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G.R. No. L-8169 December 29, 1913 Philippine currency.

Said counsel therefore prayed that judgment be


ANTONIO M. A. BARRETTO, plaintiff-appellant, rendered against the defendant by sentencing him to pay to the plaintiff
vs. P137,000 Philippine currency, and the interest thereon at the legal rate,
JOSE SANTA MARINA, defendant-appellee. in addition to the payment of the costs, together with such other
Hausserman, Cohn and Fisher, for appellant. equitable remedies as the law allows.
W. A. Kincaid and Thos. L. Hartigan, for appellee. By an order of March 14, 1911, the Honorable A. S. Crossfield, judge
overruled the demurrer to the first cause of action, but sustained that to
TORRES, J.: the second. Counsel for the plaintiff entered an exception to this order
These cases were appealed by counsel for the plaintiff, through a bill in so far as it sustained the demurrer interposed by the defendant to
of exceptions, from the judgment of January 17, 1912, and the order of the second cause of action.
February 5 of the same year, whereby the Honorable S. del Rosario, By his written answer to the complaint, on July 19, 1911, counsel for
judge, sentenced the defendant to pay to the plaintiff the salary to which the defendant, reserving his exception to the order of the court
he was entitled for the first eight days of January, 1910, also that for overruling his demurrer filed against the first cause of action, denied
the following month, at the rate of P3,083.33 per month, without special each and all of the allegations contained in the complaint, relative to
finding as to costs, and dismissed the second cause of action contained such first cause of action.
in the complaint presented in that case. As a special defense of the latter, he set forth that the plaintiff had no
On January 5, 1911, for the plaintiff Antonio M.a Barretto filed suit contract whatever with the defendant in which any period of time was
against Jose Santa Marina, alleging that the defendant, a resident of stipulated during which the former was to render his services as
Spain, was then the owner and proprietor of the business known as the manager of the La Insular factory; that the defendant revoked for just
La Insular Cigar and Cigarette Factory, established in these Islands, cause the power conferred upon the plaintiff; that subsequent to the
which business consisted in the purchase of leaf tobacco and other raw revocation of such power, and on the occasion of the plaintiff's having
material, in the preparation of the same, and in the sale of cigars and sold all his rights and interests in the business of the La Insular factory
cigarettes in large quantities; that on January 8, 1910, and for a long to the defendant, in consideration of the sum received by him, the
time prior thereto, the plaintiff held and had held the position of agent plaintiff renounced all action, intervention and claim that he might have
of the defendant in the Philippine Islands for the management of the against the defendant relative to the business aforementioned,
said business in the name and for the account of the said defendant; whereby all the questions that might have arisen between them were
that the plaintiff's services were rendered in pursuance of a contract settled.
whereby the defendant obligated himself in writing to hire the said On December 19, 1911, counsel for each of the parties presented to
services for so long a time as the plaintiff should not show the court as stipulation of the following purport:
discouragement and to compensate such services at the rate of In clause 11 of the will executed by Don Joaquin Santa Marina y Perez
P37,000 Philippine currency per annum; that, on the aforesaid 8th day in Madrid before a notary public on August 4, 1901, and duly legalized
of January, 1910, the defendant, without reason, justification, or pretext in these Islands, there appears the following:
and in violation of the contract before mentioned, summarily and "The testator provides that the testamentary executor who is holding
arbitrarily dispensed with the plaintiff's services and removed him from office as such shall enjoy a salary, allotment, or emolument of 4,000
the management of the business, since which date the defendant had pesos per annum which shall be paid out of the testator's estate; but
refused to pay him the compensation, or any part thereof, due him and that in case of consultation, the testamentary executors consulted shall
payable in full for services rendered subsequent to December 31, 1909; not be entitled to this allotment, nor to any other, on account of such
and that, as a second cause of action based upon the facts aforestated, consultation."
the plaintiff had suffered losses and damages in the sum of P100,000
According to the statement of the sums collected by Antonio M.a to be due for services rendered by the plaintiff as agent and manager
Barretto as the judicial administrator of the estate of Joaquin Santa of the tobacco factory known as La Insular; and the other of P100,000,
Marina from November, 1908, to March, 1910, and during twenty-three as an indemnity for losses and damages, on account of the plaintiff's
days of April of the latter year, the total amount so collected was removal without just cause from his position as agent and manager of
P5,923.28. said factory, effected arbitrarily and in violation of the contract of hire of
Antonio M.a Barretto ceased to manage the La Insular factory, as the services between the parties, the plaintiff claiming to be still entitled to
judicial administrator of the estate of the deceased Joaquin Santa hold the position from which he was dismissed.
Marina, in October, 1909, and not on November 7, 1908, as The most important fact in this case, which stands out prominently from
erroneously out in the stenographic notes. the evidence regarded as a whole, is that of the plaintiff Barretto's
The remuneration paid to Barretto as judicial administrator of the estate renunciation or registration of the position he held as agent and
of Santa Marina was independent of that which pertained to him for his manager of the said factory, which was freely and voluntarily made by
services as manager of the La Insular factory both before and after the him on the occasion of the insolvency and disappearance of the
date on which he ceased to administer the said factory as such judicial Chinaman Uy Yan, who had bought from the factory products
administrator. aggregating in value the considerable sum of P97,000 and, without
In the stipulation before mentioned there also appears the following: paying this large debt, disappeared and has not been seen since.
