G.R. No. 167552 April 23, 2007
00)
EUROTECH INDUSTRIAL TECHNOLOGIES,
INC.,Petitioner
vs.
EDWIN CUIZON and ERWIN CUIZON, Respondents
Before Us is a petition for review by certiorari assailing
the Decision[1] of the Court of Appeals dated 10 August
2004 and its Resolution[2] dated 17 March 2005 in CA-
G.R. SP No. 71397 entitled, Eurotech Industrial
Technologies, Inc. v. Hon. Antonio T. Echavez. The
assailed Decision and Resolution affirmed the
Order[3] dated 29 January 2002rendered by Judge
Antonio T. Echavez ordering the dropping of respondent
EDWIN Cuizon (EDWIN) as a party defendant in Civil
Case No. CEB-19672.
The generative facts of the case are as follows:
Petitioner is engaged in the business of importation and
distribution of various European industrial equipment for
customers here in the Philippines. It has as one of its
customers Impact Systems Sales (Impact Systems)
which is a sole proprietorship owned by respondent
ERWIN Cuizon (ERWIN). Respondent EDWIN is the
sales manager of Impact Systems and was impleaded in
the court a quo in said capacity.
From January to April 1995, petitioner sold to Impact
Systems various products allegedly amounting to ninety-
one thousand three hundred thirty-eight (P91,338.
pesos.Subsequently, respondents sought to buy from
petitioner one unit of sludge pump valued at P250,000.00
with respondents making a down payment of fifty
thousand pesos (P50,000.00).[4] When the sludge pump
arrived from the United Kingdom, petitioner refused to
deliver the same to respondents without their having fully
settled their indebtedness to petitioner. Thus, on 28 June
1995, respondent EDWIN and Alberto de Jesus, general
manager of petitioner, executed a Deed of Assignment of
receivables in favor of petitioner, the pertinent part of
which states:
1.) That ASSIGNOR[5] has an outstanding receivables
from Toledo Power Corporation in the amount of THREE
HUNDRED SIXTY FIVE THOUSAND (P365,000.00)
PESOS as payment for the purchase of one unit of
Selwood Spate 100D Sludge Pump;
2.) That said ASSIGNOR does hereby ASSIGN,
TRANSFER, and CONVEY unto the ASSIGNEE[6] the
said receivables from Toledo Power Corporation in
the amount of THREE HUNDRED SIXTY FIVE
THOUSAND (P365,000.00) PESOS which receivables
the ASSIGNOR is the lawful recipient;
3.) That the ASSIGNEE does hereby accept this
assignment.[7]
Following the execution of the Deed of Assignment,
petitioner delivered to respondents the sludge pump as
shown by Invoice No. 12034 dated 30 June 1995.[8]

Allegedly unbeknownst to petitioner, respondents,
despite the existence of the Deed of Assignment,
proceeded to collect from Toledo Power Company the
amount of P365,135.29 as evidenced by Check Voucher
No. 0933[9] prepared by said power company and an
official receipt dated 15 August 1995 issued by Impact
Systems.[10] Alarmed by this development, petitioner
made several demands upon respondents to pay their
obligations. As a result, respondents were able to make
partial payments to petitioner. On 7 October 1996,
petitioners counsel sent respondents a final demand
letter wherein it was stated that as of 11 June 1996,
respondents total obligations stood at P295,000.00
excluding interests and attorneys fees.[11] Because of
respondents failure to abide by said final demand letter,
petitioner instituted a complaint for sum of money,
damages, with application for preliminary attachment
against herein respondents before
the Regional Trial Court of Cebu City. [12]
On 8 January 1997, the trial court granted petitioners
prayer for the issuance of writ of preliminary
attachment.[13]
On 25 June 1997, respondent EDWIN filed his
Answer[14] wherein he admitted petitioners allegations
with respect to the sale transactions entered into by
Impact Systems and petitioner between January and
April 1995.[15] He, however, disputed the total amount of
Impact Systems indebtedness to petitioner which,
according to him, amounted to only P220,000.00.[16]
By way of special and affirmative defenses, respondent
EDWIN alleged that he is not a real party in interest in
this case. According to him, he was acting as mere agent
of his principal, which was the Impact Systems, in his
transaction with petitioner and the latter was very much
aware of this fact. In support of this argument, petitioner
points to paragraphs 1.2 and 1.3 of petitioners Complaint
stating
1.2. Defendant Erwin H. Cuizon, is of legal age, married,
a resident of Cebu City. He is the proprietor of a single
proprietorship business known as Impact Systems Sales
(Impact Systems for brevity), with office located at 46-A
del Rosario Street, Cebu City, where he may be served
summons and other processes of the Honorable Court.
1.3. Defendant Edwin B. Cuizon is of legal age, Filipino,
married, a resident of Cebu City. He is the Sales
Manager of Impact Systems and is sued in this action in
such capacity.[17]
On 26 June 1998, petitioner filed a Motion to Declare
Defendant ERWIN in Defult with Motion for Summary
Judgment. The trial court granted petitioners motion to
declare respondent ERWIN in default for his failure to
answer within the prescribed period despite the
opportunity granted[18] but it denied petitioners motion for
summary judgment in its Order of 31 August 2001 and
scheduled the pre-trial of the case on 16 October
2001.[19] However, the conduct of the pre-trial conference
was deferred pending the resolution by the trial court of
the special and affirmative defenses raised by
respondent EDWIN.[20]
After the filing of respondent EDWINs Memorandum[21] in
support of his special and affirmative defenses and
petitioners opposition[22] thereto, the trial court rendered
its assailed Order dated 29 January 2002 dropping
respondent EDWIN as a party defendant in this
case. According to the trial court
A study of Annex G to the complaint shows that in the
Deed of Assignment, defendant Edwin B. Cuizon acted in
behalf of or represented [Impact] Systems Sales; that
[Impact] Systems Sale is a single proprietorship entity
and the complaint shows that defendant Erwin H. Cuizon
is the proprietor; that plaintiff corporation is represented
by its general manager Alberto de Jesus in the contract
which is dated June 28, 1995. A study of Annex H to the
complaint reveals that [Impact] Systems Sales which is
owned solely by defendant Erwin H. Cuizon, made a
down payment of P50,000.00 that Annex H is dated June
30, 1995 or two days after the execution of Annex G,
thereby showing that [Impact] Systems Sales ratified the
act of Edwin B. Cuizon; the records further show that
plaintiff knew that [Impact] Systems Sales, the principal,
ratified the act of Edwin B. Cuizon, the agent, when it
accepted the down payment of P50,000.00. Plaintiff,
therefore, cannot say that it was deceived by defendant
Edwin B. Cuizon, since in the instant case the principal
has ratified the act of its agent and plaintiff knew about
said ratification. Plaintiff could not say that the subject
contract was entered into by Edwin B. Cuizon in excess
of his powers since [Impact] Systems Sales made a
down payment of P50,000.00 two days later.
In view of the Foregoing, the Court directs that defendant
Edwin B. Cuizon be dropped as party defendant.[23]
Aggrieved by the adverse ruling of the trial court,
petitioner brought the matter to the Court of Appeals
which, however, affirmed the 29 January 2002 Order of
the court a quo.The dispositive portion of the now
assailed Decision of the Court of Appeals states:
WHEREFORE, finding no viable legal ground to reverse
or modify the conclusions reached by the public
respondent in his Order dated January 29, 2002, it is
hereby AFFIRMED.[24]
Petitioners motion for reconsideration was denied by the
appellate court in its Resolution promulgated on 17
March 2005. Hence, the present petition raising, as sole
ground for its allowance, the following:
THE COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR WHEN IT RULED THAT
RESPONDENT EDWIN CUIZON, AS AGENT OF
IMPACT SYSTEMS SALES/ERWIN CUIZON, IS NOT
PERSONALLY LIABLE, BECAUSE HE HAS NEITHER
ACTED BEYOND THE SCOPE OF HIS AGENCY NOR
DID HE PARTICIPATE IN THE PERPETUATION OF A
FRAUD.[25]
To support its argument, petitioner points to Article 1897
of the New Civil Code which states:
Art. 1897. The agent who acts as such is not personally
liable to the party with whom he contracts, unless he
expressly binds himself or exceeds the limits of his
authority without giving such party sufficient notice of his
powers.
Petitioner contends that the Court of Appeals failed to
appreciate the effect of ERWINs act of collecting the
receivables from the Toledo Power Corporation
notwithstanding the existence of the Deed of Assignment
signed by EDWIN on behalf of Impact Systems. While
said collection did not revoke the agency relations of
respondents, petitioner insists that ERWINs action
repudiated EDWINs power to sign the Deed of
Assignment. As EDWIN did not sufficiently notify it of the
extent of his powers as an agent, petitioner claims that
he should be made personally liable for the obligations of
his principal.[26]
Petitioner also contends that it fell victim to the fraudulent
scheme of respondents who induced it into selling the
one unit of sludge pump to Impact Systems and signing
the Deed of Assignment. Petitioner directs the attention
of this Court to the fact that respondents are bound not
only by their principal and agent relationship but are in
fact full-blooded brothers whose successive contravening
acts bore the obvious signs of conspiracy to defraud
petitioner.[27]
In his Comment,[28] respondent EDWIN again posits the
argument that he is not a real party in interest in this case
and it was proper for the trial court to have him dropped
as a defendant. He insists that he was a mere agent of
Impact Systems which is owned by ERWIN and that his
status as such is known even to petitioner as it is alleged
in the Complaint that he is being sued in his capacity as
the sales manager of the said business
venture. Likewise, respondent EDWIN points to the Deed
of Assignment which clearly states that he was acting as
a representative of Impact Systems in said transaction.
We do not find merit in the petition.
In a contract of agency, a person binds himself to render
some service or to do something in representation or on
behalf of another with the latters consent.[29] The
underlying principle of the contract of agency is to
accomplish results by using the services of others to do a
great variety of things like selling, buying, manufacturing,
and transporting.[30]Its purpose is to extend the
personality of the principal or the party for whom another
acts and from whom he or she derives the authority to
act.[31] It is said that the basis of agency is representation,
that is, the agent acts for and on behalf of the principal on
matters within the scope of his authority and said acts
have the same legal effect as if they were personally
executed by the principal.[32] By this legal fiction, the
actual or real absence of the principal is converted into
his legal or juridical presence qui facit per alium facit per
se.[33]
The elements of the contract of agency are: (1) consent,
express or implied, of the parties to establish the
relationship; (2) the object is the execution of a juridical
act in relation to a third person; (3) the agent acts as a
representative and not for himself; (4) the agent acts
within the scope of his authority.[34]
In this case, the parties do not dispute the existence of
the agency relationship between respondents ERWIN as
principal and EDWIN as agent. The only cause of the
present dispute is whether respondent EDWIN exceeded
his authority when he signed the Deed of Assignment
thereby binding himself personally to pay the obligations
to petitioner.Petitioner firmly believes that respondent
EDWIN acted beyond the authority granted by his
principal and he should therefore bear the effect of his
deed pursuant to Article 1897 of the New Civil Code.
We disagree.
Article 1897 reinforces the familiar doctrine that an agent,
who acts as such, is not personally liable to the party with
whom he contracts. The same provision, however,
presents two instances when an agent becomes
personally liable to a third person. The first is when he
expressly binds himself to the obligation and the second
is when he exceeds his authority. In the last instance, the
agent can be held liable if he does not give the third party
sufficient notice of his powers. We hold that respondent
EDWIN does not fall within any of the exceptions
contained in this provision.
The Deed of Assignment clearly states that respondent
EDWIN signed thereon as the sales manager of Impact
Systems. As discussed elsewhere, the position of
manager is unique in that it presupposes the grant of
broad powers with which to conduct the business of the
principal, thus:
The powers of an agent are particularly broad in the case
of one acting as a general agent or manager; such a
position presupposes a degree of confidence reposed
and investiture with liberal powers for the exercise of
judgment and discretion in transactions and concerns
which are incidental or appurtenant to the business
entrusted to his care and management. In the absence of
an agreement to the contrary, a managing agent may
enter into any contracts that he deems reasonably
necessary or requisite for the protection of the interests
of his principal entrusted to his management. x x x.[35]
Applying the foregoing to the present case, we hold that
Edwin Cuizon acted well-within his authority when he
signed the Deed of Assignment. To recall, petitioner
refused to deliver the one unit of sludge pump unless it
received, in full, the payment for Impact Systems
indebtedness.[36] We may very well assume that Impact
Systems desperately needed the sludge pump for its
business since after it paid the amount of fifty thousand
pesos (P50,000.00) as down payment on 3 March
1995,[37] it still persisted in negotiating with petitioner
which culminated in the execution of the Deed of claims exists here, the law does not say that a third
Assignment of its receivables from Toledo Power person can recover from both the principal and the
Company on 28 June 1995.[38] The significant amount of agent.[40]
time spent on the negotiation for the sale of the sludge
As we declare that respondent EDWIN acted within his
pump underscores Impact Systems perseverance to get
authority as an agent, who did not acquire any right nor
hold of the said equipment. There is, therefore, no doubt
incur any liability arising from the Deed of Assignment, it
in our mind that respondent EDWINs participation in the
follows that he is not a real party in interest who should
Deed of Assignment was reasonably necessary or was
be impleaded in this case. A real party in interest is one
required in order for him to protect the business of his
who stands to be benefited or injured by the judgment in
principal. Had he not acted in the way he did, the
the suit, or the party entitled to the avails of the suit. [41] In
business of his principal would have been adversely
this respect, we sustain his exclusion as a defendant in
affected and he would have violated his fiduciary relation
the suit before the court a quo.
with his principal.
We likewise take note of the fact that in this case,
petitioner is seeking to recover both from respondents WHEREFORE, premises considered, the present petition
ERWIN, the principal, and EDWIN, the agent. It is well to is DENIED and the Decision dated 10 August 2004 and
state here that Article 1897 of the New Civil Code upon Resolution dated 17 March 2005 of the Court of Appeals
which petitioner anchors its claim against respondent in CA-G.R. SP No. 71397, affirming the Order dated 29
EDWIN does not hold that in case of excess of authority, January 2002 of the Regional Trial Court, Branch
both the agent and the principal are liable to the other 8, Cebu City, is AFFIRMED.
contracting party.[39] To reiterate, the first part of Article
1897 declares that the principal is liable in cases when Let the records of this case be remanded to the Regional
the agent acted within the bounds of his authority. Under Trial Court, Branch 8, Cebu City, for the continuation of
this, the agent is completely absolved of any liability. The the proceedings against respondent ERWIN CUIZON.
second part of the said provision presents the situations
when the agent himself becomes liable to a third party
when he expressly binds himself or he exceeds the limits SO ORDERED.
of his authority without giving notice of his powers to the
third person. However, it must be pointed out that in case
of excess of authority by the agent, like what petitioner
G.R. No. L-24332 January 31, 1978
RAMON RALLOS, Administrator of the Estate of
CONCEPCION RALLOS, petitioner,
vs.
FELIX GO CHAN & SONS REALTY CORPORATION
and COURT OF APPEALS, respondents.
This is a case of an attorney-in-fact, Simeon Rallos, who
after of his death of his principal, Concepcion Rallos, sold
the latter's undivided share in a parcel of land pursuant to
a power of attorney which the principal had executed in
favor. The administrator of the estate of the went to court
to have the sale declared uneanforceable and to recover
the disposed share. The trial court granted the relief
prayed for, but upon appeal the Court of Appeals uphold
the validity of the sale and the complaint.
Hence, this Petition for Review on certiorari.
The following facts are not disputed. Concepcion and
Gerundia both surnamed Rallos were sisters and
registered co-owners of a parcel of land known as Lot
No. 5983 of the Cadastral Survey of Cebu covered by
Transfer Certificate of Title No. 11116 of the Registry of
Cebu. On April 21, 1954, the sisters executed a special
power of attorney in favor of their brother, Simeon Rallos,
authorizing him to sell for and in their behalf lot 5983. On
March 3, 1955, Concepcion Rallos died. On September
12, 1955, Simeon Rallos sold the undivided shares of his
sisters Concepcion and Gerundia in lot 5983 to Felix Go
Chan & Sons Realty Corporation for the sum of
P10,686.90. The deed of sale was registered in the
Registry of Deeds of Cebu, TCT No. 11118 was
cancelled, and a new transfer certificate of Title No.
12989 was issued in the named of the vendee.
On May 18, 1956 Ramon Rallos as administrator of the
Intestate Estate of Concepcion Rallos filed a complaint
docketed as Civil Case No. R-4530 of the Court of First
Instance of Cebu, praying (1) that the sale of the
undivided share of the deceased Concepcion Rallos in lot
5983 be d unenforceable, and said share be reconveyed
to her estate; (2) that the Certificate of 'title issued in the
name of Felix Go Chan & Sons Realty Corporation be
cancelled and another title be issued in the names of the
corporation and the "Intestate estate of Concepcion
Rallos" in equal undivided and (3) that plaintiff be
indemnified by way of attorney's fees and payment of
costs of suit. Named party defendants were Felix Go
Chan & Sons Realty Corporation, Simeon Rallos, and the
Register of Deeds of Cebu, but subsequently, the latter
was dropped from the complaint. The complaint was
amended twice; defendant Corporation's Answer
contained a crossclaim against its co-defendant, Simon
Rallos while the latter filed third-party complaint against
his sister, Gerundia Rallos While the case was pending in
the trial court, both Simon and his sister Gerundia died
and they were substituted by the respective
administrators of their estates.
After trial the court a quo rendered judgment with the
following dispositive portion:
A. On Plaintiffs Complaint
(1) Declaring the deed of sale, Exh. "C", null and void
insofar as the one-half pro-indiviso share of Concepcion
Rallos in the property in question, Lot 5983 of the
Cadastral Survey of Cebu is concerned;
(2) Ordering the Register of Deeds of Cebu City to cancel
Transfer Certificate of Title No. 12989 covering Lot 5983
and to issue in lieu thereof another in the names of
FELIX GO CHAN & SONS REALTY CORPORATION
and the Estate of Concepcion Rallos in the proportion of
one-half (1/2) share each pro-indiviso;
(3) Ordering Felix Go Chan & Sons Realty Corporation to
deliver the possession of an undivided one-half (1/2)
share of Lot 5983 to the herein plaintiff;
(4) Sentencing the defendant Juan T. Borromeo,
administrator of the Estate of Simeon Rallos, to pay to
plaintiff in concept of reasonable attorney's fees the sum
of P1,000.00; and
(5) Ordering both defendants to pay the costs jointly and
severally.
B. On GO CHANTS Cross-Claim:
(1) Sentencing the co-defendant Juan T. Borromeo,
administrator of the Estate of Simeon Rallos, to pay to
defendant Felix Co Chan & Sons Realty Corporation the
sum of P5,343.45, representing the price of one-half (1/2)
share of lot 5983;
(2) Ordering co-defendant Juan T. Borromeo,
administrator of the Estate of Simeon Rallos, to pay in
concept of reasonable attorney's fees to Felix Go Chan &
Sons Realty Corporation the sum of P500.00.
C. On Third-Party Complaint of defendant Juan T.
Borromeo administrator of Estate of Simeon Rallos,
against Josefina Rallos special administratrix of the
Estate of Gerundia Rallos:
(1) Dismissing the third-party complaint without prejudice
to filing either a complaint against the regular
administrator of the Estate of Gerundia Rallos or a claim
in the Intestate-Estate of Cerundia Rallos, covering the
same subject-matter of the third-party complaint, at bar.
(pp. 98-100, Record on Appeal)
Felix Go Chan & Sons Realty Corporation appealed in
due time to the Court of Appeals from the foregoing
judgment insofar as it set aside the sale of the one-half
(1/2) share of Concepcion Rallos. The appellate tribunal,
as adverted to earlier, resolved the appeal on November
20, 1964 in favor of the appellant corporation sustaining
the sale in question. 1 The appellee administrator, Ramon
Rallos, moved for a reconsider of the decision but the
same was denied in a resolution of March 4, 1965. 2
What is the legal effect of an act performed by an agent
after the death of his principal? Applied more particularly
to the instant case, We have the query. is the sale of the
undivided share of Concepcion Rallos in lot 5983 valid
although it was executed by the agent after the death of
his principal? What is the law in this jurisdiction as to the
effect of the death of the principal on the authority of the
agent to act for and in behalf of the latter? Is the fact of
knowledge of the death of the principal a material factor
in determining the legal effect of an act performed after
such death?
Before proceedings to the issues, We shall briefly restate
certain principles of law relevant to the matter tinder
consideration.
1. It is a basic axiom in civil law embodied in our Civil
Code that no one may contract in the name of another
without being authorized by the latter, or unless he has
by law a right to represent him. 3 A contract entered into
in the name of another by one who has no authority or
the legal representation or who has acted beyond his
powers, shall be unenforceable, unless it is ratified,
expressly or impliedly, by the person on whose behalf it
has been executed, before it is revoked by the other
contracting party.4 Article 1403 (1) of the same Code also
provides:
ART. 1403. The following contracts are unenforceable,
unless they are justified:
(1) Those entered into in the name of another person by
one who hi - been given no authority or legal
representation or who has acted beyond his powers; ...
Out of the above given principles, sprung the creation
and acceptance of the relationship of agency whereby
one party, caged the principal (mandante), authorizes
another, called the agent (mandatario), to act for and in
his behalf in transactions with third persons. The
essential elements of agency are: (1) there is consent,
express or implied of the parties to establish the
relationship; (2) the object is the execution of a juridical
act in relation to a third person; (3) the agents acts as a
representative and not for himself, and (4) the agent acts
within the scope of his authority. 5
Agency is basically personal representative,
and derivative in nature. The authority of the agent to act
emanates from the powers granted to him by his
principal; his act is the act of the principal if done within
the scope of the authority. Qui facit per alium facit se. "He
who acts through another acts himself". 6
2. There are various ways of extinguishing agency, 7 but
her We are concerned only with one cause death of
the principal Paragraph 3 of Art. 1919 of the Civil Code
which was taken from Art. 1709 of the Spanish Civil Code
provides:
ART. 1919. Agency is extinguished.
xxx xxx xxx
3. By the death, civil interdiction, insanity or insolvency of
the principal or of the agent; ... (Emphasis supplied)
By reason of the very nature of the relationship between
Principal and agent, agency is extinguished by the death
of the principal or the agent. This is the law in this
jurisdiction.8
Manresa commenting on Art. 1709 of the Spanish Civil
Code explains that the rationale for the law is found in
the juridical basis of agency which
is representation Them being an in. integration of the
personality of the principal integration that of the agent it
is not possible for the representation to continue to exist
once the death of either is establish. Pothier agrees with
Manresa that by reason of the nature of agency, death is
a necessary cause for its extinction. Laurent says that the
juridical tie between the principal and the agent is
severed ipso jure upon the death of either without
necessity for the heirs of the fact to notify the agent of the
fact of death of the former. 9
The same rule prevails at common law the death of
the principal effects instantaneous and absolute
revocation of the authority of the agent unless the Power
be coupled with an interest. 10 This is the prevalent rule in
American Jurisprudence where it is well-settled that a
power without an interest confer. red upon an agent is
dissolved by the principal's death, and any attempted
execution of the power afterward is not binding on the
heirs or representatives of the deceased. 11
3. Is the general rule provided for in Article 1919 that the
death of the principal or of the agent extinguishes the
agency, subject to any exception, and if so, is the instant
case within that exception? That is the determinative
point in issue in this litigation. It is the contention of
respondent corporation which was sustained by
respondent court that notwithstanding the death of the
principal Concepcion Rallos the act of the attorney-in-
fact, Simeon Rallos in selling the former's sham in the
property is valid and enforceable inasmuch as the
corporation acted in good faith in buying the property in
question.
