCORDINGLY, the petition is hereby DENIED DUE COURSE and DISMISSED.17 SO ORDERED. (Emphasis on words in capital letters in the original; emphasis on words in small letters and underscoring supplied) Its Motion for Reconsideration having been denied by the appellate court by Resolution of January 14, 2004,18 Sunace filed the present petition for review on certiorari. The Court of Appeals affirmed the Labor Arbiter and NLRCs finding that Sunace knew of and impliedly consented to the extension of Divinas 2-year contract. It went on to state that "It is undisputed that [Sunace] was continually communicating with [Divinas] foreign employer." It thus concluded that "[a]s agent of the foreign principal, petitioner cannot profess

ignorance of such extension as obviously, the act of the principal extending complainant (sic) employment contract necessarily bound it." Contrary to the Court of Appeals finding, the alleged continuous communication was with the Taiwanese broker Wang, not with the foreign employer Xiong. The February 21, 2000 telefax message from the Taiwanese broker to Sunace, the only basis of a finding of continuous communication, reads verbatim: xxxx Regarding to Divina, she did not say anything about her saving in police station. As we contact with her employer, she took back her saving already last years. And they did not deduct any money from her salary. Or she will call back her employer to check it again. If her employer said yes! we will get it back for her. Thank you and best regards. (Sgd.) Edmund Wang President19 The finding of the Court of Appeals solely on the basis of the above-quoted telefax message, that Sunace continually communicated with the foreign "principal" (sic) and therefore was aware of and had consented to the execution of the extension of the contract is misplaced. The message does not provide evidence that Sunace was privy to the new contract executed after the expiration on February 1, 1998 of the original contract. That Sunace and the Taiwanese broker communicated regarding Divinas allegedly withheld savings does not necessarily mean that Sunace ratified the extension of the contract. As Sunace points out in its Reply20 filed before the Court of Appeals, As can be seen from that letter communication, it was just an information given to the petitioner that the private respondent had t[aken] already her savings from her foreign employer and that no deduction was made on her salary. It contains nothing about the extension or the petitioners consent thereto.21 Parenthetically, since the telefax message is dated February 21, 2000, it is safe to assume that it was sent to enlighten Sunace who had been directed, by Summons issued on February 15, 2000, to appear on February 28, 2000 for a mandatory conference following Divinas filing of the complaint on February 14, 2000. Respecting the Court of Appeals following dictum: As agent of its foreign principal, [Sunace] cannot profess ignorance of such an extension as obviously, the act of its principal extending [Divinas] employment contract necessarily bound it,22 it too is a misapplication, a misapplication of the theory of imputed knowledge. The theory of imputed knowledge ascribes the knowledge of the agent, Sunace, to the principal, employer Xiong, not the other way around.23 The knowledge of the principal-foreign employer cannot, therefore, be imputed to its agent Sunace. There being no substantial proof that Sunace knew of and consented to be bound under the 2-year employment contract extension, it cannot be said to be privy thereto. As such, it and its "owner" cannot be held solidarily liable for any of Divinas claims arising from the 2-year employment extension. As the New Civil Code provides, Contracts take effect only between the parties, their assigns, and heirs, except in case where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law.24 Furthermore, as Sunace correctly points out, there was an implied revocation of its agency relationship with its foreign principal when, after the termination of the original employment contract, the foreign principal directly negotiated with Divina and entered into a new and separate employment contract in Taiwan. Article 1924 of the New Civil Code reading

The agency is revoked if the principal directly manages the business entrusted to the agent, dealing directly with third persons. thus applies. In light of the foregoing discussions, consideration of the validity of the Waiver and Affidavit of Desistance which Divina executed in favor of Sunace is rendered unnecessary. WHEREFORE, the petition is GRANTED. The challenged resolutions of the Court of Appeals are hereby REVERSED and SET ASIDE. The complaint of respondent Divina A. Montehermozo against petitioner is DISMISSED. SO ORDERED. CONCHITA CARPIO MORALES Associate Justice

#11 G.R. No. L-28740 February 24, 1981 FERMIN Z. CARAM, JR., petitioner, vs. CLARO L. LAURETA, respondent. FERNANDEZ, J.: This is a petition for certiorari to review the decision of the Court of Appeals promulgated on January 29, 1968 in CA-G. R. NO. 35721-R entitled "Claro L. Laureta, plaintiff-appellee versus Marcos Mata, Codidi Mata and Fermin Caram, Jr., defendants- appellants; Tampino (Mansaca), et al. Intervenors-appellants," affirming the decision of the Court of First Instance of Davao in Civil Case No. 3083. 1 On June 25, 1959, Claro L. Laureta filed in the Court of First Instance of Davao an action for nullity, recovery of ownership and/or reconveyance with damages and attorney's fees against Marcos Mata, Codidi Mata, Fermin Z. Caram, Jr. and the Register of Deeds of Davao City. 2 On June 10, 1945, Marcos Mata conveyed a large tract of agricultural land covered by Original Certificate of Title No. 3019 in favor of Claro Laureta, plaintiff, the respondent herein. The deed of absolute sale in favor of the plaintiff was not registered because it was not acknowledged before a notary public or any other authorized officer. At the time the sale was executed, there was no authorized officer before whom the sale could be acknowledged inasmuch as the civil government in Tagum, Davao was not as yet organized. However, the defendant Marcos Mata delivered to Laureta the peaceful and lawful possession of the premises of the land together with the pertinent papers thereof such as the Owner's Duplicate Original Certificate of Title No. 3019, sketch plan, tax declaration, tax receipts and other papers related thereto. 3 Since June 10, 1945, the plaintiff Laureta had been and is stin in continuous, adverse and notorious occupation of said land, without being molested, disturbed or stopped by any of the defendants or their representatives. In fact, Laureta had been paying realty taxes due thereon and had introduced improvements worth not less than P20,000.00 at the time of the filing of the complaint. 4 On May 5, 1947, the same land covered by Original Certificate of Title No. 3019 was sold by Marcos Mata to defendant Fermin Z. Caram, Jr., petitioner herein. The deed of sale in favor of Caram was acknowledged before Atty. Abelardo Aportadera. On May 22, 1947, Marcos Mata, through Attys. Abelardo Aportadera and Gumercindo Arcilla, filed with the Court of First Instance of Davao a petition for the issuance of a new Owner's Duplicate of Original Certificate of Title No. 3019, alleging as ground therefor the loss of said title in the evacuation place of defendant Marcos Mata in Magugpo, Tagum, Davao. On June 5, 1947, the Court of First Instance of Davao issued an order directing the Register of Deeds of Davao to issue a new Owner's Duplicate Certificate of Title No. 3019 in favor of Marcos Mata and declaring the lost title as

null and void. On December 9, 1947, the second sale between Marcos Mata and Fermin Caram, Jr. was registered with the Register of Deeds. On the same date, Transfer Certificate of Title No. 140 was issued in favor of Fermin Caram Jr. 5 On August 29, 1959, the defendants Marcos Mata and Codidi Mata filed their answer with counterclaim admitting the existence of a private absolute deed of sale of his only property in favor of Claro L. Laureta but alleging that he signed the same as he was subjected to duress, threat and intimidation for the plaintiff was the commanding officer of the 10th division USFIP operating in the unoccupied areas of Northern Davao with its headquarters at Project No. 7 (Km. 60, Davao Agusan Highways), in the Municipality of Tagum, Province of Davao; that Laureta's words and requests were laws; that although the defendant Mata did not like to sell his property or sign the document without even understanding the same, he was ordered to accept P650.00 Mindanao Emergency notes; and that due to his fear of harm or danger that will happen to him or to his family, if he refused he had no other alternative but to sign the document. 6 The defendants Marcos Mata and Codidi Mata also admit the existence of a record in the Registry of Deeds regarding a document allegedly signed by him in favor of his co-defendant Fermin Caram, Jr. but denies that he ever signed the document for he knew before hand that he had signed a deed of sale in favor of the plaintiff and that the plaintiff was in possession of the certificate of title; that if ever his thumb mark appeared in the document purportedly alienating the property to Fermin Caram, did his consent was obtained through fraud and misrepresentation for the defendant Mata is illiterate and ignorant and did not know what he was signing; and that he did not receive a consideration for the said sale. 7 The defendant Fermin Caram Jr. filed his answer on October 23, 1959 alleging that he has no knowledge or information about the previous encumbrances, transactions, and alienations in favor of plaintiff until the filing of the complaints. 8 The trial court rendered a decision dated February 29, 1964, the dispositive portion of which reads: 9 1. Declaring that the deed of sale, Exhibit A, executed by Marcos Mata in favor of Claro L. Laureta stands and prevails over the deed of sale, Exhibit F, in favor of Fermin Caram, Jr.; 2. Declaring as null and void the deed of sale Exhibit F, in favor of Fermin Caram, Jr.; 3. Directing Marcos Mata to acknowledge the deed of sale, Exhibit A, in favor of Claro L. Laureta; 4. Directing Claro L. Laureta to secure the approval of the Secretary of Agriculture and Natural Resources on the deed, Exhibit A, after Marcos Mata shall have acknowledged the same before a notary public; 5. Directing Claro L. Laureta to surrender to the Register of Deeds for the City and Province of Davao the Owner's Duplicate of Original Certificate of Title No. 3019 and the latter to cancel the same; 6. Ordering the Register of Deeds for the City and Province of Davao to cancel Transfer Certificate of Title No. T-140 in the name of Fermin Caram, Jr.; 7. Directing the Register of Deeds for the City and Province of Davao to issue a title in favor of Claro L. Laureta, Filipino, resident of Quezon City, upon presentation of the deed executed by Marcos Mata in his favor, Exhibit A, duly acknowledged by him and approved by the Secretary of Agriculture and Natural Resources, and 8. Dismissing the counterclaim and cross claim of Marcos Mata and Codidi Mata, the counterclaim of Caram, Jr., the answer in intervention, counterclaim and cross-claim of the Mansacas. The Court makes no pronouncement as to costs. SO ORDERED. The defendants appealed from the judgment to the Court of Appeals. 10 The appeal was docketed as CA-G.R. NO. 35721- R. The Court of Appeals promulgated its decision on January 29, 1968 affirming the judgment of the trial court. In his brief, the petitioner assigns the following errors: 11

I THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT IRESPE AND APORTADERA WERE ATTORNEYS-IN-FACT OF PETITIONER CARAM FOR THE PURPOSE OF BUYING THE PROPERTY IN QUESTION. II THE RESPONDENT COURT OF APPEALS ERRED IN CONCLUDING THAT THE EVIDENCE ADDUCED IN THE TRIAL COURT CONSTITUTE LEGAL EVIDENCE OF FRAUD ON THE PART OF IRESPE AND APORTADERA AT TRIBUTABLE TO PETITIONER. III THE RESPONDENT COURT OF APPEALS COMMITTED GRAVE ERROR OF LAW IN HOLDING THAT KNOWLEDGE OF IRESPE AND APORTADERA OF A PRIOR UNREGISTERED SALE OF A TITLED PROPERTY ATTRIBUTABLE TO PETITIONER AND EQUIVALENT IN LAW OF REGISTRATION OF SAID SALE. IV THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT AN ACTION FOR RECONVEYANCE ON THE GROUND OF FRAUD PRESCRIBES WITHIN FOUR (4) YEARS. The petitioner assails the finding of the trial court that the second sale of the property was made through his representatives, Pedro Irespe and Atty. Abelardo Aportadera. He argues that Pedro Irespe was acting merely as a broker or intermediary with the specific task and duty to pay Marcos Mata the sum of P1,000.00 for the latter's property and to see to it that the requisite deed of sale covering the purchase was properly executed by Marcos Mata; that the Identity of the property to be bought and the price of the purchase had already been agreed upon by the parties; and that the other alleged representative, Atty. Aportadera, merely acted as a notary public in the execution of the deed of sale. The contention of the petitioner has no merit. The facts of record show that Mata, the vendor, and Caram, the second vendee had never met. During the trial, Marcos Mata testified that he knows Atty. Aportadera but did not know Caram. 12 Thus, the sale of the property could have only been through Caram's representatives, Irespe and Aportadera. The petitioner, in his answer, admitted that Atty. Aportadera acted as his notary public and attorney-in-fact at the same time in the purchase of the property. 13 The petitioner contends that he cannot be considered to have acted in bad faith because there is no direct proof showing that Irespe and Aportadera, his alleged agents, had knowledge of the first sale to Laureta. This contention is also without merit. The Court of Appeals, in affirming the decision of the trial court, said: 14 The trial court, in holding that appellant Caram. Jr. was not a purchaser in good faith, at the time he bought the same property from appellant Mata, on May 5, 1947, entirely discredited the testimony of Aportadera. Thus it stated in its decision: The testimony of Atty. Aportadera quoted elsewhere in this decision is hollow. There is every reason to believe that Irespe and he had known of the sale of the property in question to Laureta on the day Mata and Irespe, accompanied by Leaning Mansaca, went to the office of Atty. Aportadera for the sale of the same property to Caram, Jr., represented by Irespe as attorney-in-fact. Ining Mansaca was with the two Irespe and Mata to engage the services 6f Atty. Aportadera in the annulment of the sale of his land to Laureta. When Leaning Mansaca narrated to Atty. Aportadera the circumstances under which his property had been sold to Laureta, he must have included in the narration the sale of the land of Mata, for the two properties had been sold on the same occassion and under the same circumstances. Even as early as immediately after liberation, Irespe, who was the witness in most of the cases filed by Atty. Aportadera in his capacity as Provincial Fiscal of Davao against Laureta, must have known of the purchases of lands made by Laureta when he was regimental commander, one of which was the sale made by Mata. It was not a mere coincidence that Irespe was made guardian ad litem of Leaning Mansaca, at the suggestion of Atty. Aportadera and attorney-in-fact of Caram, Jr.

The Court cannot help being convinced that Irespe, attorney-in-fact of Caram, Jr. had knowledge of the prior existing transaction, Exhibit A, between Mata and Laureta over the land, subject matter of this litigation, when the deed, Exhibit F, was executed by Mata in favor of Caram, Jr. And this knowledge has the effect of registration as to Caram, Jr. RA pp. 123-124) We agree with His Honor's conclusion on this particular point, on two grounds the first, the same concerns matters affecting the credibility of a witness of which the findings of the trial court command great weight, and second, the same is borne out by the testimony of Atty. Aportadera himself. (t.s.n., pp. 187-190, 213-215, Restauro). Even if Irespe and Aportadera did not have actual knowledge of the first sale, still their actions have not satisfied the requirement of good faith. Bad faith is not based solely on the fact that a vendee had knowledge of the defect or lack of title of his vendor. In the case of Leung Yee vs. F. L. Strong Machinery Co. and Williamson, this Court held: 15 One who purchases real estate with knowledge of a defect or lack of title in his vendor can not claim that he has acquired title thereto in good faith, as against the true owner of the land or of an interest therein, and the same rule must be applied to one who has knowledge of facts which should have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor. In the instant case, Irespe and Aportadera had knowledge of circumstances which ought to have put them an inquiry. Both of them knew that Mata's certificate of title together with other papers pertaining to the land was taken by soldiers under the command of Col. Claro L. Laureta. 16 Added to this is the fact that at the time of the second sale Laureta was already in possession of the land. Irespe and Aportadera should have investigated the nature of Laureta's possession. If they failed to exercise the ordinary care expected of a buyer of real estate they must suffer the consequences. The rule of caveat emptor requires the purchaser to be aware of the supposed title of the vendor and one who buys without checking the vendor's title takes all the risks and losses consequent to such failure. 17 The principle that a person dealing with the owner of the registered land is not bound to go behind the certificate and inquire into transactions the existence of which is not there intimated 18 should not apply in this case. It was of common knowledge that at the time the soldiers of Laureta took the documents from Mata, the civil government of Tagum was not yet established and that there were no officials to ratify contracts of sale and make them registerable. Obviously, Aportadera and Irespe knew that even if Mata previously had sold t he Disputed such sale could not have been registered. There is no doubt then that Irespe and Aportadera, acting as agents of Caram, purchased the property of Mata in bad faith. Applying the principle of agency, Caram as principal, should also be deemed to have acted in bad faith. Article 1544 of the New Civil Code provides that: Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recordered it in the Registry of Property. Should there be no inscription, the ownership shag pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. (1473) Since Caram was a registrant in bad faith, the situation is as if there was no registration at all.
19

The question to be determined now is, who was first in possession in good faith? A possessor in good faith is one who is not aware that there exists in his title or mode of acquisition any flaw which invalidates it. 20 Laureta was first in possession of the property. He is also a possessor in good faith. It is true that Mata had alleged that the deed of sale in favor of Laureta was procured by force. 21 Such defect, however, was cured when, after the lapse of four years from the time the intimidation ceased, Marcos Mata lost both his rights to file an action for annulment or to set up nullity of the contract as a defense in an action to enforce the same.