"The facts above stated are true, but there is a controversy between Antonio M.a Barretto the agent and manager of the said factory, said
the attorneys for the plaintiff and the defendant, as to whether such among other things the following, in the letter, Exhibit 3, addressed by
facts are relevant as evidence in the said case. They therefore submit him to Jose Santa Marina, on January 2, 1909:
this question to the court if it determines that they are relevant as I have to report to you an exceedingly disagreeable matter. This
evidence they should be admitted as such, with exception by the Chinaman Uy Yan, with whose name I begin this paragraph, has failed
defendant, but if it determines that they are not relevant as evidence and owes the factory the considerable sum of P97,000. We will see that
they should be excluded, with exception by the plaintiff." I can get from him, although when these Chinamen fail it is because
After the hearing of the case, with the introduction of evidence by both they have spent everything. I will turned the matter over to my attorney
parties, the court, on January 17, 1912, rendered the judgment in order that he may sue the party. I am not attempting to make light of
aforementioned, to which an exception was taken by counsel for the this matter. I acknowledge that I have been rather more generous with
plaintiff, who by written motion asked that the said judgment be set this fellow than I should have been; but this is the way of doing business
aside and a new trial granted, because such judgment was not here. . . .
sufficiently warranted by the evidence and was contrary to law and I have always thought that when the manager of a business trips up in
because the findings of fact therein contained were openly and a matter like this he should tender his resignation, and I still think so.
manifestly contrary to the weight of the evidence. This motion was The position is at your disposal to do as you like.
denied, with exception by the plaintiff. By an order of the 5th of the This letter is authentic and was neither denied nor rejected by the
following month of February, issued in view of a petition presented by plaintiff, Barretto.lawphil.net
counsel for the plaintiff, the court dismissed the second cause of action Although Santa Marina did not immediately reply and tell him what
set out in the complaint, to which order said counsel likewise excepted. opinion he may have formed and the decision he had reached in the
Upon presentation of the proper bill of exceptions, the same was matter, it is no less true that the silence and lack of reply on the part of
approved, certified, and forwarded to the clerk of this court. the chief owner of the factory were sufficient indications that the
Demand is made in this suit for the payment of the considerable sum resignation had been virtually accepted and that if he did not reply
of P137,000, together with the legal interest thereon. Two amounts immediately it was because he intended to act cautiously. As the
make up this sum: One of P37,000, as salary for the year 1910, claimed addressee, the chief owner of the factory, knew of no one at that time
whom he could appoint relieve the writer, who had resigned, it was to not expect, nor ought to have expected, that the defendant should have
be presumed that he was thereafter looking for some trustworthy insisted on the unsuccessful agent's continuance in his position, or that
person who might substitute the plaintiff in his position of agent and he should not have accepted the resignation tendered by the plaintiff in
manager of the factory, communicated to the plaintiff that he had his first letter. By the mere fact that the defendant remained silent and
revoked the power conferred upon him and had appointed Mr. J. designated another person, Mr. J. McGavin, to, discharge in the
McGavin to substitute him in his position of manager of the La Insular plaintiff's stead the powers and duties of agent and manager of the said
factory, whereby the plaintiff's resignation, tendered in his aforesaid factory, Barretto should have understood that his resignation had been
letter of January 2, 1909, Exhibit 3, was expressly accepted. accepted and that if its acceptance was not communicated to him
After the plaintiff had resigned the position he held, and notwithstanding immediately it was owing to the circumstance that the principal owner
the lapse of several months before its express acceptance, it cannot be of the factory did not then have, nor until several months afterwards,
understood that he has any right to demand an indemnity for losses any other person whom he could appoint and place in his stead, for, as
and damages particularly since he ostensibly and frankly soon as the defendant Santa Marina could appoint the said McGavin,
acknowledged that he had been negligent in the discharge of his duties he revoked the power he had conferred upon the plaintiff and
and that he had overstepped his authority in the management of the communicated this fact to the latter, by means of the letter, Exhibit D,
factory, with respect to the Chinaman mentioned. The record does not which was presented to him by the bearer thereof, McGavin himself,
show that Santa Marina, his principal, required him to resign his position the new manager and agent appointed.
as manager, but that Barretto himself voluntarily stated by letter to his Omitting consideration for the moment of the first error attributed to the
principal that, for the reasons therein mentioned, he resigned and trial judge by his sustaining the demurrer filed against the second cause
placed at the latter's disposal the position of agent and manager of the of action, relative to the collection of P100,000 as the amount of the
La Insular factory; and if the principal, Santa Marina, deemed it suitable losses and damages occasioned to the plaintiff, and turning our
to relieve the agent, for having been negligent and overstepping his attention to the second error imputed to him by his refusal to sentence
authority in the discharge of his office, and furthermore because of his the defendant, for the first cause of action, to the payment of P37,000
having expressly resigned his position, and placed it at the disposal of or of any sum over P3,083.33, we shall proceed to examine the
the chief owner of the business, it cannot be explained how such person question whether any period or term for the duration of the position of
can be entitled to demand an indemnity for losses and damages, from agent and manager was fixed in the verbal contract made between the
his principal, who merely exercised his lawful right of relieving the deceased Joaquin Santa Marina, the defendant's predecessor in
plaintiff from the position which he had voluntarily given up. interest, and the plaintiff antonio M.a Barretto a contract which, after
So, the agent and manager Barretto was not really dismissed or Joaquin Santa Marina's death was ratified by his brother and heir, the
removed by the defendant Santa Marina. What did occur was that, in defendant Jose Santa Marina.
view of the resignation rendered by the plaintiff for the reasons which The defendant acknowledged the said verbal contract and also its
he himself conscientiously deemed to warrant his surrender of the ratification by him after his brother's death; but he denied any stipulation
position he was holding in the La Insular factory, the principal owner of therein that Barretto should hold his office for any specific period of time
the establishment, the defendant Santa Marina, had to took for and fixed by and between the contracting parties, for the deceased Joaquin
appoint another agent and manager to relieve and substitute him in the Santa Marina, in conferring power upon the plaintiff, did not do so for
said employment a lawful act performed by the principal owner of any specific time nor did he set any period within which he should hold
the factory and one which cannot serve as a ground upon which to his office of agent and manager of the La Insular factory; neither did he
demand from the latter an indemnity for losses and damages, inasmuch fix the date for the termination of such services, in the instrument of
as, in view of the facts that occurred and were acknowledged and power of attorney executed by the defendant Santa Marina before a
confessed by Barretto in his letters, Exhibits 3 and 6, the plaintiff could notary on the 25th of September, 1908. (Record, p. 20.)