Articles 1930 and 1931 of the Civil Code provide the
exceptions to the general rule afore-mentioned.
ART. 1930. The agency shall remain in full force and
effect even after the death of the principal, if it has been
constituted in the common interest of the latter and of the
agent, or in the interest of a third person who has
accepted the stipulation in his favor.
ART. 1931. Anything done by the agent, without
knowledge of the death of the principal or of any other
cause which extinguishes the agency, is valid and shall
be fully effective with respect to third persons who may
have contracted with him in good. faith.
Article 1930 is not involved because admittedly the
special power of attorney executed in favor of Simeon
Rallos was not coupled with an interest.
Article 1931 is the applicable law. Under this provision,
an act done by the agent after the death of his principal is
valid and effective only under two conditions, viz: (1) that
the agent acted without knowledge of the death of the
principal and (2) that the third person who contracted with
the agent himself acted in good faith. Good faith here
means that the third person was not aware of the death
of the principal at the time he contracted with said agent.
These two requisites must concur the absence of one will
render the act of the agent invalid and unenforceable.
In the instant case, it cannot be questioned that the indication in the record, that the agent Luy Kim Guan was
agent, Simeon Rallos, knew of the death of his principal aware of the death of his principal at the time he sold the
at the time he sold the latter's share in Lot No. 5983 to property. The death 6f the principal does not render the
respondent corporation. The knowledge of the death is act of an agent unenforceable, where the latter had no
clearly to be inferred from the pleadings filed by Simon knowledge of such extinguishment of the agency. (1
Rallos before the trial court. 12 That Simeon Rallos knew SCRA 406, 412)
of the death of his sister Concepcion is also a finding of
4. In sustaining the validity of the sale to respondent
fact of the court a quo 13 and of respondent appellate
consideration the Court of Appeals reasoned out that
court when the latter stated that Simon Rallos 'must have
there is no provision in the Code which provides that
known of the death of his sister, and yet he proceeded
whatever is done by an agent having knowledge of the
with the sale of the lot in the name of both his sisters
death of his principal is void even with respect to third
Concepcion and Gerundia Rallos without informing
persons who may have contracted with him in good faith
appellant (the realty corporation) of the death of the
and without knowledge of the death of the principal. 16
former. 14
We cannot see the merits of the foregoing argument as it
On the basis of the established knowledge of Simon
ignores the existence of the general rule enunciated in
Rallos concerning the death of his principal Concepcion
Article 1919 that the death of the principal extinguishes
Rallos, Article 1931 of the Civil Code is inapplicable. The
the agency. That being the general rule it follows
law expressly requires for its application lack of
a fortiorithat any act of an agent after the death of his
knowledge on the part of the agent of the death of his
principal is void ab initio unless the same fags under the
principal; it is not enough that the third person acted in
exception provided for in the aforementioned Articles
good faith. Thus in Buason & Reyes v. Panuyas, the
1930 and 1931. Article 1931, being an exception to the
Court applying Article 1738 of the old Civil rode now Art.
general rule, is to be strictly construed, it is not to be
1931 of the new Civil Code sustained the validity , of a
given an interpretation or application beyond the clear
sale made after the death of the principal because it was
import of its terms for otherwise the courts will be
not shown that the agent knew of his principal's
involved in a process of legislation outside of their judicial
demise. 15 To the same effect is the case of Herrera, et
function.
al., v. Luy Kim Guan, et al., 1961, where in the words of
Justice Jesus Barrera the Court stated: 5. Another argument advanced by respondent court is
that the vendee acting in good faith relied on the power of
... even granting arguemendo that Luis Herrera did die in
attorney which was duly registered on the original
1936, plaintiffs presented no proof and there is no
certificate of title recorded in the Register of Deeds of the
province of Cebu, that no notice of the death was aver
annotated on said certificate of title by the heirs of the
principal and accordingly they must suffer the
consequences of such omission. 17
To support such argument reference is made to a portion
in Manresa's Commentaries which We quote:
If the agency has been granted for the purpose of
contracting with certain persons, the revocation must be
made known to them. But if the agency is general iii
nature, without reference to particular person with whom
the agent is to contract, it is sufficient that the principal
exercise due diligence to make the revocation of the
agency publicity known.
In case of a general power which does not specify the
persons to whom represents' on should be made, it is the
general opinion that all acts, executed with third persons
who contracted in good faith, Without knowledge of the
revocation, are valid. In such case, the principal may
exercise his right against the agent, who, knowing of the
revocation, continued to assume a personality which he
no longer had. (Manresa Vol. 11, pp. 561 and 575; pp.
15-16, rollo)
The above discourse however, treats of revocation by an
act of the principal as a mode of terminating an agency
which is to be distinguished from revocation by operation
of law such as death of the principal which obtains in this
case. On page six of this Opinion We stressed that by
reason of the very nature of the relationship between
principal and agent, agency is extinguished ipso
jure upon the death of either principal or agent. Although
a revocation of a power of attorney to be effective must
be communicated to the parties concerned, 18 yet a
revocation by operation of law, such as by death of the
principal is, as a rule, instantaneously effective inasmuch
as "by legal fiction the agent's exercise of authority is
regarded as an execution of the principal's continuing
will. 19 With death, the principal's will ceases or is the of
authority is extinguished.
The Civil Code does not impose a duty on the heirs to
notify the agent of the death of the principal What the
Code provides in Article 1932 is that, if the agent die his
heirs must notify the principal thereof, and in the
meantime adopt such measures as the circumstances
may demand in the interest of the latter. Hence, the fact
that no notice of the death of the principal was registered
on the certificate of title of the property in the Office of the
Register of Deeds, is not fatal to the cause of the estate
of the principal
6. Holding that the good faith of a third person in said
with an agent affords the former sufficient protection,
respondent court drew a "parallel" between the instant
case and that of an innocent purchaser for value of a
land, stating that if a person purchases a registered land
from one who acquired it in bad faith even to the
extent of foregoing or falsifying the deed of sale in his
favor the registered owner has no recourse against
such innocent purchaser for value but only against the
forger. 20
To support the correctness of this respondent
corporation, in its brief, cites the case of Blondeau, et al.,
v. Nano and Vallejo, 61 Phil. 625. We quote from the
brief:
In the case of Angel Blondeau et al. v. Agustin Nano et
al., 61 Phil. 630, one Vallejo was a co-owner of lands
with Agustin Nano. The latter had a power of attorney
supposedly executed by Vallejo Nano in his favor. Vallejo
delivered to Nano his land titles. The power was
registered in the Office of the Register of Deeds. When
the lawyer-husband of Angela Blondeau went to that
Office, he found all in order including the power of
attorney. But Vallejo denied having executed the power
The lower court sustained Vallejo and the plaintiff
Blondeau appealed. Reversing the decision of the court a
quo, the Supreme Court, quoting the ruling in the case
of Eliason v. Wilborn, 261 U.S. 457, held:
But there is a narrower ground on which the defenses of
the defendant- appellee must be overruled. Agustin Nano
had possession of Jose Vallejo's title papers. Without
those title papers handed over to Nano with the
acquiescence of Vallejo, a fraud could not have been
perpetuated. When Fernando de la Canters, a member of
the Philippine Bar and the husband of Angela Blondeau,
the principal plaintiff, searched the registration record, he
found them in due form including the power of attorney of
Vallajo in favor of Nano. If this had not been so and if
thereafter the proper notation of the encumbrance could
not have been made, Angela Blondeau would not have
sent P12,000.00 to the defendant Vallejo.' An executed
transfer of registered lands placed by the registered
owner thereof in the hands of another operates as a
representation to a third party that the holder of the
transfer is authorized to deal with the land.
As between two innocent persons, one of whom must
suffer the consequence of a breach of trust, the one who
made it possible by his act of coincidence bear the loss.
(pp. 19-21)
The Blondeau decision, however, is not on all fours with
the case before Us because here We are confronted with
one who admittedly was an agent of his sister and who
sold the property of the latter after her death with full
knowledge of such death. The situation is expressly
covered by a provision of law on agency the terms of
which are clear and unmistakable leaving no room for an
interpretation contrary to its tenor, in the same manner
that the ruling in Blondeau and the cases cited therein
found a basis in Section 55 of the Land Registration Law
which in part provides:
xxx xxx xxx
The production of the owner's duplicate certificate
whenever any voluntary instrument is presented for
registration shall be conclusive authority from the
registered owner to the register of deeds to enter a new
certificate or to make a memorandum of registration in
accordance with such instruments, and the new
certificate or memorandum Shall be binding upon the
registered owner and upon all persons claiming under
him in favor of every purchaser for value and in good
faith: Provided however, That in all cases of registration
provided by fraud, the owner may pursue all his legal and
equitable remedies against the parties to such fraud
without prejudice, however, to the right, of any innocent
holder for value of a certificate of title. ... (Act No. 496 as
amended)
7. One last point raised by respondent corporation in
support of the appealed decision is an 1842 ruling of the
Supreme Court of Pennsylvania in Cassiday v.
McKenzie wherein payments made to an agent after the
death of the principal were held to be "good", "the parties
being ignorant of the death". Let us take note that the
Opinion of Justice Rogers was premised on the
statement that the parties were ignorant of the death of
the principal. We quote from that decision the following:
... Here the precise point is, whether a payment to an
agent when the Parties are ignorant of the death is a
good payment. in addition to the case in Campbell before
cited, the same judge Lord Ellenboruogh, has decided in
5 Esp. 117, the general question that a payment after the
death of principal is not good. Thus, a payment of sailor's
wages to a person having a power of attorney to receive
them, has been held void when the principal was dead at
the time of the payment. If, by this case, it is meant
merely to decide the general proposition that by
operation of law the death of the principal is a revocation
of the powers of the attorney, no objection can be taken
to it. But if it intended to say that his principle applies
where there was 110 notice of death, or opportunity of
twice I must be permitted to dissent from it.
... That a payment may be good today, or bad tomorrow,
from the accident circumstance of the death of the
principal, which he did not know, and which by no
possibility could he know? It would be unjust to the agent
and unjust to the debtor. In the civil law, the acts of the
agent, done bona fide in ignorance of the death of his
principal are held valid and binding upon the heirs of the
latter. The same rule holds in the Scottish law, and I
cannot believe the common law is so unreasonable... (39
Am. Dec. 76, 80, 81; emphasis supplied)
To avoid any wrong impression which the Opinion
in Cassiday v. McKenzie may evoke, mention may be
made that the above represents the minority view in
American jurisprudence. Thus in Clayton v. Merrett, the
Court said.
There are several cases which seem to hold that
although, as a general principle, death revokes an
agency and renders null every act of the agent thereafter
performed, yet that where a payment has been made in
ignorance of the death, such payment will be good. The
leading case so holding is that of Cassiday v. McKenzie,
4 Watts & S. (Pa) 282, 39 Am. 76, where, in an elaborate
opinion, this view ii broadly announced. It is referred to,
and seems to have been followed, in the case of Dick v.
Page, 17 Mo. 234, 57 AmD 267; but in this latter case it
appeared that the estate of the deceased principal had
received the benefit of the money paid, and therefore the
representative of the estate might well have been held to
be estopped from suing for it again. . . . These cases, in
so far, at least, as they announce the doctrine under
discussion, are exceptional. The Pennsylvania Cassiday, and again We stress the indispensable
Case, supra (Cassiday v. McKenzie 4 Watts & S. 282, 39 requirement that the agent acted without knowledge or
AmD 76), is believed to stand almost, if not quite, alone notice of the death of the principal In the case before Us
in announcing the principle in its broadest scope. (52, the agent Ramon Rallos executed the sale
Misc. 353, 357, cited in 2 C.J. 549) notwithstanding notice of the death of his principal
Accordingly, the agent's act is unenforceable against the
So also in Travers v. Crane, speaking of Cassiday v.
estate of his principal.
McKenzie, and pointing out that the opinion, except so far
as it related to the particular facts, was a mere dictum, IN VIEW OF ALL THE FOREGOING, We set aside the
Baldwin J. said: ecision of respondent appellate court, and We affirm en
toto the judgment rendered by then Hon. Amador E.
The opinion, therefore, of the learned Judge may be
Gomez of the Court of First Instance of Cebu, quoted in
regarded more as an extrajudicial indication of his views
pages 2 and 3 of this Opinion, with costs against
on the general subject, than as the adjudication of the
respondent realty corporation at all instances.
Court upon the point in question. But accordingly all
power weight to this opinion, as the judgment of a of So Ordered
great respectability, it stands alone among common law
authorities and is opposed by an array too formidable to
permit us to following it. (15 Cal. 12,17, cited in 2 C.J.
549)
Whatever conflict of legal opinion was generated
by Cassiday v. McKenzie in American jurisprudence, no
such conflict exists in our own for the simple reason that
our statute, the Civil Code, expressly provides for two
exceptions to the general rule that death of the principal
revokes ipso jure the agency, to wit: (1) that the agency
is coupled with an interest (Art 1930), and (2) that the act
of the agent was executed without knowledge of the
death of the principal and the third person who
contracted with the agent acted also in good faith (Art.
1931). Exception No. 2 is the doctrine followed in
G.R. No. L-18058 January 16, 1923
FABIOLA SEVERINO, plaintiff-appellee,
vs.
GUILLERMO SEVERINO, defendant-appellant.
FELICITAS VILLANUEVA, intervenor-appellee.
This is an action brought by the plaintiff as the alleged
natural daughter and sole heir of one Melecio Severino,
deceased, to compel the defendant Guillermo Severino
to convey to her four parcels of land described in the
complaint, or in default thereof to pay her the sum of
P800,000 in damages for wrongfully causing said land to
be registered in his own name. Felicitas Villanueva, in
her capacity as administratrix of the estate of Melecio
Severino, has filed a complaint in intervention claiming in
the same relief as the original plaintiff, except in so far as
she prays that the conveyance be made, or damages
paid, to the estate instead of to the plaintiff Fabiola
Severino. The defendant answered both complaints with
a general denial.
The lower court rendered a judgment recognizing the
plaintiff Fabiola Severino as the acknowledged natural
child of the said Melecio Severino and ordering the
defendant to convey 428 hectares of the land in question
to the intervenor as administratrix of the estate of the said
Melecio Severino, to deliver to her the proceeds in his
possession of a certain mortgage placed thereon by him
and to pay the costs. From this judgment only the
defendant appeals.
The land described in the complaint forms one
continuous tract and consists of lots Nos. 827, 828, 834,
and 874 of the cadaster of Silay, Province of Occidental
Negros, which measure, respectively, 61 hectares, 74
ares, and 79 centiares; 76 hectares, 34 ares, and 79
centiares; 52 hectares, 86 ares, and 60 centiares and
608 hectares, 77 ares and 28 centiares, or a total of 799
hectares, 75 ares, and 46 centiares.
The evidence shows that Melecio Severino died on the
25th day of May, 1915; that some 428 hectares of the
land were recorded in the Mortgage Law Register in his
name in the year 1901 by virtue of possessory
information proceedings instituted on the 9th day of May
of that year by his brother Agapito Severino in his behalf;
that during the lifetime of Melecio Severino the land was
worked by the defendant, Guillermo Severino, his
brother, as administrator for and on behalf of the said
Melecio Severino; that after Melecio's death, the
defendant Guillermo Severino continued to occupy the
land; that in 1916 a parcel survey was made of the lands
in the municipality of Silay, including the land here in
question, and cadastral proceedings were instituted for
the registration of the lands titles within the surveyed
area; that in the cadastral proceedings the land here in
question was described as four separate lots numbered
as above stated; that Roque Hofilea, as lawyer for
Guillermo Severino, filed answers in behalf of the latter in
said proceedings claiming the lots mentioned as the
property of his client; that no opposition was presented in
the proceedings to the claims of Guillermo Severino and
the court therefore decreed the title in his favor, in
pursuance of which decree certificates of title were
issued to him in the month of March, 1917.
It may be further observed that at the time of the
cadastral proceedings the plaintiff Fabiola Severino was
a minor; that Guillermo Severino did not appear
personally in the proceedings and did not there testify;
that the only testimony in support of his claims was that
of his attorney Hofilea, who swore that he knew the land
and that he also knew that Guillermo Severino inherited
the land from his father and that he, by himself, and
through his predecessors in interest, had possessed the
land for thirty years.
The appellant presents the following nine assignments of
error:
1. The trial court erred in admitting the evidence that was
offered by plaintiff in order to establish the fact that said
plaintiff was the legally acknowledged natural child of the
deceased Melecio Severino.
2. The trial court erred in finding that, under the evidence
presented, plaintiff was the legally acknowledged natural
child of Melecio Severino.
3. The trial court erred in rejecting the evidence offered
by defendant to establish the absence of fraud on his part
in securing title to the lands in Nacayao.
4. The trial court erred in concluding that the evidence
adduced by plaintiff and intervenor established that
defendant was guilty of fraud in procuring title to the
lands in question in his name.
5. The trial court erred in declaring that the land that was
formerly placed in the name of Melecio Severino had an
extent of either 434 or 428 hectares at the time of his
death.
6. The trial court erred in declaring that the value of the
land in litigation is P500 per hectare.
7. The trial court erred in granting the petition of the
plaintiff for an attachment without first giving the
defendant an opportunity to be heard.
8. The trial court erred in ordering the conveyance of 428
hectares of land by defendant to the administratrix.
9. The trial court erred in failing or refusing to make any
finding as to the defendant's contention that the petition
for attachment was utterly devoid of any reasonable
ground.
In regard to the first two assignments of error, we agree
with the appellant that the trial court erred in making a
declaration in the present case as to the recognition of
Fabiola Severino as the natural child of Melecio
Severino. We have held in the case of Briz vs. Briz and
Remigio (43 Phil., 763), that "The legitimate heirs or kin
of a deceased person who would be prejudiced by a
declaration that another person is entitled to recognition
as the natural child of such decedent, are necessary and
indispensable parties to any action in which a judgment
declaring the right to recognition is sought." In the
present action only the widow, the alleged natural child,
and one of the brothers of the deceased are parties; the
other potential heirs have not been included. But,
inasmuch as the judgment appealed from is in favor of
the intervenor and not of the plaintiff, except to the extent
of holding that the latter is a recognized natural child of
the deceased, this question is, from the view we take of
the case, of no importance in its final disposition. We may
say, however, in this connection, that the point urged in
appellant's brief that it does not appear affirmatively from
the evidence that, at the time of the conception of
Fabiola, her mother was a single woman, may be
sufficiently disposed of by a reference to article 130 of
the Civil Code and subsection 1 of section 334 of the
Code of Civil Procedure which create the presumption
that a child born out of wedlock is natural rather than
illegitimate. The question of the status of the plaintiff
Fabiola Severino and her right to share in the inheritance
may, upon notice to all the interested parties, be
determined in the probate proceedings for the settlement
of the estate of the deceased.
The fifth assignment of error relates to the finding of the
trial court that the land belonging to Melecio Severino
had an area of 428 hectares. The appellant contends that
the court should have found that there were only 324
hectares inasmuch as one hundred hectares of the
original area were given to Melecio's brother Donato
during the lifetime of the father Ramon Severino. As it
appears that Ramon Severino died in 1896 and that the
possessory information proceedings, upon which the
finding of the trial court as to the area of the land is
principally based, were not instituted until the year 1901,
we are not disposed to disturb the conclusions of the trial
court on this point. Moreover, in the year 1913, the
defendant Guillermo Severino testified under oath, in the
case of Montelibano vs. Severino, that the area of the
land owned by Melecio Severino and of which he
(Guillermo) was the administrator, embraced an area of
424 hectares. The fact that Melecio Severino, in
declaring the land for taxation in 1906, stated that the
area was only 324 hectares and 60 ares while entitled to
some weight is not conclusive and is not sufficient to
overcome the positive statement of the defendant and
the recitals in the record of the possessory information
proceedings.
The sixth assignment of error is also of minor importance
in view of the fact that in the dispositive part of the
decision of the trial court, the only relief given is an order
requiring the appellant to convey to the administratrix the
land in question, together with such parts of the proceeds
of the mortgage thereon as remain in his hands. We may
say further that the court's estimate of the value of the
land does not appear unreasonable and that, upon the
evidence before us, it will not be disturbed.
The seventh and within assignments of error relate to
the ex parte granting by the trial court of a preliminary
attachment in the case and the refusal of the court to
dissolve the same. We find no merit whatever in these
assignments and a detailed discussion of them is
unnecessary.
The third, fourth, and eight assignments of error involve
the vital points in the case, are inter-related and may be
conveniently considered together.
The defendant argues that the gist of the instant action is
the alleged fraud on his part in causing the land in
question to be registered in his name; that the trial court
therefore erred in rejecting his offer of evidence to the
effect that the land was owned in common by all the heirs
of Ramon Severino and did not belong to Melecio
Severino exclusively; that such evidence, if admitted,
would have shown that he did not act with fraudulent
intent in taking title to the land; that the trial court erred in
holding him estopped from denying Melecio's title; that
more than a year having elapsed since the entry of the
final decree adjudicating the land to the defendant, said
decree cannot now be reopened; that the ordering of the
defendant to convey the decreed land to the
administratrix is, for all practical purposes, equivalent to
the reopening of the decree of registration; that under
section 38 of the Land Registration Act the defendant has
an indefeasible title to the land; and that the question of
ownership of the land being thus judicially settled, the
question as to the previous relations between the parties
cannot now be inquired into.
Upon no point can the defendant's contentions be
sustained. It may first be observed that this is not an
action under section 38 of the Land Registration Act to
reopen or set aside a decree; it is an action in
personam against an agent to compel him to return, or
retransfer, to the heirs or the estate of its principal, the
property committed to his custody as such agent, to
execute the necessary documents of conveyance to
effect such retransfer or, in default thereof, to pay
damages.
That the defendant came into the possession of the
property here in question as the agent of the deceased
Melecio Severino in the administration of the property,
cannot be successfully disputed. His testimony in the
case of Montelibano vs. Severino (civil case No. 902 of
the Court of First Instance of Occidental Negros and
which forms a part of the evidence in the present case)
is, in fact, conclusive in this respect. He there stated
under oath that from the year 1902 up to the time the
testimony was given, in the year 1913, he had been
continuously in charge and occupation of the land as
the encargado or administrator of Melecio Severino; that
he had always known the land as the property of Melecio
Severino; and that the possession of the latter had been
peaceful, continuous, and exclusive. In his answer filed in
the same case, the same defendant, through his
attorney, disclaimed all personal interest in the land and
averred that it was wholly the property of his brother
Melecio.