Anent the fourth error assigned, the petitioner contends that the second deed of sale, Exhibit "F", is a voidable contract. Being a voidable contract, the action for annulment of the same on the ground of fraud must be brought within four (4) years from the discovery of the fraud. In the case at bar, Laureta is deemed to have discovered that the land in question has been sold to Caram to his prejudice on December 9, 1947, when the Deed of Sale, Exhibit "F" was recorded and entered in the Original Certificate of Title by the Register of Deeds and a new Certificate of Title No. 140 was issued in the name of Caram. Therefore, when the present case was filed on June 29, 1959, plaintiff's cause of action had long prescribed. The petitioner's conclusion that the second deed of sale, "Exhibit F", is a voidable contract is not correct. I n order that fraud can be a ground for the annulment of a contract, it must be employed prior to or simultaneous to the, consent or creation of the contract. The fraud or dolo causante must be that which determines or is the essential cause of the contract. Dolo causante as a ground for the annulment of contract is specifically described in Article 1338 of the New Civil Code of the Philippines as "insidious words or machinations of one of the contracting parties" which induced the other to enter into a contract, and "without them, he would not have agreed to". The second deed of sale in favor of Caram is not a voidable contract. No evidence whatsoever was shown that through insidious words or machinations, the representatives of Caram, Irespe and Aportadera had induced Mata to enter into the contract. Since the second deed of sale is not a voidable contract, Article 1391, Civil Code of the Philippines which provides that the action for annulment shall be brought within four (4) years from the time of the discovery of fraud does not apply. Moreover, Laureta has been in continuous possession of the land since he bought it in June 1945. A more important reason why Laureta's action could not have prescribed is that the second contract of sale, having been registered in bad faith, is null and void. Article 1410 of the Civil Code of the Philippines provides that any action or defense for the declaration of the inexistence of a contract does not prescribe. In a Memorandum of Authorities 22 submitted to this Court on March 13, 1978, the petitioner insists that the action of Laureta against Caram has prescribed because the second contract of sale is not void under Article 1409 23 of the Civil Code of the Philippines which enumerates the kinds of contracts which are considered void. Moreover, Article 1544 of the New Civil Code of the Philippines does not declare void a second sale of immovable registered in bad faith. The fact that the second contract is not considered void under Article 1409 and that Article 1544 does not declare void a deed of sale registered in bad faith does not mean that said contract is not void. Article 1544 specifically provides who shall be the owner in case of a double sale of an immovable property. To give full effect to this provision, the status of the two contracts must be declared valid so that one vendee may contract must be declared void to cut off all rights which may arise from said contract. Otherwise, Article 1544 win be meaningless. The first sale in favor of Laureta prevails over the sale in favor of Caram. WHEREFORE, the petition is hereby denied and the decision of the Court of Appeals sought to be reviewed is affirmed, without pronouncement as to costs. SO ORDERED. Makasiar Guerrero, De Castro* and Melencio-Herrera concur.

#12 [G. R. No. 129919. February 6, 2002] DOMINION INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS, RODOLFO S. GUEVARRA, and FERNANDO AUSTRIA, respondents. DECISION

PARDO, J.: The Case This is an appeal via certiorarii[1] from the decision of the Court of Appeals ii[2] affirming the decisioniii[3] of the Regional Trial Court, Branch 44, San Fernando, Pampanga, which ordered petitioner Dominion Insurance Corporation (Dominion) to pay Rodolfo S. Guevarra (Guevarra) the sum of P156,473.90 representing the total amount advanced by Guevarra in the payment of the claims of Dominions clients. The Facts The facts, as found by the Court of Appeals, are as follows: On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case No. 8855 for sum of money against defendant Dominion Insurance Corporation. Plaintiff sought to recover thereunder the sum of P156,473.90 which he claimed to have advanced in his capacity as manager of defendant to satisfy certain claims filed by defendants clients. In its traverse, defendant denied any liability to plaintiff and asserted a counterclaim for P249,672.53, representing premiums that plaintiff allegedly failed to remit. On August 8, 1991, defendant filed a third-party complaint against Fernando Austria, who, at the time relevant to the case, was its Regional Manager for Central Luzon area. In due time, third-party defendant Austria filed his answer. Thereafter the pre-trial conference was set on the following dates: October 18, 1991, November 12, 1991, March 29, 1991, December 12, 1991, January 17, 1992, January 29, 1992, February 28, 1992, March 17, 1992 and April 6, 1992, in all of which dates no pre-trial conference was held. The record shows that except for the settings on October 18, 1991, January 17, 1992 and March 17, 1992 which were cancelled at the instance of defendant, third-party defendant and plaintiff, respectively, the rest were postponed upon joint request of the parties. On May 22, 1992 the case was again called for pre-trial conference. Only plaintiff and counsel were present. Despite due notice, defendant and counsel did not appear, although a messenger, Roy Gamboa, submitted to the trial court a handwritten note sent to him by defendants counsel which instructed him to request for postponement. Plaintiffs counsel objected to the desired postponement and moved to have defendant declared as in default. This was granted by the trial court in the following order: ORDER When this case was called for pre-trial this afternoon only plaintiff and his counsel Atty. Romeo Maglalang appeared. When shown a note dated May 21, 1992 addressed to a certain Roy who was requested to ask for postponement, Atty. Maglalang vigorously objected to any postponement on the ground that the note is but a mere scrap of paper and moved that the defendant corporation be declared as in default for its failure to appear in court despite due notice. Finding the verbal motion of plaintiffs counsel to be meritorious and considering that the pre-trial conference has been repeatedly postponed on motion of the defendant Corporation, the defendant Dominion Insurance Corporation is hereby declared (as) in default and plaintiff is allowed to present his evidence on June 16, 1992 at 9:00 oclock in the morning. The plaintiff and his counsel are notified of this order in open court. SO ORDERED. Plaintiff presented his evidence on June 16, 1992. This was followed by a written offer of documentary exhibits on July 8 and a supplemental offer of additional exhibits on July 13, 1992. The exhibits were admitted in evidence in an order dated July 17, 1992. On August 7, 1992 defendant corporation filed a MOTION TO LIFT ORDER OF DEFAULT. It alleged therein that the failure of counsel to attend the pre-trial conference was due to an unavoidable circumstance and that counsel had sent his

representative on that date to inform the trial court of his inability to appear. The Motion was vehemently opposed by plaintiff. On August 25, 1992 the trial court denied defendants motion for reasons, among others, that it was neither verified nor supported by an affidavit of merit and that it further failed to allege or specify the facts constituting his meritorious defense. On September 28, 1992 defendant moved for reconsideration of the aforesaid order. For the first time counsel revealed to the trial court that the reason for his nonappearance at the pre-trial conference was his illness. An Affidavit of Merit executed by its Executive Vice-President purporting to explain its meritorious defense was attached to the said Motion. Just the same, in an Order dated November 13, 1992, the trial court denied said Motion. On November 18, 1992, the court a quo rendered judgment as follows: WHEREFORE, premises considered, judgment is hereby rendered ordering: 1. The defendant Dominion Insurance Corporation to pay plaintiff the sum of P156,473.90 representing the total amount advanced by plaintiff in the payment of the claims of defendants clients; 2. The defendant to pay plaintiff P10,000.00 as and by way of attorneys fees; 3. The dismissal of the counter-claim of the defendant and the third-party complaint; 4. The defendant to pay the costs of suit.iv[4] On December 14, 1992, Dominion appealed the decision to the Court of Appeals.v[5] On July 19, 1996, the Court of Appeals promulgated a decision affirming that of the trial court.vi[6] On September 3, 1996, Dominion filed with the Court of Appeals a motion for reconsideration.vii[7] On July 16, 1997, the Court of Appeals denied the motion.viii[8] Hence, this appeal.ix[9] The Issues The issues raised are: (1) whether respondent Guevarra acted within his authority as agent for petitioner, and (2) whether respondent Guevarra is entitled to reimbursement of amounts he paid out of his personal money in settling the claims of several insured. The Court's Ruling The petition is without merit. By the contract of agency, a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.x[10] The basis for agency is representation.xi[11] On the part of the principal, there must be an actual intention to appointxii[12] or an intention naturally inferrable from his words or actions; xiii[13] and on the part of the agent, there must be an intention to accept the appointment and act on it,xiv[14] and in the absence of such intent, there is generally no agency.xv[15] A perusal of the Special Power of Attorneyxvi[16] would show that petitioner (represented by third-party defendant Austria) and respondent Guevarra intended to enter into a principal-agent relationship. Despite the word special in the title of the document, the contents reveal that what was constituted was actually a general agency. The terms of the agreement read: That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC.,xvii[17] a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, xxx represented by the undersigned as Regional Manager, xxx do hereby appoint RSG Guevarra Insurance Services represented by Mr. Rodolfo Guevarra xxx to be our Agency Manager in San Fdo., for our place and stead, to do and perform the following acts and things:

1. To conduct, sign, manager (sic), carry on and transact Bonding and Insurance business as usually pertain to a Agency Office, or FIRE, MARINE, MOTOR CAR, PERSONAL ACCIDENT, and BONDING with the right, upon our prior written consent, to appoint agents and sub-agents. 2. To accept, underwrite and subscribed (sic) cover notes or Policies of Insurance and Bonds for and on our behalf.

3. To demand, sue, for (sic) collect, deposit, enforce payment, deliver and transfer for and receive and give effectual receipts and discharge for all money to which the FIRST CONTINENTAL ASSURANCE COMPANY, INC.,xviii[18] may hereafter become due, owing payable or transferable to said Corporation by reason of or in connection with the abovementioned appointment. 4. To receive notices, summons, and legal processes for and in behalf of the FIRST CONTINENTAL ASSURANCE COMPANY, INC., in connection with actions and all legal proceedings against the said Corporation.xix[19] [Emphasis supplied] The agency comprises all the business of the principal,xx[20] but, couched in general terms, it is limited only to acts of administration.xxi[21] A general power permits the agent to do all acts for which the law does not require a special power.xxii[22] Thus, the acts enumerated in or similar to those enumerated in the Special Power of Attorney do not require a special power of attorney. Article 1878, Civil Code, enumerates the instances when a special power of attorney is required. The pertinent portion that applies to this case provides that: Article 1878. Special powers of attorney are necessary in the following cases: (1) To make such payments as are not usually considered as acts of administration; xxx xxx xxx (15) Any other act of strict dominion. The payment of claims is not an act of administration. The settlement of claims is not included among the acts enumerated in the Special Power of Attorney, neither is it of a character similar to the acts enumerated therein. A special power of attorney is required before respondent Guevarra could settle the insurance claims of the insured. Respondent Guevarras authority to settle claims is embodied in the Memorandum of Management Agreement xxiii[23] dated February 18, 1987 which enumerates the scope of respondent Guevarras duties and responsibilities as agency manager for San Fernando, Pampanga, as follows: xxx xxx xxx 1. You are hereby given authority to settle and dispose of all motor car claims in the amount of P5,000.00 with prior approval of the Regional Office. 2. Full authority is given you on TPPI claims settlement. xxx xxx xxxxxiv[24] In settling the claims mentioned above, respondent Guevarras authority is further limited by the written standard authority to pay,xxv[25] which states that the payment shall come from respondent Guevarras revolving fund or collection. The authority to pay is worded as follows: This is to authorize you to withdraw from your revolving fund/collection the amount of PESOS __________________ (P ) representing the payment on the _________________ claim of assured _______________ under Policy No. ______ in that accident of ___________ at ____________.

It is further expected, release papers will be signed and authorized by the concerned and attached to the corresponding claim folder after effecting payment of the claim. (sgd.) FERNANDO C. AUSTRIA Regional Managerxxvi[26] [Emphasis supplied] The instruction of petitioner as the principal could not be any clearer. Respondent Guevarra was authorized to pay the claim of the insured, but the payment shall come from the revolving fund or collection in his possession. Having deviated from the instructions of the principal, the expenses that respondent Guevarra incurred in the settlement of the claims of the insured may not be reimbursed from petitioner Dominion. This conclusion is in accord with Article 1918, Civil Code, which states that: The principal is not liable for the expenses incurred by the agent in the following cases: (1) If the agent acted in contravention of the principals instructions, unless the latter should wish to avail himself of the benefits derived from the contract; xxx xxx xxx However, while the law on agency prohibits respondent Guevarra from obtaining reimbursement, his right to recover may still be justified under the general law on obligations and contracts. Article 1236, second paragraph, Civil Code, provides: Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor. In this case, when the risk insured against occurred, petitioners liability as insurer arose. This obligation was extinguished when respondent Guevarra paid the claims and obtained Release of Claim Loss and Subrogation Receipts from the insured who were paid. Thus, to the extent that the obligation of the petitioner has been extinguished, respondent Guevarra may demand for reimbursement from his principal. To rule otherwise would result in unjust enrichment of petitioner. The extent to which petitioner was benefited by the settlement of the insurance claims could best be proven by the Release of Claim Loss and Subrogation Receipts xxvii[27] which were attached to the original complaint as Annexes C-2, D-1, E-1, F-1, G-1, H-1, I-1 and J-l, in the total amount of P116,276.95. However, the amount of the revolving fund/collection that was then in the possession of respondent Guevarra as reflected in the statement of account dated July 11, 1990 would be deducted from the above amount. The outstanding balance and the production/remittance for the period corresponding to the claims was P3,604.84. Deducting this from P116,276.95, we get P112,672.11. This is the amount that may be reimbursed to respondent Guevarra. The Fallo IN VIEW WHEREOF, we DENY the Petition. However, we MODIFY the decision of the Court of Appealsxxviii[28] and that of the Regional Trial Court, Branch 44, San Fernando, Pampanga, xxix[29] in that petitioner is ordered to pay respondent Guevarra the amount of P112,672.11 representing the total amount advanced by the latter in the payment of the claims of petitioners clients. No costs in this instance.

SO ORDERED. Davide, Jr., (Chairman), Puno, Kapunan, and Ynares-Santiago, JJ., concur.

35. /---!e-library! 6.0 Philippines Copyright 2000 by Sony Valdez---\

HARRY E. KEELER ELECTRIC CO., INC., plaintiff-appellant, vs. DOMINGO RODRIGUEZ, defendant-appellee.1922 November 11En BancG.R. No. 19001D E C I S I O N

STATEMENT

The plaintiff is domestic corporation with its principal office in the city of Manila and engaged in the electrical business, and among other things in the sale of what is know, as the "Matthews" electric plant, and the defendant is a resident of Talisay, Occidental Negros, and A. C. Montelibano was a resident of Iloilo.

Having this information, Montelibano approached plaintiff at its Manila office, claiming that he was from Iloilo and lived with Governor Yulo; that he was from Iloilo and lived with Governor Yulo; that he could find purchasers for the "Matthews" plant, and was told by the plaintiff that for any plant that he could sell or any customer that he could find he would be paid a commission of 10 percent for his services, if the sale was consummated. Among other persons, Montelibano interviewed the defendant, and, through his efforts, one of the "Matthews" plants was sold by the plaintiff to the defendant, and was shipped from Manila to Iloilo, and later installed on defendant's premises after which, without the knowledge of the plaintiff, the defendant paid the purchase price to Montelibano. As a result, plaintiff commenced this action against the defendant, alleging that about August 18, 1920 it sold and delivered to the defendant the electric plant at the agreed price of P2,513.55 no part of which has been paid, and demands judgment for the amount with interest from October 20, 1920.

For answer, the defendant admits the corporation of the plaintiff, and denies all other material allegations of the complaint, and, as an affirmative defense, alleges "that on or about the 18th of August, 1920, the plaintiff sold and delivered to the defendant a certain electric plant and that the defendant paid the plaintiff the value of said electric plant, to writ: P2,513.55."

Upon such issues the testimony was taken, and the lower court rendered the judgment for the defendant, from which the plaintiff appeals, claiming that the court erred in holding that the payment to A. C. Montelibano would discharge the debt of defendant, and in holding that the bill was given to Montelibano for collection purposes, and that the plaintiff had held out Montelibano to the defendant as an agent authorized to collect, and in rendering judgment for the defendant, and in not rendering judgment for the plaintiff.

JOHNS, J.:

The testimony is conclusive that the defendant paid the amount of plaintiff's claim to Montelibano, and that no part of the money was paid to the plaintiff. The defendant, having alleged that the plaintiff sold and delivered the plant to him, and that he paid the plaintiff the purchase price, it devolved upon the defendant to prove the payment to the plaintiff by a preponderance of the evidence.

It appears from the testimony of H. E. Keeler that he was president of the plaintiff and that the plant in question was shipped from Manila to Iloilo and consigned to the plaintiff itself, and that at the time of the shipment the plaintiff it sent Juan Cenar, one of its employees, with the shipment, for the purpose of installing the plant on defendant's premises. That plaintiff gave Cenar a statement of the account, including some extras and the expenses of the mechanic, making a total of P2,563.95. That Montelibano had no authority from the plaintiff to receive or receipt for money. That in truth and in fact his services were limited and confined to the finding of purchasers for the "Matthews" plant to whom the plaintiff would later make and consummate the sale. That Montelibano was not an electrician, could not install the plant and did not know anything about its mechanism.

Cenar, as a witness for the plaintiff, testified that he went with the shipment of the plant from Manila to Iloilo, for the purpose of installing, testing it, and to see that everything was satisfactory. That he was there about nine days, and that he installed

the plant, and that it was tested and approved by the defendant. He also says that he personally took with him the statement of account of the plaintiff against the defendant, and that after he was there a few day, the defendant asked to see the statement of account, and that he gave to him , and the defendant said, "he was going to keep it." I said that was all right "if your want." "I made no effort at all to collect the amount from him because Mr. Rodriguez told me he was going to pay for the plant here in Manila." That after the was installed and approved, he delivered it to the defendant and returned to Manila.

The only testimony on the part of the defendant is that of himself in the form of a deposition in which he says that Montelibano sold and delivered the plant to him, and "was the one who ordered the installation of that electrical plant," and he introduced as part of his deposition a statement and receipt which Montelibano signed to whom he paid the money. When asked why he paid the money to Montelibano, the witness says:

"Because he was the one who sold, delivered, and installed the electrical plant, and he presented to me the account, Exhibits A and A-1, and he assured me that he was duly authorized to collect the value to collect the value of the electrical plant."

The receipt offered in evidence is headed:

"STATEMENT - Folio No. 2494

"Mr. DOMINGO RODRIGUEZ,

"Iloilo, Iloilo, P. I.

"In account with

"HARRY E. KEELER ELECTRIC COMPANY, Inc. "221 Calle Echague, Quiapo, Manila, P. I.

"Manila, P. I., August 18, 1920."

The answer alleges and the receipt shows upon its face that the plaintiff sold the plant to the defendant, and that be bought it from the plaintiff. The receipt is signed as follows:

"Received payment

"HARRY E. KEELER ELECTRIC CO. Inc.,

"Recibi

(Sgd.) "A. C. MONTELIBANO."

There is nothing of the face of this receipt to show that Montelibano was the agent of, or that he was acting for, the plaintiff. It is his own personal receipt and his own personal signature. Outside of the fact that Montelibano received the money and signed this receipt, there is no evidence that he had any authority, real or apparent, to receive or receipt for the money. Neither is there any evidence that the plaintiff ever delivered the statement to Montelibano, or authorized anyone to deliver it to him, and it is very apparent that the statement in question is the one which was delivered by the plaintiff to Cenar, and is the one which Cenar delivered to the defendant at the request of the defendant. The evidence of the defendant that Montelibano was the one who sold him the plant is in direct conflict with his own pleading and the receipted statement which he offered in evidence. This statement also shows upon its face that P81.60 of the bill is for:

"To Passage round trip, 1st Class @ P40.80 a trip and P81.60."