From the context of the instrument just mentioned it can not be wherefore the courts are authorized to fix the duration of the same, and
concluded that any time whatever was fixed during which the plaintiff the reason why it is inapplicable is that the rights and obligations
should hold his position of agent. The defendant, in executing that existing between Barretto and Santa Marina are absolutely different
instrument, whereby the agreement made between his brother Joaquin from those to which it refers, for, according to article 1732 of the Civil
and Barretto was ratified, did no more than accord to the plaintiff the Code, agency is terminated:
same confidence that the defendant's predecessor in interest had in 1. By revocation.
him; and so long as this merely subjective condition of trust lodged in 2. By withdrawal of the agent.
the agent existed, the time during which the latter might hold his office 3. By death, interdiction, bankruptcy, or insolvency of the principal or of
could be considered indefinite or undetermined, but as soon as that the agent.
indespensable condition of a power of attorney disappeared and the It is not incumbent upon the courts to fix the period during which
conduct of the agent deceased to inspire confidence, the principal had contracts for services shall last. Their duration is understood to be
a right to revoke the power he had conferred upon his agent, especially implicity fixed, in default of express stipulation, by the period for the
when the latter, for good reasons, gave up the office he was holding. payment of the salary of the employee. Therefore the doctrine of the
Article 1733 of the civil Code, applicable to the case at bar, according tacit renewal of leases of property, established in article 1566 of the
to the provisions of article 2 of the Code of Commerce, prescribes: "The Civil Code, is not applicable to the case at bar. And even though the
principal may, at his will, revoke the power and compel the agent to annual salary fixed for the services to be rendered by the plaintiff as
return the instrument containing the same in which the authority was agent and manager of the La Insular factory, was P37,000, yet, in
given." accordance with the custom universally observed throughout the world,
Article 279 of the Code of Commerce provides: "The principal may salaries fixed for the year are collected and paid in monthly installments
revoke the commission intrusted to an agent at any stage of the as they fall due, and so the plaintiff collected and was paid his
transaction, advising him thereof, but always being liable for the result remuneration; therefore, on the latter's discontinuance in his office as
of the transactions which took place before the latter was informed of agent, he would at most be entitled to the salary for one month and
the revocation."1awphi1.net some odd days, allowed in the judgment of the lower court.
From the above legal provisions it is clearly to be inferred that the Article 302 of the Code of Commerce reads thus:
contract of agency can subsist only so long as the principal has In cases in which no special time is fixed in the contracts of service, any
confidence in his agent, because, from the moment such confidence one of the parties thereto may dissolve it, advising the other party
disappears and although there be a fixed period for the excercise of the thereof one month in advance.
office of agent, a circumstance that does not appear in the present case The factor or shop clerk shall be entitled, in such case, to the salary
the principal has a perfect right to revoke the power that he had due for one month.
conferred upon the agent owing to the confidence he had in him and From the mere fact that the principal no longer had confidence in the
which for sound reasons had ceased to exist. agent, he is entitled to withdraw it and to revoke the power he conferred
The record does not show it to have been duly proved. notwithstanding upon the latter, even before the expiration of the period of the
the plaintiff's allegation, that a period was fixed for holding his agency engagement or of the agreement made between them; but, in the
or office of agent and manager of the La Insular factory. It would be present case, once it has been shown that, between the deceased
improper, for the purpose of supplying such defect, to apply to the Joaquin Santa Marina and the latter's heir, now the defendant, on the
present case the provisions of article 1128 of the Civil Code. This article one hand, and the plaintiff Barretto, on the other, no period whatever
relates to obligation for which no period has been fixed for their was stipulated during which the last-named should hold the office and
fulfillment, but, which, from their nature and circumstances, allow the manager of the said factory, it is unquestionable that the defendant,
inference that there was an intention to grant such period to the debtor, even without good reasons, could lawfully revoke the power conferred
upon the plaintiff and appoint in his place Mr. McGavin, and thereby whatever had been stipulated during which the plaintiff should be
contracted no liability whatever other than the obligation to pay the entitled to hold his position; and furthermore, because, in relieving the
plaintiff the salary pertaining to one month and some odd days, as held latter and appointing another person in his place, the defendant acted
in the judgment below. in accordance with the renunciation and resignation which the plaintiff
Barretto himself acknowledged in his aforesaid letter, Exhibit 3, that he had tendered. If the plaintiff is entitled to any indemnity in accordance
had exceeded his authority and acted negligently in selling on credit to with law, such was awarded to him in the judgment of the lower court
the said Chinaman a large quantity of the products of the factory under by granting him the right to collect salary for one month and some odd
the plaintiff's management, reaching the considerable value of days.
P97,000; whereby he confessed one of the causes which led to his As for the other features of the case, the record does not show that the
removal, the revocation of the power conferred upon him and the plaintiff has any good reason or legal ground upon which to claim an
appointment of a new agent in his place. indemnity for losses and damages in the sum of P100,000, for it was
The defendant, Jose Santa Marina, in his letter of December 2, 1909, not proved that he suffered to that extent, and the judgment appealed
whereby he communicated to the plaintiff the revocation of the power from has awarded him the month's salary to which he is entitled.
he had conferred upon him and the appointment of another new agent, Therefore that judgment and the order of March 14 sustaining the
Mr. McGavin, stated among other things that the loan contracted by the demurrer to the second cause of action are both in accordance with the
agent Barretto, without the approval of the principal, caused a great law.
panic among the stockholders of the factory and that the defendant For the foregoing reasons, whereby the errors assigned to the said
hoped to allay it by the new measure that he expected to adopt. This, judgment and order are deemed to have been refuted, both judgment
then, was still another reason the induced the principal to withdraw the and order are hereby affirmed, with costs against the appellant.
confidence placed in the plaintiff and to revoke the power he had
conferred upon him. Therefore, even omitting consideration of the
resignation before mentioned, we find duly warranted the reasons
which impelled the defendant to revoke the said power and relieve the
plaintiff from the position of agent and manager of the La Insular factory.