Neither is it disputed that the possession enjoyed by the
defendant at the time of obtaining his decree was of the
same character as that held during the lifetime of his
brother, except in so far as shortly before the trial of the
cadastral case the defendant had secured from his
brothers and sisters a relinguishment in his favor of such
rights as they might have in the land.
The relations of an agent to his principal are fiduciary and
it is an elementary and very old rule that in regard to
property forming the subject-matter of the agency, he is
estopped from acquiring or asserting a title adverse to
that of the principal. His position is analogous to that of a
trustee and he cannot consistently, with the principles of
good faith, be allowed to create in himself an interest in
opposition to that of his principal or cestui que trust. Upon
this ground, and substantially in harmony with the
principles of the Civil Law (see sentence of the supreme
court of Spain of May 1, 1900), the English Chancellors
held that in general whatever a trustee does for the
advantage of the trust estate inures to the benefit of
the cestui que trust. (Greenlaw vs. King, 5 Jur., 18; Ex
parte Burnell, 7 Jur., 116; Ex parte Hughes, 6 Ves.,
617; Ex parte James, 8 Ves., 337; Oliver vs. Court, 8
Price, 127.) The same principle has been consistently
adhered to in so many American cases and is so well
established that exhaustive citations of authorities are
superfluous and we shall therefore limit ourselves to
quoting a few of the numerous judicial expressions upon
the subject. The principle is well stated in the case of
Gilbert vs. Hewetson (79 Minn., 326):
A receiver, trustee, attorney, agent, or any other person
occupying fiduciary relations respecting property or
persons, is utterly disabled from acquiring for his own
benefit the property committed to his custody for
management. This rule is entirely independent of the fact
whether any fraud has intervened. No fraud in fact need
be shown, and no excuse will be heard from the trustee.
It is to avoid the necessity of any such inquiry that the
rule takes so general a form. The rule stands on the
moral obligation to refrain from placing one's self in
positions which ordinarily excite conflicts between self-
interest and integrity. It seeks to remove the temptation
that might arise out of such a relation to serve one's self-
interest at the expense of one's integrity and duty to
another, by making it impossible to profit by yielding to
temptation. It applies universally to all who come within
its principle.
In the case of Massie vs. Watts (6 Cranch, 148), the
United States Supreme Court, speaking through Chief
Justice Marshall, said:
But Massie, the agent of Oneale, has entered and
surveyed a portion of that land for himself and obtained a
patent for it in his own name. According to the clearest
and best established principles of equity, the agent who
so acts becomes a trustee for his principal. He cannot
hold the land under an entry for himself otherwise than as
trustee for his principal.
In the case of Felix vs. Patrick (145 U. S., 317), the
United States Supreme Court, after examining the
authorities, said:
The substance of these authorities is that, wherever a
person obtains the legal title to land by any artifice or
concealment, or by making use of facilities intended for
the benefit of another, a court of equity will impress upon
the land so held by him a trust in favor of the party who is
justly entitled to them, and will order the trust executed by
decreeing their conveyance to the party in whose favor
the trust was created. (Citing Bank of
Metropolis vs. Guttschlick, 14 Pet., 19, 31;
Moses vs. Murgatroyd, 1 Johns. Ch., 119;
Cumberland vs.Codrington, 3 Johns. Ch., 229, 261;
Neilson vs. Blight, 1 Johns. Cas., 205;
Weston vs. Barker, 12 Johns., 276.)
The same doctrine has also been adopted in the
Philippines. In the case of Uy Aloc vs. Cho Jan Ling (19
Phil., 202), the facts are stated by the court as follows:
From the facts proven at the trial it appears that a
number of Chinese merchants raised a fund by voluntary
subscription with which they purchased a valuable tract
of land and erected a large building to be used as a sort
of club house for the mutual benefit of the subscribers to
the fund. The subscribers organized themselves into an
irregular association, which had no regular articles of
association, and was not incorporated or registered in the
commercial registry or elsewhere. The association not
having any existence as a legal entity, it was agreed to
have the title to the property placed in the name of one of
the members, the defendant, Cho Jan Ling, who on his
part accepted the trust, and agreed to hold the property
as the agent of the members of the association. After the
club building was completed with the funds of the
members of the association, Cho Jan Ling collected
some P25,000 in rents for which he failed and refused to
account, and upon proceedings being instituted to
compel him to do so, he set up title in himself to the club
property as well as to the rents accruing therefrom,
falsely alleging that he had bought the real estate and
constructed the building with his own funds, and denying
the claims of the members of the association that it was
their funds which had been used for that purpose.
The decree of the court provided, among other things, for
the conveyance of the club house and the land on which
it stood from the defendant, Cho Jan Ling, in whose
name it was registered, to the members of the
association. In affirming the decree, this court said:
In the case at bar the legal title of the holder of the
registered title is not questioned; it is admitted that the
members of the association voluntarily obtained the
inscription in the name of Cho Jan Ling, and that they
had no right to have that inscription cancelled; they do
not seek such cancellation, and on the contrary they
allege and prove that the duly registered legal title to the
property is in Cho Jan Ling, but they maintain, and we
think that they rightly maintain, that he holds it under an
obligation, both express and implied, to deal with it
exclusively for the benefit of the members of the
association, and subject to their will.
In the case of Camacho vs. Municipality of Baliuag (28
Phil., 466), the plaintiff, Camacho, took title to the land in
his own name, while acting as agent for the municipality.
The court said:
There have been a number of cases before this court in
which a title to real property was acquired by a person in
his own name, while acting under a fiduciary capacity,
and who afterwards sought to take advantage of the
confidence reposed in him by claiming the ownership of
the property for himself. This court has invariably held
such evidence competent as between the fiduciary and
the cestui que trust.
xxx xxx xxx
What judgment ought to be entered in this case? The
court below simply absolved the defendant from the
complaint. The defendant municipality does not ask for a
cancellation of the deed. On the contrary, the deed is
relied upon the supplement the oral evidence showing
that the title to the land is in the defendant. As we have
indicated in Consunji vs. Tison, 15 Phil., 81, and Uy Aloc
vs. Cho Jan Ling, 19 Phil., 202, the proper procedure in
such a case, so long as the rights of innocent third
persons have not intervened, is to compel a conveyance
to the rightful owner. This ought and can be done under
the issues raised and the proof presented in the case at
bar.
The case of Sy-Juco and Viardo vs. Sy-Juco (40 Phil.,
634) is also in point.
As will be seen from the authorities quoted, and agent is
not only estopped from denying his principal's title to the
property, but he is also disable from acquiring interests
therein adverse to those of his principal during the term
of the agency. But the defendant argues that his title has
become res adjudicata through the decree of registration
and cannot now be disturbed.
This contention may, at first sight, appear to possess
some force, but on closer examination it proves
untenable. The decree of registration determined the
legal title to the land as the date of the decree; as to that
there is no question. That, under section 38 of the Land
Registration Act, this decree became conclusive after
one year from the date of the entry is not disputed and no
one attempts to disturb the decree or the proceedings
upon which it is based; the plaintiff in intervention merely
contends that in equity the legal title so acquired inured
to the benefit of the estate of Melecio Severino, the
defendant's principal and cestui que trust and asks that
this superior equitable right be made effective by
compelling the defendant, as the holder of the legal title,
to transfer it to the estate.
We have already shown that before the issuance of the
decree of registration it was the undoubted duty of the
defendant to restore the property committed to his
custody to his principal, or to the latter's estate, and that
the principal had a right of action in personam to enforce
the performance of this duty and to compel the defendant
to execute the necessary conveyance to that effect. The
only question remaining for consideration is, therefore,
whether the decree of registration extinguishing this
personal right of action.
In Australia and New Zealand, under statutes in this
respect similar to ours, courts of equity exercise general
jurisdiction in matters of fraud and error with reference to
Torrens registered lands, and giving attention to the
special provisions of the Torrens acts, will issue such
orders and direction to all the parties to the proceedings
as may seem just and proper under the circumstances.
They may order parties to make deeds of conveyance
and if the order is disobeyed, they may cause proper
conveyances to be made by a Master in Chancery or
Commissioner in accordance with the practice in equity
(Hogg, Australian Torrens System, p. 847).
In the Untied States courts have even gone so far in the
exercise of their equity jurisdiction as to set aside final
decrees after the expiration of the statutory period of
limitation for the reopening of such decrees
(Baart vs. Martin, 99 Minn., 197). But, considering that
equity follows the law and that our statutes expressly
prohibit the reopening of a decree after one year from the
date of its entry, this practice would probably be out of
question here, especially so as the ends of justice may
be attained by other equally effective, and less
objectionable means.
Turning to our own Land Registration Act, we find no
indication there of an intention to cut off, through the
issuance of a decree of registration, equitable rights or
remedies such as those here in question. On the
contrary, section 70 of the Act provides:
Registered lands and ownership therein, shall in all
respects be subject to the same burdens and incidents
attached by law to unregistered land. Nothing contained
in this Act shall in any way be construed to relieve
registered land or the owners thereof from any rights
incident to the relation of husband and wife, or from
liability to attachment on mesne process or levy on
execution, or from liability to any lien of any description
established by law on land and the buildings thereon, or
the interest of the owner in such land or buildings, or to
change the laws of descent, or the rights of partition
between coparceners, joint tenants and other cotenants,
or the right to take the same by eminent domain, or to
relieve such land from liability to be appropriated in any
lawful manner for the payment of debts, or to change or
affect in any other way any other rights or liabilities
created by law and applicable to unregistered land,
except as otherwise expressly provided in this Act or in
the amendments hereof.
Section 102 of the Act, after providing for actions for
damages in which the Insular Treasurer, as the
Custodian of the Assurance Fund is a party, contains the
following proviso:
Provided, however, That nothing in this Act shall be
construed to deprive the plaintiff of any action which he
may have against any person for such loss or damage or
deprivation of land or of any estate or interest therein
without joining the Treasurer of the Philippine
Archipelago as a defendant therein.
That an action such as the present one is covered by this
proviso can hardly admit of doubt. Such was also the
view taken by this court in the case of Medina Ong-
Quingco vs. Imaz and Warner, Barnes & Co. (27 Phil.,
314), in which the plaintiff was seeking to take advantage
of his possession of a certificate of title to deprive the
defendant of land included in that certificate and sold to
him by the former owner before the land was registered.
The court decided adversely to plaintiff and in so doing
said:
As between them no question as to the indefeasibility of
a Torrens title could arise. Such an action could have
been maintained at any time while the property remained
in the hands of the purchaser. The peculiar force of a
Torrens title would have been brought into play only
when the purchaser had sold to an innocent third person
for value the lands described in his conveyance. . . .
Generally speaking, as between the vendor and the
purchaser the same rights and remedies exist with
reference to land registered under Act No. 496, as exist
in relation to land not so registered.
In Cabanos vs. Register of Deeds of Laguna and
Obiana (40 Phil., 620), it was held that, while a
purchaser of land under a pacto de retro cannot institute
a real action for the recovery thereof where the vendor
under said sale has caused such lands to be registered
in his name without said vendee's consent, yet he may
have his personal action based on the contract of sale to
compel the execution of an unconditional deed for the
said lands when the period for repurchase has passed.
Torrens titles being on judicial decrees there is, of
course, a strong presumption in favor of their regularity or
validity, and in order to maintain an action such as the
present the proof as to the fiduciary relation of the parties
and of the breach of trust must be clear and convincing.
Such proof is, as we have seen, not lacking in this case.
But once the relation and the breach of trust on the part
of the fiduciary in thus established, there is no reason,
neither practical nor legal, why he should not be
compelled to make such reparation as may lie within his
power for the injury caused by his wrong, and as long as
the land stands registered in the name of the party who is
guilty of the breach of trust and no rights of innocent third
parties are adversely affected, there can be no reason
why such reparation should not, in the proper case, take
the form of a conveyance or transfer of the title to
the cestui que trust. No reasons of public policy demand
that a person guilty of fraud or breach of trust be
permitted to use his certificate of title as a shield against
the consequences of his own wrong.
The judgment of the trial court is in accordance with the
facts and the law. In order to prevent unnecessary delay
and further litigation it may, however, be well to attach
some additional directions to its dipositive clauses. It will
be observed that lots Nos. 827, 828, and 834 of a total
area of approximately 191 hectares, lie wholly within the
area to be conveyed to the plaintiff in intervention and
these lots may, therefore, be so conveyed without
subdivision. The remaining 237 hectares to be conveyed
lie within the western part of lot No. 874 and before a
conveyance of this portion can be effected a subdivision
of that lot must be made and a technical description of
the portion to be conveyed, as well as of the remaining
portion of the lot, must be prepared. The subdivision shall
be made by an authorized surveyor and in accordance
with the provisions of Circular No. 31 of the General Land
Registration Office, and the subdivision and technical
descriptions shall be submitted to the Chief of that office
for his approval. Within thirty days after being notified of
the approval of said subdivision and technical
descriptions, the defendant Guillermo Severino shall
execute good and sufficient deed or deeds of
conveyance in favor of the administratrix of the estate of
the deceased Melecio Severino for said lots Nos. 827,
828, 834, and the 237 hectares segregated from the
western part of lot No. 874 and shall deliver to the
register of deeds his duplicate certificates of title for all of
the four lots in order that said certificates may be
cancelled and new certificates issued. The cost of the
subdivision and the fees of the register of deeds will be
paid by the plaintiff in intervention. It is so ordered
With these additional directions the judgment appealed
from is affirmed, with the costs against the appellant. The
right of the plaintiff Fabiola Severino to establish in the
probate proceedings of the estate of Melecio Severino
her status as his recognized natural child is reserved.
G.R. No. 149353 June 26, 2006
JOCELYN B. DOLES, Petitioner,
vs.
MA. AURA TINA ANGELES, Respondent.
This refers to the Petition for Review on Certiorari under
Rule 45 of the Rules of Court questioning the
Decision1dated April 30, 2001 of the Court of Appeals
(CA) in C.A.-G.R. CV No. 66985, which reversed the
Decision dated July 29, 1998 of the Regional Trial Court
(RTC), Branch 21, City of Manila; and the CA
Resolution2 dated August 6, 2001 which denied
petitioners Motion for Reconsideration.
The antecedents of the case follow:
On April 1, 1997, Ma. Aura Tina Angeles (respondent)
filed with the RTC a complaint for Specific Performance
with Damages against Jocelyn B. Doles (petitioner),
docketed as Civil Case No. 97-82716. Respondent
alleged that petitioner was indebted to the former in the
concept of a personal loan amounting to P405,430.00
representing the principal amount and interest; that on
October 5, 1996, by virtue of a "Deed of Absolute
Sale",3 petitioner, as seller, ceded to respondent, as
buyer, a parcel of land, as well as the improvements
thereon, with an area of 42 square meters, covered by
Transfer Certificate of Title No. 382532,4 and located at a
subdivision project known as Camella Townhomes
Sorrente in Bacoor, Cavite, in order to satisfy her
personal loan with respondent; that this property was
mortgaged to National Home Mortgage Finance
Corporation (NHMFC) to secure petitioners loan in the
sum of P337,050.00 with that entity; that as a condition
for the foregoing sale, respondent shall assume the
undue balance of the mortgage and pay the monthly
amortization of P4,748.11 for the remainder of the 25
years which began on September 3, 1994; that the
property was at that time being occupied by a tenant
paying a monthly rent of P3,000.00; that upon verification
with the NHMFC, respondent learned that petitioner had
incurred arrearages amounting to P26,744.09, inclusive
of penalties and interest; that upon informing the
petitioner of her arrears, petitioner denied that she
incurred them and refused to pay the same; that despite
repeated demand, petitioner refused to cooperate with
respondent to execute the necessary documents and
other formalities required by the NHMFC to effect the
transfer of the title over the property; that petitioner
collected rent over the property for the month of January
1997 and refused to remit the proceeds to respondent;
and that respondent suffered damages as a result and
was forced to litigate.
Petitioner, then defendant, while admitting some
allegations in the Complaint, denied that she borrowed
money from respondent, and averred that from June to
September 1995, she referred her friends to respondent
whom she knew to be engaged in the business of lending
money in exchange for personal checks through her
capitalist Arsenio Pua. She alleged that her friends,
namely, Zenaida Romulo, Theresa Moratin, Julia
Inocencio, Virginia Jacob, and Elizabeth Tomelden,
borrowed money from respondent and issued personal
checks in payment of the loan; that the checks bounced
for insufficiency of funds; that despite her efforts to assist
respondent to collect from the borrowers, she could no
longer locate them; that, because of this, respondent
became furious and threatened petitioner that if the
accounts were not settled, a criminal case will be filed
against her; that she was forced to issue eight checks
amounting to P350,000 to answer for the bounced
checks of the borrowers she referred; that prior to the
issuance of the checks she informed respondent that
they were not sufficiently funded but the latter
nonetheless deposited the checks and for which reason
they were subsequently dishonored; that respondent then
threatened to initiate a criminal case against her for
violation of Batas Pambansa Blg. 22; that she was forced
by respondent to execute an "Absolute Deed of Sale"
over her property in Bacoor, Cavite, to avoid criminal
prosecution; that the said deed had no valid
consideration; that she did not appear before a notary
public; that the Community Tax Certificate number on the
deed was not hers and for which respondent may be
prosecuted for falsification and perjury; and that she
suffered damages and lost rental as a result.
The RTC identified the issues as follows: first, whether
the Deed of Absolute Sale is valid; second; if valid,
whether petitioner is obliged to sign and execute the
necessary documents to effect the transfer of her rights
over the property to the respondent; and third, whether
petitioner is liable for damages.
On July 29, 1998, the RTC rendered a decision the
dispositive portion of which states:
WHEREFORE, premises considered, the Court hereby
orders the dismissal of the complaint for insufficiency of
evidence. With costs against plaintiff.
SO ORDERED.
The RTC held that the sale was void for lack of cause or
consideration:5
Plaintiff Angeles admission that the borrowers are the
friends of defendant Doles and further admission that the
checks issued by these borrowers in payment of the loan
obligation negates [sic] the cause or consideration of the
contract of sale executed by and between plaintiff and
defendant. Moreover, the property is not solely owned by
defendant as appearing in Entry No. 9055 of Transfer
Certificate of Title No. 382532 (Annex A, Complaint),
thus:
"Entry No. 9055. Special Power of Attorney in favor of
Jocelyn Doles covering the share of Teodorico Doles on
the parcel of land described in this certificate of title by
virtue of the special power of attorney to mortgage,
executed before the notary public, etc."
The rule under the Civil Code is that contracts without a
cause or consideration produce no effect whatsoever.
(Art. 1352, Civil Code).
Respondent appealed to the CA. In her appeal brief,
respondent interposed her sole assignment of error:
THE TRIAL COURT ERRED IN DISMISSING THE CASE
AT BAR ON THE GROUND OF [sic] THE DEED OF
SALE BETWEEN THE PARTIES HAS NO
CONSIDERATION OR INSUFFICIENCY OF
6
EVIDENCE.
On April 30, 2001, the CA promulgated its Decision, the
dispositive portion of which reads:
WHEREFORE, IN VIEW OF THE FOREGOING, this
appeal is hereby GRANTED. The Decision of the lower
court dated July 29, 1998 is REVERSED and SET
ASIDE. A new one is entered ordering defendant-
appellee to execute all necessary documents to effect
transfer of subject property to plaintiff-appellant with the
arrearages of the formers loan with the NHMFC, at the
latters expense. No costs.
SO ORDERED.
The CA concluded that petitioner was the borrower and,
in turn, would "re-lend" the amount borrowed from the
respondent to her friends. Hence, the Deed of Absolute
Sale was supported by a valid consideration, which is the
sum of money petitioner owed respondent amounting
to P405,430.00, representing both principal and interest.
The CA took into account the following circumstances in
their entirety: the supposed friends of petitioner never
presented themselves to respondent and that all
transactions were made by and between petitioner and
respondent;7 that the money borrowed was deposited
with the bank account of the petitioner, while payments
made for the loan were deposited by the latter to
respondents bank account;8 that petitioner herself
admitted in open court that she was "re-lending" the
money loaned from respondent to other individuals for
profit;9 and that the documentary evidence shows that the
actual borrowers, the friends of petitioner, consider her
as their creditor and not the respondent.10
Furthermore, the CA held that the alleged threat or
intimidation by respondent did not vitiate consent, since
the same is considered just or legal if made to enforce
ones claim through competent authority under Article
133511 of the Civil Code;12 that with respect to the
arrearages of petitioner on her monthly amortization with
the NHMFC in the sum of P26,744.09, the same shall be
deemed part of the balance of petitioners loan with the
NHMFC which respondent agreed to assume; and that
the amount of P3,000.00 representing the rental for
January 1997 supposedly collected by petitioner, as well
as the claim for damages and attorneys fees, is denied
for insufficiency of evidence.13
On May 29, 2001, petitioner filed her Motion for
Reconsideration with the CA, arguing that respondent
categorically admitted in open court that she acted only
as agent or representative of Arsenio Pua, the principal
financier and, hence, she had no legal capacity to sue
petitioner; and that the CA failed to consider the fact that
petitioners father, who co-owned the subject property,
was not impleaded as a defendant nor was he indebted
to the respondent and, hence, she cannot be made to
sign the documents to effect the transfer of ownership
over the entire property.
On August 6, 2001, the CA issued its Resolution denying
the motion on the ground that the foregoing matters had
already been passed upon.
On August 13, 2001, petitioner received a copy of the CA
Resolution. On August 28, 2001, petitioner filed the
present Petition and raised the following issues:
I.
WHETHER OR NOT THE PETITIONER CAN BE
CONSIDERED AS A DEBTOR OF THE RESPONDENT.
II.
WHETHER OR NOT AN AGENT WHO WAS NOT
AUTHORIZED BY THE PRINCIPAL TO COLLECT DEBT
IN HIS BEHALF COULD DIRECTLY COLLECT
PAYMENT FROM THE DEBTOR.
III.
WHETHER OR NOT THE CONTRACT OF SALE WAS
EXECUTED FOR A CAUSE.14
Although, as a rule, it is not the business of this Court to
review the findings of fact made by the lower courts,
jurisprudence has recognized several exceptions, at least
three of which are present in the instant case, namely:
when the judgment is based on a misapprehension of
facts; when the findings of facts of the courts a quo are
conflicting; and when the CA manifestly overlooked
certain relevant facts not disputed by the parties, which, if
properly considered, could justify a different
conclusion.15 To arrive at a proper judgment, therefore,
the Court finds it necessary to re-examine the evidence
presented by the contending parties during the trial of the
case.
The Petition is meritorious.