"Plus Labor @ P5.00 per day "Machine's transportation P9.85."

This claim must be for the expenses of Cenar in going to Iloilo from Manila and return, to install the plant, and is strong evidence that it was Cenar and not Montelibano who installed the plant. If Montelibano installed the plant, as defendant claims, there would not have been any necessity for Cenar to make this trip at the expenses of the defendant. After Cenar's return to Manila, the plaintiff wrote a letter to the defendant requesting the payment of its account, in answer to which the defendant on September 24 sent the following telegram: "Electric plant accessories and installation are paid to Montelibano about weeks Keeler Company did not present bill."

This is in direct conflict with the receipted statement, which the defendant offered in evidence, signed by Montelibano. That shows upon its face that it was an itemized statement of the account of plaintiff with the defendant. Again, it will be noted that the receipt which Montelibano signed is not dated, and it does not show when the money was paid: Speaking of Montelibano, the defendant also testified: "and he assured me that he was duly authorized to collect the value of the electrical plant." This shows upon its face that the question of Montelibano's authority to receive the money must have been discussed between them, and that, in making the payment, defendant relied upon Montelibano's own statement and representations, as to his authority, to receipt for the money.

In the final analysis, the plant was sold by the plaintiff to the defendant, and was consigned by the plaintiff to the plaintiff at Iloilo where it was installed by Cenar, acting for, and representing, the plaintiff, whose expense for the trip is included in, and made a part of, the which was receipted by Montelibano.

There is no evidence that the plaintiff ever delivered any statement to Montelibano, or that he was authorized to receive or receipt for the money, and defendant's own telegram shows that the plaintiff "did not present bill" to defendant. He now claims that at the very time this telegram was sent, he had the receipt of Montelibano for the money upon the identical statement of account which it is admitted the plaintiff did render to the defendant.

Article 1162 of the Civil Code provides:

"Payment must be made to the person in whose favor the obligation is constituted, or to another authorized to receive to in his name."

And article 1727 provides:

"The principal shall be liable as to matters with respect to which the agent has exceeded his authority only when he ratifies the same expressly or by implication."

In the case of Ormachea Tin-Congco vs. Trillana (13 Phil., 194), this court held:

"The repayment of a debt must be made to the person in whose favor the obligation is constituted, or to another expressly authorized to receive the payment to his name."

Mechem on Agency, volume I, section 743 says:

"In approaching the consideration of the inquiry whether an assumed authority exists in a given case, there are certain fundamental principles which must not be overlooked. Among these are, as has been seen, (1) that the law indulges in no bare presumptions that an agency exists: it must be proved or presumed from facts; (2) that the agent cannot establish his own authority, either by the representations or by assuming to exercise it; (3) that an authority cannot be established by mere rumor or general reputation; (4) that even a general authority is not an unlimited one; and (5) that every authority must find its ultimate source in some act or omission of the principal. An assumption of authority to act as agent to act as agent for another of itself challenges inquiry. Like a railroad crossing, it should be in itself a sign of danger and suggest the duty to 'stop, look, and listen.' It is therefore declared to be a fundamental rule, never to be lost sight of and not easily to be overestimated, that persons dealing with an assumed agent, whether the assumed be a general or special one, are bound at their peril, if they hold the principal, to ascertain not only the fact of the agency but the nature and extent of the authority, and in case either is controverted, the burden of proof is upon them to establish it."

". . . It is, moreover, in any case entirely within the power of the person dealing with the agent to satisfy himself that the agent has authority he assumes to exercise, or to decline to its relations with him." ( Mechem on Agency, vol. I, sec. 746.)

"The person dealing with the agent must also act with ordinary prudence and reasonable diligence. Obviously, if he know or has good reason to believe that the agent is exceeding his authority, he cannot claim protection. So if the suggestions of probable limitations be of such a clear and reasonable quality, or if the character assumed by the agent is of such a suspicious or unreasonable nature, or if the authority which he seeks to exercise is of such an unusual or improbable character, as would suffice to put an ordinarily prudent man upon his guard, the party dealing with him may not shut his eyes to the real state of the case, but should either refuse to deal with the agent at all, or should ascertain either refuse to deal with the agent at all, or should ascertain from the principal the true condition of affairs." (Mechem on Agency, vol. I, sec. 752.)

"And not only must the person dealing with the agent ascertain the existence of the conditions, but he must also, as in other cases, be able to trace the source of his reliance to some word or act of the principal himself if the latter is to be held responsible. As has often been pointed out, the agent alone cannot enlarge or extend his authority by his own acts or statements, nor can he alone remove limitations or waive condition imposed by his principal's consent or concurrence must be shown." (Mechem on Agency, vol. I, section 757.)

This was a single transaction between the plaintiff and the defendant. Applying the above rules, the testimony is conclusive that the plaintiff never authorized Montelibano to receive or receipt for money in its behalf, and that the defendant had no right to assume by any act or deed of the plaintiff that Montelibano was authorized to receive the money, and that the defendant made the payment at his own risk and on the sole representations of Montelibano that he was authorized to receipt for the money.

The judgment of the lower court is reversed, and one will be entered here in favor of the plaintiff and against the defendant for the sum of P2,513.55, with interest at the legal rate from January 10, 1921, with costs in favor of the appellant. So ordered.

Araullo, C.J., Johnson, Street, Malcolm, Avancea, Villamor, Ostrand, and Romualdez, JJ., concur.

36. /---!e-library! 6.0 Philippines Copyright 2000 by Sony Valdez---\

[1997V53] ADORACION LUSTAN, petitioner vs. COURT OF APPEALS, NICOLAS PARANGAN and SOLEDAD PARANGAN, PHILIPPINE NATIONAL BANK, respondents.1997 Jan 273rd DivisionG.R. No. 111924D E C I S I O N

FRANCISCO, J.:

Petitioner Adoracion Lustan is the registered owner of a parcel of land otherwise known as Lot 8069 of the Cadastral Survey of Calinog, Iloilo containing an area of 10.0057 hectares and covered by TCT No. T-561. On February 25, 1969, petitioner leased the above described property to private respondent Nicolas Parangan for a term of ten (10) years and an annual rent of One Thousand (P1,000.00) Pesos. During the period of lease, Parangan was regularly extending loans in small amounts to petitioner to defray her daily expenses and to finance her daughter's education. On July 29, 1970, petitioner executed a Special Power of Attorney in favor of Parangan to secure an agricultural loan from private respondent Philippine National Bank (PNB) with the aforesaid lot as collateral. On February 18, 1972, a second Special Power of Attorney was executed by petitioner, by virtue of which, Parangan was able to secure four (4) additional loans, to wit: the sums of P24,000.00, P38,000.00, P38,600.00 and P25,000.00 on December 15, 1975, September 6, 1976, July 2, 1979 and June 2, 1980, respectively. The last three loans were without the knowledge of herein petitioner and all the proceeds therefrom were used by Parangan for his own benefit. 1 These encumbrances were duly annotated on the certificate of title. On April 16, 1973, petitioner signed a Deed of Pacto de Retro Sale 2 in favor of Parangan which was superseded by the Deed of Definite Sale 3 dated May 4, 1979 which petitioner signed upon Parangan's representation that the same merely evidences the loans extended by him unto the former.

For fear that her property might be prejudiced by the continued borrowing of Parangan, petitioner demanded the return of her certificate of title. Instead of complying with the request, Parangan asserted his rights over the property which allegedly had become his by virtue of the aforementioned Deed of Definite Sale. Under said document, petitioner conveyed the subject property and all the improvements thereon unto Parangan absolutely for and in consideration of the sum of Seventy Five Thousand (P75,000.00) Pesos.

Aggrieved, petitioner filed an action for cancellation of liens, quieting of title, recovery of possession and damages against Parangan and PNB in the Regional Trial Court of Iloilo City. After trial, the lower court rendered judgment, disposing as follows:

WHEREFORE and in view of the foregoing, a decision is rendered as follows:

1. Ordering cancellation by the Register of Deeds of the Province of Iloilo, of the unauthorized loans, the liens and encumbrances appearing in the Transfer Certificate of Title No. T-561, especially entries nos. 286231; 338638; and 352794;

2. Declaring the Deed of Pacto de Retro Sale dated April 25, 1978 and the Deed of Definite Sale dated May 6, 1979, both documents executed by Adoracion Lustan in favor of Nicolas Parangan over Lot 8069 in TCT No. T-561 of the Register of Deeds of Iloilo, as null and void, declaring the same to be Deeds of Equitable Mortgage;

3. Ordering defendant Nicolas Parangan to pay all the loans he secured from defendant PNB using thereto as security TCT No. T-561 of plaintiff and defendant PNB to return TCT No. T-561 to plaintiff;

4. Ordering defendant Nicolas Parangan to return possession of the land in question, Lot 8069 of the Calinog Cadastre, described in TCT No. T-561 of the Register of Deeds of Iloilo, to plaintiff upon payment of the sum of P75,000.00 by plaintiff to defendant Parangan which payment by plaintiff must be made within ninety (90) days from receipt of this decision; otherwise, sale of the land will be ordered by the court to satisfy payment of the amount;

5. Ordering defendant Nicolas Parangan to pay plaintiff attorney's fees in the sum of P15,000.00 and to pay the costs of the suit.

SO ORDERED. 4

Upon appeal to the Court of Appeals (CA), respondent court reversed the trial court's decision. Hence this petition contending that the CA committed the following errors:

IN ARRIVING AT THE CONCLUSION THAT NONE OF THE CONDITIONS STATED IN ART. 1602 OF THE NEW CIVIL CODE HAS BEEN PROVEN TO EXIST BY PREPONDERANCE OF EVIDENCE;

IN CONCLUDING THAT PETITIONER SIGNED THE DEED OF SALE WITH KNOWLEDGE AS TO THE CONTENTS THEREOF;

IN ARRIVING AT THE CONCLUSION THAT THE TESTIMONY OF WITNESS DELIA CABIAL DESERVES FULL FAITH AND CREDIT;

IN FINDING THAT THE SPECIAL POWER OF ATTORNEY AUTHORIZING MORTGAGE FOR "UNLIMITED" LOANS AS RELEVANT.

Two main issues confront us in this case, to wit: whether or not the Deed of Definite Sale is in reality an equitable mortgage and whether or not petitioner's property is liable to PNB for the loans contracted by Parangan by virtue of the special power of attorney. The lower court and the CA arrived at different factual findings thus necessitating a review of the evidence on record. 5 After a thorough examination, we note some errors, both in fact and in law, committed by public respondent CA.

The court a quo ruled that the Deed of Definite Sale is in reality an equitable mortgage as it was shown beyond doubt that the intention of the parties was one of a loan secured by petitioner's land. 6 We agree.

A contract is perfected by mere consent. 7 More particularly, a contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. 8 This meeting of the minds speaks of the intent of the parties in entering into the contract respecting the subject matter and the consideration thereof. If the words of the contract appear to be contrary to the evident intention of the parties, the latter shall prevail over the former. 9 In the case at bench, the evidence is sufficient to warrant a finding that petitioner and Parangan merely intended to consolidate the former's indebtedness to the latter in a single instrument and to secure the same with the subject property. Even when a document appears on its face to be a sale, the owner of the property may prove that the contract is really a loan with mortgage by raising as an issue the fact that the document does not express the true intent of the parties. In this case, parol evidence then becomes competent and admissible to prove that the instrument was in truth and in fact given merely as a security for the repayment of a loan. And upon proof of the truth of such allegations, the court will enforce the agreement or understanding in consonance with the true intent of the parties at the time of the execution of the contract. 10

Articles 1602 and 1604 of the Civil Code respectively provide:

The contract shall be presumed to be an equitable mortgage in any of the following cases:

1) When the price of a sale with right to repurchase is unusually inadequate;

2) When the vendor remains in possession as lessor or otherwise;

3) When upon or after the expiration of the right to repurchase, another instrument extending the period of redemption or granting a new period is executed;

4)

When the vendor binds himself to pay the taxes on the thing sold;

5)

When the purchaser retains for himself a part of the purchase price;

6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.

Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale.

From a reading of the above-quoted provisions, for a presumption of an equitable mortgage to arise, we must first satisfy two requisites namely: that the parties entered into a contract denominated as a contract of sale and that their intention was to secure an existing debt by way of mortgage. Under Art. 1604 of the Civil Code, a contract purporting to be an absolute sale shall be presumed to be an equitable mortgage should any of the conditions in Art. 1602 be present.

The existence of any of the circumstances therein, not a concurrence nor an overwhelming number of such circumstances, suffices to give rise to the presumption that the contract is an equitable mortgage. 11

Art. 1602, (6), in relation to Art 1604 provides that a contract of sale is presumed to be an equitable mortgage in any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.

That the case clearly falls under this category can be inferred from the circumstances surrounding the transaction as herein set forth:

Petitioner had no knowledge that the contract 12 she signed is a deed of sale. The contents of the same were not read nor explained to her so that she may intelligibly formulate in her mind the consequences of her conduct and the nature of the rights she was ceding in favor of Parangan. Petitioner is illiterate and her condition constrained her to merely rely on Parangan's assurance that the contract only evidences her indebtedness to the latter. When one of the contracting parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms

thereof have been fully explained to the former. 13 Settled is the rule that where a party to a contract is illiterate or cannot read or cannot understand the language in which the contract is written, the burden is on the party interested in enforcing the contract to prove that the terms thereof are fully explained to the former in a language understood by him. 14 To our mind, this burden has not been satisfactorily discharged.

We do not find the testimony of Parangan and Delia Cabial that the contract was duly read and explained to petitioner worthy of credit. The assessment by the trial court of the credibility of witnesses is entitled to great respect and weight for having had the opportunity of observing the conduct and demeanor of the witnesses while testifying. 15 The lower court may not have categorically declared Cabial's testimony as doubtful but this fact is readily apparent when it ruled on the basis of petitioner's evidence in total disregard of the positive testimony on Parangan's side. We have subjected the records to a thorough examination, and a reading of the transcript of stenographic notes would bear out that the court a quo is correct in its assessment.

The CA committed a reversible error when it relied on the testimony of Cabial in upholding the validity of the Deed of Definite Sale. For one, there are noted major contradictions between the testimonies of Cabial and Judge Lebaquin, who notarized the purported Deed of Definite Sale. While the former testified that receipts were presented before Judge Lebaquin, who in turn made an accounting to determine the price of the land 16, the latter categorically denied the allegation. 17 This contradiction casts doubt on the credibility of Cabial as it is ostensible that her version of the story is concocted.

On the other hand, petitioner's witness Celso Pamplona, testified that the contract was not read nor explained to petitioner. We believe that this witness gave a more accurate account of the circumstances surrounding the transaction. He has no motive to prevaricate or concoct a story as he witnessed the execution of the document at the behest of Parangan himself who, at the outset, informed him that he will witness a document consolidating petitioner's debts. He thus testified:

Q: In (sic) May 4, 1979, you remember having went (sic) to the Municipality of Calinog? A: Yes, sir.

Q: Who invited you to go there? A: Parangan.

Q: You mean Nicolas Parangan? A: Yes, sir.

Q: A:

What did Nicolas tell you why he invited you to go there? He told me that I will witness on the indebtedness of Adoracion to Parangan.

Q: Before Adoracion Lustan signed her name in this Exh. "4", was this document read to her? A: No, sir.

Q: Did Nicolas Parangan right in that very room tell Adoracion what she was signing? A: No, sir.

Xxx xxx

xxx

Q: A:

What did you have in mind when you were signing this document, Exh. "4"? To show that Adoracion Lustan has debts with NicolasParangan. 18

Furthermore, we note the absence of any question propounded to Judge Lebaquin to establish that the deed of sale was read and explained by him to petitioner. When asked if witness has any knowledge whether petitioner knows how to read or write, he answered in the negative. 19 This latter admission impresses upon us that the contract was not at all read or explained to petitioner for had he known that petitioner is illiterate, his assistance would not have been necessary.

The foregoing squares with the sixth instance when a presumption of equitable mortgage prevails. The contract of definite sale, where petitioner purportedly ceded all her rights to the subject lot in favor of Parangan, did not embody the true intention of the parties. The evidence speaks clearly of the nature of the agreement it was one executed to secure some loans.

Anent the issue of whether the outstanding mortgages on the subject property can be enforced against petitioner, we rule in the affirmative.

Third persons who are not parties to a loan may secure the latter by pledging or mortgaging their own property. 20 So long as valid consent was given, the fact that the loans were solely for the benefit of Parangan would not invalidate the mortgage with respect to petitioner's property. In consenting thereto, even granting that petitioner may not be assuming personal liability for the debt, her property shall nevertheless secure and respond for the performance of the principal obligation. 21 It is admitted that petitioner is the owner of the parcel of land mortgaged to PNB on five (5) occasions by virtue of the Special Powers of Attorney executed by petitioner in favor of Parangan. Petitioner argues that the last three mortgages were void for lack of authority. She totally failed to consider that said Special Powers of Attorney are a continuing one and absent a valid revocation duly furnished to the mortgagee, the same continues to have force and effect as against third persons who had no knowledge of such lack of authority. Article 1921 of the Civil Code provides:

Art. 1921. If the agency has been entrusted for the purpose of contracting with specified persons, its revocation shall not prejudice the latter if they were not given notice thereof.