In accordance with the provisions of article 283 of the Code of
Commerce, the manager of an enterprise or manufacturing or
commercial establishment, authorized to administer it and direct it, with
more or less powers, as the owner may have considered advisable,
shall have the legal qualifications of an agent.
Article 300 of the same code prescribes: "The following shall be special
reasons for which principals may discharge their employees, even
though the time of service of the contract has not elapsed: Fraud or
breach of trust in the business intrusted to them . . . "
By reason of these legal provisions the defendant, in revoking the
authority conferred upon the plaintiff, acted within his unquestionable
powers and did not thereby violate any statute whatever that may have
limited them; consequently, he could not have caused the plaintiff any
harm or detriment to his rights and interests, for not only had Santa
Marina a justifiable reason to proceed as he did, but also no period
Sale[3] dated May 4, 1979 which petitioner signed upon Parangan's
representation that the same merely evidences the loans extended by
him unto the former.
For fear that her property might be prejudiced by the continued
borrowing of Parangan, petitioner demanded the return of her
certificate of title. Instead of complying with the request, Parangan
asserted his rights over the property which allegedly had become his
by virtue of the aforementioned Deed of Definite Sale. Under said
document, petitioner conveyed the subject property and all the
improvements thereon unto Parangan absolutely for and in
consideration of the sum of Seventy Five Thousand (P75,000.00)
Pesos.
[G.R. No. 111924. January 27, 1997] Aggrieved, petitioner filed an action for cancellation of liens, quieting of
ADORACION LUSTAN, petitioner, vs. COURT OF APPEALS, title, recovery of possession and damages against Parangan and PNB
NICOLAS PARANGAN and SOLEDAD PARANGAN, PHILIPPINE in the Regional Trial Court of Iloilo City. After trial, the lower court
NATIONAL BANK, respondents. rendered judgment, disposing as follows:
DECISION "WHEREFORE and in view of the foregoing, a decision is rendered as
FRANCISCO, J.: follows:
Petitioner Adoracion Lustan is the registered owner of a parcel of land 1. Ordering cancellation by the Register of Deeds of the Province of
otherwise known as Lot 8069 of the Cadastral Survey of Calinog, lloilo lloilo, of the unauthorized loans, the liens and encumbrances appearing
containing an area of 10.0057 hectares and covered by TCT No. T-561. in the Transfer Certificate of Title No. T-561, especially entries nos.
On February 25, 1969, petitioner leased the above described property 286231; 338638; and 352794;
to private respondent Nicolas Parangan for a term of ten (10) years and 2. Declaring the Deed of Pacto de Retro Sale dated April 25, 1978 and
an annual rent of One Thousand (P1,000.00) Pesos. During the period the Deed of Definite Sale dated May 6, 1979, both documents executed
of lease, Parangan was regularly extending loans in small amounts to by Adoracion Lustan in favor of Nicolas Parangan over Lot 8069 in TCT
petitioner to defray her daily expenses and to finance her daughter's No. T-561 of the Register of Deeds of lloilo, as null and void, declaring
education. On July 29, 1970, petitioner executed a Special Power of the same to be Deeds of Equitable Mortgage;
Attorney in favor of Parangan to secure an agricultural loan from private 3. Ordering defendant Nicolas Parangan to pay all the loans he secured
respondent Philippine National Bank (PNB) with the aforesaid lot as from defendant PNB using thereto as security TCT No. T-561 of plaintiff
collateral. On February 18, 1972, a second Special Power of Attorney and defendant PNB to return TCT No. T-561 to plaintiff;
was executed by petitioner, by virtue of which, Parangan was able to 4. Ordering defendant Nicolas Parangan to return possession of the
secure four (4) additional loans, to wit: the sums of P24,000.00, land in question, Lot 8069 of the Calinog Cadastre described in TCT
P38,000.00, P38,600.00 and P25,000.00 on December 15, 1975, No. T-561 of the Register of Deeds of lloilo, to plaintiff upon payment of
September 6, 1976, July 2, 1979 and June 2, 1980, respectively. The the sum of P75,000.00 by plaintiff to defendant Parangan which
last three loans were without the knowledge of herein petitioner and all payment by plaintiff must be made within ninety (90) days from receipt
the proceeds therefrom were used by Parangan for his own benefit.[1] of this decision; otherwise, sale of the land will be ordered by the court
These encumbrances were duly annotated on the certificate of title. On to satisfy payment of the amount;
April 16, 1973, petitioner signed a Deed of Pacto de Retro Sale[2] in 5. Ordering defendant Nicolas Parangan to pay plaintiff attorney's fees
favor of Parangan which was superseded by the Deed of Definite in the sum of P15,000.00 and to pay the costs of the suit.