The principal issue is whether the Deed of Absolute Sale
is supported by a valid consideration.
1. Petitioner argues that since she is merely the agent or
representative of the alleged debtors, then she is not a
party to the loan; and that the Deed of Sale executed
between her and the respondent in their own names,
which was predicated on that pre-existing debt, is void for
lack of consideration.
Indeed, the Deed of Absolute Sale purports to be
supported by a consideration in the form of a price
certain in money16 and that this sum indisputably pertains
to the debt in issue. This Court has consistently held that
a contract of sale is null and void and produces no effect
whatsoever where the same is without cause or
consideration.17 The question that has to be resolved for
the moment is whether this debt can be considered as a
valid cause or consideration for the sale.
To restate, the CA cited four instances in the record to
support its holding that petitioner "re-lends" the amount
borrowed from respondent to her friends: first, the friends
of petitioner never presented themselves to respondent
and that all transactions were made by and between
petitioner and respondent;18 second; the money passed
through the bank accounts of petitioner and
respondent;19 third, petitioner herself admitted that she
was "re-lending" the money loaned to other individuals
for profit;20 and fourth, the documentary evidence shows
that the actual borrowers, the friends of petitioner,
consider her as their creditor and not the respondent.21
On the first, third, and fourth points, the CA cites the
testimony of the petitioner, then defendant, during her
cross-examination:22
Atty. Diza:
q. You also mentioned that you were not the one
indebted to the plaintiff?
witness:
a. Yes, sir.
Atty. Diza:
q. And you mentioned the persons[,] namely, Elizabeth
Tomelden, Teresa Moraquin, Maria Luisa Inocencio,
Zenaida Romulo, they are your friends?
witness:
a. Inocencio and Moraquin are my friends while [as to]
Jacob and Tomelden[,] they were just referred.
Atty. Diza:
q. And you have transact[ed] with the plaintiff? a. We are both intermediaries. As evidenced by the
checks of the debtors they were deposited to the name of
witness:
Arsenio Pua because the money came from Arsenio Pua.
a. Yes, sir.
xxxx
Atty. Diza:
Atty. Diza:
q. What is that transaction?
q. Did the plaintiff knew [sic] that you will lend the money
witness: to your friends specifically the one you mentioned [a]
while ago?
a. To refer those persons to Aura and to refer again to
Arsenio Pua, sir. witness:

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

q. Did the plaintiff personally see the transactions with Atty. Diza:
your friends?
q. You are re-lending the money?
witness:
witness:
a. No, sir.
a. Yes, sir.
Atty. Diza:
Atty. Diza:
q. Your friends and the plaintiff did not meet personally?
q. What profit do you have, do you have commission?
witness:
witness:
a. Yes, sir.
a. Yes, sir.
Atty. Diza:
Atty. Diza:
q. You are intermediaries?
q. How much?
witness:
witness:
a. Two percent to Tomelden, one percent to Jacob and Court:
then Inocencio and my friends none, sir.
q. It is not your money?
Based on the foregoing, the CA concluded that petitioner
witness:
is the real borrower, while the respondent, the real
lender. a. Yes, Your Honor.
But as correctly noted by the RTC, respondent, then Atty. Villacorta:
plaintiff, made the following admission during her cross
examination:23 q. Is it not a fact Ms. Witness that the defendant
borrowed from you to accommodate somebody, are you
Atty. Villacorta: aware of that?
q. Who is this Arsenio Pua? witness:
witness: a. I am aware of that.
a. Principal financier, sir. Atty. Villacorta:
Atty. Villacorta: q. More or less she [accommodated] several friends of
the defendant?
q. So the money came from Arsenio Pua?
witness:
witness:
a. Yes, sir, I am aware of that.
a. Yes, because I am only representing him, sir.
xxxx
Other portions of the testimony of respondent must
likewise be considered:24 Atty. Villacorta:
Atty. Villacorta: q. And these friends of the defendant borrowed money
from you with the assurance of the defendant?
q. So it is not actually your money but the money of
Arsenio Pua? witness:
witness: a. They go direct to Jocelyn because I dont know them.
a. Yes, sir. xxxx
Atty. Villacorta: q. And some of the checks that were issued by the
friends of the defendant bounced, am I correct?
q. And is it not also a fact Madam witness that everytime
that the defendant borrowed money from you her friends witness:
who [are] in need of money issued check[s] to you?
a. Yes, sir.
There were checks issued to you?
Atty. Villacorta:
witness:
q. And because of that Arsenio Pua got mad with you?
a. Yes, there were checks issued.
witness:
Atty. Villacorta:
a. Yes, sir.
q. By the friends of the defendant, am I correct?
Respondent is estopped to deny that she herself acted
witness:
as agent of a certain Arsenio Pua, her disclosed
a. Yes, sir. principal. She is also estopped to deny that petitioner
acted as agent for the alleged debtors, the friends whom
Atty. Villacorta:
she (petitioner) referred.
q. And because of your assistance, the friends of the
This Court has affirmed that, under Article 1868 of the
defendant who are in need of money were able to obtain
Civil Code, the basis of agency is representation.25 The
loan to [sic] Arsenio Pua through your assistance?
question of whether an agency has been created is
witness: ordinarily a question which may be established in the
same way as any other fact, either by direct or
a. Yes, sir. circumstantial evidence. The question is ultimately one of
Atty. Villacorta: intention.26 Agency may even be implied from the words
and conduct of the parties and the circumstances of the
q. So that occasion lasted for more than a year? particular case.27Though the fact or extent of authority of
witness: the agents may not, as a general rule, be established
from the declarations of the agents alone, if one
a. Yes, sir. professes to act as agent for another, she may be
Atty. Villacorta: estopped to deny her agency both as against the
asserted principal and the third persons interested in the and personally know each other, such ignorance does
transaction in which he or she is engaged.28 not affect their juridical standing as agents, especially
since the very purpose of agency is to extend the
In this case, petitioner knew that the financier of
personality of the principal through the facility of the
respondent is Pua; and respondent knew that the
agent.
borrowers are friends of petitioner.
With respect to the admission of petitioner that she is "re-
The CA is incorrect when it considered the fact that the
lending" the money loaned from respondent to other
"supposed friends of [petitioner], the actual borrowers,
individuals for profit, it must be stressed that the manner
did not present themselves to [respondent]" as evidence
in which the parties designate the relationship is not
that negates the agency relationshipit is sufficient that
controlling. If an act done by one person in behalf of
petitioner disclosed to respondent that the former was
another is in its essential nature one of agency, the
acting in behalf of her principals, her friends whom she
former is the agent of the latter notwithstanding he or she
referred to respondent. For an agency to arise, it is not
is not so called.30 The question is to be determined by the
necessary that the principal personally encounter the
fact that one represents and is acting for another, and if
third person with whom the agent interacts. The law in
relations exist which will constitute an agency, it will be
fact contemplates, and to a great degree, impersonal
an agency whether the parties understood the exact
dealings where the principal need not personally know or
nature of the relation or not.31
meet the third person with whom her agent transacts:
precisely, the purpose of agency is to extend the That both parties acted as mere agents is shown by the
personality of the principal through the facility of the undisputed fact that the friends of petitioner issued
agent.29 checks in payment of the loan in the name of Pua. If it is
true that petitioner was "re-lending", then the checks
In the case at bar, both petitioner and respondent have
should have been drawn in her name and not directly
undeniably disclosed to each other that they are
paid to Pua.
representing someone else, and so both of them are
estopped to deny the same. It is evident from the record With respect to the second point, particularly, the finding
that petitioner merely refers actual borrowers and then of the CA that the disbursements and payments for the
collects and disburses the amounts of the loan upon loan were made through the bank accounts of petitioner
which she received a commission; and that respondent and respondent,
transacts on behalf of her "principal financier", a certain
suffice it to say that in the normal course of commercial
Arsenio Pua. If their respective principals do not actually
dealings and for reasons of convenience and practical
utility it can be reasonably expected that the facilities of
the agent, such as a bank account, may be employed,
and that a sub-agent be appointed, such as the bank
itself, to carry out the task, especially where there is no
stipulation to the contrary.32
In view of the two agency relationships, petitioner and
respondent are not privy to the contract of loan between
their principals. Since the sale is predicated on that loan,
then the sale is void for lack of consideration.
2. A further scrutiny of the record shows, however, that
the sale might have been backed up by another
consideration that is separate and distinct from the debt:
respondent averred in her complaint and testified that the
parties had agreed that as a condition for the conveyance
of the property the respondent shall assume the balance
of the mortgage loan which petitioner allegedly owed to
the NHMFC.33 This Court in the recent past has declared
that an assumption of a mortgage debt may constitute a
valid consideration for a sale.34
Although the record shows that petitioner admitted at the
time of trial that she owned the property described in the
TCT,35 the Court must stress that the Transfer Certificate
of Title No. 38253236 on its face shows that the owner of
the property which admittedly forms the subject matter of
the Deed of Absolute Sale refers neither to the petitioner
nor to her father, Teodorico Doles, the alleged co-owner.
Rather, it states that the property is registered in the
name of "Household Development Corporation."
Although there is an entry to the effect that the petitioner
had been granted a special power of attorney "covering
the shares of Teodorico Doles on the parcel of land
described in this certificate,"37 it cannot be inferred from
this bare notation, nor from any other evidence on the
record, that the petitioner or her father held any direct
interest on the property in question so as to validly
constitute a mortgage thereon38 and, with more reason,
to effect the delivery of the object of the sale at the
consummation stage.39 What is worse, there is a notation
that the TCT itself has been "cancelled."40
In view of these anomalies, the Court cannot entertain
the
possibility that respondent agreed to assume the balance
of the mortgage loan which petitioner allegedly owed to
the NHMFC, especially since the record is bereft of any
factual finding that petitioner was, in the first place,
endowed with any ownership rights to validly mortgage
and convey the property. As the complainant who
initiated the case, respondent bears the burden of
proving the basis of her complaint. Having failed to
discharge such burden, the Court has no choice but to
declare the sale void for lack of cause. And since the sale
is void, the Court finds it unnecessary to dwell on the
issue of whether duress or intimidation had been foisted
upon petitioner upon the execution of the sale.
Moreover, even assuming the mortgage validly exists,
the Court notes respondents allegation that the
mortgage with the NHMFC was for 25 years which began
September 3, 1994. Respondent filed her Complaint for
Specific Performance in 1997. Since the 25 years had
not lapsed, the prayer of respondent to compel petitioner
to execute necessary documents to effect the transfer of
title is premature.
WHEREFORE, the petition is granted. The Decision and
Resolution of the Court of Appeals
are REVERSED and SET ASIDE. The complaint of
respondent in Civil Case No. 97-82716 is DISMISSED.
SO ORDERED.
G.R. No. L-57339 December 29, 1983
AIR FRANCE, petitioner,
vs.
HONORABLE COURT OF APPEALS, JOSE G. GANA
(Deceased), CLARA A. GANA, RAMON GANA,
MANUEL GANA, MARIA TERESA GANA, ROBERTO
GANA, JAIME JAVIER GANA, CLOTILDE VDA. DE
AREVALO, and EMILY SAN JUAN, respondents.
In this petition for review on certiorari, petitioner AIR
FRANCE assails the Decision of then respondent Court
of Appeals 1 promulgated on 15 December 1980 in CA-
G.R. No. 58164-R, entitled "Jose G. Gana, et al. vs.
Sociedad Nacionale Air France", which reversed the Trial
Court's judgment dismissing the Complaint of private
respondents for damages arising from breach of contract
of carriage, and awarding instead P90,000.00 as moral
damages.
Sometime in February, 1970, the late Jose G. Gana and
his family, numbering nine (the GANAS), purchased from
AIR FRANCE through Imperial Travels, Incorporated, a
duly authorized travel agent, nine (9) "open-dated" air
passage tickets for the Manila/Osaka/Tokyo/Manila route.
The GANAS paid a total of US$2,528.85 for their
economy and first class fares. Said tickets were bought
at the then prevailing exchange rate of P3.90 per
US$1.00. The GANAS also paid travel taxes of P100.00
for each passenger.
On 24 April 1970, AIR FRANCE exchanged or
substituted the aforementioned tickets with other tickets
for the same route. At this time, the GANAS were booked
for the Manila/Osaka segment on AIR FRANCE Flight
184 for 8 May 1970, and for the Tokyo/Manila return trip
on AIR FRANCE Flight 187 on 22 May 1970. The
aforesaid tickets were valid until 8 May 1971, the date
written under the printed words "Non valuable apres de
(meaning, "not valid after the").
The GANAS did not depart on 8 May 1970.
Sometime in January, 1971, Jose Gana sought the
assistance of Teresita Manucdoc, a Secretary of the Sta.
Clara Lumber Company where Jose Gana was the
Director and Treasurer, for the extension of the validity of
their tickets, which were due to expire on 8 May 1971.
Teresita enlisted the help of Lee Ella Manager of the
Philippine Travel Bureau, who used to handle travel
arrangements for the personnel of the Sta. Clara Lumber
Company. Ella sent the tickets to Cesar Rillo, Office
Manager of AIR FRANCE. The tickets were returned to
Ella who was informed that extension was not possible
unless the fare differentials resulting from the increase in
fares triggered by an increase of the exchange rate of the
US dollar to the Philippine peso and the increased travel
tax were first paid. Ella then returned the tickets to
Teresita and informed her of the impossibility of
extension.
In the meantime, the GANAS had scheduled their
departure on 7 May 1971 or one day before the expiry
date. In the morning of the very day of their scheduled
departure on the first leg of their trip, Teresita requested
travel agent Ella to arrange the revalidation of the tickets.
Ella gave the same negative answer and warned her that
although the tickets could be used by the GANAS if they
left on 7 May 1971, the tickets would no longer be valid
for the rest of their trip because the tickets would then
have expired on 8 May 1971. Teresita replied that it will
be up to the GANAS to make the arrangements. With
that assurance, Ella on his own, attached to the tickets
validating stickers for the Osaka/Tokyo flight, one a JAL.
sticker and the other an SAS (Scandinavian Airways
System) sticker. The SAS sticker indicates thereon that it
was "Reevaluated by: the Philippine Travel Bureau,
Branch No. 2" (as shown by a circular rubber stamp) and
signed "Ador", and the date is handwritten in the center
of the circle. Then appear under printed headings the
notations: JL. 108 (Flight), 16 May (Date), 1040 (Time),
OK (status). Apparently, Ella made no more attempt to
contact AIR FRANCE as there was no more time.
Notwithstanding the warnings, the GANAS departed from
Manila in the afternoon of 7 May 1971 on board AIR
FRANCE Flight 184 for Osaka, Japan. There is no
question with respect to this leg of the trip.
However, for the Osaka/Tokyo flight on 17 May 1971,
Japan Airlines refused to honor the tickets because of
their expiration, and the GANAS had to purchase new
tickets. They encountered the same difficulty with respect
to their return trip to Manila as AIR FRANCE also refused
to honor their tickets. They were able to return only after
pre-payment in Manila, through their relatives, of the
readjusted rates. They finally flew back to Manila on
separate Air France Frights on 19 May 1971 for Jose
Gana and 26 May 1971 for the rest of the family.
On 25 August 1971, the GANAS commenced before the
then Court of First Instance of Manila, Branch III, Civil
Case No. 84111 for damages arising from breach of
contract of carriage.
AIR FRANCE traversed the material allegations of the
Complaint and alleged that the GANAS brought upon
themselves the predicament they found themselves in
and assumed the consequential risks; that travel agent
Ella's affixing of validating stickers on the tickets without
the knowledge and consent of AIR FRANCE, violated
airline tariff rules and regulations and was beyond the
scope of his authority as a travel agent; and that AIR
FRANCE was not guilty of any fraudulent conduct or bad
faith.
On 29 May 1975, the Trial Court dismissed the Complaint
based on Partial and Additional Stipulations of Fact as
wen as on the documentary and testimonial evidence.
The GANAS appealed to respondent Appellate Court.
During the pendency of the appeal, Jose Gana, the
principal plaintiff, died.
On 15 December 1980, respondent Appellate Court set
aside and reversed the Trial Court's judgment in a
Decision, which decreed:
WHEREFORE, the decision appealed from is set aside.
Air France is hereby ordered to pay appellants moral
damages in the total sum of NINETY THOUSAND
PESOS (P90,000.00) plus costs.
SO ORDERED. 2
Reconsideration sought by AIR FRANCE was denied,
hence, petitioner's recourse before this instance, to which
we gave due course.
The crucial issue is whether or not, under the
environmental milieu the GANAS have made out a case
for breach of contract of carriage entitling them to an
award of damages.
We are constrained to reverse respondent Appellate
Court's affirmative ruling thereon.
Pursuant to tariff rules and regulations of the International
Air Transportation Association (IATA), included in
paragraphs 9, 10, and 11 of the Stipulations of Fact
between the parties in the Trial Court, dated 31 March
1973, an airplane ticket is valid for one year. "The
passenger must undertake the final portion of his journey
by departing from the last point at which he has made a
voluntary stop before the expiry of this limit (parag. 3.1.2.
) ... That is the time allowed a passenger to begin and to
complete his trip (parags. 3.2 and 3.3.). ... A ticket can no
longer be used for travel if its validity has expired before
the passenger completes his trip (parag. 3.5.1.) ... To
complete the trip, the passenger must purchase a new
ticket for the remaining portion of the journey" (ibid.) 3
From the foregoing rules, it is clear that AIR FRANCE
cannot be faulted for breach of contract when it
dishonored the tickets of the GANAS after 8 May 1971
since those tickets expired on said date; nor when it
required the GANAS to buy new tickets or have their
tickets re-issued for the Tokyo/Manila segment of their
trip. Neither can it be said that, when upon sale of the
new tickets, it imposed additional charges representing
fare differentials, it was motivated by self-interest or
unjust enrichment considering that an increase of fares
took effect, as authorized by the Civil Aeronautics Board
(CAB) in April, 1971. This procedure is well in accord with
the IATA tariff rules which provide:
6. TARIFF RULES
7. APPLICABLE FARE ON THE DATE OF DEPARTURE
3.1 General Rule.
All journeys must be charged for at the fare (or charge) in
effect on the date on which transportation commences
from the point of origin. Any ticket sold prior to a change
of fare or charge (increase or decrease) occurring
between the date of commencement of the journey, is
subject to the above general rule and must be adjusted
accordingly. A new ticket must be issued and the
difference is to be collected or refunded as the case may
be. No adjustment is necessary if the increase or
decrease in fare (or charge) occurs when the journey is
already commenced. 4
The GANAS cannot defend by contending lack of
knowledge of those rules since the evidence bears out
that Teresita, who handled travel arrangements for the
GANAS, was duly informed by travel agent Ella of the
advice of Reno, the Office Manager of Air France, that
the tickets in question could not be extended beyond the
period of their validity without paying the fare differentials
and additional travel taxes brought about by the
increased fare rate and travel taxes.
ATTY. VALTE
Q What did you tell Mrs. Manucdoc, in turn after being
told this by Mr. Rillo?
A I told her, because that is the reason why they
accepted again the tickets when we returned the tickets
spin, that they could not be extended. They could be
extended by paying the additional fare, additional tax and
additional exchange during that time.
Q You said so to Mrs. Manucdoc?
A Yes, sir." ... 5
The ruling relied on by respondent Appellate Court,
therefore, in KLM. vs. Court of Appeals, 65 SCRA 237
(1975), holding that it would be unfair to charge
respondents therein with automatic knowledge or notice
of conditions in contracts of adhesion, is inapplicable. To
all legal intents and purposes, Teresita was the agent of
the GANAS and notice to her of the rejection of the
request for extension of the validity of the tickets was
notice to the GANAS, her principals.
The SAS validating sticker for the Osaka/Tokyo flight
affixed by Era showing reservations for JAL. Flight 108
for 16 May 1971, without clearing the same with AIR
FRANCE allegedly because of the imminent departure of
the GANAS on the same day so that he could not get in
touch with Air France 6 was certainly in contravention of
IATA rules although as he had explained, he did so upon
Teresita's assurance that for the onward flight from
Osaka and return, the GANAS would make other
arrangements.
Q Referring you to page 33 of the transcript of the last
session, I had this question which reads as follows: 'But
did she say anything to you when you said that the
tickets were about to expire?' Your answer was: 'I am the
one who asked her. At that time I told her if the tickets
being used ... I was telling her what about their bookings
on the return. What about their travel on the return? She
told me it is up for the Ganas to make the arrangement.'
May I know from you what did you mean by this
testimony of yours?
A That was on the day when they were asking me on
May 7, 1971 when they were checking the tickets. I told
Mrs. Manucdoc that I was going to get the tickets. I asked
her what about the tickets onward from the return from
Tokyo, and her answer was it is up for the Ganas to
make the arrangement, because I told her that they could
leave on the seventh, but they could take care of that
when they arrived in Osaka.
Q What do you mean?
A The Ganas will make the arrangement from Osaka,
Tokyo and Manila.
Q What arrangement?
A The arrangement for the airline because the tickets
would expire on May 7, and they insisted on leaving. I
asked Mrs. Manucdoc what about the return onward
portion because they would be travelling to Osaka, and
her answer was, it is up to for the Ganas to make the
arrangement.
Q Exactly what were the words of Mrs. Manucdoc when
you told her that? If you can remember, what were her
exact words?
A Her words only, it is up for the Ganas to make the
arrangement.
Q This was in Tagalog or in English?
A I think it was in English. ... 7
The circumstances that AIR FRANCE personnel at the
ticket counter in the airport allowed the GANAS to leave
is not tantamount to an implied ratification of travel agent
Ella's irregular actuations. It should be recalled that the
GANAS left in Manila the day before the expiry date of
their tickets and that "other arrangements" were to be
made with respect to the remaining segments. Besides,
the validating stickers that Ella affixed on his own merely
reflect the status of reservations on the specified flight
and could not legally serve to extend the validity of a
ticket or revive an expired one.
The conclusion is inevitable that the GANAS brought
upon themselves the predicament they were in for having
insisted on using tickets that were due to expire in an
effort, perhaps, to beat the deadline and in the thought
that by commencing the trip the day before the expiry
date, they could complete the trip even thereafter. It
should be recalled that AIR FRANCE was even unaware
of the validating SAS and JAL. stickers that Ella had
affixed spuriously. Consequently, Japan Air Lines and
AIR FRANCE merely acted within their contractual rights
when they dishonored the tickets on the remaining
segments of the trip and when AIR FRANCE demanded
payment of the adjusted fare rates and travel taxes for
the Tokyo/Manila flight.
WHEREFORE, the judgment under review is hereby
reversed and set aside, and the Amended Complaint filed
by private respondents hereby dismissed.
No costs.
SO ORDERED.
G.R. No. 114311. November 29, 1996
COSMIC LUMBER CORPORATION, petitioner,
vs. COURT OF APPEALS and ISIDRO
PEREZ, respondents.