The Special Power of Attorney executed by petitioner in favor of Parangan duly authorized the latter to represent and act on behalf of the former. Having done so, petitioner clothed Parangan with authority to deal with PNB on her behalf and in the absence of any proof that the bank had knowledge that the last three loans were without the express authority of petitioner, it cannot be prejudiced thereby. As far as third persons are concerned, an act is deemed to have been performed within the scope of the agent's authority if such is within the terms of the power of attorney as written even if the agent has in fact exceeded the limits of his authority according to the understanding between the principal and the agent. 22 The Special Power of Attorney particularly provides that the same is good not only for the principal loan but

also for subsequent commercial, industrial, agricultural loan or credit accommodation that the attorney-in-fact may obtain and until the power of attorney is revoked in a public instrument and a copy of which is furnished to PNB. 23 Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers (Article 1911, Civil Code). 24 The mortgage directly and immediately subjects the property upon which it is imposed. 25 The property of third persons which has been expressly mortgaged to guarantee an obligation to which the said persons are foreign, is directly and jointly liable for the fulfillment thereof; it is therefore subject to execution and sale for the purpose of paying the amount of the debt for which it is liable. 26 However, petitioner has an unquestionable right to demand proportional indemnification from Parangan with respect to the sum paid to PNB from the proceeds of the sale of her property 27 in case the same is sold to satisfy the unpaid debts.

WHEREFORE, premises considered, the judgment of the lower court is hereby REINSTATED with the following MODIFICATIONS:

1. DECLARING THE DEED OF DEFINITE SALE AS AN EQUITABLE MORTGAGE;

2. ORDERING PRIVATE RESPONDENT NICOLAS PARANGAN TO RETURN THE POSSESSION OF THE SUBJECT LAND UNTO PETITIONER UPON THE LATTER'S PAYMENT OF THE SUM OF P75,000.00 WITHIN NINETY (90) DAYS FROM RECEIPT OF THIS DECISION;

3. DECLARING THE MORTGAGES IN FAVOR OF PNB AS VALID AND SUBSISTING AND MAY THEREFORE BE SUBJECTED TO EXECUTION SALE.

4. ORDERING PRIVATE RESPONDENT PARANGAN TO PAY PETITIONER THE AMOUNT OF P15,000.00 BY WAY OF ATTORNEY'S FEES AND TO PAY THE COSTS OF THE SUIT.

SO ORDERED.

Narvasa, C.J., Davide, Jr., Melo and Panganiban, JJ., concur.

37. /---!e-library! 6.0 Philippines Copyright 2000 by Sony Valdez---\

[2004V1339] GENEVIEVE LIM, Petitioner, versus FLORENCIO SABAN, Respondent.2004 Dec 162nd DivisionG.R. No. 163720D E C I S I O N

Tinga, J.:

Before the Court is a Petition for Review on Certiorari assailing the Decision[1] dated October 27, 2003 of the Court of Appeals, Seventh Division, in CA-G.R. V No. 60392. [2]

The late Eduardo Ybaez (Ybaez), the owner of a 1,000-square meter lot in Cebu City (the lot), entered into an Agreement and Authority to Negotiate and Sell (Agency Agreement) with respondent Florencio Saban (Saban) on February 8, 1994. Under the Agency Agreement, Ybaez authorized Saban to look for a buyer of the lot for Two Hundred Thousand Pesos (P200,000.00) and to mark up the selling price to include the amounts needed for payment of taxes, transfer of title and other expenses incident to the sale, as well as Sabans commission for the sale.[3]

Through Sabans efforts, Ybaez and his wife were able to sell the lot to the petitioner Genevieve Lim (Lim) and the spouses Benjamin and Lourdes Lim (the Spouses Lim) on March 10, 1994. The price of the lot as indicated in the Deed of Absolute Sale is Two Hundred Thousand Pesos (P200,000.00).[4] It appears, however, that the vendees agreed to purchase the lot at the price of Six Hundred Thousand Pesos (P600,000.00), inclusive of taxes and other incidental expenses of the sale. After the sale, Lim remitted to Saban the amounts of One Hundred Thirteen Thousand Two Hundred Fifty Seven Pesos (P113,257.00) for payment of taxes due on the

transaction as well as Fifty Thousand Pesos (P50,000.00) as brokers commission.[5] Lim also issued in the name of Saban four postdated checks in the aggregate amount of Two Hundred Thirty Six Thousand Seven Hundred Forty Three Pesos (P236,743.00). These checks were Bank of the Philippine Islands (BPI) Check No. 1112645 dated June 12, 1994 for P25,000.00; BPI Check No. 1112647 dated June 19, 1994 for P18,743.00; BPI Check No. 1112646 dated June 26, 1994 for P25,000.00; and Equitable PCI Bank Check No. 021491B dated June 20, 1994 for P168,000.00.

Subsequently, Ybaez sent a letter dated June 10, 1994 addressed to Lim. In the letter Ybaez asked Lim to cancel all the checks issued by her in Sabans favor and to extend another partial payment for the lot in his (Ybaezs) favor.[6]

After the four checks in his favor were dishonored upon presentment, Saban filed a Complaint for collection of sum of money and damages against Ybaez and Lim with the Regional Trial Court (RTC) of Cebu City on August 3, 1994.[7] The case was assigned to Branch 20 of the RTC.

In his Complaint, Saban alleged that Lim and the Spouses Lim agreed to purchase the lot for P600,000.00, i.e., with a mark-up of Four Hundred Thousand Pesos (P400,000.00) from the price set by Ybaez. Of the total purchase price of P600,000.00, P200,000.00 went to Ybaez, P50,000.00 allegedly went to Lims agent, and P113,257.00 was given to Saban to cover taxes and other expenses incidental to the sale. Lim also issued four (4) postdated checks[8] in favor of Saban for the remaining P236,743.00.[9]

Saban alleged that Ybaez told Lim that he (Saban) was not entitled to any commission for the sale since he concealed the actual selling price of the lot from Ybaez and because he was not a licensed real estate broker. Ybaez was able to convince Lim to cancel all four checks.

Saban further averred that Ybaez and Lim connived to deprive him of his sales commission by withholding payment of the first three checks. He also claimed that Lim failed to make good the fourth check which was dishonored because the account against which it was drawn was closed.

In his Answer, Ybaez claimed that Saban was not entitled to any commission because he concealed the actual selling price from him and because he was not a licensed real estate broker.

Lim, for her part, argued that she was not privy to the agreement between Ybaez and Saban, and that she issued stop payment orders for the three checks because Ybaez requested her to pay the purchase price directly to him, instead of coursing it through Saban. She also alleged that she agreed with Ybaez that the purchase price of the lot was only P200,000.00.

Ybaez died during the pendency of the case before the RTC. Upon motion of his counsel, the trial court dismissed the case only against him without any objection from the other parties.[10]

On May 14, 1997, the RTC rendered its Decision[11] dismissing Sabans complaint, declaring the four (4) checks issued by Lim as stale and non-negotiable, and absolving Lim from any liability towards Saban.

Saban appealed the trial courts Decision to the Court of Appeals.

On October 27, 2003, the appellate court promulgated its Decision[12] reversing the trial courts ruling. It held that Saban was entitled to his commission amounting to P236,743.00.[13]

The Court of Appeals ruled that Ybaezs revocation of his contract of agency with Saban was invalid because the agency was coupled with an interest and Ybaez effected the revocation in bad faith in order to deprive Saban of his commission and to keep the profits for himself.[14]

The appellate court found that Ybaez and Lim connived to deprive Saban of his commission. It declared that Lim is liable to pay Saban the amount of the purchase price of the lot corresponding to his commission because she issued the four checks knowing that the total amount thereof corresponded to Sabans commission for the sale, as the agent of Ybaez. The appellate court further ruled that, in issuing the checks in payment of Sabans commission, Lim acted as an accommodation party.

She signed the checks as drawer, without receiving value therefor, for the purpose of lending her name to a third person. As such, she is liable to pay Saban as the holder for value of the checks.[15]

Lim filed a Motion for Reconsideration of the appellate courts Decision, but her Motion was denied by the Court of Appeals in a Resolution dated May 6, 2004.[16]

Not satisfied with the decision of the Court of Appeals, Lim filed the present petition.

Lim argues that the appellate court ignored the fact that after paying her agent and remitting to Saban the amounts due for taxes and transfer of title, she paid the balance of the purchase price directly to Ybaez.[17]

She further contends that she is not liable for Ybaezs debt to Saban under the Agency Agreement as she is not privy thereto, and that Saban has no one but himself to blame for consenting to the dismissal of the case against Ybaez and not moving for his substitution by his heirs.[18]

Lim also assails the findings of the appellate court that she issued the checks as an accommodation party for Ybaez and that she connived with the latter to deprive Saban of his commission.[19]

Lim prays that should she be found liable to pay Saban the amount of his commission, she should only be held liable to the extent of one-third (1/3) of the amount, since she had two co-vendees (the Spouses Lim) who should share such liability.[20]

In his Comment, Saban maintains that Lim agreed to purchase the lot for P600,000.00, which consisted of the P200,000.00 which would be paid to Ybaez, the P50,000.00 due to her broker, the P113,257.00 earmarked for taxes and other expenses incidental to the sale and Sabans commission as broker for Ybaez. According to Saban, Lim assumed the obligation to pay him his commission. He insists that Lim and Ybaez connived to unjustly deprive him of his commission from the negotiation of the sale.[21]

The issues for the Courts resolution are whether Saban is entitled to receive his commission from the sale; and, assuming that Saban is entitled thereto, whether it is Lim who is liable to pay Saban his sales commission.

The Court gives due course to the petition, but agrees with the result reached by the Court of Appeals.

The Court affirms the appellate courts finding that the agency was not revoked since Ybaez requested that Lim make stop payment orders for the checks payable to Saban only after the consummation of the sale on March 10, 1994. At that time, Saban had already performed his obligation as Ybaezs agent when, through his (Sabans) efforts, Ybaez executed the Deed of Absolute Sale of the lot with Lim and the Spouses Lim.

To deprive Saban of his commission subsequent to the sale which was consummated through his efforts would be a breach of his contract of agency with Ybaez which expressly states that Saban would be entitled to any excess in the purchase price after deducting the P200,000.00 due to Ybaez and the transfer taxes and other incidental expenses of the sale.[22]

In Macondray & Co. v. Sellner,[23] the Court recognized the right of a broker to his commission for finding a suitable buyer for the sellers property even though the seller himself consummated the sale with the buyer.[24] The Court held that it would be in the height of injustice to permit the principal to terminate the contract of agency to the prejudice of the broker when he had already reaped the benefits of the brokers efforts.

In Infante v. Cunanan, et al.,[25] the Court upheld the right of the brokers to their commissions although the seller revoked their authority to act in his behalf after

they had found a buyer for his properties and negotiated the sale directly with the buyer whom he met through the brokers efforts. The Court ruled that the sellers withdrawal in bad faith of the brokers authority cannot unjustly deprive the brokers of their commissions as the sellers duly constituted agents.

The pronouncements of the Court in the aforecited cases are applicable to the present case, especially considering that Saban had completely performed his obligations under his contract of agency with Ybaez by finding a suitable buyer to preparing the Deed of Absolute Sale between Ybaez and Lim and her co-vendees. Moreover, the contract of agency very clearly states that Saban is entitled to the excess of the mark-up of the price of the lot after deducting Ybaezs share of P200,000.00 and the taxes and other incidental expenses of the sale.

However, the Court does not agree with the appellate courts pronouncement that Sabans agency was one coupled with an interest. Under Article 1927 of the Civil Code, an agency cannot be revoked if a bilateral contract depends upon it, or if it is the means of fulfilling an obligation already contracted, or if a partner is appointed manager of a partnership in the contract of partnership and his removal from the management is unjustifiable. Stated differently, an agency is deemed as one coupled with an interest where it is established for the mutual benefit of the principal and of the agent, or for the interest of the principal and of third persons, and it cannot be revoked by the principal so long as the interest of the agent or of a third person subsists. In an agency coupled with an interest, the agents interest must be in the subject matter of the power conferred and not merely an interest in the exercise of the power because it entitles him to compensation. When an agents interest is confined to earning his agreed compensation, the agency is not one coupled with an interest, since an agents interest in obtaining his compensation as such agent is an ordinary incident of the agency relationship.[26]

Sabans entitlement to his commission having been settled, the Court must now determine whether Lim is the proper party against whom Saban should address his claim.

Sabans right to receive compensation for negotiating as broker for Ybaez arises from the Agency Agreement between them. Lim is not a party to the contract. However, the record reveals that she had knowledge of the fact that Ybaez set the price of the lot at P200,000.00 and that the P600,000.00the price agreed upon by her and Sabanwas more than the amount set by Ybaez because it included the amount for payment of taxes and for Sabans commission as broker for Ybaez.

According to the trial court, Lim made the following payments for the lot: P113,257.00 for taxes, P50,000.00 for her broker, and P400.000.00 directly to Ybaez, or a total of Five Hundred Sixty Three Thousand Two Hundred Fifty Seven Pesos (P563,257.00).[27] Lim, on the other hand, claims that on March 10, 1994, the date of execution of the Deed of Absolute Sale, she paid directly to Ybaez the amount of One Hundred Thousand Pesos (P100,000.00) only, and gave to Saban P113,257.00 for payment of taxes and P50,000.00 as his commission,[28] and One Hundred Thirty Thousand Pesos (P130,000.00) on June 28, 1994,[29] or a total of Three Hundred Ninety Three Thousand Two Hundred Fifty Seven Pesos (P393,257.00). Ybaez, for his part, acknowledged that Lim and her co-vendees paid him P400,000.00 which he said was the full amount for the sale of the lot.[30] It thus appears that he received P100,000.00 on March 10, 1994, acknowledged receipt (through Saban) of the P113,257.00 earmarked for taxes and P50,000.00 for commission, and received the balance of P130,000.00 on June 28, 1994. Thus, a total of P230,000.00 went directly to Ybaez. Apparently, although the amount actually paid by Lim was P393,257.00, Ybaez rounded off the amount to P400,000.00 and waived the difference.

Lims act of issuing the four checks amounting to P236,743.00 in Sabans favor belies her claim that she and her co-vendees did not agree to purchase the lot at P600,000.00. If she did not agree thereto, there would be no reason for her to issue those checks which is the balance of P600,000.00 less the amounts of P200,000.00 (due to Ybaez), P50,000.00 (commission), and the P113,257.00 (taxes). The only logical conclusion is that Lim changed her mind about agreeing to purchase the lot at P600,000.00 after talking to Ybaez and ultimately realizing that Sabans commission is even more than what Ybaez received as his share of the purchase price as vendor. Obviously, this change of mind resulted to the prejudice of Saban whose efforts led to the completion of the sale between the latter, and Lim and her co-vendees. This the Court cannot countenance.

The ruling of the Court in Infante v. Cunanan, et al., cited earlier, is enlightening for the facts therein are similar to the circumstances of the present case. In that case, Consejo Infante asked Jose Cunanan and Juan Mijares to find a buyer for her two lots and the house built thereon for Thirty Thousand Pesos (P30,000.00) . She promised to pay them five percent (5%) of the purchase price plus whatever overprice they may obtain for the property. Cunanan and Mijares offered the properties to Pio Noche who in turn expressed willingness to purchase the properties. Cunanan and Mijares thereafter introduced Noche to Infante. However, the latter told Cunanan and Mijares that she was no longer interested in selling the property and asked them to sign a document stating that their written authority to act as her agents for the sale of the properties was already cancelled. Subsequently, Infante sold the properties directly to Noche for Thirty One Thousand Pesos (P31,000.00). The Court upheld the right of Cunanan and Mijares to their commission, explaining that

[Infante] had changed her mind even if respondent had found a buyer who was willing to close the deal, is a matter that would not give rise to a legal consequence if [Cunanan and Mijares] agreed to call off the transaction in deference to the request of [Infante]. But the situation varies if one of the parties takes advantage of the benevolence of the other and acts in a manner that would promote his own selfish interest. This act is unfair as would amount to bad faith. This act cannot be sanctioned without according the party prejudiced the reward which is due him. This

is the situation in which [Cunanan and Mijares] were placed by [Infante]. [Infante] took advantage of the services rendered by [Cunanan and Mijares], but believing that she could evade payment of their commission, she made use of a ruse by inducing them to sign the deed of cancellation.This act of subversion cannot be sanctioned and cannot serve as basis for [Infante] to escape payment of the commission agreed upon.[31]

The appellate court therefore had sufficient basis for concluding that Ybaez and Lim connived to deprive Saban of his commission by dealing with each other directly and reducing the purchase price of the lot and leaving nothing to compensate Saban for his efforts.

Considering the circumstances surrounding the case, and the undisputed fact that Lim had not yet paid the balance of P200,000.00 of the purchase price of P600,000.00, it is just and proper for her to pay Saban the balance of P200,000.00.

Furthermore, since Ybaez received a total of P230,000.00 from Lim, or an excess of P30,000.00 from his asking price of P200,000.00, Saban may claim such excess from Ybaezs estate, if that remedy is still available,[32] in view of the trial courts dismissal of Sabans complaint as against Ybaez, with Sabans express consent, due to the latters demise on November 11, 1994.[33]

The appellate court however erred in ruling that Lim is liable on the checks because she issued them as an accommodation party. Section 29 of the Negotiable Instruments Law defines an accommodation party as a person who has signed the

negotiable instrument as maker, drawer, acceptor or indorser, without receiving value therefor, for the purpose of lending his name to some other person. The accommodation party is liable on the instrument to a holder for value even though the holder at the time of taking the instrument knew him or her to be merely an accommodation party. The accommodation party may of course seek reimbursement from the party accommodated.[34]

As gleaned from the text of Section 29 of the Negotiable Instruments Law, the accommodation party is one who meets all these three requisites, viz: (1) he signed the instrument as maker, drawer, acceptor, or indorser; (2) he did not receive value for the signature; and (3) he signed for the purpose of lending his name to some other person. In the case at bar, while Lim signed as drawer of the checks she did not satisfy the two other remaining requisites.

The absence of the second requisite becomes pellucid when it is noted at the outset that Lim issued the checks in question on account of her transaction, along with the other purchasers, with Ybaez which was a sale and, therefore, a reciprocal contract. Specifically, she drew the checks in payment of the balance of the purchase price of the lot subject of the transaction. And she had to pay the agreed purchase price in consideration for the sale of the lot to her and her co-vendees. In other words, the amounts covered by the checks form part of the cause or consideration from Ybaezs end, as vendor, while the lot represented the cause or consideration on the side of Lim, as vendee.[35] Ergo, Lim received value for her signature on the checks.