SO ORDERED."[4] parol evidence then becomes competent and admissible to prove that
Upon appeal to the Court of Appeals (CA), respondent court reversed the instrument was in truth and in fact given merely as a security for the
the trial court's decision. Hence this petition contending that the CA repayment of a loan. And upon proof of the truth of such allegations,
committed the following errors: the court will enforce the agreement or understanding in consonance
"IN ARRIVING AT THE CONCLUSION THAT NONE OF THE with the true intent of the parties at the time of the execution of the
CONDITIONS STATED IN ART. 1602 OF THE NEW CIVIL CODE HAS contract.[10]
BEEN PROVEN TO EXIST BY PREPONDERANCE OF EVIDENCE: Articles 1602 and 1604 of the Civil Code respectively provide:
IN CONCLUDING THAT PETITIONER SIGNED THE DEED OF SALE "The contract shall be presumed to be an equitable mortgage in any of
WITH KNOWLEDGE AS TO THE CONTENTS THEREOF; the following cases:
IN ARRIVING AT THE CONCLUSION THAT THE TESTIMONY OF 1) When the price of a sale with right to repurchase is unusually
WITNESS DELIA CABIAL DESERVES FULL FAITH AND CREDIT; inadequate;
IN FINDING THAT THE SPECIAL POWER OF ATTORNEY 2) When the vendor remains in possession as lessor or otherwise;
AUTHORIZING MORTGAGE FOR "UNLIMITED" LOANS AS 3) When upon or after the expiration of the right to repurchase, another
RELEVANT." instrument extending the period of redemption or granting a new period
Two main issues confront us in this case, to wit: whether or not the is executed;
Deed of Definite Sale is in reality an equitable mortgage and whether 4) When the vendor binds himself to pay the taxes on the thing sold;
or not petitioner's property is liable to PNB for the loans contracted by 5) When the purchaser retains for himself a part of the purchase price;
Parangan by virtue of the special power of attorney. The lower court 6) In any other case where it may be fairly inferred that the real intention
and the CA arrived at different factual findings thus necessitating a of the parties is that the transaction shall secure the payment of a debt
review of the evidence on record.[5] After a thorough examination, we or the performance of any other obligation."
note some errors, both in fact and in law, committed by public "Art. 1604. The provisions of Article 1602 shall also apply to a contract
respondent CA. purporting to be an absolute sale."
The court a quo ruled that the Deed of Definite Sale is in reality an From a reading of the above-quoted provisions, for a presumption of an
equitable mortgage as it was shown beyond doubt that the intention of equitable mortgage to arise, we must first satisfy two requisites namely:
the parties was one of a loan secured by petitioner's land.[6] We agree. that the parties entered into a contract denominated as a contract of
A contract is perfected by mere consent.[7] More particularly, a contract sale and that their intention was to secure an existing debt by way of
of sale is perfected at the moment there is a meeting of minds upon the mortgage. Under Art. 1604 of the Civil Code, a contract purporting to
thing which is the object of the contract and upon the price.[8] This be an absolute sale shall be presumed to be an equitable mortgage
meeting of the minds speaks of the intent of the parties in entering into should any of the conditions in Art. 1602 be present. The existence of
the contract respecting the subject matter and the consideration any of the circumstances therein, not a concurrence nor an
thereof. If the words of the contract appear to be contrary to the evident overwhelming number of such circumstances, suffices to give rise to
intention of the parties, the latter shall prevail over the former.[9] In the the presumption that the contract is an equitable mortgage.[11]
case at bench, the evidence is sufficient to warrant a finding that Art. 1602, (6), in relation to Art 1604 provides that a contract of sale is
petitioner and Parangan merely intended to consolidate the former's presumed to be an equitable mortgage in any other case where it may
indebtedness to the latter in a single instrument and to secure the same be fairly inferred that the real intention of the parties is that the
with the subject property. Even when a document appears on its face transaction shall secure the payment of a debt or the performance of
to be a sale, the owner of the property may prove that the contract is any other obligation. That the case clearly falls under this category can
really a loan with mortgage by raising as an issue the fact that the be inferred from the circumstances surrounding the transaction as
document does not express the true intent of the parties. In this case, herein set forth:
Petitioner had no knowledge that the contract[12] she signed is a deed surrounding the transaction. He has no motive to prevaricate or concoct
of sale. The contents of the same were not read nor explained to her a story as he witnessed the execution of the document at the behest of
so that she may intelligibly formulate in her mind the consequences of Parangan himself who, at the outset, informed him that he will witness
her conduct and the nature of the rights she was ceding in favor of a document consolidating petitioner's debts. He thus testified:
Parangan. Petitioner is illiterate and her condition constrained her to "Q: In (sic) May 4, 1979, you remember having went (sic) to the
merely rely on Parangan's assurance that the contract only evidences Municipality of Calinog?
her indebtedness to the latter. When one of the contracting parties is A: Yes, sir.
unable to read, or if the contract is in a language not understood by Q: Who invited you to go there?
him, and mistake or fraud is alleged, the person enforcing the contract A: Parangan.
must show that the terms thereof have been fully explained to the Q: You mean Nicolas Parangan?
former.[13] Settled is the rule that where a party to a contract is illiterate A: Yes, sir.
or cannot read or cannot understand the language in which the contract Q: What did Nicolas tell you why he invited you to go there?
is written, the burden is on the party interested in enforcing the contract A: He told me that I will witness on the indebtedness of Adoracion to
to prove that the terms thereof are fully explained to the former in a Parangan.
language understood by him.[14] To our mind, this burden has not been xxx xxx xxx
satisfactorily discharged. Q: Before Adoracion Lustan signed her name in this Exh. "4", was this
We do not find the testimony of Parangan and Delia Cabial that the document read to her?
contract was duly read and explained to petitioner worthy of credit. The A: No, sir.
assessment by the trial court of the credibility of witnesses is entitled to Q: Did Nicolas Parangan right in that very room tell Adoracion what she
great respect and weight for having had the opportunity of observing was signing?
the conduct and demeanor of the witnesses while testifying.[15] The A: No, sir.
lower court may not have categorically declared Cabial's testimony as xxx xxx xxx
doubtful but this fact is readily apparent when it ruled on the basis of Q: What did you have in mind when you were signing this document,
petitioner's evidence in total disregard of the positive testimony on Exh. "4"?