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 -
x x x 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 while the special power of attorney made mention of an
approved by the trial court and judgment was rendered in authority to enter into a compromise agreement, such
accordance therewith.[4] authority was in connection with, and limited to, the
eviction of third persons/squatters thereat, in order
Although the decision became final and executory it was
that the corporation may take material possession of the
not executed within the 5-year period from date of its
entire lot; (d) the amount of P26,640.00 alluded to as
finality allegedly due to the failure of petitioner to produce
alleged consideration of said agreement was never
the owners duplicate copy of Title No. 37649 needed to
received by the plaintiff; (e) the private defendant acted in
segregate from Lot No. 443 the portion sold by the
bad faith in the execution of said agreement knowing fully
attorney-in-fact, Paz G. Villamil-Estrada, to private
well the want of authority of the attorney-in-fact to sell,
respondent under the compromise agreement. Thus
encumber or dispose of the real property of plaintiff; and,
on 25 January 1993 respondent filed a complaint to
(f) the disposal of a corporate property indispensably
revive the judgment, docketed as Civil Case No. D-
requires a Board Resolution of its Directors, a fact which
10459.[5]
is wanting in said Civil Case No. D-7750, and the
Petitioner asserts that it was only when the summons in General Manager is not the proper officer to encumber a
Civil Case No. D-10459 for the revival of judgment was corporate property.[6]
served upon it that it came to know of the compromise
On 29 October 1993 respondent court dismissed the
agreement entered into between Paz G. Villamil-Estrada
complaint on the basis of its finding that not one of the
and respondent Isidro Perez upon which the trial court
grounds for annulment, namely, lack of jurisdiction, fraud
based its decision of 26 July 1993 in Civil Case No. D-
or illegality was shown to exist.[7] It also denied the
7750. Forthwith, upon learning of the fraudulent
motion for reconsideration filed by petitioner, discoursing
transaction, petitioner sought annulment of the decision
that the alleged nullity of the compromise judgment on
of the trial court before respondent Court of Appeals on
the ground that petitioners attorney in fact Villamit-
the ground that the compromise agreement was void
Estrada was not authorized to sell the subject property
because: (a) the attorney-in-fact did not have the
may be raised as a defense in the execution of the
authority to dispose of, sell, encumber or divest the
compromise judgment as it does not bind petitioner, but
plaintiff of its ownership over its real property or any
not as a ground for annulment of judgment because it
portion thereof; (b) the authority of the attorney-in-fact
does not affect the jurisdiction of the trial court over the
was confined to the institution and filing of an ejectment
action nor does it amount to extrinsic fraud.[8]
case against third persons/squatters on the property of
the plaintiff, and to cause their eviction therefrom; (c)
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 x x x lot x x
x (No.) 443 x x x 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
xxxx
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 petitioners land through a compromise
agreement, Villamil-Estrada acted without or in obvious
authority. The saleipso 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
petitioners 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 -
x x x x 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 x x
x x Neither could Attorney Ortega bind them validly in the
compromise because he had no special authority x x x x
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 x x x
x x x x 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 x x x x
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 Appellate Court (now Court of Appeals)
shall exercise x x x x (2) Exclusive original jurisdiction
over action for annulment of judgments of the Regional
Trial Courts x x x x However, certain requisites must first
be established before a final and executory judgment can
be the subject of an action for annulment. It must either
be void for want of jurisdiction or for lack of due process
of law, or it has been obtained by fraud.[17]
Conformably with law and the above-cited authorities, the
petition to annul the decision of the trial court in Civil
Case No. D-7750 before the Court of Appeals was
proper. Emanating as it did from a void compromise
agreement, the trial court had no jurisdiction to render a
judgment based thereon.[18]
It would also appear, and quite contrary to the finding of
the appellate court that the highly reprehensible conduct
of attorney-in-fact Villamil-Estrada in Civil Case No. 7750
constituted an extrinsic or collateral fraud by reason of
which the judgment rendered thereon should have been
struck down. Not all the legal semantics in the world can
becloud the unassailable fact that petitioner was
deceived and betrayed by its attorney-in-fact. Villamil-
Estrada deliberately concealed from petitioner, her
principal, that a compromise agreement had been forged
with the end-result that a portion of petitioners property
was sold to the deforciant, literally for a song. Thus
completely kept unaware of its agents artifice, petitioner
was not accorded even a fighting chance to repudiate the
settlement so much so that the judgment based thereon
became final and executory.
For sure, the Court of Appeals restricted the concept of
fraudulent acts within too narrow limits. Fraud may
assume different shapes and be committed in as many
different ways and here lies the danger of attempting to
define fraud. For man in his ingenuity and fertile
imagination will always contrive new schemes to fool the
unwary.
There is extrinsic fraud within the meaning of Sec. 9, par.
(2), of B.P. Blg. 129, where it is one the effect of which
prevents a party from hearing a trial, or real contest, or
from presenting all of his case to the court, or where it
operates upon matters, not pertaining to the judgment
itself, but to the manner in which it was procured so that
there is not a fair submission of the controversy. In other
words, extrinsic fraud refers to any fraudulent act of the
prevailing party in the litigation which is committed
outside of the trial of the case, whereby the defeated
party has been prevented from exhibiting fully his side of
the case by fraud or deception practiced on him by his
opponent.[19] Fraud is extrinsic where the unsuccessful
party has been prevented from exhibiting fully his case,
by fraud or deception practiced on him by his opponent,
as by keeping him away from court, a false promise of a
compromise; or where the defendant never had
knowledge of the suit, being kept in ignorance by the acts
of the plaintiff; or where an attorney fraudulently or
without authority connives at his defeat; these and similar
cases which show that there has never been a real
contest in the trial or hearing of the case are reasons for
which a new suit may be sustained to set aside and
annul the former judgment and open the case for a new
and fair hearing.[20]
It may be argued that petitioner knew of the compromise
agreement since the principal is chargeable with and
bound by the knowledge of or notice to his agent
received while the agent was acting as such. But the
general rule is intended to protect those who exercise
good faith and not as a shield for unfair dealing. Hence
there is a well-established exception to the general rule
as where the conduct and dealings of the agent are such
as to raise a clear presumption that he will not
communicate to the principal the facts in
[21]
controversy. The logical reason for this exception is
that where the agent is committing a fraud, it would be
contrary to common sense to presume or to expect that
he would communicate the facts to the principal.Verily,
when an agent is engaged in the perpetration of a fraud
upon his principal for his own exclusive benefit, he is not
really acting for the principal but is really acting for
himself, entirely outside the scope of his
agency.[22] Indeed, the basic tenets of agency rest on the
highest considerations of justice, equity and fair play, and
an agent will not be permitted to pervert his authority to
his own personal advantage, and his act in secret
hostility to the interests of his principal transcends the
power afforded him.[23]
WHEREFORE, the petition is GRANTED. The decision
and resolution of respondent Court of Appeals dated 29
October 1993 and 10 March 1994, respectively, as well
as the decision of the Regional Trial Court of Dagupan
City in Civil Case No. D-7750 dated 27 November 1985,
are NULLIFIED and SET ASIDE. The Compromise
Agreement entered into between Attorney-in-fact Paz G.
Villamil-Estrada and respondent Isidro Perez is declared
VOID. This is without prejudice to the right of petitioner to
pursue its complaint against private respondent Isidro
Perez in Civil Case No. D-7750 for the recovery of
possession of a portion of Lot No. 443.
SO ORDERED.
G.R. No. L-18377 December 29, 1962
ANASTACIO G. DUGO, petitioner,
vs.
ADRIANO LOPENA, ROSA RAMOS and HON.
ANDRES REYES, Judge of the Court of First Instance
of Rizal,respondents.
On September 10, 1959, herein petitioner Anastacio
Dugo and one Rodrigo S. Gonzales purchased 3 parcel
of land from the respondents Adriano Lopena and Rosa
Ramos for the total price of P269,804.00. Of this amount
P28.000.00 was given as down payment with the
agreement that the balance of P241,804.00 would be
paid in 6 monthly installments.
To secure the payment of the balance Anastacio Dugo
and Rodrigo S. Gonzales, the vendees, on September
11, 1958, executed over the same 3 parcels of land Deed
of Real Estate Mortgage in favor of the respondent
Adriano Lopena and Rosa Ramos. This deed was duly
registered with the Office of the Register of Deeds Rizal,
with the condition that failure of the vendees to pay any
of the installments on their maturity dates shall
automatically cause the entire unpaid balance to become
due and demandable.
The vendees defaulted on the first installment. It resulted
then that on November 7, 1959, the vendors, herein
respondents Adriano Lopena and Rosa Ramos, filed a
complaint for the foreclosure of the aforementioned real
estate mortgage with the Court of First Instance of Rizal
the Hon. Judge Andres Reyes, presiding. This complaint
was answered by the herein petitioner and the other
vendee, Rodrigo S. Gonzales, on December 7, 1959.
Meanwhile, there were 2 other civil cases filed in the
same lower court against the same defendants Anastacio
Dugo and Rodrigo S. Gonzales. The plaintiff in one was
a certain Dionisio Lopena, and in the other case, the
complainants were Bernardo Lopena and Maria de la
Cruz.
Both complaints involved the same cause of action as
that of herein respondents Adriano Lopena and Rosa
Ramos. As a matter of fact all three cases arose out of
one transaction. In view of the identical nature of the
above three cases, they were consolidated by the lower
court into just one proceeding.
It must be made clear, however, that this present
decision refers solely to the interests and claim of
Adriano Lopena against Anastacio Dugo alone.
Before the cases could be tried, a compromise
agreement dated January 15, 1960 was submitted to the
lower court for approval. It was signed by herein
respondents Adriano Lopena and Rosa Ramos on one
hand, and Rodrigo S. Gonzales, on the other. It was not
signed by the herein petitioner. However, Rodrigo S.
Gonzales represented that his signature was for both
himself and the herein petitioner. Moreover, Anastacio
Dugo's counsel of record, Atty. Manuel O. Chan, the
same lawyer who signed and submitted for him the
answer to the complaint, was present at the preparation
of the compromise agreement and this counsel affixed
his signature thereto.
The text of this agreement is hereunder quoted:
COMPROMISE AGREEMENT
COME NOW the parties in the above entitled cases and
unto this Hon. Court respectfully set forth:
That, the plaintiffs, have agreed to give the defendants
up to June 30, 1960 to pay the mortgage indebtedness in
each of the said cases;
That, should the defendants fail to pay the said mortgage
indebtedness, judgments of foreclosure shall thereafter
be entered against the said defendants;
That, the defendants hereby waive the period of
redemption provided by law after entry of judgments;
That, in the event of sale of the properties involved in
these three cases, the defendants agree that the said
properties shall be sold at one time at public auction, that
is, one piece of property cannot be sold without the
others.
This compromise agreement was approved by the lower
court on the same day it was submitted, January 15,
1960.
Subsequently, on May 3, 1960, a so-called Tri-Party
Agreement was drawn. The signatories to it were
Anastacio Dugo (herein petitioner) and Rodrigo S.
Gonzales as debtors, Adriano Lopena and Rosa Ramos
(herein respondents) as creditors, and, one Emma R.
Santos as pay or. The stipulations of the Tri-Party
Agreement were as follows: .
A TRI-PARTY AGREEMENT
KNOW ALL MEN BY THESE PRESENTS:
This contract entered into by and between
(1) MMA R. SANTOS, Filipino, of legal age, single, with
residence and postal address at ..........., Rizal Avenue,
Manila, hereinafter referred to as the PAYOR,
(2) ANASTACIO C. DUGO Filipino, of legal age, single,
with residence and postal address at 137 N. Domingo,
Quezon City, and RODRIGO S. GONZALES, Filipino, of
legal age, married to Magdalena Balatbat, with residence
and postal address at 73 Maryland, Quezon City,
hereinafter referred to as the DEBTOR,
and
(3) DIONISIO LOPENA, married to Teofila Nofuente,
LIBRADA LOPENA, married to Arellano Cawagas,
BERNARDO LOPENA, married to Maria de la Cruz, and
ADRIANO LOPENA, married to Rosa Ramos, all of
whom are Filipinos, of legal ages, with residence and
postal address at Sucat, Muntinlupa, Rizal, hereinafter
represented by their attorney of record, ANTONIO
LOPENA, hereinafter referred to as the CREDITOR,
W I T N E S S E T H:
WHEREAS, the DEBTOR is indebted to the CREDITOR
as of this date in the aggregate amount of P503,000.00
for the collection of which, the latter as party plaintiffs
have institute foreclosure proceedings against the former
as party defendant in Civil Cases Nos. 5872, 5873 and
5874 now pending in the Court of First Instance, Pasig,
Rizal;
WHEREAS, the PAYOR, hereby submits and binds
herself to the force and effect of the Order dated January
15, 1960, of the Court of First Instance of Pasig, Rizal,
Branch VI, which order is hereby made an integral part of
this agreement as ANNEX "A";
WHEREAS, the PAYOR with due knowledge and
consent of the DEBTOR, hereby proposes to pay the
aforesaid indebtedness in the sum of P503,000.00 to the
CREDITOR for and in behalf of the DEBTOR under the
following terms and condition petitions:
(a) To pay the said P503,000.00 in installments in the
following schedule of amounts and time: P50,000.00 on
or before May 31, 1960 70,000.00 on or before June 30,
1960 70,000.00 on or before July 31, 1960 313,000.00
on or before Aug. 31, 1960.
(b) That the DEBTOR and the PAYOR hereby waive any
right to object and oblige themselves not to oppose the
motion that the CREDITOR may file during the first week
of July 1960, or subsequently thereafter, informing the
Court of the exact money obligation of the DEBTOR
which shall be P503,000.00 minus whatever payments, if
any, made before June 30, 1960 by the PAYOR and
praying for the issuance of an order to sell the property
covered by the mortgage.
(c) That the CREDITOR, once he has the order referred
to, should not execute the same by giving it to the sheriff
if the PAYOR is regular and punctual in the payment of
all of the installments stated above. PROVIDED,
however, if the PAYOR defaults or fails to pay anyone of
the installments in the manner stated above, the PAYOR
and the DEBTOR hereby permit the CREDITOR to
execute the order of sale referred to above, and they
(PAYOR and DEBTOR) hereby waive any and all
objection's or oppositions to the propriety of the public
auction sale and to the confirmation of the sale to be
made by the court.
(d) That the CREDITOR, at his option, may execute the
August installment stated in letter (a) of this paragraph if
the PAYOR has paid regularly the May, June, and July
installments, and provided further that one half () of the
August installment in the amount of P156,500.00 is paid
on the said date of August 31, 1960.
NOW, THEREFORE, for and in consideration of the
foregoing stipulations, the DEBTOR and CREDITOR
hereby accept, approve and ratify the above-mentioned
propositions of the PAYOR and all the parties herein bind
and oblige themselves to comply to the covenants and
stipulations aforestated;
That by mutual agreements of all the parties herein, this
TRI-PARTY AGREEMENT may be submitted to Court to
form integral parts of the records of the Civil Cases
mentioned above;
IN WITNESS WHEREOF, the parties hereunto affix their
signature on this 3rd day of May, 1960 in the City of
Manila, Philippines.
When Anastacio Dugo (herein petitioner) and Rodrigo
S. Gonzales failed to pay the balance of their
indebtedness on June 30, 1960, herein respondents
Lopena and Ramos filed on July 5, 1960, a Motion for the
Sale of Mortgaged Property. Although this last motion
was filed ex parte, Anastacio Dugo and Rodrigo S.
Gonzales were notified of it by the lower court. Neither of
them, however, despite the notice, filed any opposition
thereto. As a result, the lower court granted the above
motion on July 19, 1960, and ordered the sale of the
mortgaged property.
On August 25, 1960, the 3 parcels of land above-
mentioned were sold by the Sheriff at a public auction
where at herein petitioners, together with the plaintiffs of
the other two cases won as the highest bidders. The said
sheriff's sale was later confirmed by the lower court on
August 30, 1960. In this connection, it should also made
of record that before confirming the sale, the lower court
gave due notice of the motion for the confirmation to the
herein petitioner who filed no opposition therefore.
On August 31, 1960, Anastacio Dugo filed a motion to
set aside all the proceedings on the ground that the
compromise agreement dated January 15, 1960 was
void ab initio with respect to him because he did not sign
the same. Consequently, he argued, all subsequent
proceedings under and by virtue of the compromise
agreement, including the foreclosure sale of August 25,
1960, were void and null as regards him. This motion to
set aside, however, was denied by the lower court in its
order of December 14, 1960.
Upon denial of the said motion to set aside, Anastacio
Dugo filed a Notice of Appeal from the order of August
31, 1960 approving the foreclosure sale of August 25,
1960, as well as the order of December 14, 1960,
denying his motion to set aside. The approval of the
record on appeal however, was opposed by the herein
respondent spouses who claimed that the judgment was
not appealable having been rendered by virtue of the
compromise agreement. The opposition was contained in
a motion to dismiss the appeal. Anastacio Dugo filed a
reply to the above motion. Soon thereafter, the lower
court dismissed the appeal.
Two issues were raised to this Court for review, to wit:
(1) Was the compromise agreement of January 15, 1960,
the Order of the same date approving the same, and, all
the proceedings subsequent thereto, valid or void insofar
as the petitioner herein is concerned?
(2) Did the lower court abuse its discretion when it
dismissed the appeal of the herein petitioner?
Petitioner Anastacio Dugo insists that the Compromise
Agreement was void ab initio and could have no effect
whatsoever against him because he did not sign the
same. Furthermore, as it was void, all the proceedings
subsequent to its execution, including the Order
approving it, were similarly void and could not result to
anything adverse to his interest.
The argument was not well taken. It is true that a
compromise is, in itself, a contract. It is as such that the
Civil Code speaks of it.
ART. 2028. A compromise is a contract whereby the
parties, by making reciprocal concessions, avoid a
litigation or put an end to one already commenced.
Moreover, under Art. 1878 of the Civil Code, a third
person cannot bind another to a compromise agreement
unless he, the third person, has obtained a special power
of attorney for that purpose from the party intended to be
bound.
ART. 1878. Special powers of attorney are necessary in
the following cases:
xxx xxx xxx
xxx xxx xxx
(3) To compromise, to submit questions to arbitration, to
renounce the right to appeal from a judgment, to waive
objections to the venue of an action or to abandon a
prescription already acquired;
However, although the Civil Code expressly requires a
special power of attorney in order that one may
compromise an interest of another, it is neither accurate
nor correct to conclude that its absence renders the
compromise agreement void. In such a case, the
compromise is merely unenforceable. This results from
its nature is a contract. It must be governed by the rules
and the law on contracts.
ART. 1403. The following contracts are
unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by
one who has been given no authority or legal
representation, or who has acted beyond his powers;
Logically, then, the next inquiry in this case should be
whether the herein petitioner, Anastacio Dugo had or
had not ratified the compromise agreement. If he had,
then the compromise agreement was legally enforced
against him; otherwise, he should be sustained in his
contention that it never bound him, nor ever could it be
made to bind him.
The ratification of the compromise agreement was
conclusively established by the Tri-Party Agreement of
May 1960. It is to be noted that the compromise
agreement was submitted to and approved by the lower
court January 15, 1960. Now, the Tri-Party Agreement
referred itself to that order when it stipulated thus:
WHEREAS, the MAYOR, hereby submits and binds
herself to the force and effect of the order dated January
15, 1960, of the Court of First Instance of Pasig, Rizal,
Branch which order is hereby made an integral part of
this agreement as Annex "A
Having so consented to making that court order
approving the compromise agreement an integral part of
the Tri-Party Agreement, how can the petitioner herein
now repudiate the compromise agreement and claim he
has not authorized it?
When it appears that the client, on becoming aware the
compromise and the judgment thereon, fails to repudiate
promptly the action of his attorney, he will not afterwards
be heard to contest its validity (Rivero vs. Rivero, 59 Phil.
15).
Besides, this Court has not overlooked the fact that which
indeed Anastacio Dugo was not a signatory to the
compromise agreement, the principal provision of the
said instrument was for his benefit. Originally, Anastacio
Dugo's obligation matured and became demandable on
October 10, 1959. However, the compromise agreement
extended the date of maturity to June 30, 1960. More
than anything, therefore, the compromise agreement
operated to benefit the herein petitioner because it
afforded him more time and opportunity to fulfill his
monetary obligations under the contract. If only for this
reason, this Court believes that the herein petitioner
should not be heard to repudiate the said agreement.
Lastly, the compromise agreement stated "that, should
the defendants fail to pay the said mortgage
indebtedness, judgment of foreclosure shall thereafter be
entered against the said defendants:" Beyond doubt, this
was ratified by the Tri-Party Agreement when it
covenanted that
If the MAYOR defaults or fails to pay anyone of the
installments in the manner stated above, the MAYOR
and the DEBTOR hereby permit the CREDITOR to
execute the order of sale referred to above (the
Judgment of Foreclosure), and they (PAYOR and
DEBTOR) hereby waive any and all objections or
oppositions to the propriety of the public auction sale and
to the confirmation of the sale to be made by the Court.
Petitioner Dugo finally argued that even assuming that
the compromise agreement was valid, it nevertheless
could not be enforced against him because it has been
novated by the Tri-Party Agreement which brought in a
third party, namely, Emma R. Santos, who assumed the
mortgaged obligation of the herein petitioner.
This Court cannot accept the argument. Novation by
presumption has never been favored. To be sustained, it
need be established that the old and new contracts are
incompatible in all points, or that the will to novate
appears by express agreement of the parties or in acts of
similar import. (Martinez v. Cavives, 25 Phil. 581; Tiy
Sinco vs. Havana, 45 Phil. 707; Asia Banking Corp. vs.
Lacson Co.. 48 Phil. 482; Pascual vs. Lacsamana, 53
O.G. 2467, April 1957).
An obligation to pay a sum of money is not novated, in a
new instrument wherein the old is ratified, by changing
only the term of payment and adding other obligations
not incompatible with the old one (Inchausti vs. Yulo, 34
Phil. 978; Pablo vs. Sapungan, 71 Phil. 145) or wherein
the old contract is merely supplemented by the new one
Ramos vs. Gibbon, 67 Phil. 371).
Herein petitioner claims that when a third party Emma R.
Santos, came in and assumed the mortgaged obligation,
novation resulted thereby inasmuch as a new debtor was
substituted in place of the original one. In this kind of
novation, however, it is not enough that the juridical
relation of the parties to the original contract is extended
to a third person; it is necessary that the old debtor be
released from the obligation, and the third person or new
debtor take his place in the new relation. Without such
release, there is no novation; the third person who has
assumed the obligation of the debtor merely becomes a
co-debtor or surety. If there is no agreement as to
solidarity, the first and the new debtors are considered
obligation jointly. (IV Tolentino, Civil Code, p. 360, citing
Manresa. There was no such release of the original
debtor in the Tri-Party Agreement.