Neither is there any indication that Lim issued the checks for the purpose of enabling Ybaez, or any other person for that matter, to obtain credit or to raise money, thereby totally debunking the presence of the third requisite of an accommodation party.

WHEREFORE, in view of the foregoing, the petition is DISMISSED.

SO ORDERED.

DANTE O. TINGA Associate Justice

WE CONCUR:

REYNATO S. PUNO

Chairman

Associate Justice

(On Leave) MA. ALICIA AUSTRIA-MARTINEZ ROMEO J. CALLEJO, SR.

Associate Justice

Associate Justice

MINITA V. CHICO-NAZARIO

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

REYNATO S. PUNO

Associate Justice

Chairman, Second Division

CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, and the Division Chairmans Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court.

HILARIO G. DAVIDE, JR.

Chief Justice

[1]Penned by Associate Justice Edgardo P. Cruz and concurred in by Associate Justices Ruben T. Reyes and Noel G. Tijam.

[2]Florencio Saban, Plaintiff-Appellant v. Eduardo Ybanez and Genevieve Lim, Defendants; Genevieve Lim, Defendant-Appellee.

[3]The agency agreement between Ybaez and Saban provides:

That I[,] Engr. Eduardo Ybaez have agreed and allowed to (sic) Mr. Florencio Saban, Sr. and his associate to look for a buyer, and further agreed to sell and dispose the above-mention (sic) lot, at the price of P200.00 per square meters [sic] (equivalent to P200,000.00) net, and any amount over and above for the stated price resulting from the sale shall belong to Mr. Florencio Saban, Sr. and his associate. Furthermore it is agreed and covenanted that the total expenses covering the sale and transfer of the title such as, capital gain (sic) tax, documentary stamp, transfer tax and other relative expenses, for the said sale shall be borne to the agent, and or to the buyer, except the payment of realty taxes. (RTC Records, p. 5)

[4]RTC Records, p. 6.

[5]Lim on direct examination, TSN, March 3, 1997, p. 8; Rose Villarosa (Lims broker) on direct examination, TSN, October 22, 1996, p. 7.

[6]RTC Records, p. 25.

[7]Id. at 1.

[8]Annexes B to E, RTC Records, pp. 32-35.

[9]Id. at 2.

[10]Order dated March 6, 1995, RTC Records, p. 48.

[11]Rollo, pp. 29-39.

[12]Rollo, pp. 22-28.

[13]The amount of the purchase price less the P200,000.00 payable to Ybaez and the incidental expenses of the sale.

[14]Rollo, pp. 25-26.

[15]Id. at 27.

[16]Rollo, p. 46.

[17]Petition, Id. at 17.

[18]Id. at 14 and 16.

[19]Id. at 18.

[20]Id. at 17.

[21]Id. at 114-115.

[22]Supra note 3.

[23]33 Phil 370 (1916).

[24]Id. at 377.

[25]93 Phil. 691 (1953).

[26]See I Restatement of the Law In Agency 2d 340 (1957).

[27]RTC Decision, Rollo, p. 33.

[28]TSN, March 3, 1997, p. 8.

[29]Id., see also, Acknolwedgement Receipt issued by Ybaez in favor of Lim, RTC Records, p. 114.

[30]See Acknowledgement Receipt dated June 28, 1994, Id., and Ybaezs Affidavit dated June 28, 1994, Id. at 115.

[31]Supra note 25, at pp. 695-96.

[32]Rule 86 (Claims Against Estate), Revised Rules of Court.

[33]Order of the RTC dated March 6, 1995, RTC Records, p. 48.

[34]Agro Conglomerates, Inc. v. Court of Appeals, G.R. No. 117660, December 18, 2000, 348 SCRA 450; Bank of the Philippine Islands v. Court of Appeals, 383 Phil. 538 (2000).

[35]See Arts. 1350 and 1458, Civil Code.

38. /---!e-library! 6.0 Philippines Copyright 2000 by Sony Valdez---\

[2000V707] VICTORIAS MILLING CO., INC., petitioner, vs. COURT OF APPEALS and CONSOLIDATED SUGAR CORPORATION, respondents.2000 Jun 192nd DivisionG.R. No. 117356D E C I S I O N

QUISUMBING, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the decision of the Court of Appeals dated February 24, 1994, in CA-G.R. CV No. 31717, as well as the respondent court's resolution of September 30, 1994 modifying said decision. Both decision and resolution amended the judgment dated February 13, 1991, of the Regional Trial Court of Makati City, Branch 147, in Civil Case No. 90-118.

The facts of this case as found by both the trial and appellate courts are as follows:

St. Therese Merchandising (hereafter STM) regularly bought sugar from petitioner Victorias Milling Co., Inc., (VMC). In the course of their dealings, petitioner issued several Shipping List/Delivery Receipts (SLDRs) to STM as proof of purchases. Among these was SLDR No. 1214M, which gave rise to the instant case. Dated October 16, 1989, SLDR No. 1214M covers 25,000 bags of sugar. Each bag contained 50 kilograms and priced at P638.00 per bag as "per sales order VMC Marketing No. 042 dated October 16, 1989."1 [Records, p. 60.] The transaction it covered was a "direct sale."2 [Ibid.] The SLDR also contains an additional note which reads: "subject for (sic) availability of a (sic) stock at NAWACO (warehouse)."3 [Ibid.]

On October 25, 1989, STM sold to private respondent Consolidated Sugar Corporation (CSC) its rights in SLDR No. 1214M for P 14,750,000.00. CSC issued one check dated October 25, 1989 and three checks postdated November 13, 1989 in payment. That same day, CSC wrote petitioner that it had been authorized by STM to withdraw the sugar covered by SLDR No. 1214M. Enclosed in the letter were a copy of SLDR No. 1214M and a letter of authority from STM authorizing CSC "to withdraw for and in our behalf the refined sugar covered by Shipping List/Delivery Receipt-Refined Sugar (SDR) No. 1214 dated October 16, 1989 in the total quantity of 25,000 bags."4 [Supra Note 1, at 9.]

On October 27, 1989, STM issued 16 checks in the total amount of P31,900,000.00 with petitioner as payee. The latter, in turn, issued Official Receipt No. 33743 dated October 27, 1989 acknowledging receipt of the said checks in payment of 50,000 bags. Aside from SLDR No. 1214M, said checks also covered SLDR No. 1213.

Private respondent CSC surrendered SLDR No. 1214M to the petitioner's NAWACO warehouse and was allowed to withdraw sugar. However, after 2,000 bags had been released, petitioner refused to allow further withdrawals of sugar against SLDR No.

1214M. CSC then sent petitioner a letter dated January 23, 1990 informing it that SLDR No. 1214M had been "sold and endorsed" to it but that it had been refused further withdrawals of sugar from petitioner's warehouse despite the fact that only 2,000 bags had been withdrawn.5 [Id. at 11.] CSC thus inquired when it would be allowed to withdraw the remaining 23,000 bags.

On January 31, 1990, petitioner replied that it could not allow any further withdrawals of sugar against SLDR No. 1214M because STM had already dwithdrawn all the sugar covered by the cleared checks.6 [Id. at 12.]

On March 2, 1990, CSC sent petitioner a letter demanding the release of the balance of 23,000 bags.

Seven days later, petitioner reiterated that all the sugar corresponding to the amount of STM's cleared checks had been fully withdrawn and hence, there would be no more deliveries of the commodity to STM's account. Petitioner also noted that CSC had represented itself to be STM's agent as it had withdrawn the 2,000 bags against SLDR No. 1214M "for and in behalf" of STM.

On April 27, 1990, CSC filed a complaint for specific performance, docketed as Civil Case No. 90-1118. Defendants were Teresita Ng Sy (doing business under the name of St. Therese Merchandising) and herein petitioner. Since the former could not be served with summons, the case proceeded only against the latter. During the trial, it was discovered that Teresita Ng Go who testified for CSC was the same Teresita Ng Sy who could not be reached through summons.7 [TSN, October 10, 1990, p. 16.] CSC, however, did not bother to pursue its case against her, but instead used her as its witness.

CSC's complaint alleged that STM had fully paid petitioner for the sugar covered by SLDR No. 1214M. Therefore, the latter had no justification for refusing delivery of the sugar. CSC prayed that petitioner be ordered to deliver the 23,000 bags covered by SLDR No. 1214M and sought the award of P1,104,000.00 in unrealized profits, P3,000,000.00 as exemplary damages, P2,200,000.00 as attorney's fees and litigation expenses.

Petitioner's primary defense a quo was that it was an unpaid seller for the 23,000 bags.8 [Supra Note 1, at 170.] Since STM had already drawn in full all the sugar corresponding to the amount of its cleared checks, it could no longer authorize further delivery of sugar to CSC. Petitioner also contended that it had no privity of contract with CSC.

Petitioner explained that the SLDRs, which it had issued, were not documents of title, but mere delivery receipts issued pursuant to a series of transactions entered into between it and STM. The SLDRs prescribed delivery of the sugar to the party specified therein and did not authorize the transfer of said party's rights and interests.

Petitioner also alleged that CSC did not pay for the SLDR and was actually STM's coconspirator to defraud it through a misrepresentation that CSC was an innocent purchaser for value and in good faith. Petitioner then prayed that CSC be ordered to pay it the following sums: P10,000,000.00 as moral damages; P10,000,000.00 as exemplary damages; and P1,500,000.00 as attorney's fees. Petitioner also prayed that cross-defendant STM be ordered to pay it P10,000,000.00 in exemplary damages, and P1,500,000.00 as attorney's fees.

Since no settlement was reached at pre-trial, the trial court heard the case on the merits.

As earlier stated, the trial court rendered its judgment favoring private respondent CSC, as follows:

"WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the plaintiff and against defendant Victorias Milling Company:

"1) Ordering defendant Victorias Milling Company to deliver to the plaintiff 23,000 bags of refined sugar due under SLDR No. 1214;

"2) Ordering defendant Victorias Milling Company to pay the amount of P920,000.00 as unrealized profits, the amount of P800,000.00 as exemplary damages and the amount of P1,357,000.00, which is 10% of the acquisition value of the undelivered

bags of refined sugar in the amount of P13,570,000.00, as attorney's fees, plus the costs.

"SO ORDERED."9 [CA Rollo, p. 134.]

It made the following observations:

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

"On the other hand, the claim of defendant Victorias Milling Company that the purchase price of the 25,000 bags of sugar purchased by St. Therese Merchandising covered by SLDR No. 1214 has not been fully paid is supported only by the testimony of Arnulfo Caintic, witness for defendant Victorias Milling Company. The Court notes that the testimony of Arnulfo Caintic is merely a sweeping barren assertion that the purchase price has not been fully paid and is not corroborated by any positive evidence. There is an insinuation by Arnulfo Caintic in his testimony that the postdated checks issued by the buyer in payment of the purchased price were dishonored. However, said witness failed to present in Court any dishonored check or any replacement check. Said witness likewise failed to present any bank record showing that the checks issued by the buyer, Teresita Ng Go, in payment of the

purchase price of the sugar covered by SLDR No. 1214 were dishonored."10 [Id. at 131-132.]

Petitioner appealed the trial courts decision to the Court of Appeals.

On appeal, petitioner averred that the dealings between it and STM were part of a series of transactions involving only one account or one general contract of sale. Pursuant to this contract, STM or any of its authorized agents could withdraw bags of sugar only against cleared checks of STM. SLDR No. 21214M was only one of 22 SLDRs issued to STM and since the latter had already withdrawn its full quota of sugar under the said SLDR, CSC was already precluded from seeking delivery of the 23,000 bags of sugar.

Private respondent CSC countered that the sugar purchases involving SLDR No. 1214M were separate and independent transactions and that the details of the series of purchases were contained in a single statement with a consolidated summary of cleared check payments and sugar stock withdrawals because this a more convenient system than issuing separate statements for each purchase.

The appellate court considered the following issues: (a) Whether or not the transaction between petitioner and STM involving SLDR No. 1214M was a separate, independent, and single transaction; (b) Whether or not CSC had the capacity to sue on its own on SLDR No. 1214M; and (c) Whether or not CSC as buyer from STM of the rights to 25,000 bags of sugar covered by SLDR No. 1214M could compel petitioner to deliver 23,000 bags allegedly unwithdrawn.

On February 24, 1994, the Court of Appeals rendered its decision modifying the trial court's judgment, to wit:

"WHEREFORE, the Court hereby MODIFIES the assailed judgment and orders defendant-appellant to:

"1) Deliver to plaintiff-appellee 12,586 bags of sugar covered by SLDR No. 1214M;

" 2) Pay to plaintiff-appellee P792,918.00 which is 10% of the value of the undelivered bags of refined sugar, as attorneys fees;

"3) Pay the costs of suit.

"SO ORDERED."11 [Rollo, p. 89.]

Both parties then seasonably filed separate motions for reconsideration.

In its resolution dated September 30, 1994, the appellate court modified its decision to read:

"WHEREFORE, the Court hereby modifies the assailed judgment and orders defendant-appellant to:

"(1) Deliver to plaintiff-appellee 23,000 bags of refined sugar under SLDR No. 1214M;

"(2) Pay costs of suit.

"SO ORDERED."12 [Id. at 95.]

The appellate court explained the rationale for the modification as follows:

"There is merit in plaintiff-appellee's position.

"Exhibit F' We relied upon in fixing the number of bags of sugar which remained undelivered as 12,586 cannot be made the basis for such a finding. The rule is explicit that courts should consider the evidence only for the purpose for which it was offered. (People v. Abalos, et al, 1 CA Rep 783). The rationale for this is to afford the party

against whom the evidence is presented to object thereto if he deems it necessary. Plaintiff-appellee is, therefore, correct in its argument that Exhibit F' which was offered to prove that checks in the total amount of P15,950,000.00 had been cleared. (Formal Offer of Evidence for Plaintiff, Records p. 58) cannot be used to prove the proposition that 12,586 bags of sugar remained undelivered.

"Testimonial evidence (Testimonies of Teresita Ng [TSN, 10 October 1990, p. 33] and Marianito L. Santos [TSN, 17 October 1990, pp. 16, 18, and 36]) presented by plaintiff-appellee was to the effect that it had withdrawn only 2,000 bags of sugar from SLDR after which it was not allowed to withdraw anymore. Documentary evidence (Exhibit I, Id., p. 78, Exhibit K, Id., p. 80) show that plaintiff-appellee had sent demand letters to defendant-appellant asking the latter to allow it to withdraw the remaining 23,000 bags of sugar from SLDR 1214M. Defendant-appellant, on the other hand, alleged that sugar delivery to the STM corresponded only to the value of cleared checks; and that all sugar corresponded to cleared checks had been withdrawn. Defendant-appellant did not rebut plaintiff-appellee's assertions. It did not present evidence to show how many bags of sugar had been withdrawn against SLDR No. 1214M, precisely because of its theory that all sales in question were a series of one single transaction and withdrawal of sugar depended on the clearing of checks paid therefor.

"After a second look at the evidence, We see no reason to overturn the findings of the trial court on this point."13 [Id. at 93-94.]

Hence, the instant petition, positing the following errors as grounds for review:

"1. The Court of Appeals erred in not holding that STM's and private respondent's specially informing petitioner that respondent was authorized by buyer STM to withdraw sugar against SLDR No. 1214M "for and in our (STM) behalf," (emphasis in the original) private respondent's withdrawing 2,000 bags of sugar for STM, and STM's empowering other persons as its agents to withdraw sugar against the same SLDR No. 1214M, rendered respondent like the other persons, an agent of STM as held in Rallos v. Felix Go Chan & Realty Corp., 81 SCRA 252, and precluded it from subsequently claiming and proving being an assignee of SLDR No. 1214M and from suing by itself for its enforcement because it was conclusively presumed to be an agent (Sec. 2, Rule 131, Rules of Court) and estopped from doing so. (Art. 1431, Civil Code).

" 2. The Court of Appeals erred in manifestly and arbitrarily ignoring and disregarding certain relevant and undisputed facts which, had they been considered, would have shown that petitioner was not liable, except for 69 bags of sugar, and which would justify review of its conclusion of facts by this Honorable Court.

" 3. The Court of Appeals misapplied the law on compensation under Arts. 1279, 1285 and 1626 of the Civil Code when it ruled that compensation applied only to credits from one SLDR or contract and not to those from two or more distinct contracts between the same parties; and erred in denying petitioner's right to setoff all its credits arising prior to notice of assignment from other sales or SLDRs against private respondent's claim as assignee under SLDR No. 1214M, so as to extinguish or reduce its liability to 69 bags, because the law on compensation applies precisely to two or more distinct contracts between the same parties (emphasis in the original).

"4. The Court of Appeals erred in concluding that the settlement or liquidation of accounts in Exh. F between petitioner and STM, respondent's admission of its balance, and STM's acquiescence thereto by silence for almost one year did not render Exh. `F' an account stated and its balance binding.

"5. The Court of Appeals erred in not holding that the conditions of the assigned SLDR No. 1214, namely, (a) its subject matter being generic, and (b) the sale of sugar being subject to its availability at the Nawaco warehouse, made the sale conditional and prevented STM or private respondent from acquiring title to the sugar; and the nonavailability of sugar freed petitioner from further obligation.

"6. The Court of Appeals erred in not holding that the "clean hands" doctrine precluded respondent from seeking judicial reliefs (sic) from petitioner, its only remedy being against its assignor."14 [Id. at 24.]

Simply stated, the issues now to be resolved are:

(1)....Whether or not the Court of Appeals erred in not ruling that CSC was an agent of STM and hence, estopped to sue upon SLDR No. 1214M as an assignee.

(2)....Whether or not the Court of Appeals erred in applying the law on compensation to the transaction under SLDR No. 1214M so as to preclude petitioner from offsetting its credits on the other SLDRs.

(3)....Whether or not the Court of Appeals erred in not ruling that the sale of sugar under SLDR No. 1214M was a conditional sale or a contract to sell and hence freed petitioner from further obligations.