Parangan's side. We have subjected the records to a thorough A: To show that Adoracion Lustan has debts with Nicolas
examination, and a reading of the transcript of stenographic notes Parangan."[18]
would bear out that the court a quo is correct in its assessment. The Furthermore, we note the absence of any question propounded to
CA committed a reversible error when it relied on the testimony of Judge Lebaquin to establish that the deed of sale was read and
Cabial in upholding the validity of the Deed of Definite Sale. For one, explained by him to petitioner. When asked if witness has any
there are noted major contradictions between the testimonies of Cabial knowledge whether petitioner knows how to read or write, he answered
and Judge Lebaquin, who notarized the purported Deed of Definite in the negative.[19] This latter admission impresses upon us that the
Sale. While the former testified that receipts were presented before contract was not at all read or explained to petitioner for had he known
Judge Lebaquin, who in turn made an accounting to determine the price that petitioner is illiterate, his assistance would not have been
of the land[16], the latter categorically denied the allegation.[17] This necessary.
contradiction casts doubt on the credibility of Cabial as it is ostensible The foregoing squares with the sixth instance when a presumption of
that her version of the story is concocted. equitable mortgage prevails. The contract of definite sale, where
On the other hand, petitioner's witness Celso Pamplona, testified that petitioner purportedly ceded all her rights to the subject lot in favor of
the contract was not read nor explained to petitioner. We believe that Parangan, did not embody the true intention of the parties. The
this witness gave a more accurate account of the circumstances
evidence speaks clearly of the nature of the agreement it was one the principal is solidarily liable with the agent if the former allowed the
executed to secure some loans. latter to act as though he had full powers (Article 1911, Civil Code).[24]
Anent the issue of whether the outstanding mortgages on the subject The mortgage directly and immediately subjects the property upon
property can be enforced against petitioner, we rule in the affirmative. which it is imposed.[25] The property of third persons which has been
Third persons who are not parties to a loan may secure the latter by expressly mortgaged to guarantee an obligation to which the said
pledging or mortgaging their own property.[20] So long as valid consent persons are foreign, is directly and jointly liable for the fulfillment
was given, the fact that the loans were solely for the benefit of Parangan thereof; it is therefore subject to execution and sale for the purpose of
would not invalidate the mortgage with respect to petitioner's property. paying the amount of the debt for which it is liable.[26] However,
In consenting thereto, even granting that petitioner may not be petitioner has an unquestionable right to demand proportional
assuming personal liability for the debt, her property shall nevertheless indemnification from Parangan with respect to the sum paid to PNB
secure and respond for the performance of the principal obligation.[21] from the proceeds of the sale of her property[27] in case the same is
It is admitted that petitioner is the owner of the parcel of land mortgaged sold to satisfy the unpaid debts.
to PNB on five (5) occasions by virtue of the Special Powers of Attorney WHEREFORE, premises considered, the judgment of the lower court
executed by petitioner in favor of Parangan. Petitioner argues that the is hereby REINSTATED with the following MODIFICATIONS:
last three mortgages were void for lack of authority. She totally failed to 1. DECLARING THE DEED OF DEFINITE SALE AS AN EQUITABLE
consider that said Special Powers of Attorney are a continuing one and MORTGAGE;
absent a valid revocation duly furnished to the mortgagee, the same 2. ORDERING PRIVATE RESPONDENT NICOLAS PARANGAN TO
continues to have force and effect as against third persons who had no RETURN THE POSSESSION OF THE SUBJECT LAND UNTO
knowledge of such lack of authority. Article 1921 of the Civil Code PETITIONER UPON THE LATTER'S PAYMENT OF THE SUM OF
provides: P75,000.00 WITHIN NINETY (90) DAYS FROM RECEIPT OF THIS
"Art. 1921. If the agency has been entrusted for the purpose of DECISION;
contracting with specified persons, its revocation shall not prejudice the 3. DECLARING THE MORTGAGES IN FAVOR OF PNB AS VALID
latter if they were not given notice thereof." AND SUBSISTING AND MAY THEREFORE BE SUBJECTED TO
The Special Power of Attorney executed by petitioner in favor of EXECUTION SALE.
Parangan duly authorized the latter to represent and act on behalf of 4. ORDERING PRIVATE RESPONDENT PARANGAN TO PAY
the former. Having done so, petitioner clothed Parangan with authority PETITIONER THE AMOUNT OF P15,000.00 BY WAY OF
to deal with PNB on her behalf and in the absence of any proof that the ATTORNEY'S FEES AND TO PAY THE COSTS OF THE SUIT.
bank had knowledge that the last three loans were without the express SO ORDERED.
authority of petitioner, it cannot be prejudiced thereby. As far as third
persons are concerned, an act is deemed to have been performed
within the scope of the agent's authority if such is within the terms of
the power of attorney as written even if the agent has in fact exceeded
the limits of his authority according to the understanding between the
principal and the agent.[22] The Special Power of Attorney particularly
provides that the same is good not only for the principal loan but also
for subsequent commercial, industrial, agricultural loan or credit
accommodation that the attorney-in-fact may obtain and until the power
of attorney is revoked in a public instrument and a copy of which is
furnished to PNB.[23] Even when the agent has exceeded his authority,
DEAR SIR: I have the honor to inform you that I have on this date
opened in my steamship office at No. 163 Muelle de la Reina, Binondo,
Manila, P. I., a shipping and commission department for buying and
selling leaf tobacco and other native products, under the following
conditions:
1. When the consignment has been received, the consignor thereof will
be credited with a sum not to exceed two-thirds of the value of the
goods shipped, which may be made available by acceptance of a draft
or written order of the consignor on five to ten day's sight, or by his
ordering at his option a bill of goods. In the latter case he must pay a
commission of 2 per cent.