It is a very common thing in the business affairs for a
stranger to a contract to assume its obligations; an while
this may have the effect of adding to the number of
persons liable, it does not necessarily imply the
extinguishment of the liability of the first debtor (Rios v
Jacinto, etc., 49 Phil. 7; Garcia vs. Khu Yek Ching, 65
Phil. 466). The mere fact that the creditor receives a
guaranty or accepts payments from a third person who
has agreed to assume the obligation, when there is no
agreement that the first debtor shall be released from
responsibility, do not constitute a novation, and the
creditor can still enforce the obligation against the original
debtor (Straight vs. Haskell, 49 Phil. 614; Pacific
Commercial Co. vs. Sotto, 34 Phil. 237; Estate of Mota
vs. Serra, 47 Phil. 446).
In view of all the foregoing, We hold that the Tri-Party
Agreement was an instrument intended to render
effective the compromise agreement. It merely
complemented an ratified the same. That a third person
was involved in it is inconsequential. Nowhere in the new
agreement may the release of the herein petitioner be
even inferred.
Having held that the compromise agreement was validity
and enforceable against the herein petitioner, it follows
that the lower court committed no abuse of discretion
when it dismissed the appeal of the herein petitioner.
WHEREFORE, the petition for certiorari and mandamus
filed by the herein petitioner is hereby dismissed. The
order of the lower court dismissing the appeal is her by
affirmed, with costs.
G.R. No. 111448. January 16, 2002
AF REALTY & DEVELOPMENT, INC. and ZENAIDA R.
RANULLO, petitioners, vs. DIESELMAN FREIGHT
SERVICES, CO., MANUEL C. CRUZ, JR. and MIDAS
DEVELOPMENT CORPORATION, respondents
Petition for review on certiorari assailing the Decision
dated December 10, 1992 and the Resolution (Amending
Decision) dated August 5, 1993 of the Court of Appeals
in CA-G.R. CV No. 30133.
Dieselman Freight Service Co. (Dieselman for brevity) is
a domestic corporation and a registered owner of a
parcel of commercial lot consisting of 2,094 square
meters, located at 104 E. Rodriguez Avenue, Barrio
Ugong, Pasig City, Metro Manila. The property is covered
by Transfer Certificate of Title No. 39849 issued by the
Registry of Deeds of the Province of Rizal.[1]
On May 10, 1988, Manuel C. Cruz, Jr., a member of the
board of directors of Dieselman, issued a letter
denominated as "Authority To Sell Real Estate"[2] to
Cristeta N. Polintan, a real estate broker of the CNP Real
Estate Brokerage. Cruz, Jr. authorized Polintan "to look
for a buyer/buyers and negotiate the sale" of the lot
at P3,000.00 per square meter, or a total
ofP6,282,000.00. Cruz, Jr. has no written authority
from Dieselman to sell the lot.
In turn, Cristeta Polintan, through a letter[3] dated May 19,
1988, authorized Felicisima ("Mimi") Noble[4] to sell the
same lot.
Felicisima Noble then offered for sale the property to AF
Realty & Development, Inc. (AF Realty) at P2,500.00 per
square meter.[5] Zenaida Ranullo, board member and
vice-president of AF Realty, accepted the offer and
issued a check in the amount of P300,000.00 payable to
the order of Dieselman. Polintan received the check and
signed an "Acknowledgement Receipt"[6]indicating that
the amount of P300,000.00 represents the partial
payment of the property but refundable within two weeks
should AF Realty disapprove Ranullo's action on the
matter.
On June 29, 1988, AF Realty confirmed its intention to
buy the lot. Hence, Ranullo asked Polintan for the board
resolution of Dieselman authorizing the sale of the
property. However, Polintan could only give Ranullo the
original copy of TCT No. 39849, the tax declaration and
tax receipt for the lot, and a photocopy of the Articles of
Incorporation of Dieselman.[7]
On August 2, 1988, Manuel F. Cruz, Sr., president of
Dieselman, acknowledged receipt of the said
P300,000.00 as "earnest money" but required AF Realty
to finalize the sale at P4,000.00 per square meter.[8] AF
Realty replied that it has paid an initial down payment of
P300,000.00 and is willing to pay the balance.[9]
However, on August 13, 1988, Mr. Cruz, Sr. terminated
the offer and demanded from AF Realty the return of the
title of the lot earlier delivered by Polintan.[10]
Claiming that there was a perfected contract of sale
between them, AF Realty filed with the Regional Trial
Court, Branch 160, Pasig City a complaint for specific
performance (Civil Case No. 56278) against Dieselman
and Cruz, Jr.. The complaint prays that Dieselman be
ordered to execute and deliver a final deed of sale in
favor of AF Realty.[11] In its amended complaint,[12]AF
Realty asked for payment of P1,500,000.00 as
compensatory damages; P400,000.00 as attorneys fees;
and P500,000.00 as exemplary damages.
In its answer, Dieselman alleged that there was no
meeting of the minds between the parties in the sale of
the property and that it did not authorize any person to
enter into such transaction on its behalf.
Meanwhile, on July 30, 1988, Dieselman and Midas
Development Corporation (Midas) executed a Deed of
Absolute Sale[13] of the same property. The agreed price
was P2,800.00 per square meter. Midas delivered to
Dieselman P500,000.00 as down payment and deposited
the balance of P5,300,000.00 in escrow account with the
PCIBank.
Constrained to protect its interest in the property, Midas
filed on April 3, 1989 a Motion for Leave to Intervene in
Civil Case No. 56278. Midas alleged that it has
purchased the property and took possession thereof,
hence Dieselman cannot be compelled to sell and
convey it to AF Realty. The trial court granted Midas'
motion.
After trial, the lower court rendered the challenged
Decision holding that the acts of Cruz, Jr. bound
Dieselman in the sale of the lot to AF
Realty.[14] Consequently, the perfected contract of sale
between Dieselman and AF Realty bars Midas'
intervention. The trial court also held that Midas acted in
bad faith when it initially paid Dieselman P500,000.00
even without seeing the latter's title to the
property. Moreover, the notarial report of the sale was not
submitted to the Clerk of Court of the Quezon City RTC
and the balance of P5,300,000.00 purportedly deposited
in escrow by Midas with a bank was not established.
The dispositive portion of the trial courts Decision reads:
WHEREFORE, foregoing considered, judgment is hereby
rendered ordering defendant to execute and deliver to
plaintiffs the final deed of sale of the property covered by
the Transfer Certificate of Title No. 39849 of the Registry
of Deed of Rizal, Metro Manila District II, including the
improvements thereon, and ordering defendants to pay
plaintiffs attorneys fees in the amount of P50,000.00 and
to pay the costs.
"The counterclaim of defendants is necessarily
dismissed.
"The counterclaim and/or the complaint in intervention
are likewise dismissed
"SO ORDERED.[15]
Dissatisfied, all the parties appealed to the Court of
Appeals.
AF Realty alleged that the trial court erred in not holding
Dieselman liable for moral, compensatory and exemplary
damages, and in dismissing its counterclaim against
Midas.
Upon the other hand, Dieselman and Midas claimed that
the trial court erred in finding that a contract of sale
between Dieselman and AF Realty was perfected. Midas
further averred that there was no bad faith on its part
when it purchased the lot from Dieselman.
In its Decision dated December 10, 1992, the Court of
Appeals reversed the judgment of the trial court holding
that since Cruz, Jr. was not authorized in writing by
Dieselman to sell the subject property to AF Realty, the
sale was not perfected; and that the Deed of Absolute
Sale between Dieselman and Midas is valid, there being
no bad faith on the part of the latter. The Court of
Appeals then declared Dieselman and Cruz, Jr. jointly
and severally liable to AF Realty for P100,000.00 as
moral damages; P100,000.00 as exemplary damages;
and P100,000.00 as attorney's fees.[16]
On August 5, 1993, the Court of Appeals, upon motions
for reconsideration filed by the parties, promulgated an
Amending Decision, the dispositive portion of which
reads:
WHEREFORE, The Decision promulgated on October
10, 1992, is hereby AMENDED in the sense that only
defendant Mr. Manuel Cruz, Jr. should be made liable to
pay the plaintiffs the damages and attorneys fees
awarded therein, plus the amount of P300,000.00 unless,
in the case of the said P300,000.00, the same is still
deposited with the Court which should be restituted to
plaintiffs.
"SO ORDERED.[17]
AF Realty now comes to this Court via the instant petition
alleging that the Court of Appeals committed errors of
law.
The focal issue for consideration by this Court is who
between petitioner AF Realty and respondent Midas has
a right over the subject lot.
The Court of Appeals, in reversing the judgment of the
trial court, made the following ratiocination:
From the foregoing scenario, the fact that the board of
directors of Dieselman never authorized, verbally and in
writing, Cruz, Jr. to sell the property in question or to look
for buyers and negotiate the sale of the subject property
is undeniable.
"While Cristeta Polintan was actually authorized by Cruz,
Jr. to look for buyers and negotiate the sale of the subject
property, it should be noted that Cruz, Jr. could not
confer on Polintan any authority which he himself did not
have. Nemo dat quod non habet. In the same manner,
Felicisima Noble could not have possessed authority
broader in scope, being a mere extension of Polintans
purported authority, for it is a legal truism in our
jurisdiction that a spring cannot rise higher than its
source. Succinctly stated, the alleged sale of the subject
property was effected through persons who were
absolutely without any authority whatsoever from
Dieselman.
"The argument that Dieselman ratified the contract by
accepting the P300,000.00 as partial payment of the
purchase price of the subject property is equally
untenable. The sale of land through an agent without any
written authority is void.
xxxxxxxxx
"On the contrary, anent the sale of the subject property
by Dieselman to intervenor Midas, the records bear out
that Midas purchased the same from Dieselman on 30
July 1988. The notice of lis pendens was subsequently
annotated on the title of the property by plaintiffs on 15
August 1988. However, this subsequent annotation of the
notice of lis pendens certainly operated prospectively and
did not retroact to make the previous sale of the property
to Midas a conveyance in bad faith. A subsequently
registered notice of lis pendens surely is not proof of bad
faith. It must therefore be borne in mind that the 30 July
1988 deed of sale between Midas and Dieselman is a
document duly certified by notary public under his hand
and seal. x x x. Such a deed of sale being public
document acknowledged before a notary public is
admissible as to the date and fact of its execution without
further proof of its due execution and delivery (Bael vs.
Intermediate Appellate Court, 169 SCRA617; Joson vs.
Baltazar, 194 SCRA 114) and to prove the defects and Noble cannot bind Dieselman in the purported contract of
lack of consent in the execution thereof, the evidence sale.
must be strong and not merely preponderant x x x.[18]
Petitioner AF Realty maintains that the sale of land by an
We agree with the Court of Appeals. unauthorized agent may be ratified where, as here, there
is acceptance of the benefits involved. In this case the
Section 23 of the Corporation Code expressly provides
receipt by respondent Cruz, Jr. from AF Realty of the
that the corporate powers of all corporations shall be
P300,000.00 as partial payment of the lot effectively
exercised by the board of directors. Just as a natural
binds respondent Dieselman.[22]
person may authorize another to do certain acts in his
behalf, so may the board of directors of a corporation We are not persuaded.
validly delegate some of its functions to individual officers
Involved in this case is a sale of land through an
or agents appointed by it.[19] Thus, contracts or acts of a
agent. Thus, the law on agency under the Civil Code
corporation must be made either by the board of directors
takes precedence. This is well stressed in Yao Ka Sin
or by a corporate agent duly authorized by the
Trading vs. Court of Appeals:[23]
board.[20] Absent such valid delegation/authorization, the
rule is that the declarations of an individual director Since a corporation, such as the private respondent, can
relating to the affairs of the corporation, but not in the act only through its officers and agents, all acts within the
course of, or connected with, the performance of powers of said corporation may be performed by
authorized duties of such director, are held not binding on agents of its selection; and, except so far as limitations
the corporation.[21] or restrictions may be imposed by special charter, by-law,
or statutory provisions, the same general principles of
In the instant case, it is undisputed that respondent Cruz,
law which govern the relation of agency for a natural
Jr. has no written authority from the board of directors of
person govern the officer or agent of a corporation,
respondent Dieselman to sell or to negotiate the sale of
of whatever status or rank, in respect to his power to
the lot, much less to appoint other persons for the same
act for the corporation; and agents when once
purpose. Respondent Cruz, Jr.s lack of such authority
appointed, or members acting in their stead, are
precludes him from conferring any authority to Polintan
subject to thesame rules, liabilities, and incapacities
involving the subject realty.Necessarily, neither could
as are agents of individuals and private
Polintan authorize Felicisima Noble. Clearly, the
persons. (Emphasis supplied)
collective acts of respondent Cruz, Jr., Polintan and
Pertinently, Article 1874 of the same Code provides:
ART. 1874. When a sale of piece of land or any interest
therein is through an agent, the authority of the
latter shall be in writing; otherwise, the sale shall be
void. (Emphasis supplied)
Considering that respondent Cruz, Jr., Cristeta Polintan
and Felicisima Ranullo were not authorized by
respondent Dieselman to sell its lot, the supposed
contract is void. Being a void contract, it is not
susceptible of ratification by clear mandate of Article
1409 of the Civil Code, thus:
ART. 1409. The following contracts are inexistent and
void from the very beginning:
xxx
(7) Those expressly prohibited or declared void by
law.
These contracts cannot be ratified. Neither can the
right to set up the defense of illegality be
waived. (Emphasis supplied)
Upon the other hand, the validity of the sale of the
subject lot to respondent Midas is unquestionable. As
aptly noted by the Court of Appeals,[24] the sale was
authorized by a board resolution of respondent
Dieselman dated May 27, 1988.
The Court of Appeals awarded attorney's fees and moral
and exemplary damages in favor of petitioner AF Realty
and against respondent Cruz, Jr.. The award was made
by reason of a breach of contract imputable to
respondent Cruz, Jr. for having acted in bad faith. We are
no persuaded. It bears stressing that petitioner Zenaida
Ranullo, board member and vice-president of petitioner
AF Realty who accepted the offer to sell the property,
admitted in her testimony[25] that a board resolution from
respondent Dieselman authorizing the sale is necessary
to bind the latter in the transaction; and that respondent
Cruz, Jr. has no such written authority. In fact, despite
demand, such written authority was not presented to
her.[26] This notwithstanding, petitioner Ranullo tendered
a partial payment for the unauthorized
transaction. Clearly, respondent Cruz, Jr. should not be
held liable for damages and attorney's fees.
WHEREFORE, the assailed Decision and Resolution of
the Court of Appeals are hereby AFFIRMED
with MODIFICATION in the sense that the award of
damages and attorney's fees is deleted. Respondent
Dieselman is ordered to return to petitioner AF Realty its
partial payment of P300,000.00. Costs against
petitioners.
SO ORDERED.
G.R. No. 144805 June 8, 2006
EDUARDO V. LINTONJUA, JR. and ANTONIO K.
LITONJUA, Petitioners,
Vs.
ETERNIT CORPORATION (now ETERTON MULTI-
RESOURCES CORPORATION),
ETEROUTREMER, S.A. and Promulgated: FAR EAST
BANK & TRUST COMPANY, Respondents
On appeal via a Petition for Review on Certiorari is the
Decision[1] of the Court of Appeals (CA) in CA-G.R. CV
No. 51022, which affirmed the Decision of the Regional
Trial Court (RTC), Pasig City, Branch 165, in Civil Case
No. 54887, as well as the Resolution[2] of the CA denying
the motion for reconsideration thereof.
The Eternit Corporation (EC) is a corporation duly
organized and registered under Philippine laws. Since
1950, it had been engaged in the manufacture of roofing
materials and pipe products. Its manufacturing operations
were conducted on eight parcels of land with a total area
of 47,233 square meters. The properties, located
in Mandaluyong City, Metro Manila, were covered by
Transfer Certificates of Title Nos. 451117, 451118,
451119, 451120, 451121, 451122, 451124 and 451125
under the name of Far East Bank & Trust Company, as
trustee. Ninety (90%) percent of the shares of stocks of
EC were owned by Eteroutremer S.A. Corporation
(ESAC), a corporation organized and registered under
the laws of Belgium.[3] Jack Glanville, an Australian
citizen, was the General Manager and President of EC,
while Claude Frederick Delsaux was the Regional
Director for Asia of ESAC. Both had their offices
in Belgium.
In 1986, the management of ESAC grew concerned
about the political situation in the Philippines and wanted
to stop its operations in the country. The Committee for
Asia of ESAC instructed Michael Adams, a member of
ECs Board of Directors, to dispose of the eight parcels of
land. Adams engaged the services of realtor/broker
Lauro G. Marquez so that the properties could be offered
for sale to prospective buyers. Glanville later showed the
properties to Marquez.
Marquez thereafter offered the parcels of land and the
improvements thereon to Eduardo B. Litonjua, Jr. of the
Litonjua & Company, Inc. In a Letter dated September
12, 1986, Marquez declared that he was authorized to
sell the properties for P27,000,000.00 and that the terms
of the sale were subject to negotiation.[4]
Eduardo Litonjua, Jr. responded to the
offer. Marquez showed the property to Eduardo Litonjua,
Jr., and his brother Antonio K. Litonjua. The Litonjua
siblings offered to buy the property for P20,000,000.00
cash. Marquez apprised Glanville of the Litonjua siblings
offer and relayed the same to Delsaux in Belgium, but the
latter did not respond.On October 28, 1986, Glanville
telexed Delsaux in Belgium, inquiring on his position/
counterproposal to the offer of the Litonjua siblings. It
was only on February 12, 1987 that Delsaux sent a telex
to Glanville stating that, based on the Belgian/Swiss
decision, the final offer was US$1,000,000.00
and P2,500,000.00 to cover all existing obligations prior
to final liquidation.[5]
Marquez furnished Eduardo Litonjua, Jr. with a copy of
the telex sent by Delsaux. Litonjua, Jr. accepted the
counterproposal of Delsaux. Marquez conferred with
Glanville, and in a Letter dated February 26, 1987,
confirmed that the Litonjua siblings had accepted the
counter-proposal of Delsaux. He also stated that the
Litonjua siblings would confirm full payment within 90
days after execution and preparation of all documents of
sale, together with the necessary governmental
clearances.[6]
The Litonjua brothers deposited the amount of
US$1,000,000.00 with the Security Bank & Trust
Company, Ermita Branch, and drafted an Escrow
Agreement to expedite the sale.[7]
Sometime later, Marquez and the Litonjua brothers
inquired from Glanville when the sale would be
implemented. In a telex dated April 22, 1987, Glanville
informed Delsaux that he had met with the buyer, which
had given him the impression that he is prepared to press
for a satisfactory conclusion to the sale.[8] He also
emphasized to Delsaux that the buyers were concerned
because they would incur expenses in bank commitment
fees as a consequence of prolonged period of inaction.[9]
Meanwhile, with the assumption of Corazon C. Aquino as
President of the Republic of the Philippines, the political
situation in the Philippines had improved. Marquez
received a telephone call from Glanville, advising that the
sale would no longer proceed. Glanville followed it up
with a Letter dated May 7, 1987, confirming that he had
been instructed by his principal to inform Marquez that
the decision has been taken at a Board Meeting not to
sell the properties on which Eternit Corporation is
situated.[10]
Delsaux himself later sent a letter dated May 22, 1987,
confirming that the ESAC Regional Office had decided
not to proceed with the sale of the subject land, to wit:
May 22, 1987
Mr. L.G. Marquez
L.G. Marquez, Inc.
334 Makati Stock Exchange Bldg.
6767 Ayala Avenue
Makati, Metro Manila
Philippines
Dear Sir:
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has
decided not to proceed with the sale of the land which
was proposed to you.
The Committee for Asia of our Group met recently
(meeting every six months) and examined the position as
far as the Philippines are (sic) concerned. Considering
[the] new political situation since the departure of
MR. MARCOS and a certain stabilization in
the Philippines, the Committee has decided not to
stop our operations in Manila. In fact, production has
started again last week, and (sic) to recognize the
participation in the Corporation.
We regret that we could not make a deal with you this
time, but in case the policy would change at a later state,
we would consult you again.
xxx
Yours sincerely,
(Sgd.)
C.F. DELSAUX
cc. To: J. GLANVILLE (Eternit Corp.)[11]
When apprised of this development, the Litonjuas,
through counsel, wrote EC, demanding payment for
damages they had suffered on account of the aborted
sale. EC, however, rejected their demand.
The Litonjuas then filed a complaint for specific
performance and damages against EC (now the Eterton
Multi-Resources Corporation) and the Far East Bank &
Trust Company, and ESAC in the RTC of Pasig City. An
amended complaint was filed, in which defendant EC
was substituted by Eterton Multi-Resources Corporation;
Benito C. Tan, Ruperto V. Tan, Stock Ha T. Tan and
Deogracias G. Eufemio were impleaded as additional
defendants on account of their purchase of ESAC shares
of stocks and were the controlling stockholders of EC.
In their answer to the complaint, EC and ESAC alleged
that since Eteroutremer was not doing business in the
Philippines, it cannot be subject to the jurisdiction of
Philippine courts; the Board and stockholders of EC
never approved any resolution to sell subject properties
nor authorized Marquez to sell the same; and the telex
dated October 28, 1986 of Jack Glanville was his own
personal making which did not bind EC.
On July 3, 1995, the trial court rendered judgment in
favor of defendants and dismissed the amended
complaint.[12] The fallo of the decision reads:
WHEREFORE, the complaint against Eternit Corporation
now Eterton Multi-Resources Corporation and
Eteroutremer, S.A. is dismissed on the ground that there
is no valid and binding sale between the plaintiffs and
said defendants.
The complaint as against Far East Bank and Trust
Company is likewise dismissed for lack of cause of
action.
The counterclaim of Eternit Corporation now Eterton
Multi-Resources Corporation and Eteroutremer, S.A. is
also dismissed for lack of merit.[13]
The trial court declared that since the authority of the
agents/realtors was not in writing, the sale is void and not
merely unenforceable, and as such, could not have been
ratified by the principal. In any event, such ratification
cannot be given any retroactive effect. Plaintiffs could not
assume that defendants had agreed to sell the property
without a clear authorization from the corporation
concerned, that is, through resolutions of the Board of
Directors and stockholders. The trial court also pointed
out that the supposed sale involves substantially all the
assets of defendant EC which would result in the
eventual total cessation of its operation.[14]
The Litonjuas appealed the decision to the CA, alleging
that (1) the lower court erred in concluding that the real
estate broker in the instant case needed a written
authority from appellee corporation and/or that said
broker had no such written authority; and (2) the lower
court committed grave error of law in holding that
appellee corporation is not legally bound for specific
performance and/or damages in the absence of an
enabling resolution of the board of directors.[15] They
averred that Marquez acted merely as a broker or go-
between and not as agent of the corporation; hence, it
was not necessary for him to be empowered as such by
any written authority. They further claimed that an agency
by estoppel was created when the corporation clothed
Marquez with apparent authority to negotiate for the sale
of the properties. However, since it was a bilateral
contract to buy and sell, it was equivalent to a perfected
contract of sale, which the corporation was obliged to
consummate.