(4)....Whether or not the Court of Appeals committed an error of law in not applying the "clean hands doctrine" to preclude CSC from seeking judicial relief.

The issues will be discussed in seriatim.

Anent the first issue, we find from the records that petitioner raised this issue for the first time on appeal. It is settled that an issue which was not raised during the trial in the court below could not be raised for the first time on appeal as to do so would be offensive to the basic rules of fair play, justice, and due process.15 [Spouses Felipe and Irma Buag v. Court of Appeals, 303 SCRA 591, 596 (1999); Roman Catholic Archbishop of Manila v. Court of Appeals, 336 Phil. 138, 149 (1997) citing Gevero v. Intermediate Appellate Court, 189 SCRA 201, 208 (1990)] Nonetheless, the Court of Appeals opted to address this issue, hence, now a matter for our consideration.

Petitioner heavily relies upon STM's letter of authority allowing CSC to withdraw sugar against SLDR No. 1214M to show that the latter was STM's agent. The pertinent portion of said letter reads:

"This is to authorize Consolidated Sugar Corporation or its representative to withdraw for and in our behalf (stress supplied) the refined sugar covered by Shipping List/Delivery Receipt = Refined Sugar (SDR) No. 1214 dated October 16, 1989 in the total quantity of 25, 000 bags."16 [Records, p. 68.]

The Civil Code defines a contract of agency as follows:

"Art. 1868. By the contract of agency a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter."

It is clear from Article 1868 that the basis of agency is representation.17 [Bordador v. Luz, 283 SCRA 374, 382 (1997)] On the part of the principal, there must be an actual intention to appoint18 [Connell v. McLoughlin, 28 Or. 230; 42 P. 218.] or an intention naturally inferable from his words or actions;19 [Halladay v. Underwood, 90 Ill. App. 130.] and on the part of the agent, there must be an intention to accept the appointment and act on it,20 [Internal Trust Co. v. Bridges, 57 F. 753.] and in the absence of such intent, there is generally no agency.21 [Security Co. v. Graybeal, 85 Iowa 543, 52 N.W. 497.] One factor which most clearly distinguishes agency from other legal concepts is control; one person - the agent - agrees to act under the control or direction of another - the principal. Indeed, the very word "agency" has come to connote control by the principal.22 [ROSCOE T. STEFFEN, AGENCYPARTNERSHIP IN A NUTSHELL (1977) 30-31.] The control factor, more than any other, has caused the courts to put contracts between principal and agent in a separate category.23 [Supra, at 33.] The Court of Appeals, in finding that CSC, was not an agent of STM, opined:

"This Court has ruled that where the relation of agency is dependent upon the acts of the parties, the law makes no presumption of agency, and it is always a fact to be proved, with the burden of proof resting upon the persons alleging the agency, to show not only the fact of its existence, but also its nature and extent (Antonio vs. Enriquez [CA], 51 O.G. 3536]. Here, defendant-appellant failed to sufficiently establish the existence of an agency relation between plaintiff-appellee and STM. The fact alone that it (STM) had authorized withdrawal of sugar by plaintiff-appellee "for and in our (STM's) behalf" should not be eyed as pointing to the existence of an agency relation ...It should be viewed in the context of all the circumstances obtaining. Although it would seem STM represented plaintiff-appellee as being its agent by the use of the phrase "for and in our (STM's) behalf" the matter was cleared when on 23 January 1990, plaintiff-appellee informed defendant-appellant that SLDFR No. 1214M had been "sold and endorsed" to it by STM (Exhibit I, Records, p. 78). Further, plaintiff-appellee has shown that the 25, 000 bags of sugar covered by the SLDR No. 1214M were sold and transferred by STM to it ...A conclusion that there was a valid sale and transfer to plaintiff-appellee may, therefore, be made thus capacitating plaintiff-appellee to sue in its own name, without need of joining its imputed principal STM as co-plaintiff."24 [Supra Note 11, at 87-88.]

In the instant case, it appears plain to us that private respondent CSC was a buyer of the SLDFR form, and not an agent of STM. Private respondent CSC was not subject to STM's control. The question of whether a contract is one of sale or agency depends on the intention of the parties as gathered from the whole scope and effect of the language employed.25 [Bessing v. Prince, 52 Cal. App. 190, 198 P. 422; Greenlease Lied Motors v. Sadler, 216 Iowa 302, 249 N.W. 383; Salisbury v. Brooks, 81 W. Va. 233, 94 S.E. 117.] That the authorization given to CSC contained the phrase "for and in our (STM's) behalf" did not establish an agency. Ultimately, what is decisive is the intention of the parties.26 [State v. Parker, 112 Conn., 39, 151 A. 325; Rucks-Brandt Const. Co. v. Price, 165 Okl. 178, 23 P2d 690, cert den 291 US 679, 78 L. Ed 1067, 54 S. Ct. 526.] That no agency was meant to be established by the CSC and STM is clearly shown by CSC's communication to petitioner that SLDR No. 1214M had been "sold and endorsed" to it.27 [Supra Note 5.] The use of the words "sold and endorsed" means that STM and CSC intended a contract of sale, and not an agency. Hence, on this score, no error was committed by the respondent appellate court when it held that CSC was not STM's agent and could independently sue petitioner.

On the second issue, proceeding from the theory that the transactions entered into between petitioner and STM are but serial parts of one account, petitioner insists that its debt has been offset by its claim for STM's unpaid purchases, pursuant to Article 1279 of the Civil Code.28 ["Art. 1279. In order that compensation may be proper, it is necessary:

(1)....That each one of the obligors be bound principally and that he be at the same time a principal creditor of the other:

(2)....That both debts consist in a sum of money, or of the things due are consumable, they be of the same kind, and also of the same quality if the latter has been stated;

(3)....That the two debts be due;

(4)....That they be liquidated and demandable;

(5)....That over neither of them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor."] However, the trial court found, and the Court of Appeals concurred, that the purchase of sugar covered by

SLDR No. 1214M was a separate and independent transaction; it was not a serial part of a single transaction or of one account contrary to petitioner's insistence. Evidence on record shows, without being rebutted, that petitioner had been paid for the sugar purchased under SLDR No. 1214M. Petitioner clearly had the obligation to deliver said commodity to STM or its assignee. Since said sugar had been fully paid for, petitioner and CSC, as assignee of STM, were not mutually creditors and debtors of each other. No reversible error could thereby be imputed to respondent appellate court when, it refused to apply Article 1279 of the Civil Code to the present case.

Regarding the third issue, petitioner contends that the sale of sugar under SLDR No. 1214M is a conditional sale or a contract to sell, with title to the sugar still remaining with the vendor. Noteworthy, SLDR No. 1214M contains the following terms and conditions:

"It is understood and agreed that by payment by buyer/trader of refined sugar and/or receipt of this document by the buyer/trader personally or through a representative, title to refined sugar is transferred to buyer/trader and delivery to him/it is deemed effected and completed (stress supplied) and buyer/trader assumes full responsibility therefore"29 [Supra Note 1.]

The aforequoted terms and conditions clearly show that petitioner transferred title to the sugar to the buyer or his assignee upon payment of the purchase price. Said terms clearly establish a contract of sale, not a contract to sell. Petitioner is now estopped from alleging the contrary. The contract is the law between the contracting parties.30 [CIVIL CODE, art. 1308; Rizal Commercial Banking Corp. v. Court of Appeals, 178 SCRA 739, 744 (1989); Escano v. Court of Appeals, 100 SCRA 197, 202 (1980)] And where the terms and conditions so stipulated are not contrary to law, morals, good customs, public policy or public order, the contract is valid and must be upheld.31 [CIVIL CODE, art. 1306; Legarda Koh v. Ongsiaco, 36 Phil. 185, 193 (1917); Icaza, et al. v. Ortega , 5 Phil. 166, 169 (1905)] Having transferred title to the sugar in question, petitioner is now obliged to deliver it to the purchaser or its assignee.

As to the fourth issue, petitioner submits that STM and private respondent CSC have entered into a conspiracy to defraud it of its sugar. This conspiracy is allegedly evidenced by: (a) the fact that STM's selling price to CSC was below its purchasing price; (b) CSC's refusal to pursue its case against Teresita Ng Go; and (c) the authority given by the latter to other persons to withdraw sugar against SLDR No. 1214M after she had sold her rights under said SLDR to CSC. Petitioner prays that the

doctrine of "clean hands" should be applied to preclude CSC from seeking judicial relief. However, despite careful scrutiny, we find here the records bare of convincing evidence whatsoever to support the petitioner's allegations of fraud. We are now constrained to deem this matter purely speculative, bereft of concrete proof.

WHEREFORE, the instant petition is DENIED for lack of merit. Costs against petitioner.

SO ORDERED.

Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concur.

39. /---!e-library! 6.0 Philippines Copyright 2000 by Sony Valdez---\

[1997V44] ALFRED HAHN, petitioner vs. COURT OF APPEALS and BAYERSCHE MOTOREN WERKE AKTIENGSELLSCHAFT (BMW), respondents.1997 Jan 222nd DivisionG.R. No. 113074D E C I S I O N

MENDOZA, J.:

This is a petition for review of the decision 1 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. . . .

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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. . . .

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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.

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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. . ..

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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, 1993 5 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 court 6 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.

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. . . [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.

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.

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 Hahn 15 and therefore the Court of Appeals should not have cited it as if it were the fact.

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

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

Anyway, private respondent need not apprehend that by responding to the summons it would be waiving its objection to the trial court's jurisdiction. It is now settled that, for purposes of having summons served on a foreign corporation in accordance with Rule 14, 14, it is sufficient that it be alleged in the complaint that the foreign corporation is doing business in the Philippines. The court need not go beyond the allegations of the complaint in order to determine whether it has Jurisdiction. 18 A determination that the foreign corporation is doing business is only tentative and is made only for the purpose of enabling the local court to acquire jurisdiction over the foreign corporation through service of summons pursuant to Rule 14, 14. Such determination does not foreclose a contrary finding should evidence later show that it is not transacting business in the country. As this Court has explained:

This is not to say, however, that the petitioner's right to question the jurisdiction of the court over its person is now to be deemed a foreclosed matter. If it is true, as Signetics claims, that its only involvement in the Philippines was through a passive investment in Sigfil, which it even later disposed of, and that TEAM Pacific is not its agent, then it cannot really be said to be doing business in the Philippines. It is a defense, however, that requires the contravention of the allegations of the complaint, as well as a full ventilation, in effect, of the main merits of the case, which should not thus be within the province of a mere motion to dismiss. So, also, the issue posed by the petitioner as to whether a foreign corporation which has done business in the country, but which has ceased to do business at the time of the filing of a complaint, can still be made to answer for a cause of action which accrued while it was doing business, is another matter that would yet have to await the reception and admission of evidence. Since these points have seasonably been raised by the petitioner, there should be no real cause for what may understandably be its apprehension, i.e., that by its participation during the trial on the merits, it may, absent an invocation of separate or independent reliefs of its own, be considered to have voluntarily submitted itself to the court's jurisdiction. 19

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

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

SO ORDERED.

Regalado, Romero, Puno and Torres, Jr., JJ., concur.

1.

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RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS, petitioner, vs. FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF APPEALS respondents.1978 January 311st DivisionG.R. No. L-24332D E C I S I ON

MUOZ PALMA, J:

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

Hence, this Petition for Review on certiorari.

The following facts are not disputed. Concepcion and Gerundia both surnamed Rallos were sisters and registered co-owners of a parcel of land known as Lot No. 5983 of the Cadastral Survey of Cebu covered by Transfer Certificate of Title No. 11118 of the Registry of Cebu. On April 21, 1954, the sisters executed a special power of attorney in favor of their brother, Simeon Rallos,

authorizing him to sell for and in their behalf lot 5983. On March 3, 1955, Concepcion Rallos died. On September 12, 1955, Simeon Rallos sold the undivided shares of his sisters Concepcion and Gerundia in lot 5983 to Felix Go Chan & Sons Realty Corporation for the sum of P10,686.90. The deed of sale was registered in the Registry of Deeds of Cebu, TCT No. 11118 was cancelled, and a new Transfer Certificate of Title No. 12989 was issued in the named of the vendee.

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

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

"A. On Plaintiff's Complaint

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

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

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

(4) Sentencing the defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to pay to plaintiff in concept of reasonable attorney's fees the sum of P1,000.00; and

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

"B. On GO CHAN'S Cross-Claim: (1) Sentencing the co-defendant Juan T. Borromeo administrator of the Estate of Simeon Rallos; to pay to defendant Felix Go Chan & Sons Realty Corporation the sum of P5,343.45, representing the price of one-half (1/2) share of lot 5983;

(2) Ordering co-defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to pay in concept of reasonable attorney's fees to Felix Go Chan & Sons Realty Corporation the sum of P500.00.

"C. On Third-Party Complaint of defendant Juan T. Borromeo administrator of Estate of Simeon Rallos, against Josefina Rallos, special administratrix of the Estate of Gerundia Rallos:

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

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

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

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

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

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

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

Out of the above given principles, sprung the creation an acceptance of the relationship of agency whereby one party, called the principal (mandante), authorizes another, called the agent (mandatario), to act for find in his behalf in transactions with third persons. The essential elements of agency are: (1) there is consent, express or implied, of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agents acts as a representative and not for himself; and (4) the agent acts within the scope of his authority. 5 Agency is basically personal, representative, and derivative in nature. The authority of the agent to act emanates from the powers granted to him by his principal; his act is the act of the principal if done within the scope of the authority. Qui facit per alium facit per se. "He who acts through another acts himself." 6

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

"ART. 1919. Agency is extinguished: "xxx xxx xxx

"4. By the death, civil interdiction, insanity or insolvency of the principal or of the agent; . . . ." Underline supplied)

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

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

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

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

Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule aforementioned.

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

ART. 1931. Anything done by the agent, without knowledge 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 son 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 unenforceable.

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

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

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

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

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

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

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

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

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

The above discourse, however, treats of revocation by an act of the principal as a mode of terminating an agency which is to be distinguished from revocation by operation of law such as death of the principal which obtains in this case. On page six of this Opinion We stressed that by reason of the very nature of the relationship between principal and agent, agency is extinguished ipso jure upon the death of either principal or agent. Although a revocation of a power of attorney to be effective must be communicated to the parties concerned, 18 yet a revocation by operation of law, such as by death of the principal is, as a rule, instantaneously effective inasmuch as "by legal fiction the agent's exercise of authority is regarded as an execution of the principal's continuing will." 19 With death, the principal's will ceases or is terminated; the source 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 dies, his heirs must notify the principal thereof, and in the meantime adopt such measures as the circumstances may demand in the interest of the latter. Hence, the fact that no notice of the death of the principal was registered on the certificate of title of the property in the Office of the Register of Deeds, is not fatal to the cause of the estate of the principal.

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

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

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

'But there is a narrower ground on which the defenses of the defendantappellee must be overruled. Agustin Nano had possession of Jose Vallejo's title papers. Without those title papers handed over to Nano with the acquiescence

of Vallejo, a fraud could not have been perpetuated. When Fernando de la Cantera, a member of the Philippine Bar and the husband of Angela Blondeau, the principal plaintiff, searched the registration record, he found them in due form including the power of attorney of Vallejo in favor of Nano. If this had not been so and if thereafter the proper notation of the encumbrance could not have been made, Angela Blondeau would not have, lent P12,000.00 to the defendant Vallejo.' An executed transfer of registered lands placed by the registered owner thereof in the hands of another operates as a representation to a third party that the holder of the transfer is authorized to deal with the land.

'As between two innocent persons, one of whom must suffer the consequence of a breach of trust, the one who made it possible by his act of confidence bear the loss.'" (pp. 19-21)

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

"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 certificate or to make a memorandum of registration in accordance with such instruments, and the new certificate or memorandum shall be binding upon the registered owner and upon all persons claiming under him in favor of every purchaser for value and in good faith: Provided, however, That in all cases of registration procured by fraud, the owner may pursue all his legal and equitable remedies against the parties to such fraud, without prejudice, however, to the rights of any

innocent holder for value of a certificate of title. . . . " (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 Ellenborough, has decided in 5 Esp. 117, the general question that a payment after the death of principal is not good. Thus, a payment of sailor's wages to a person having a power of attorney to receive them, has been held void when the principal was dead at the time of the payment. If, by this case, it is meant merely to decide the general proposition that by operation of law the death of the principal is a revocation of the powers of the attorney, no objection can be taken to it. But if it intended to say that his principle applies where there was no notice of death, or opportunity of notice, I must be permitted to dissent from it.

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

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

"'There are several cases which seem to hold that although, as a general principle, death revokes an agency and renders null every act of the agent thereafter performed, yet that where a payment has been made in ignorance of the death, such payment will be good. The leading case so holding is that of Cassiday v. McKenzie, 4 Watts & S. (Pa.) 282, 39 AmD 76, where, in an elaborate opinion, this view is broadly announced. It is referred to, and seems to have been followed, in the case of Dick v. Page, 17 Mo. 234, 57 AmD 267; but in this latter case it appeared that the estate of the deceased principal had received the benefit of the money paid, and therefore the representative of the estate might well have been held to be estopped from suing for it again. . . .

These cases, in so far, at least, as they announce the doctrine under discussion, are exceptional. The Pennsylvania Case supra (Cassiday v. McKenzie, 4 Watts & S. 282, 39 AmD 76), is believed to stand almost, if not quite, alone in announcing the principal in its broadest scope.'" (52 Misc. 353, 357, cited in 2 C.J. 549)

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

"'The opinion, therefore, of the learned Judge may be regarded more as an extrajudicial indication of his views on the general subject, than as the adjudication of the Court upon the point in question. But accordingly all proper weight to this opinion, as the judgment of a Court of great respectability, it stands alone among common law authorities, and is opposed by an array too formidable to permit us to follow it.'" (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 decision of respondent appellate court, and We affirm en toto the judgment rendered by then Hon. Amador E. Gomez of the Court of First Instance of Cebu, quoted in pages 2 and 3 of this Opinion, with costs against respondent realty corporation at all instances.

So Ordered. Teehankee (Chairman), Makasiar, Fernandez and Guerrero, JJ., concur.