2. No draft or written order will be accepted without previous notice
forwarding the consignment of goods to guarantee the same.
3. Expenses of freight, hauling and everything necessary for duly
executing the commission will be charged in the commission.
4. All advances made under sections (1) and (3) shall bear interest at
10 per cent a year, counting by the sale of the goods shipped or
remittance of the amount thereof.
5. A commission of 2 per cent will be collected on the amount realized
from the sale of the goods shipped.
6. A Payment will be made immediately after collection of the price of
the goods shipped.
7. Orders will be taken for the purchase of general merchandise, ship-
G.R. No. 6906 September 27, 1911 stores, cloths, etc., upon remittance of the amount with the commission
FLORENTINO RALLOS, ET AL., plaintiff-appellee, of 2 per cent on the total value of the goods bought. Expenses of freight,
vs. hauling, and everything necessary for properly executing the
TEODORO R. YANGCO, defendant-appellant. commission will be charged to the consignor.
Mariano Escueta, for appellant. 8. The consignor of the good may not fix upon the consignee a longer
Martin M. Levering, for appellees. period than four months, counting from the date of receipt, for selling
MORELAND, J.: the same; with the understanding that after such period the consignee
This is an appeal from a judgment of the Court of First Instance of the is authorized to make the sale, so as to prevent the advance and cost
Province of Cebu, the Hon. Adolph Wislizenus presiding, in favor of the of storage from amounting to more than the actual value of said goods,
plaintiffs, in the sum of P1,537.08, with interest at 6 per cent per annum as has often happened.
from the month of July, 1909, with costs. 9. The shipment to the consignors of the goods ordered on account of
The defendant in this case on the 27th day of November, 1907, sent to the amount realized from the sale of the goods consigned and of the
the plaintiff Florentino Rallos, among others, the following letter: goods bought on remittance of the value thereof, under sections (1) and
CIRCULAR NO. 1. (3), will not be insured against risk by sea and land except on written
MANILA, November 27, 1907 order of the interested parties.
MR. FLORENTINO RALLOS, Cebu.
10. On all consignments of goods not insured according to the next the ground that at the time the said tobacco was received and sold by
preceding section, the consignors will bear the risk. Collantes he was acting personally and not as agent of the defendant.
11. All the foregoing conditions will take effect only after this office has This action was brought to recover said sum.
acknowledged the consignor's previous notice. As is seen, the only question for our decision is whether or not the
12. All other conditions and details will be furnished at the office of the plaintiffs, acting in good faith and without knowledge, having sent
undersigned. produce to sell on commission to the former agent of the defendant,
If you care to favor me with your patronage, my office is at No. 163 can recover of the defendant under the circumstances above set forth.
Muelle de la Reinna, Binondo, Manila, P. I., under the name of We are of the opinion that the defendant is liable. Having advertised
"Teodoro R. Yangco." In this connection it gives me great pleasure to the fact that Collantes was his agent and having given them a special
introduce to you Mr. Florentino Collantes, upon whom I have conferred invitation to deal with such agent, it was the duty of the defendant on
public power of attorney before the notary, Mr. Perfecto Salas the termination of the relationship of principal and agent to give due and
Rodriguez, dated November 16, 1907, to perform in my name and on timely notice thereof to the plaintiffs. Failing to do so, he is responsible
my behalf all acts necessary for carrying out my plans, in the belief that to them for whatever goods may have been in good faith and without
through his knowledge and long experience in the business, along with negligence sent to the agent without knowledge, actual or constructive,
my commercial connections with the merchants of this city and of the of the termination of such relationship.
provinces, I may hope to secure the most advantageous prices for my For these reasons the judgment appealed from is confirmed, without
patrons. Mr. Collantes will sign by power of attorney, so I beg that you special finding as to costs.
make due note of his signature hereto affixed.
Very respectfully,
(Sgd.) T. R. YANGCO.
(Sgd.) F. COLLANTES.
Accepting this invitation, the plaintiffs proceeded to do a considerable
business with the defendant through the said Collantes, as his factor,
sending to him as agent for the defendant a good deal of produce to be
sold on commission. Later, and in the month of February, 1909, the
plaintiffs sent to the said Collantes, as agent for the defendant, 218
bundles of tobacco in the leaf to be sold on commission, as had been
other produce previously. The said Collantes received said tobacco and
sold it for the sum of P1,744. The charges for such sale were P206.96.
leaving in the hands of said Collantes the sum of P1,537.08 belonging G.R. No. L-41420 July 10, 1992
to the plaintiffs. This sum was, apparently, converted to his own use by CMS LOGGING, INC., petitioner,
said agent. vs.
It appears, however, that prior to the sending of said tobacco the THE COURT OF APPEALS and D.R. AGUINALDO CORPORATION,
defendant had severed his relations with Collantes and that the latter respondents.