In reply, EC alleged that Marquez had no written
authority from the Board of Directors to bind it; neither
were Glanville and Delsaux authorized by its board of
directors to offer the property for sale. Since the sale
involved substantially all of the corporations assets, it
would necessarily need the authority from the
stockholders.
On June 16, 2000, the CA rendered judgment affirming
the decision of the RTC. [16] The Litonjuas filed a motion
for reconsideration, which was also denied by the
appellate court.
The CA ruled that Marquez, who was a real estate
broker, was a special agent within the purview of Article
1874 of the New Civil Code. Under Section 23 of the
Corporation Code, he needed a special authority from
ECs board of directors to bind such corporation to the
sale of its properties. Delsaux, who was merely the
representative of ESAC (the majority stockholder of EC)
had no authority to bind the latter. The CA pointed out
that Delsaux was not even a member of the board of
directors of EC. Moreover, the Litonjuas failed to prove
that an agency by estoppel had been created between
the parties.
In the instant petition for review, petitioners aver that
I
THE COURT OF APPEALS ERRED IN HOLDING THAT
THERE WAS NO PERFECTED CONTRACT OF SALE.
II
THE APPELLATE COURT COMMITTED GRAVE
ERROR OF LAW IN HOLDING THAT MARQUEZ
NEEDED A WRITTEN AUTHORITY FROM
RESPONDENT ETERNIT BEFORE THE SALE CAN BE
PERFECTED.
III
THE COURT OF APPEALS ERRED IN NOT HOLDING
THAT GLANVILLE AND DELSAUX HAVE THE
NECESSARY AUTHORITY TO SELL THE SUBJECT
PROPERTIES, OR AT THE VERY LEAST, WERE
KNOWINGLY PERMITTED BY RESPONDENT
ETERNIT TO DO ACTS WITHIN THE SCOPE OF AN
APPARENT AUTHORITY, AND THUS HELD THEM
OUT TO THE PUBLIC AS POSSESSING POWER TO
SELL THE SAID PROPERTIES.[17]
Petitioners maintain that, based on the facts of the case,
there was a perfected contract of sale of the parcels of
land and the improvements thereon for US$1,000,000.00
plus P2,500,000.00 to cover obligations prior to final
liquidation. Petitioners insist that they had accepted the
counter-offer of respondent EC and that before the
counter-offer was withdrawn by respondents, the
acceptance was made known to them through real estate
broker Marquez.
Petitioners assert that there was no need for a written
authority from the Board of Directors of EC for Marquez
to validly act as broker/middleman/intermediary. As
broker, Marquez was not an ordinary agent because his
authority was of a special and limited character in most
respects. His only job as a broker was to look for a buyer
and to bring together the parties to the transaction. He
was not authorized to sell the properties or to make a
binding contract to respondent EC; hence, petitioners
argue, Article 1874 of the New Civil Code does not apply.
In any event, petitioners aver, what is important and
decisive was that Marquez was able to communicate
both the offer and counter-offer and their acceptance of
respondent ECs counter-offer, resulting in a perfected
contract of sale.
Petitioners posit that the testimonial and documentary
evidence on record amply shows that Glanville, who was
the President and General Manager of respondent EC,
and Delsaux, who was the Managing Director for ESAC
Asia, had the necessary authority to sell the subject
property or, at least, had been allowed by respondent EC
to hold themselves out in the public as having the power
to sell the subject properties. Petitioners identified such
evidence, thus:
1. The testimony of Marquez that he was chosen by
Glanville as the then President and General Manager of
Eternit, to sell the properties of said corporation to any
interested party, which authority, as hereinabove
discussed, need not be in writing.
2. The fact that the NEGOTIATIONS for the sale of the
subject properties spanned SEVERAL MONTHS, from
1986 to 1987;
3. The COUNTER-OFFER made by Eternit through
GLANVILLE to sell its properties to the Petitioners;
4. The GOOD FAITH of Petitioners in believing Eternits
offer to sell the properties as evidenced by the Petitioners
ACCEPTANCE of the counter-offer;
5. The fact that Petitioners DEPOSITED the price of
[US]$1,000,000.00 with the Security Bank and that an
ESCROW agreement was drafted over the subject
properties;
6. Glanvilles telex to Delsaux inquiring
WHEN WE (Respondents) WILL IMPLEMENT ACTION
TO BUY AND SELL;
7. More importantly, Exhibits G and H of the
Respondents, which evidenced the fact that Petitioners
offer was allegedly REJECTED by both Glanville and
Delsaux.[18]
Petitioners insist that it is incongruous for Glanville and
Delsaux to make a counter-offer to petitioners offer and
thereafter reject such offer unless they were authorized
to do so by respondent EC. Petitioners insist that
Delsaux confirmed his authority to sell the properties in
his letter to Marquez, to wit:
Dear Sir,
Re: Land of Eternit Corporation
I would like to confirm officially that our Group has
decided not to proceed with the sale of the land which
was proposed to you.
The Committee for Asia of our Group met recently
(meeting every six months) and examined the position as
far as the Philippines are (sic) concerned. Considering
the new political situation since the departure of MR.
MARCOS and a certain stabilization in the Philippines,
the Committee has decided not to stop our operations in
Manila[.] [I]n fact production started again last week, and
(sic) to reorganize the participation in the Corporation.
We regret that we could not make a deal with you this
time, but in case the policy would change at a later
stage we would consult you again.
In the meantime, I remain
Yours sincerely,
C.F. DELSAUX[19]
Petitioners further emphasize that they acted in good
faith when Glanville and Delsaux were knowingly
permitted by respondent EC to sell the properties within
the scope of an apparent authority. Petitioners insist that
respondents held themselves to the public as possessing
power to sell the subject properties.
By way of comment, respondents aver that the issues
raised by the petitioners are factual, hence, are
proscribed by Rule 45 of the Rules of Court. On the
merits of the petition, respondents EC (now EMC) and
ESAC reiterate their submissions in the CA. They
maintain that Glanville, Delsaux and Marquez had no
authority from the stockholders of respondent EC and its
Board of Directors to offer the properties for sale to the
petitioners, or to any other person or entity for that
matter. They assert that the decision and resolution of
the CA are in accord with law and the evidence on
record, and should be affirmed in toto.
Petitioners aver in their subsequent pleadings that
respondent EC, through Glanville and Delsaux,
conformed to the written authority of Marquez to sell the
properties. The authority of Glanville and Delsaux to bind
respondent EC is evidenced by the fact that Glanville and
Delsaux negotiated for the sale of 90% of stocks of
respondent EC to Ruperto Tan on June 1, 1997. Given
the significance of their positions and their duties in
respondent EC at the time of the transaction, and the fact
that respondent ESAC owns 90% of the shares of stock
of respondent EC, a formal
resolution of the Board of Directors would be a mere
ceremonial formality. What is important, petitioners
maintain, is that Marquez was able to communicate the
offer of respondent EC and the petitioners acceptance
thereof. There was no time that they acted without the
knowledge of respondents. In fact, respondent EC never
repudiated the acts of Glanville, Marquez and Delsaux.
The petition has no merit.
Anent the first issue, we agree with the contention of
respondents that the issues raised by petitioner in this
case are factual. Whether or not Marquez, Glanville, and
Delsaux were authorized by respondent EC to act as its
agents relative to the sale of the properties of respondent
EC, and if so, the boundaries of their authority as agents,
is a question of fact.In the absence of express written
terms creating the relationship of an agency, the
existence of an agency is a fact question.[20] Whether an
agency by estoppel was created or whether a person
acted within the bounds of his apparent authority, and
whether the principal is estopped to deny the apparent
authority of its agent are, likewise, questions of fact to be
resolved on the basis of the evidence on record.[21] The
findings of the trial court on such issues, as affirmed by
the CA, are conclusive on the Court, absent evidence
that the trial and appellate courts ignored, misconstrued,
or misapplied facts and circumstances of substance
which, if considered, would warrant a modification or
reversal of the outcome of the case.[22]

It must be stressed that issues of facts may not be raised
in the Court under Rule 45 of the Rules of Court because
the Court is not a trier of facts. It is not to re-examine and
assess the evidence on record, whether testimonial and
documentary. There are, however, recognized
exceptions where the Court may delve into and resolve
factual issues, namely:
(1) When the conclusion is a finding grounded entirely on
speculations, surmises, or conjectures; (2) when the
inference made is manifestly mistaken, absurd, or
impossible; (3) when there is grave abuse of discretion;
(4) when the judgment is based on a misapprehension of
facts; (5) when the findings of fact are conflicting; (6)
when the Court of Appeals, in making its findings, went
beyond the issues of the case and the same is contrary
to the admissions of both appellant and appellee; (7)
when the findings of the Court of Appeals are contrary to
those of the trial court; (8) when the findings of fact are
conclusions without citation of specific evidence on which
they are based; (9) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the
parties, which, if properly considered, would justify a
different conclusion; and (10) when the findings of fact of
the Court of Appeals are premised on the absence of
evidence and are contradicted by the evidence on
record.[23]
We have reviewed the records thoroughly and find that
the petitioners failed to establish that the instant case
falls under any of the foregoing exceptions. Indeed, the
assailed decision of the Court of Appeals is supported by
the evidence on record and the law.
It was the duty of the petitioners to prove that respondent
EC had decided to sell its properties and that it had
empowered Adams, Glanville and Delsaux or Marquez to
offer the properties for sale to prospective buyers and to
accept any counter-offer. Petitioners likewise failed to
prove that their counter-offer had been accepted by
respondent EC, through Glanville and Delsaux. It must
be stressed that when specific performance is sought of
a contract made with an agent, the agency must be
established by clear, certain and specific proof.[24]
Section 23 of Batas Pambansa Bilang 68, otherwise
known as the Corporation Code of the Philippines,
provides:
SEC. 23. The Board of Directors or Trustees. Unless
otherwise provided in this Code, the corporate powers of
all corporations formed under this Code shall be
exercised, all business conducted and all property of
such corporations controlled and held by the board of
directors or trustees to be elected from among the
holders of stocks, or where there is no stock, from among
the members of the corporation, who shall hold office for
one (1) year and until their successors are elected and
qualified.
Indeed, a corporation is a juridical person separate and
distinct from its members or stockholders and is not
affected by the personal rights,
obligations and transactions of the latter.[25] It may act
only through its board of directors or, when authorized
either by its by-laws or by its board resolution, through its
officers or agents in the normal course of business. The
general principles of agency govern the relation between
the corporation and its officers or agents, subject to the
articles of incorporation, by-laws, or relevant provisions of
law.[26]
Under Section 36 of the Corporation Code, a corporation
may sell or convey its real properties, subject to the
limitations prescribed by law and the Constitution, as
follows:
SEC. 36. Corporate powers and capacity. Every
corporation incorporated under this Code has the power
and capacity:
xxxx
7. To purchase, receive, take or grant, hold, convey, sell,
lease, pledge, mortgage and otherwise deal with such
real and personal property, including securities and
bonds of other corporations, as the transaction of a lawful
business of the corporation may reasonably and
necessarily require, subject to the limitations prescribed
by the law and the Constitution.
The property of a corporation, however, is not the
property of the stockholders or members, and as such,
may not be sold without express authority from the board
of directors.[27] Physical acts, like the offering of the
properties of the corporation for sale, or the acceptance
of a counter-offer of prospective buyers of such
properties and the execution of the deed of sale covering
such property, can be performed by the corporation only
by officers or agents duly authorized for the purpose by
corporate by-laws or by specific acts of the board of
directors.[28] Absent such valid delegation/authorization,
the rule is that the declarations of an individual director
relating to the affairs of the corporation, but not in the
course of, or
connected with, the performance of authorized duties of
such director, are not binding on the corporation.[29]
While a corporation may appoint agents to negotiate for
the sale of its real properties, the final say will have to be
with the board of directors through its officers and agents
as authorized by a board resolution or by its by-
laws.[30] An unauthorized act of an officer of the
corporation is not binding on it unless the latter ratifies
the same expressly or impliedly by its board of directors.
Any sale of real property of a corporation by a person
purporting to be an agent thereof but without written
authority from the corporation is null and void. The
declarations of the agent alone are generally insufficient
to establish the fact or extent of his/her authority.[31]
By the contract of agency, a person binds himself to
render some service or to do something in representation
on behalf of another, with the consent or authority of the
latter.[32]Consent of both principal and agent is necessary
to create an agency. The principal must intend that the
agent shall act for him; the agent must intend to accept
the authority and act on it, and the intention of the parties
must find expression either in words or conduct between
them.[33]
An agency may be expressed or implied from the act of
the principal, from his silence or lack of action, or his
failure to repudiate the agency knowing that another
person is acting on his behalf without
authority. Acceptance by the agent may be expressed, or
implied from his acts which carry out the agency, or from
his silence or inaction according to the
circumstances.[34] Agency may be oral unless the law
requires a specific form.[35] However, to create or convey
real rights over immovable property, a special power of
attorney is necessary.[36] Thus, when a sale of a piece of
land or any portion thereof is through an agent, the
authority of the latter shall be in writing, otherwise, the
sale shall be void.[37]
In this case, the petitioners as plaintiffs below, failed to
adduce in evidence any resolution of the Board of
Directors of respondent EC empowering Marquez,
Glanville or Delsaux as its agents, to sell, let alone offer
for sale, for and in its behalf, the eight parcels of land
owned by respondent EC including the improvements
thereon. The bare fact that Delsaux may have been
authorized to sell to Ruperto Tan the shares of stock of
respondent ESAC, on June 1, 1997, cannot be used as
basis for petitioners claim that he had likewise been
authorized by respondent EC to sell the parcels of land.
Moreover, the evidence of petitioners shows that Adams
and Glanville acted on the authority of Delsaux, who, in
turn, acted on the authority of respondent ESAC, through
its Committee for Asia,[38] the Board of Directors of
respondent ESAC,[39] and the Belgian/Swiss component
of the management of respondent ESAC.[40] As such,
Adams and Glanville engaged the services of Marquez to
offer to sell the properties to prospective buyers. Thus,
on September 12, 1986, Marquez wrote the petitioner
that he was authorized to offer for sale the property
for P27,000,000.00 and the other terms of the sale
subject to negotiations. When petitioners offered to
purchase the property for P20,000,000.00, through
Marquez, the latter relayed petitioners offer to Glanville;
Glanville had to send a telex to Delsaux to inquire the
position of respondent ESAC to petitioners
offer.However, as admitted by petitioners in their
Memorandum, Delsaux was unable to reply immediately
to the telex of Glanville because Delsaux had to wait for
confirmation from respondent ESAC.[41] When Delsaux
finally responded to Glanville on February 12, 1987, he
made it clear that, based on the Belgian/Swiss decision
the final offer of respondent ESAC was US$1,000,000.00
plus P2,500,000.00 to cover all existing obligations prior
to final liquidation.[42] The offer of Delsaux emanated only
from the Belgian/Swiss decision, and not the entire
management or Board of Directors of respondent
ESAC. While it is true that petitioners accepted the
counter-offer of respondent ESAC, respondent EC was
not a party to the transaction between them; hence, EC
was not bound by such acceptance.
While Glanville was the President and General Manager
of respondent EC, and Adams and Delsaux were
members of its Board of Directors, the three acted for
and in behalf of respondent ESAC, and not as duly
authorized agents of respondent EC; a board resolution
evincing the grant of such authority is needed to bind EC
to any agreement regarding the sale of the subject
properties. Such board resolution is not a mere formality
but is a condition sine qua non to bind respondent EC.
Admittedly, respondent ESAC owned 90% of the shares
of stocks of respondent EC; however, the mere fact that
a corporation owns a majority of the shares of stocks of
another, or even all of such shares of stocks, taken
alone, will not justify their being treated as one
corporation.[43]
It bears stressing that in an agent-principal relationship,
the personality of the principal is extended through the
facility of the agent. In so doing, the agent, by legal
fiction, becomes the principal, authorized to perform all
acts which the latter would have him do. Such a
relationship can only be effected with the consent of the
principal, which must not, in any way, be compelled by
law or by any court.[44]
The petitioners cannot feign ignorance of the absence of
any regular and valid authority of respondent EC
empowering Adams, Glanville or Delsaux to offer the
properties for sale and to sell the said properties to the
petitioners. A person dealing with a known agent is not
authorized, under any circumstances, blindly to trust the
agents; statements as to the extent of his powers; such
person must not act negligently but must use reasonable
diligence and prudence to ascertain whether the agent
acts within the scope of his authority.[45] The settled rule
is that, persons dealing with an assumed agent are
bound at their peril, and if they would hold the principal
liable, to ascertain not only the fact of agency but also the
nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to prove
it.[46] In this case, the petitioners failed to discharge their
burden; hence, petitioners are not entitled to damages
from respondent EC.
It appears that Marquez acted not only as real estate
broker for the petitioners but also as their agent. As
gleaned from the letter of Marquez to Glanville,
on February 26, 1987, he confirmed, for and in behalf of
the petitioners, that the latter had accepted such offer to
sell the land and the improvements thereon. However,
we agree with the ruling of the appellate court that
Marquez had no authority to bind respondent EC to sell
the subject properties. A real estate broker is one who
negotiates the sale of real properties. His business,
generally speaking, is only to find a purchaser who is
willing to buy the land upon terms fixed by the owner. He
has no authority to bind the principal by signing a
contract of sale. Indeed, an authority to find a purchaser
of real property does not include an authority to sell.[47]
Equally barren of merit is petitioners contention that
respondent EC is estopped to deny the existence of a
principal-agency relationship between it and Glanville or
Delsaux. For an agency by estoppel to exist, the
following must be established: (1) the principal
manifested a representation of the agents authority or
knowlingly allowed the agent to assume such
representation, such third person has changed his
position to his detriment.[48]An agency by estoppel, which
is similar to the doctrine of apparent authority, requires
proof of reliance upon the representations, and that, in
turn, needs proof that the representations predated the
action taken in reliance.[49] Such proof is lacking in this
case. In their communications to the petitioners, Glanville
and Delsaux positively and unequivocally declared that
they were acting for and in behalf of respondent ESAC.
Neither may respondent EC be deemed to have ratified
the transactions between the petitioners and respondent
ESAC, through Glanville, Delsaux and Marquez. The
transactions and the various communications inter
se were never submitted to the Board of Directors of
respondent EC for ratification.
IN LIGHT OF ALL THE FOREGOING, the petition
is DENIED for lack of merit. Costs against the
petitioners.
SO ORDERED.

authority; (2) the third person, in good faith, relied upon

such representation; (3) relying upon such
G.R. No. 118375. October 3, 2003
CELESTINA T. NAGUIAT, petitioner, vs. COURT OF
APPEALS and AURORA QUEAO, respondents.
Before us is a Petition for Review on Certiorari under
Rule 45, assailing the decision of the Sixteenth Division
of the respondent Court of Appeals promulgated on 21
December 1994[1], which affirmed in toto the decision
handed down by the Regional Trial Court (RTC) of Pasay
City.[2]
The case arose when on 11 August 1981, private
respondent Aurora Queao (Queao) filed a complaint
before the Pasay City RTC for cancellation of a Real
Estate Mortgage she had entered into with petitioner
Celestina Naguiat (Naguiat). The RTC rendered a
decision, declaring the questioned Real Estate
Mortgage void, which Naguiat appealed to the Court of
Appeals. After the Court of Appeals upheld the RTC
decision, Naguiat instituted the present petition.
The operative facts follow:
Queao applied with Naguiat for a loan in the amount of
Two Hundred Thousand Pesos (P200,000.00), which
Naguiat granted. On 11 August 1980, Naguiat indorsed
to Queao Associated Bank Check No. 090990 (dated 11
August 1980) for the amount of Ninety Five Thousand
Pesos (P95,000.00), which was earlier issued to Naguiat
by the Corporate Resources Financing Corporation. She
also issued her own Filmanbank Check No. 065314, to
the order of Queao, also dated 11 August 1980 and for
the amount of Ninety Five Thousand Pesos
(P95,000.00). The proceeds of these checks were to
constitute the loan granted by Naguiat to Queao.[3]
To secure the loan, Queao executed a Deed of Real
Estate Mortgage dated 11 August 1980 in favor of
Naguiat, and surrendered to the latter the owners
duplicates of the titles covering the mortgaged
properties.[4] On the same day, the mortgage deed was
notarized, and Queao issued to Naguiat a promissory
note for the amount of TWO HUNDRED THOUSAND
PESOS (P200,000.00), with interest at 12% per annum,
payable on 11 September 1980.[5] Queao also issued a
Security Bank and Trust Company check, postdated 11
September 1980, for the amount of TWO HUNDRED
THOUSAND PESOS (P200,000.00) and payable to the
order of Naguiat.
Upon presentment on its maturity date, the Security Bank
check was dishonored for insufficiency of funds. On the
following day, 12 September 1980, Queao requested
Security Bank to stop payment of her postdated check,
but the bank rejected the request pursuant to its policy
not to honor such requests if the check is drawn against
insufficient funds.[6]
On 16 October 1980, Queao received a letter from
Naguiats lawyer, demanding settlement of the
loan. Shortly thereafter, Queao and one Ruby
Ruebenfeldt (Ruebenfeldt) met with Naguiat. At the
meeting, Queao told Naguiat that she did not receive the
proceeds of the loan, adding that the checks were
retained by Ruebenfeldt, who purportedly was Naguiats
agent.[7]
Naguiat applied for the extrajudicial foreclosure of the
mortgage with the Sheriff of Rizal Province, who then
scheduled the foreclosure sale on 14 August 1981. Three
days before the scheduled sale, Queao filed the case
before the Pasay City RTC,[8] seeking the annulment of
the mortgage deed. The trial court eventually stopped the
auction sale.[9]
On 8 March 1991, the RTC rendered judgment, declaring
the Deed of Real Estate Mortgage null and void, and
ordering Naguiat to return to Queao the owners
duplicates of her titles to the mortgaged lots.[10] Naguiat
appealed the decision before the Court of Appeals,
making no less than eleven assignments of error. The
Court of Appeals promulgated the decision now assailed
before us that affirmed in toto the RTC decision. Hence,
the present petition.
Naguiat questions the findings of facts made by the Court
of Appeals, especially on the issue of whether Queao
had actually received the loan proceeds which were
supposed to be covered by the two checks Naguiat had
issued or indorsed. Naguiat claims that being a notarial
instrument or public document, the mortgage deed
enjoys the presumption that the recitals therein are
true. Naguiat also questions the admissibility of various
representations and pronouncements of Ruebenfeldt,
invoking the rule on the non-binding effect of the
admissions of third persons.[11]
The resolution of the issues presented before this Court
by Naguiat involves the determination of facts, a function
which this Court does not exercise in an appeal
by certiorari. Under Rule 45 which governs appeal by
certiorari, only questions of law may be raised[12] as the
Supreme Court is not a trier of facts.[13] The resolution of
factual issues is the function of lower courts, whose
findings on these matters are received with respect and
are in fact generally binding on the Supreme Court.[14] A
question of law which the Court may pass upon must not
involve an examination of the probative value of the
evidence presented by the litigants.[15] There is a
question of law in a given case when the doubt or
difference arises as to what the law is on a certain state
of facts; there is a question of fact when the doubt or
difference arises as to the truth or the falsehood of
alleged facts.[16]
Surely, there are established exceptions to the rule on
the conclusiveness of the findings of facts of the lower
courts.[17] But Naguiats case does not fall under any of
the exceptions. In any event, both the decisions of the
appellate and trial courts are supported by the evidence
on record and the applicable laws.