Footnotes

1. p. 40, rollo. 2. p. 42, ibid. 3.. Art. 1317, Civil Code of the Philippines. 4. ibid. 5. Art. 1868, Civil Code. By the contract of agency a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter:

Art. 1881, Civil Code. The agent must act within the scope of his authority. He may do such acts as may be conducive to the accomplishment of the purpose of the agency.

11 Manresa 422-423; 4 Sanchez Roman 478, 2nd Ed.; 26 Scaevola, 243, 262; Tolentino, Comments, Civil Code of the Philippines, p. 340, Vol. 5, 1959 Ed.

See also Columbia University Club v. Higgins, D.C.N.Y., 23 F. Supp. 572, 574; Farmers Nat. Grain Corp. v. Young, 109 P. 2d 180, 185.

6. 74 C.J.S. 4; Valentine Oil Co. v. Powers, 59 N.W. 2d 160, 163, 157 Neb. 87; Purnell, v. City of Florence, 175 So. 417, 27 Ala. App. 516; Stroman Motor Co. v. Brown, 243 P. 133, 126 Ok. 36. 7. See Art. 1919 of the Civil Code. 8. Hermosa v. Longara, 1953, 93 Phil. 977, 983; Del Rosario, et al. v. Abad, et al., 1958, 104 Phil. 648, 652. 9. 11 Manresa 572-573; Tolentino, supra, 369-370. 10. 2 Kent Comm. 641, cited in Williston on Contracts, 3rd Ed., Vol. 2, p. 288.

11. See Notes on Acts of agent after principal's death, 39 Am. Dec. 81,83, citing Ewell's Evans on Agency, 116; Dunlap's Paley on Agency, 186; Story on Agency, sec. 488; Harper v. Little. Am. Dec. 25; Staples v. Bradbury, 23 Id. 494; Gale v. Tappan, 37 Id. 194; Hunt v. Rousmanier, 2 Mason, 244, S.C. 8 Wheat, 174; Boone's Executor v. Clarke, 3 Cranch C.C. 389; Bank of Washington v. Peirson, 2 Wash. C.C. 685; Scruggs v. Driver's Executor, 31 Ala. 274; McGriff v. Poster, 5 Fla. 373; Lincoln v. Emerson, 108 Mass, 87; Wilson v. Edmonds, 24 N.H. 517; Easton v. Ellis, 1 Handy (Ohio), 70; McDonald v. Black's Administrators, 20 Ohio, 185; Michigan Ins. Co. v. Leavenworth, 30 Vt. 11; Huston v. Cantril, 11 Leigh, 136; Campanari v. Woodburn, 15 Com. B. 400.

See also Williston on Contracts, 3rd Ed., Vol. 2, p. 289 .

12. see p. 15, 30-31 64, 68-69, Record on Appeal.

13. pp. 71-72, ibid. 14. p. 7 of the Decision at page 14, rollo. 15. Phil. 795, 798. 16. p. 6 of Decision, at page 13, rollo. 17. pp. 6-7 of Decision at pp. 13-14, ibid. 18. See Articles 1921 & 1922 of the Civil Code. 19. n2 C.J.S. 1174 citing American Jurisprudence in different States from Alabama to Washington; mphasis supplied. 20. p. 8, decision at page 15, rollo

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FABIOLA SEVERINO, plaintiff-appellee, vs. GUILLERMO SEVERINO, defendantappellant. FELICITAS VILLANUEVA, intervenor-appellee.1923 January 16En BancG.R. No. 18058D E C I S I O N

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 there of 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 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, 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 Melencio'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 land titles within the surveyed area; that in the cadastral proceedings the land here in question was described as four separate lots numbered as above stated; that Roque Hofilea, as lawyer for Guillermo Severino, filed answers in behalf of the latter in said proceedings claiming the lots mentioned as the property of his client; that no opposition was presented in the proceedings to the claims of Guillermo Severino and the court therefore decreed the title in his favor, in pursuance of which decree certificates of title were issued to him in the month of March, 1917.

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

The appellant presents the following nine assignments of error:

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

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

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

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

"5. The trial court erred in declaring that land that was formerly placed in the name of Melecio Severino had an extent of either placed in the name of Melecio Severino had an extent of either 434 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 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 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 in 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 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 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 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 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 in formation 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 if 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 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 ninth 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 eighth 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 re-opened; 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 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 this 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 relinquishment 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 Gilber 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 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 25,000 in rests 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 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 question; 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 to 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, 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, an agent is not only estopped from denying hi 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 of 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 of 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 extinguished 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 directions 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 United 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 copartners, 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 One-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 exists 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 Obinana (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 based 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 is 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 dispositive 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 affected 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 t 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 may be cancelled and new certificates issued. The cost of the subdivision and the fees of the register of deeds will be paid by the plaintiff in intervention. It is so ordered.

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

Araullo, C.J., Johnson, Street, Malcolm, Avancea, Villamor, Johns, and Romualdez, JJ., concur.

4. /---!e-library! 6.0 Philippines Copyright 2000 by Sony Valdez---\

[1997V938] JOSE BORDADOR and LYDIA BORDADOR, petitioners vs. BRIGIDA D. LUZ, ERNESTO M. LUZ and NARCISO DEGANOS, respondents.1997 Dec 152nd DivisionG.R. No. 130148D E C I S I O N

REGALADO, J.:

In this appeal by certiorari, petitioners assail the judgment of the Court of Appeals in CA-G.R. CV No. 49175 affirming the adjudication of the Regional Trial Court of Malolos, Bulacan which found private respondent Narciso Deganos liable to petitioners for actual damages, but absolved respondent spouses Brigida D. Luz and Ernesto M. Luz of liability. Petitioners likewise belabor the subsequent resolution of the Court of Appeals which denied their motion for reconsideration of its challenged decision.

Petitioners were engaged in the business of purchase and sale of jewelry and respondent Brigida D. Luz, also known as Aida D. Luz, was their regular customer. On several occasions during the period from April 27, 1987 to September 4, 1987, respondent Narciso Deganos, the brother to Brigida D. Luz, received several pieces of gold and jewelry from petitioner amounting to P382,816.00. 1 These items and their prices were indicated in seventeen receipts covering the same. Eleven of the receipts stated that they were received for a certain Evelyn Aquino, a niece of Deganos, and the remaining six indicated that they were received for Brigida D. Luz. 2

Deganos was supposed to sell the items at a profit and thereafter remit the proceeds and return the unsold items to petitioners. Deganos remitted only the sum of P53,207.00. He neither paid the balance of the sales proceeds, nor did he return any unsold item to petitioners. By January 1990, the total of his unpaid account to petitioners, including interest, reached the sum of P725,463.98. 3 Petitioners eventually filed a complaint in the barangay court against Deganos to recover said amount.

In the barangay proceedings, Brigida D. Luz, who was not impleaded in the case, appeared as a witness for Deganos and ultimately, she and her husband, together with Deganos, signed a compromise agreement with petitioners. In that compromise agreement, Deganos obligated himself to pay petitioners, on installment basis, the balance of his account plus interest thereon. However, he failed to comply with his aforestated undertakings.

On June 25, 1990, petitioners instituted Civil Case No. 412-M-90 in the Regional Trial Court of Malolos, Bulacan against Deganos and Brigida, D. Luz

for recovery of a sum of money and damages, with an application for preliminary attachment. 4 Ernesto Luz was impleaded therein as the spouse of Brigida.

Four years later, or on March 29, 1994, Deganos and Brigida D. Luz were charged with estafa 5 in the Regional Trial Court of Malolos, Bulacan, which was docketed as Criminal Case No. 785-M-94. That criminal case appears to be still pending in said trial court.

During the trial of the civil case, petitioners claimed that Deganos acted as the agent of Brigida D. Luz when he received the subject items of jewelry and, because he failed to pay for the same, Brigida, as principal, and her spouse are solidarily liable with him therefor.

On the other hand, while Deganos admitted that he had an unpaid obligation to petitioners, he claimed that the same was only in the sum of P382,816.00 and not P725,463.98. He further asserted that it was he alone who was involved in the transaction with the petitioners; that he neither acted as agent for nor was he authorized to act as an agent by Brigida D. Luz, notwithstanding the fact that six of the receipts indicated that the items were received by him for the latter. He further claimed that he never delivered any of the items he received from petitioners to Brigida.

Brigida, on her part, denied that she had anything to do with the transactions between petitioners and Dangerous. She claimed that she never authorized Deganos to receive any item of jewelry in her behalf and, for that matter, neither did she actually receive any of the articles in question. After trial, the court below found that only Deganos was liable to petitioners for the amount and damages claimed. It held that while Brigida D. Luz did have transactions with petitioners in the past, the items involved were already paid for and all that Brigida owed petitioners was the sum of P21,483.00 representing interest on the principal account which she had previously paid for. 6

The trial court also found that it was petitioner Lydia Bordador who indicated in the receipts that the items were received by Deganos for Evelyn Aquino and Brigida D. Luz. 7 Said court was "persuaded that Brigida D. Luz was behind Deganos," but because there was no memorandum to this effect, the agreement between the parties was unenforceable under the Statute of Frauds. 8 Absent the required memorandum or any written document connecting the respondent Luz spouses with the subject receipts, or authorizing Deganos to act on their behalf, the alleged agreement between petitioners and Brigida D. Luz was unenforceable.

Deganos was ordered to pay petitioners the amount of P725,463.98, plus legal interest thereon June 25, 1990, and attorney's fees. Brigida D. Luz was ordered to pay P21,483.00 representing the interest on her own personal loan. She and her co-defendant spouse were absolved from any other or further liability. 9

As stated at the outset, petitioners appealed the judgment of the court a quo to the Court Appeals which affirmed said judgment. 10 The motion for reconsideration filed by petitioners was subsequently dismissed, 11 hence the present recourse to this Court.

The primary issue in the instant petition is whether or not herein respondent spouses are liable to petitioners for the latter's claim for money and damages in the sum of P725,463.98, plus interests and attorney's fees, despite the fact that the evidence does not show that they signed any of the subject receipts or authorized Deganos to received the items of jewelry on their behalf.

Petitioners argue that the Court of Appeals erred in adopting the findings of the court a quo that respondent spouses are not liable to them, as said conclusion of the trial court is contradicted by the finding of fact of the appellate court that "(Deganos) acted as agent of his sister (Brigida Luz)." 12 In support of this contention, petitioners quoted several letters sent to them by Brigida D. Luz wherein the latter acknowledged her obligation to petitioners and requested for more time to fulfill the same. They likewise aver that Brigida

testified in the trial court that Deganos took some gold articles from petitioners and delivered the same to her.

Both the Court of Appeals and the trial court, however, found as a fact that the aforementioned letters concerned the previous obligations of Brigida to petitioners, and had nothing to do with the money sought to be recovered in the instant case. Such concurrent factual findings are entitled to great weight, hence, petitioners cannot plausibly claim in this appellate review that the letters were in the nature of acknowledgments by Brigida that she was the principal of Deganos in the subject transactions.

On the other hand, with regard to the testimony of Brigida admitting delivery of the gold to her, there is no showing whatsoever that her statement referred to the items which are the subject matter of this case. It cannot, therefore, be validly said that she admitted her liability regarding the same.

Petitioners insist that Deganos was the agent of Brigida D. Luz as the latter clothed him with apparent authority as her agent and held him out to the public as such, hence Brigida can not be permitted to deny said authority to innocent third parties who dealt with Deganos under such belief. 13 Petitioners further represent that the Court of Appeals recognized in its decision that Deganos was an agent of Brigida. 14

The evidence does not support the theory of petitioners that Deganos was an agent of Brigida D. Luz and that the latter should consequently be held solidarily liable with Deganos in his obligation to petitioners. While the quoted statement in the findings of fact of the assailed appellate decision mentioned that Deganos ostensibly acted as an agent of Brigida, the actual conclusion and ruling of the Court of Appeals categorically stated that, "(Brigida Luz) never authorized her brother (Deganos) to act for and in her behalf in any transaction with Petitioners . . . . 15 It is clear, therefore, that even assuming arguendo that Deganos acted as an agent of Brigida, the latter never authorized him to act on her behalf with regard to the transaction subject of this case.

The Civil Code provides:

Art. 1868. By the contract of agency a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter.

The basis for agency is representation. Here, there is no showing that Brigida consented to the acts of Deganos or authorized him to act on her behalf, much less with respect to the particular transactions involved. Petitioners' attempt to foist liability on respondent spouses through the supposed agency relation with Deganos is groundless and ill-advised.

Besides, it was grossly and inexcusably negligent of petitioners to entrust to Deganos, not once or twice but on at least six occasions as evidenced by six receipts, several pieces of jewelry of substantial value without requiring a written authorization from his alleged principal. A person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent. 16

The records show that neither an express nor an implied agency was proven to have existed between Deganos and Brigida D. Luz. Evidently, petitioners, who were negligent in their transactions with Deganos, cannot seek relief from the effects of their negligence by conjuring a supposed agency relation between the two respondents where no evidence supports such claim.

Petitioners next allege that the Court of Appeals erred in ignoring the fact that the decision of the court below, which it affirmed, is "null and void" as it contradicted its ruling in CA-G.R. SP No. 39445 holding that there is "sufficient evidence/proof" against Brigida D. Luz and Deganos for estafa in the pending criminal case. They further aver that said appellate court erred in ruling against them in this civil action since the same would result in an inevitable

conflict of decisions should be trial court convict the accused in the criminal case.

By way of backdrop for this argument of petitioners, herein respondents Brigida D. Luz and Deganos had filed a demurrer to evidence and a motion for reconsideration in the aforestated criminal case, both of which were denied by the trial court. They then filed a petition for certiorari in the Court of Appeals to set aside the denial of their demurrer and motion for reconsideration but, as just stated, their petition therefor was dismissed. 17

Petitioners now claim that the aforesaid dismissal by the Court of Appeals of the petition in CA-G.R. SP No. 39445 with respect to the criminal case is equivalent to a finding that there is sufficient evidence in the estafa case against Brigida D. Luz and Deganos. Hence, as already stated, petitioners theorize that the decision and resolution of the Court of Appeals now being impugned in the case at bar would result in a possible conflict with the prospective decision in the criminal case. Instead of promulgating the present decision and resolution under review, so they suggest, the Court of Appeals should have awaited the decision in the criminal case, so as not to render academic or preempt the same or, worse, create two conflicting rulings. 18

Petitioners have apparently lost sight of Article 33 of the Civil Code which provides that in cases involving alleged fraudulent acts, a civil action for damages, entirely separate and distinct from the criminal action, may be brought by the injured party. Such civil action shall proceed independently of the criminal prosecution and shall require only a preponderance of evidence.

It is worth noting that this civil case was instituted four years before the criminal case for estafa was filed, and that although there was a move to consolidate both cases, the same was denied by the trial court. Consequently, it was the duty of the two branches of the Regional Trial Court concerned to independently proceed with the civil and criminal cases. It will also be observed that a final judgment rendered in a civil action absolving the defendant from civil liability is no bar to a criminal action. 19

It is clear, therefore, that this civil case may proceed independently of the criminal case 20 especially because while both cases are based on the same facts, the quantum of proof required for holding the parties liable therein differ. Thus, it is improvident of petitioners to claim that the decision and resolution of the Court of Appeals in the present case would be preemptive of the outcome of the criminal case. Their fancied fear of possible conflict between the disposition of this civil case and the coutcome of the pending criminal case is illusory.

Petitioners surprisingly postulate that the Court of Appeals had lost its jurisdiction to issue the denial resolution dated August 18, 1997, as the same was tainted with irregularities and badges of fraud perpetrated by its court officers. 21 They charge that said appellate court, through conspiracy and fraud on the part of its officers, gravely abused its discretion in issuing that resolution denying their motion for reconsideration. They claim that said resolution was drafted by the ponente, then signed and issued by the members of the Eleventh Division of said court within one and a half days from the elevation thereof by the division clerk of court to the office of the ponente.

It is the thesis of petitioners that there was undue haste in issuing the resolution as the same was made without waiting for the lapse of the ten-day period for respondents to file their comment and for petitioners to file their reply. It was allegedly impossible for the Court of Appeals to resolve the issue in just one and a half days, especially because its ponente, the late Justice Maximiano C. Asuncion, was then recuperating from surgery and, that, additionally, "hundreds of more important cases were pending." 22

These lamentable allegation of irregularities in the Court of Appeals and in the conduct of its officers strikes us as a desperate attempt of petitioners to induce this Court to give credence to their arguments which, as already found by both the trial and intermediate appellate courts, are devoid of factual and legal substance. The regrettably irresponsible attempt to tarnish the image of the intermediate appellate tribunal and its judicial officers through ad hominem imputations could well be contumacious, but we are inclined to let

that pass with a strict admonition that petitioners refrain from indulging in such conduct in litigations.

On July 9, 1997, the Court of Appeals rendered judgment in this case affirming the trial court's decision. 23 Petitioners moved for reconsideration and the Court of Appeals ordered respondents to file a comment. Respondents filed the same on August 5, 1997 24 and petitioners filed their reply to said comment on August 15, 1997. 25 The Eleventh Division of said court issued the questioned resolution denying petitioner's motion for reconsideration on August 18, 1997. 26

It is ironic that while some litigants malign the judiciary for being supposedly slothful in disposing of cases, petitioners are making a show of calling out for justice because the Court of Appeals issued a resolution disposing of a case sooner than expected of it. They would even deny the exercise of discretion by the appellate court to prioritize its action on cases in line with the procedure it has adopted in disposing thereof and in declogging its dockets. It is definitely not for the parties to determine and dictate when and how a tribunal should act upon those cases since they are not even aware of the status of the dockets and the internal rules and policies for acting thereon.

The fact that a resolution was issued by said court within a relatively short period of time after the records of the case were elevated to the office of the ponente cannot, by itself, be deemed irregular. There is no showing whatsoever that the resolution was issued without considering the reply filed by petitioners. In fact, that brief pleading filed by petitioners does not exhibit any esoteric or ponderous argument which could not be analyzed within an hour. It is a legal presumption, born of wisdom and experience, that official duty has been regularly performed; 27 that the proceedings of a judicial tribunal are regular and valid, and that judicial acts and duties have been and will be duly and properly performed. 28 The burden of proving irregularity in official conduct is on the part of petitioners and they have utterly failed to do so. It is thus reprehensible for them to cast aspersions on a court of law on the bases of conjectures or surmises, especially since one of the petitioners appears to be a member of the Philippine Bar.