Against the common finding of the courts below, Naguiat
vigorously insists that Queao received the loan
proceeds. Capitalizing on the status of the mortgage
deed as a public document, she cites the rule that a
public document enjoys the presumption of validity and
truthfulness of its contents. The Court of Appeals,
however, is correct in ruling that the presumption of
truthfulness of the recitals in a public document was
defeated by the clear and convincing evidence in this
case that pointed to the absence of consideration.[18] This
Court has held that the presumption of truthfulness
engendered by notarized documents is rebuttable,
yielding as it does to clear and convincing evidence to
the contrary, as in this case.[19]
On the other hand, absolutely no evidence was submitted
by Naguiat that the checks she issued or endorsed were
actually encashed or deposited. The mere issuance of
the checks did not result in the perfection of the contract
of loan. For the Civil Code provides that the delivery of
bills of exchange and mercantile documents such as
checks shall produce the effect of payment only when
they have been cashed.[20] It is only after the checks have
produced the effect of payment that the contract of loan
may be deemed perfected. Art. 1934 of the Civil Code
provides:
An accepted promise to deliver something by way of
commodatum or simple loan is binding upon the parties,
but the commodatum or simple loan itself shall not be
perfected until the delivery of the object of the contract.
A loan contract is a real contract, not consensual, and, as
such, is perfected only upon the delivery of the object of
the contract.[21] In this case, the objects of the contract
are the loan proceeds which Queao would enjoy only
upon the encashment of the checks signed or indorsed
by Naguiat. If indeed the checks were encashed or
deposited, Naguiat would have certainly presented the
corresponding documentary evidence, such as the
returned checks and the pertinent bank records. Since
Naguiat presented no such proof, it follows that the
checks were not encashed or credited to Queaos
account.
Naguiat questions the admissibility of the various written
representations made by Ruebenfeldt on the ground that
they could not bind her following the res inter alia acta
alteri nocere non debet rule. The Court of Appeals
rejected the argument, holding that since Ruebenfeldt
was an authorized representative or agent of Naguiat the
situation falls under a recognized exception to the
rule.[22] Still, Naguiat insists that Ruebenfeldt was not her
agent.
Suffice to say, however, the existence of an agency
relationship between Naguiat and Ruebenfeldt is
supported by ample evidence. As correctly pointed out by
the Court of Appeals, Ruebenfeldt was not a stranger or
an unauthorized person. Naguiat instructed Ruebenfeldt
to withhold from Queao the checks she issued or
indorsed to Queao, pending delivery by the latter of
additional collateral. Ruebenfeldt served as agent of
Naguiat on the loan application of Queaos friend, Marilou
Farralese, and it was in connection with that transaction
that Queao came to know Naguiat.[23] It was also
Ruebenfeldt who accompanied Queao in her meeting
with Naguiat and on that occasion, on her own and
without Queao asking for it, Reubenfeldt actually drew a
check for the sum of P220,000.00 payable to Naguiat, to
cover for Queaos alleged liability to Naguiat under the
loan agreement.[24]
The Court of Appeals recognized the existence of an
agency by estoppel[25] citing Article 1873 of the Civil
Code.[26] Apparently, it considered that at the very least,
as a consequence of the interaction between Naguiat
and Ruebenfeldt, Queao got the impression that
Ruebenfeldt was the agent of Naguiat, but Naguiat did
nothing to correct Queaos impression. In that situation,
the rule is clear. One who clothes another with apparent
authority as his agent, and holds him out to the public as
such, cannot be permitted to deny the authority of such
person to act as his agent, to the prejudice of innocent
third parties dealing with such person in good faith, and
in the honest belief that he is what he appears to
be.[27] The Court of Appeals is correct in invoking the said
rule on agency by estoppel.
More fundamentally, whatever was the true relationship
between Naguiat and Ruebenfeldt is irrelevant in the face
of the fact that the checks issued or indorsed to Queao
were never encashed or deposited to her account of
Naguiat.
All told, we find no compelling reason to disturb the
finding of the courts a quo that the lender did not remit
and the borrower did not receive the proceeds of the
loan. That being the case, it follows that the mortgage
which is supposed to secure the loan is null and void.
The consideration of the mortgage contract is the same
as that of the principal contract from which it receives life,
and without which it cannot exist as an independent
contract.[28] A mortgage contract being a mere accessory
contract, its validity would depend on the validity of the
loan secured by it.[29]
WHEREFORE, the petition is denied and the assailed
decision is affirmed. Costs against petitioner.
SO ORDERED.
G.R. No. 113074. January 22, 1997
ALFRED HAHN, petitioner, vs. COURT OF APPEALS
and BAYERISCHE MOTOREN WERKE
AKTIENGESELLSCHAFT (BMW), respondents.
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. . . .
....
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" . . . .
....
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.
....
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
Plaintiff's exclusive dealership and any relationship for
cause effective June 30, 1993. . . .
....
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.
....
. . . [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, Section 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 foreign corporations. If the defendant is
a foreign corporation, or a nonresident joint stock
company or association, doing business in the
Philippines, service may be made on its resident agent
designated in accordance with law for that purpose, or, if
there be no such agent, on the government official
designated by law to that effect, or on any of its officers
or agents within the Philippines. (Emphasis added)
What acts are considered "doing business in the
Philippines" are enumerated in 3(d) of the Foreign
Investments Act of 1991 (R.A. No. 7042) as follows:[7]
d) the phrase "doing business" shall include soliciting
orders, service contracts, opening offices, whether called
"liaison" offices or branches, appointing
representatives or distributors domiciled in the
Philippines or who in any calendar year stay in the
country for a period or periods totalling one hundred
eighty (180) days or more; participating in the
management, supervision or control of any domestic
business, firm, entity or corporation in the
Philippines; and any other act or acts that imply a
continuity of commercial dealings or arrangements
and contemplate to that extent the performance of
acts or works, or the exercise of some of the
functions normally incident to, and in progressive
prosecution of, commercial gain or of the purpose
and object of the business organization: Provided,
however, That the phrase "doing business" shall not
be deemed to include mere investment as a
shareholder by a foreign entity in domestic corporations
duly registered to do business, and/or the exercise of
rights as such investor; nor having, a nominee director or
officer to represent its interests in such corporation; nor
appointing a representative or distributor domiciled
in the Philippines which transacts business in its
own name and for its own account. (Emphasis
supplied)
Thus, the phrase includes "appointing representatives or
distributors in the Philippines" but not when the
representative or distributor "transacts business in its
name and for its own account." In addition, Section 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 down payment 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.
G.R. No. 121824. January 29, 1998
BRITISH AIRWAYS, petitioner, vs. COURT OF
APPEALS, GOP MAHTANI, and PHILIPPINE
AIRLINES, respondents.
In this appeal by certiorari, petitioner British Airways (BA)
seeks to set aside the decision of respondent Court of
Appeals[1] promulgated on September 7, 1995, which
affirmed the award of damages and attorneys fees made
by the Regional Trial Court of Cebu, 7th Judicial Region,
Branch 17, in favor of private respondent GOP Mahtani
as well as the dismissal of its third-party complaint
against Philippine Airlines (PAL).[2]
The material and relevant facts are as follows:
On April 16, 1989, Mahtani decided to visit his relatives in
Bombay, India. In anticipation of his visit, he obtained the
services of a certain Mr. Gumar to prepare his travel
plans. The latter, in turn, purchased a ticket from BA
where the following itinerary was indicated:[3]
CARRIER FLIGHT DATE TIME STATUS
MANILA MNL PR 310Y 16 APR 1730 OK
HONGKONG HKG BA 20 M 16 APR 2100 OK
BOMBAY BOM BA 19 M 23 APR 0840 OK
MANILA MNL"
Since BA had no direct flights from Manila to Bombay,
Mahtani had to take a flight to Hongkong via PAL, and
upon arrival in Hongkong he had to take a connecting
flight to Bombay on board BA.
Prior to his departure, Mahtani checked in at the PAL
counter in Manila his two pieces of luggage containing
his clothings and personal effects, confident that upon
reaching Hongkong, the same would be transferred to
the BA flight bound for Bombay.
Unfortunately, when Mahtani arrived in Bombay he
discovered that his luggage was missing and that upon
inquiry from the BA representatives, he was told that the
same might have been diverted to London. After patiently
waiting for his luggage for one week, BA finally advised
him to file a claim by accomplishing the Property
Irregularity Report.[4]
Back in the Philippines, specifically on June 11, 1990,
Mahtani filed his complaint for damages and attorneys
fees[5] against BA and Mr. Gumar before the trial court,
docketed as Civil Case No. CEB-9076.
On September 4, 1990, BA filed its answer with counter
claim[6] to the complaint raising, as special and affirmative
defenses, that Mahtani did not have a cause of action
against it.Likewise, on November 9, 1990, BA filed a
third-party complaint[7] against PAL alleging that the
reason for the non-transfer of the luggage was due to the
latters late arrival in Hongkong, thus leaving hardly any
time for the proper transfer of Mahtanis luggage to the
BA aircraft bound for Bombay.
On February 25, 1991, PAL filed its answer to the third-
party complaint, wherein it disclaimed any liability,
arguing that there was, in fact, adequate time to transfer
the luggage to BA facilities in Hongkong. Furthermore,
the transfer of the luggage to Hongkong authorities
should be considered as transfer to BA.[8]
After appropriate proceedings and trial, on March 4,
1993, the trial court rendered its decision in favor of
Mahtani,[9] the dispositive portion of which reads as
follows:
WHEREFORE, premises considered, judgment is
rendered for the plaintiff and against the defendant for
which defendant is ordered to pay plaintiff the sum of
Seven Thousand (P7,000.00) Pesos for the value of the
two (2) suit cases; Four Hundred U.S. ($400.00) Dollars
representing the value of the contents of plaintiffs
luggage; Fifty Thousand (P50,000.00) Pesos for moral
and actual damages and twenty percent (20%) of the
total amount imposed against the defendant for attorneys
fees and costs of this action.
The Third-Party Complaint against third-party defendant
Philippine Airlines is DISMISSED for lack of cause of
action.
SO ORDERED.
Dissatisfied, BA appealed to the Court of Appeals, which
however, affirmed the trial courts findings. Thus:
WHEREFORE, in view of all the foregoing
considerations, finding the Decision appealed from to be
in accordance with law and evidence, the same is hereby
AFFIRMED in toto, with costs against defendant-
appellant.
SO ORDERED.[10]
BA is now before us seeking the reversal of the Court of
Appeals decision.
In essence, BA assails the award of compensatory
damages and attorneys fees, as well as the dismissal of
its third-party complaint against PAL.[11]
Regarding the first assigned issue, BA asserts that the
award of compensatory damages in the separate sum
of P7,000.00 for the loss of Mahtanis two pieces
of luggage was without basis since Mahtani in his
complaint[12] stated the following as the value of his
personal belongings:
8. On said travel, plaintiff took with him the following
items and its corresponding value, to wit:
1. personal belonging - - - - - - - - - - - - - - P10,000.00
2. gifts for his parents and relatives - - - - - $5,000.00
Moreover, he failed to declare a higher valuation with
respect to his luggage, a condition provided for in the
ticket, which reads:[13]
Liability for loss, delay, or damage to baggage is limited
unless a higher value is declared in advance and
additional charges are paid:
1. For most international travel (including domestic
corporations of international journeys) the liability limit is
approximately U.S. $9.07 per pound (U.S. $20.00) per
kilo for checked baggage and U.S. $400 per passenger
for unchecked baggage.
Before we resolve the issues raised by BA, it is needful to
state that the nature of an airlines contract of carriage
partakes of two types, namely: a contract to deliver a
cargo or merchandise to its destination and a contract to
transport passengers to their destination. A business
intended to serve the travelling public primarily, it is
imbued with public interest, hence, the law governing
common carriers imposes an exacting
[14]
standard. Neglect or malfeasance by the carriers
employees could predictably furnish bases for an action
for damages.[15]
In the instant case, it is apparent that the contract of
carriage was between Mahtani and BA. Moreover, it is
indubitable that his luggage never arrived in Bombay on
time. Therefore, as in a number of cases[16] we have
assessed the airlines culpability in the form of damages
for breach of contract involving misplaced luggage.
In determining the amount of compensatory damages in
this kind of cases, it is vital that the claimant satisfactorily
prove during the trial the existence of the factual basis of
the damages and its causal connection to defendants
acts.[17]
In this regard, the trial court granted the following award
as compensatory damages:
Since plaintiff did not declare the value of the contents in
his luggage and even failed to show receipts of the
alleged gifts for the members of his family in Bombay, the
most that can be expected for compensation of his lost
luggage (2 suit cases) is Twenty U.S. Dollars ($20.00)
per kilo, or a combined value of Four Hundred ($400.00)
U.S. Dollars for Twenty kilos representing the contents
plus Seven Thousand (P7,000.00) Pesos representing
the purchase price of the two (2) suit cases.
However, as earlier stated, it is the position of BA that
there should have been no separate award for the
luggage and the contents thereof since Mahtani failed to
declare a separate higher valuation for the
luggage,[18] and therefore, its liability is limited, at most,
only to the amount stated in the ticket.
Considering the facts of the case, we cannot assent to
such specious argument.
Admittedly, in a contract of air carriage a declaration by
the passenger of a higher value is needed to recover a
greater amount. Article 22(1) of the Warsaw
Convention,[19] provides as follows:
xxxxxxxxx
(2) In the transportation of checked baggage and goods,
the liability of the carrier shall be limited to a sum of 250
francs per kilogram, unless the consignor has made, at
the time the package was handed over to the carrier, a
special declaration of the value at delivery and has paid a
supplementary sum if the case so requires. In that case
the carrier will be liable to pay a sum not exceeding the
declared sum, unless he proves that the sum is greater
than the actual value to the consignor at delivery.
American jurisprudence provides that an air carrier is not
liable for the loss of baggage in an amount in excess of
the limits specified in the tariff which was filed with the
proper authorities, such tariff being binding on the
passenger regardless of the passengers lack of
knowledge thereof or assent thereto.[20] This doctrine is
recognized in this jurisdiction.[21]
Notwithstanding the foregoing, we have, nevertheless,
ruled against blind reliance on adhesion contracts where
the facts and circumstances justify that they should be
disregarded.[22]
In addition, we have held that benefits of limited liability
are subject to waiver such as when the air carrier failed
to raise timely objections during the trial when questions
and answers regarding the actual claims and damages
sustained by the passenger were asked.[23]
Given the foregoing postulates, the inescapable
conclusion is that BA had waived the defense of limited
liability when it allowed Mahtani to testify as to the actual
damages he incurred due to the misplacement of his
luggage, without any objection. In this regard, we quote
the pertinent transcript of stenographic notes of Mahtanis
direct testimony:[24]
Q - How much are you going to ask from this court?
A - P100,000.00.
Q - What else?
A - Exemplary damages.
Q - How much?
A - P100,000.00.
Q - What else?
A - The things I lost, $5,000.00 for the gifts I lost and my
personal belongings, P10,000.00.
Q - What about the filing of this case?
A - The court expenses and attorneys fees is 30%.
Indeed, it is a well-settled doctrine that where the
proponent offers evidence deemed by counsel of the
adverse party to be inadmissible for any reason, the latter
has the right to object.However, such right is a mere
privilege which can be waived. Necessarily, the objection
must be made at the earliest opportunity, lest silence
when there is opportunity to speak may operate as a
waiver of objections.[25] BA has precisely failed in this
regard.
To compound matters for BA, its counsel failed, not only
to interpose a timely objection, but even conducted his
own cross-examination as well.[26] In the early case
of Abrenica v. Gonda,[27] we ruled that:
x x x (I)t has been repeatedly laid down as a rule of
evidence that a protest or objection against the
admission of any evidence must be made at the proper
time, and that if not so made it will be understood to have
been waived. The proper time to make a protest or
objection is when, from the question addressed to the
witness, or from the answer thereto, or from the
presentation of proof, the inadmissibility of evidence is, or
may be inferred.
Needless to say, factual findings of the trial court, as
affirmed by the Court of Appeals, are entitled to great
respect.[28] Since the actual value of the luggage involved
appreciation of evidence, a task within the competence of
the Court of Appeals, its ruling regarding the amount is
assuredly a question of fact, thus, a finding not
reviewable by this Court.[29]
As to the issue of the dismissal of BAs third-party
complaint against PAL, the Court of Appeals justified its
ruling in this wise, and we quote:[30]
Lastly, we sustain the trial courts ruling dismissing
appellants third-party complaint against PAL.
The contract of air transportation in this case pursuant to
the ticket issued by appellant to plaintiff-appellee was
exclusively between the plaintiff Mahtani and defendant-
appellant BA. When plaintiff boarded the PAL plane from
Manila to Hongkong, PAL was merely acting as a
subcontractor or agent of BA. This is shown by the fact
that in the ticket issued by appellant to plaintiff-appellee,
it is specifically provided on the Conditions of Contract,
paragraph 4 thereof that:
4. x x x carriage to be performed hereunder by several
successive carriers is regarded as a single operation.
The rule that carriage by plane although performed by
successive carriers is regarded as a single operation and
that the carrier issuing the passengers ticket is
considered the principal party and the other carrier
merely subcontractors or agent, is a settled issue.
We cannot agree with the dismissal of the third-
complaint.
In Firestone Tire and Rubber Company of the
Philippines v. Tempengko,[31] we expounded on the
nature of a third-party complaint thus:
The third-party complaint is, therefore, a procedural
device whereby a third party who is neither a party nor
privy to the act or deed complained of by the plaintiff,
may be brought into the case with leave of court, by the
defendant, who acts as third-party plaintiff to enforce
against such third-party defendant a right for contribution,
indemnity, subrogation or any other relief, in respect of
the plaintiffs claim. The third-party complaint is actually
independent of and separate and distinct from the
plaintiffs complaint. Were it not for this provision of the
Rules of Court, it would have to be filed independently
and separately from the original complaint by the
defendant against the third-party. But the Rules permit
defendant to bring in a third-party defendant or so to
speak, to litigate his separate cause of action in respect
of plaintiffs claim against a third-party in the original and
principal case with the object of avoiding circuitry of
action and unnecessary proliferation of law suits and of
disposing expeditiously in one litigation the entire subject
matter arising from one particular set of facts.
Undeniably, for the loss of his luggage, Mahtani is
entitled to damages from BA, in view of their contract of
carriage. Yet, BA adamantly disclaimed its liability and
instead imputed it to PAL which the latter naturally
denies. In other words, BA and PAL are blaming each
other for the incident.
In resolving this issue, it is worth observing that the
contract of air transportation was exclusively between
Mahtani and BA, the latter merely endorsing the Manila
to Hongkong leg of the formers journey to PAL, as its
subcontractor or agent. In fact, the fourth paragraph of
the Conditions of Contracts of the ticket[32] issued by BA
to Mahtani confirms that the contract was one of
continuous air transportation from Manila to Bombay.
4. x x x carriage to be performed hereunder by several
successive carriers is regarded as a single operation.
Prescinding from the above discussion, it is undisputed
that PAL, in transporting Mahtani from Manila to
Hongkong acted as the agent of BA.
Parenthetically, the Court of Appeals should have been
cognizant of the well-settled rule that an agent
is also responsible for any negligence in the performance
of its function[33] and is liable for damages which the
principal may suffer by reason of its negligent
act.[34] Hence, the Court of Appeals erred when it opined
that BA, being the principal, had no cause of action
against PAL, its agent or sub-contractor.
Also, it is worth mentioning that both BA and PAL are
members of the International Air Transport Association
(IATA), wherein member airlines are regarded as agents
of each other in the issuance of the tickets and other
matters pertaining to their relationship.[35] Therefore, in
the instant case, the contractual relationship between BA
and PAL is one of agency, the former being the principal,
since it was the one which issued the confirmed ticket,
and the latter the agent.
Our pronouncement that BA is the principal is consistent
with our ruling in Lufthansa German Airlines v. Court of
Appeals.[36] In that case, Lufthansa issued a confirmed
ticket to Tirso Antiporda covering five-leg trip aboard
different airlines. Unfortunately, Air Kenya, one of the
airlines which was to carry Antiporda to a specific
destination bumped him off.
An action for damages was filed against Lufthansa which,
however, denied any liability, contending that its
responsibility towards its passenger is limited to the
occurrence of a mishap on its own line. Consequently,
when Antiporda transferred to Air Kenya, its obligation as
a principal in the contract of carriage ceased; from there
on, it merely acted as a ticketing agent for Air Kenya.
In rejecting Lufthansas argument, we ruled:
In the very nature of their contract, Lufthansa is clearly
the principal in the contract of carriage with Antiporda
and remains to be so, regardless of those instances
when actual carriage was to be performed by various
carriers. The issuance of confirmed Lufthansa ticket in
favor of Antiporda covering his entire five-leg trip
aboard successive carriers concretely attest to this.
Since the instant petition was based on breach of
contract of carriage, Mahtani can only sue BA alone, and
not PAL, since the latter was not a party to the
contract. However, this is not to say that PAL is relieved
from any liability due to any of its negligent acts. In China
Air Lines, Ltd. v. Court of Appeals,[37] while not exactly in
point, the case, however, illustrates the principle which
governs this particular situation. In that case, we
recognized that a carrier (PAL), acting as an agent of
another carrier, is also liable for its own negligent acts or
omission in the performance of its duties.
Accordingly, to deny BA the procedural remedy of filing a
third-party complaint against PAL for the purpose of
ultimately determining who was primarily at fault as
between them, is without legal basis. After all, such
proceeding is in accord with the doctrine against
multiplicity of cases which would entail receiving the
same or similar evidence for both cases and enforcing
separate judgments therefor. It must be borne in mind
that the purpose of a third-party complaint is precisely to
avoid delay and circuity of action and to enable the
controversy to be disposed of in one suit.[38] It is but
logical, fair and equitable to allow BA to sue PAL for
indemnification, if it is proven that the latters negligence
was the proximate cause of Mahtanis unfortunate
experience, instead of totally absolving PAL from any
liability.
WHEREFORE, in view of the foregoing, the decision of
the Court of Appeals in CA-G.R. CV No. 43309 dated
September 7, 1995 is hereby MODIFIED, reinstating the
third-party complaint filed by British Airways dated
November 9, 1990 against Philippine Airlines. No costs.
SO ORDERED.