Lastly, petitioners fault the trial court's holding that whatever contract of agency was established between Brigida D. Luz and Narciso Deganos is unenforceable under the Statute of Frauds as that aspect of this case allegedly is not covered thereby. 29 They proceed on the premise that the Statute of Frauds applies only to executory contracts and not to executed or to partially executed ones. From there, they move on to claim that the contract involved in this case was an executed contract as the items had already been delivered by petitioners to Brigida D. Luz, hence, such delivery resulted in the execution of the contract and removed the same from the coverage of the Statute of Frauds.

Petitioners' claim is speciously unmeritorious. It should be emphasized that neither the trial court nor the appellate court categorically stated that there was such a contractual relation between these two respondents. The trial court merely said that if there was such an agency existing between them, the same is unenforceable as the contract would fall under the Statute of Frauds which requires the presentation of a note or memorandum thereof in order to be enforceable in court. That was merely a preparatory statement of a principle of law. What was finally proven as a matter of fact is that there was no such contract between Brigida D. Luz and Narciso Deganos, executed or partially executed, and no delivery of any of the items subject of this case was ever made to the former.

WHEREFORE, no error having been committed by the Court of Appeals in affirming the judgment of the court a quo, its challenged decision and resolution are hereby AFFIRMED and the instant petition is DENIED, with double costs against petitioners.

SO ORDERED.

Puno, Mendoza and Martinez, JJ., concur.

5.

6. 7. 8. /---!e-library! 6.0 Philippines Copyright 2000 by Sony Valdez---\

[2001V782] PHILIPPINE NATIONAL BANK, petitioner, vs. RITRATTO GROUP INC., RIATTO INTERNATIONAL, INC., and DADASAN GENERAL MERCHANDISE, respondents.2001 Jul 311st DivisionG.R. No. 142616KAPUNAN, J.:

In a petition for review on certiorari under Rule 45 of the Revised Rules of Court, petitioner seeks to annul and set aside the Court of Appeals' decision in C.A. CV G.R. S.P. No. 55374 dated March 27, 2000, affirming the Order issuing a writ of preliminary injunction of the Regional Trial Court of Makati, Branch 147 dated June 30, 1999, and its Order dated October 4, 1999, which denied petitioner's motion to dismiss.

The antecedents of this case are as follows:

Petitioner Philippine National Bank is a domestic corporation organized and existing under Philippine law. Meanwhile, respondents Ritratto Group, Inc., Riatto International, Inc. and Dadasan General Merchandise are domestic corporations, likewise, organized and existing under Philippine law.

On May 29, 1996, PNB International Finance Ltd. (PNB-IFL) a subsidiary company of PNB, organized and doing business in Hong Kong, extended a letter of credit in favor of the respondents in the amount of US$300,000.00 secured by real estate mortgages constituted over four (4) parcels of land in Makati City. This credit facility was later increased successively to US$1,140,000.00 in September 1996; to US$1,290,000.00 in November 1996; to US$1,425,000.00 in February 1997; and decreased to US$1,421,316.18 in April 1998. Respondents made repayments of the loan incurred by remitting those amounts to their loan account with PNB-IFL in Hong Kong.

However, as of April 30, 1998, their outstanding obligations stood at US$1,497,274.70. Pursuant to the terms of the real estate mortgages, PNB-IFL, through its attorney-in-fact PNB, notified the respondents of the foreclosure of all the real estate mortgages and that the properties subject thereof were to be sold at a public auction on May 27, 1999 at the Makati City Hall.

On May 25, 1999, respondents filed a complaint for injunction with prayer for the issuance of a writ of preliminary injunction and/or temporary restraining order before the Regional Trial Court of Makati. The Executive Judge of the Regional Trial Court of Makati issued a 72-hour temporary restraining order. On May 28, 1999, the case was raffled to Branch 147 of the Regional Trial Court of Makati. The trial judge then set a hearing on June 8, 1999. At the hearing of the application for preliminary injunction, petitioner was given a period of seven days to file its written opposition to the application. On June 15, 1999, petitioner filed an opposition to the application for a writ of preliminary injunction to which the respondents filed a reply. On June 25, 1999, petitioner filed a motion to dismiss on the grounds of failure to state a cause of action and the absence of any privity between the petitioner and respondents. On June 30, 1999, the trial court judge issued an Order for the issuance of a writ of preliminary injunction, which writ was correspondingly issued on July 14, 1999. On October 4, 1999, the motion to dismiss was denied by the trial court judge for lack of merit.

Petitioner, thereafter, in a petition for certiorari and prohibition assailed the issuance of the writ of preliminary injunction before the Court of Appeals. In the impugned decision,1 the appellate court dismissed the petition. Petitioner thus seeks recourse to this Court and raises the following errors:

1.

THE COURT OF APPEALS PALPABLY ERRED IN NOT DISMISSING THE COMPLAINT A QUO, CONSIDERING THAT BY THE ALLEGATIONS OF THE COMPLAINT, NO CAUSE OF ACTION EXISTS AGAINST PETITIONER, WHICH IS

NOT A REAL PARTY IN INTEREST BEING A MERE ATTORNEY-IN-FACT AUTHORIZED TO ENFORCE AN ANCILLARY CONTRACT.

2.

THE COURT OF APPEALS PALPABLY ERRED IN ALLOWING THE TRIAL COURT TO ISSUE IN EXCESS OR LACK OF JURISDICTION A WRIT OF PRELIMINARY INJUNCTION OVER AND BEYOND WHAT WAS PRAYED FOR IN THE COMPLAINT A QUO CONTRARY TO CHIEF OF STAFF, AFP VS. GUADIZ JR., 101 SCRA 827.2

Petitioner prays, inter alia, that the Court of Appeals' Decision dated March 27, 2000 and the trial court's Orders dated June 30, 1999 and October 4, 1999 be set aside and the dismissal of the complaint in the instant case.3

In their Comment, respondents argue that even assuming arguendo that petitioner and PNB-IFL are two separate entities, petitioner is still the party-ininterest in the application for preliminary injunction because it is tasked to commit acts of foreclosing respondents' properties.4 Respondents maintain that the entire credit facility is void as it contains stipulations in violation of the principle of mutuality of contracts.5 In addition, respondents justified the act of the court a quo in applying the doctrine of "Piercing the Veil of Corporate Identity" by stating that petitioner is merely an alter ego or a business conduit of PNB-IFL.6

The petition is impressed with merit.

Respondents, in their complaint, anchor their prayer for injunction on alleged invalid provisions of the contract:

GROUNDS

THE DETERMINATION OF THE INTEREST RATES BEING LEFT TO THE SOLE DISCRETION OF THE DEFENDANT PNB CONTRAVENES THE PRINCIPAL OF MUTUALITY OF CONTRACTS.

II

THERE BEING A STIPULATION IN THE LOAN AGREEMENT THAT THE RATE OF INTEREST AGREED UPON MAY BE UNILATERALLY MODIFIED BY DEFENDANT, THERE WAS NO STIPULATION THAT THE RATE OF INTEREST SHALL BE REDUCED IN THE EVENT THAT THE APPLICABLE MAXIMUM RATE OF INTEREST IS REDUCED BY LAW OR BY THE MONETARY BOARD.7

Based on the aforementioned grounds, respondents sought to enjoin and restrain PNB from the foreclosure and eventual sale of the property in order to protect their rights to said property by reason of void credit facilities as bases for the real estate mortgage over the said property.8

The contract questioned is one entered into between respondent and PNB-IFL, not PNB. In their complaint, respondents admit that petitioner is a mere attorney-in-fact for the PNB-IFL with full power and authority to, inter alia, foreclose on the properties mortgaged to secure their loan obligations with PNB-IFL. In other words, herein petitioner is an agent with limited authority and specific duties under a special power of attorney incorporated in the real estate mortgage. It is not privy to the loan contracts entered into by respondents and PNB-IFL.

The issue of the validity of the loan contracts is a matter between PNB-IFL, the petitioner's principal and the party to the loan contracts, and the respondents. Yet, despite the recognition that petitioner is a mere agent, the respondents in their complaint prayed that the petitioner PNB be ordered to re-compute the

rescheduling of the interest to be paid by them in accordance with the terms and conditions in the documents evidencing the credit facilities, and crediting the amount previously paid to PNB by herein respondents.9

Clearly, petitioner not being a part to the contract has no power to re-compute the interest rates set forth in the contract. Respondents, therefore, do not have any cause of action against petitioner.

The trial court, however, in its Order dated October 4, 1994, ruled that since PNB-IFL, is a wholly owned subsidiary of defendant Philippine National Bank, the suit against the defendant PNB is a suit against PNB-IFL.10 In justifying its ruling, the trial court, citing the case of Koppel Phil. Inc. vs. Yatco,11 reasoned that the corporate entity may be disregarded where a corporation is the mere alter ego, or business conduit of a person or where the corporation is so organized and controlled and its affairs are so conducted, as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.12

We disagree.

The general rule is that as a legal entity, a corporation has a personality distinct and separate from its individual stockholders or members, and is not affected by the personal rights, obligations and transactions of the latter.13 The mere fact that a corporation owns all of the stocks of another corporation, taken alone is not sufficient to justify their being treated as one entity. If used to perform legitimate functions, a subsidiary's separate existence may be respected, and the liability of the parent corporation as well as the subsidiary will be confined to those arising in their respective business. The courts may in the exercise of judicial discretion step in to prevent the abuses of separate entity privilege and pierce the veil of corporate entity.

We find, however, that the ruling in Koppel finds no application in the case at bar. In said case, this Court disregarded the separate existence of the parent and the subsidiary on the ground that the latter was formed merely for the purpose of evading the payment of higher taxes. In the case at bar,

respondents fail to show any cogent reason why the separate entities of the PNB and PNB-IFL should be disregarded.

While there exists no definite test of general application in determining when a subsidiary may be treated as a mere instrumentality of the parent corporation, some factors have been identified that will justify the application of the treatment of the doctrine of the piercing of the corporate veil. The case of Garrett vs. Southern Railway Co.14 is enlightening. The case involved a suit against the Southern Railway Company. Plaintiff was employed by Lenoir Car Works and alleged that he sustained injuries while working for Lenoir. He, however, filed a suit against Southern Railway Company on the ground that Southern had acquired the entire capital stock of Lenoir Car Works, hence, the latter corporation was but a mere instrumentality of the former. The Tennessee Supreme Court stated that as a general rule the stock ownership alone by one corporation of the stock of another does not thereby render the dominant corporation liable for the torts of the subsidiary unless the separate corporate existence of the subsidiary is a mere sham, or unless the control of the subsidiary is such that it is but an instrumentality or adjunct of the dominant corporation. Said Court then outlined the circumstances which may be useful in the determination of whether the subsidiary is but a mere instrumentality of the parent-corporation:

The Circumstance rendering the subsidiary an instrumentality. It is manifestly impossible to catalogue the infinite variations of fact that can arise but there are certain common circumstances which are important and which, if present in the proper combination, are controlling.

These are as follows:

(a) The parent corporation owns all or most of the capital stock of the subsidiary.

(b) The parent and subsidiary corporations have common directors or officers.

(c) The parent corporation finances the subsidiary.

(d) The parent corporation subscribes to all the capital stock of the subsidiary or otherwise causes its incorporation.

(e) The subsidiary has grossly inadequate capital.

(f) The parent corporation pays the salaries and other expenses or losses of the subsidiary.

(g) The subsidiary has substantially no business except with the parent corporation or no assets except those conveyed to or by the parent corporation.

(h) In the papers of the parent corporation or in the statements of its officers, the subsidiary is described as a department or division of the parent corporation, or its business or financial responsibility is referred to as the parent corporation's own.

(i) The parent corporation uses the property of the subsidiary as its own.

(j) The directors or executives of the subsidiary do not act independently in the interest of the subsidiary but take their orders from the parent corporation.

(k) The formal legal requirements of the subsidiary are not observed.

The Tennessee Supreme Court thus ruled:

In the case at bar only two of the eleven listed indicia occur, namely, the ownership of most of the capital stock of Lenoir by Southern, and possibly subscription to the capital stock of Lenoir. . . The complaint must be dismissed.

Similarly, in this jurisdiction, we have held that the doctrine of piercing the corporate veil is an equitable doctrine developed to address situations where the separate corporate personality of a corporation is abused or used for wrongful purposes. The doctrine applies when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime, or when it is made as a shield to confuse the legitimate issues, or where a corporation is the mere alter ego or business conduit of a person, or where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.15

In Concept Builders, Inc. v. NLRC,16 we have laid the test in determining the applicability of the doctrine of piercing the veil of corporate fiction, to wit:

1. Control, not mere majority or complete control, but complete domination, not only of finances but of policy and business practice in respect to the transaction attacked so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own.

2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest and, unjust act in contravention of plaintiffs legal rights; and,

3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.

The absence of any one of these elements prevents "piercing the corporate veil." In applying the "instrumentality" or "alter ego" doctrine, the courts are concerned with reality and not form, with how the corporation operated and the individual defendant's relationship to the operation.17

Aside from the fact that PNB-IFL is a wholly owned subsidiary of petitioner PNB, there is no showing of the indicative factors that the former corporation is a mere instrumentality of the latter are present. Neither is there a demonstration that any of the evils sought to be prevented by the doctrine of piercing the corporate veil exists. Inescapably, therefore, the doctrine of piercing the corporate veil based on the alter ego or instrumentality doctrine finds no application in the case at bar.

In any case, the parent-subsidiary relationship between PNB and PNB-IFL is not the significant legal relationship involved in this case since the petitioner was not sued because it is the parent company of PNB-IFL. Rather, the petitioner was sued because it acted as an attorney-in-fact of PNB-IFL in initiating the foreclosure proceedings. A suit against an agent cannot without compelling reasons be considered a suit against the principal. Under the Rules of Court, every action must be prosecuted or defended in the name of the real party-ininterest, unless otherwise authorized by law or these Rules.18 In mandatory terms, the Rules require that "parties-in-interest without whom no final determination can be had, an action shall be joined either as plaintiffs or defendants."19 In the case at bar, the injunction suit is directed only against the agent, not the principal.

Anent the issuance of the preliminary injunction, the same must be lifted as it is a mere provisional remedy but adjunct to the main suit.20 A writ of preliminary injunction is an ancillary or preventive remedy that may only be resorted to by a litigant to protect or preserve his rights or interests and for no other purpose during the pendency of the principal action. The dismissal of the principal action thus results in the denial of the prayer for the issuance of the writ. Further, there is no showing that respondents are entitled to the issuance of the writ. Section 3, Rule 58, of the 1997 Rules of Civil Procedure provides:

SECTION 3. Grounds for issuance of preliminary injunction. A preliminary injunction may be granted when it is established:

(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts, either for a limited period or perpetually,

(b) That the commission, continuance or non-performance of the acts or acts complained of during the litigation would probably work injustice to the applicant; or

(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action or proceeding, and tending to render the judgment ineffectual.

Thus, an injunctive remedy may only be resorted to when there is a pressing necessity to avoid injurious consequences which cannot be remedied under any standard compensation.21 Respondents do not deny their indebtedness. Their properties are by their own choice encumbered by real estate mortgages. Upon the non-payment of the loans, which were secured by the mortgages sought to be foreclosed, the mortgaged properties are properly subject to a foreclosure sale. Moreover, respondents questioned the alleged void stipulations in the contract only when petitioner initiated the foreclosure proceedings. Clearly, respondents have failed to prove that they have a right protected and that the acts against which the writ is to be directed are violative of said right.22 The Court is not unmindful of the findings of both the trial court and the appellate court that there may be serious grounds to nullify the provisions of the loan agreement. However, as earlier discussed, respondents committed the mistake of filing the case against the wrong party, thus, they must suffer the consequences of their error.

All told, respondents do not have a cause of action against the petitioner as the latter is not privy to the contract the provisions of which respondents seek to declare void. Accordingly, the case before the Regional Trial Court must be dismissed and the preliminary injunction issued in connection therewith, must be lifted.

IN VIEW OF THE FOREGOING, the petition is hereby GRANTED. The assailed decision of the Court of Appeals is hereby REVERSED. The Orders dated June 30, 1999 and October 4, 1999 of the Regional Trial Court of Makati, Branch 147 in Civil Case No. 99-1037 are hereby ANNULLED and SET ASIDE and the complaint in said case DISMISSED.

SO ORDERED.

Puno, Pardo and Santiago, JJ ., concur. Davide, Jr., C .J ., on official leave.

Footnotes

1 Decision, Court of Appeals, pp. 1-6; Rollo, pp. 37-42.

2 Petition, p. 10; Rollo, p. 20.

3 Id., at 24; Id., at 34.

4 Comment, pp. 12-13; Rollo, pp. 438-439.

5 Id., at 17-19; Id., at 443-445.

6 Id., at 20-24; Id., at 446-450.

7 Rollo, p. 266.

8 Id., at 270.

9 See Complaint, p. 15; Rollo, p. 64.

10 Rollo, p. 49.

11 77 Phil. 496 (1946).

12 Ibid.

13 Yutivo Sons Hardware Company v. Court of Tax Appeals, 1 SCRA 160 (1961).

14 173 F. Supp. 915, E.D. Tenn. (1959).

15 Umali v. Court of Appeals, 189 SCRA 529, 524 (1990).

16 257 SCRA 149 (1996).

17 Id., at 159.

18 See RULES OF COURT, Rule 3, sec. 2.

19 RULES OF COURT, Rule 3, sec. 7.

20 Philippine Airlines, Inc. vs. NLRC, 287 SCRA 672 (1998).

21 Union Bank of the Philippines v. Court of Appeals, 311 SCRA 795, 805-806 (1999).

22 China Banking Corporation v. Court of Appeals, 265 SCRA 327, 343 (1996).

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