was no longer acting as his factor. This fact was not known to the
plaintiffs; and it is conceded in the case that no notice of any kind was NOCON, J.:
given by the defendant to the plaintiffs of the termination of the relations This is a petition for review on certiorari from the decision dated July
between the defendant and his agent. The defendant refused to pay 31, 1975 of the Court of Appeals in CA-G.R. No. 47763-R which
the said sum upon demand of the plaintiffs, placing such refusal upon affirmed in toto the decision of the Court of First Instance of Manila,
Branch VII, in Civil Case No. 56355 dismissing the complaint filed by general manager and legal counsel, Atty. Teodoro R. Dominguez,
petitioner CMS Logging, Inc. (CMS, for brevity) against private discovered that DRACOR had used Shinko Trading Co., Ltd. (Shinko
respondent D.R. Aguinaldo Corporation (DRACOR, for brevity) and for brevity) as agent, representative or liaison officer in selling CMS's
ordering the former to pay the latter attorney's fees in the amount of logs in Japan for which Shinko earned a commission of U.S. $1.00 per
P1,000.00 and the costs. 1,000 board feet from the buyer of the logs. Under this arrangement,
The facts of the case are as follows: Petitioner CMS is a forest Shinko was able to collect a total of U.S. $77,264.67. 3
concessionaire engaged in the logging business, while private CMS claimed that this commission paid to Shinko was in violation of
respondent DRACOR is engaged in the business of exporting and the agreement and that it (CMS) is entitled to this amount as part of the
selling logs and lumber. On August 28, 1957, CMS and DRACOR proceeds of the sale of the logs. CMS contended that since DRACOR
entered into a contract of agency 1 whereby the former appointed the had been paid the 5% commission under the agreement, it is no longer
latter as its exclusive export and sales agent for all logs that the former entitled to the additional commission paid to Shinko as this tantamount
may produce, for a period of five (5) years. The pertinent portions of the to DRACOR receiving double compensation for the services it
agreement, which was drawn up by DRACOR, 2 are as follows: rendered.
1. SISON [CMS] hereby appoints DRACOR as his sole and exclusive After this discovery, CMS sold and shipped logs valued at U.S.
export sales agent with full authority, subject to the conditions and $739,321.13 or P2,883,351.90, 4 directly to several firms in Japan
limitations hereinafter set forth, to sell and export under a firm sales without the aid or intervention of DRACOR.
contract acceptable to SISON, all logs produced by SISON for a period CMS sued DRACOR for the commission received by Shinko and for
of five (5) years commencing upon the execution of the agreement and moral and exemplary damages, while DRACOR counterclaimed for its
upon the terms and conditions hereinafter provided and DRACOR commission, amounting to P144,167.59, from the sales made by CMS
hereby accepts such appointment; of logs to Japanese firms. In its reply, CMS averred as a defense to the
xxx xxx xxx counterclaim that DRACOR had retained the sum of P101,167.59 as
3. It is expressly agreed that DRACOR shall handle exclusively all part of its commission for the sales made by CMS. 5 Thus, as its
negotiations of all export sales of SISON with the buyers and arrange counterclaim to DRACOR's counterclaim, CMS demanded DRACOR
the procurement and schedules of the vessel or vessels for the return the amount it unlawfully retained. DRACOR later filed an
shipment of SISON's logs in accordance with SISON's written requests, amended counterclaim, alleging that the balance of its commission on
but DRACOR shall not in anyway [sic] be liable or responsible for any the sales made by CMS was P42,630.82, 6 thus impliedly admitting
delay, default or failure of the vessel or vessels to comply with the that it retained the amount alleged by CMS.
schedules agreed upon; In dismissing the complaint, the trial court ruled that no evidence was
xxx xxx xxx presented to show that Shinko received the commission of U.S.
9. It is expressly agreed by the parties hereto that DRACOR shall $77,264.67 arising from the sale of CMS's logs in Japan, though the
receive five (5%) per cent commission of the gross sales of logs of trial court stated that "Shinko was able to collect the total amount of
SISON based on F.O.B. invoice value which commission shall be $77,264.67 US Dollars (Exhs. M and M-1)." 7 The counterclaim was
deducted from the proceeds of any and/or all moneys received by likewise dismissed, as it was shown that DRACOR had waived its rights
DRACOR for and in behalf and for the account of SISON; to the balance of its commission in a letter dated February 2, 1963 to
By virtue of the aforesaid agreement, CMS was able to sell through Atty. Carlos Moran Sison, president of CMS. 8 From said decision, only
DRACOR a total of 77,264,672 board feet of logs in Japan, from CMS appealed to the Court of Appeals.
September 20, 1957 to April 4, 1962. The Court of Appeals, in a 3 to 2 decision, 9 affirmed the dismissal of
About six months prior to the expiration of the agreement, while on a the complaint since "[t]he trial court could not have made a categorical
trip to Tokyo, Japan, CMS's president, Atty. Carlos Moran Sison, and finding that Shinko collected commissions from the buyers of Sison's
logs in Japan, and could not have held that Sison is entitled to recover of U.S. $77,264.67 as commission arising from the sale of CMS's logs
from Dracor the amount collected by Shinko as commissions, plaintiff- to various Japanese firms.
appellant having failed to prove by competent evidence its claims." 10 The fact that Shinko received the commissions in question was not
Moreover, the appellate court held: established by the testimony of Atty. Teodoro R. Dominguez to the
There is reason to believe that Shinko Trading Co. Ltd., was paid by effect that Shinko's president and director told him that Shinko received
defendant-appellee out of its own commission of 5%, as indicated in a commission of U.S. $1.00 for every 1,000 board feet of logs sold,
the letter of its president to the president of Sison, dated February 2, since the same is hearsay. Similarly, the letter of Mr. K. Shibata of Toyo
1963 (Exhibit "N"), and in the Agreement between Aguinaldo Menka Kaisha, Ltd. 14 is also hearsay since Mr. Shibata was not
Development Corporation (ADECOR) and Shinko Trading Co., Ltd. presented to testify on his letter.
(Exhibit "9"). Daniel R. Aguinaldo stated in his said letter: CMS's other evidence have little or no probative value at all. The
. . . , I informed you that if you wanted to pay me for the service, then it statements made in the memorandum of Atty. Simplicio R. Ciocon to
would be no more than at the standard rate of 5% commission because DRACOR dated May 31, 1965, 15 the letter dated February 2, 1963 of
in our own case, we pay our Japanese agents 2-1/2%. Accordingly, we Daniel
would only add a similar amount of 2-1/2% for the service which we R. Aguinaldo, 16 president of DRACOR, and the reply-letter dated
would render you in the Philippines. 11 January 9, 1964 17 by DRACOR's counsel Atty. V. E. Del Rosario to
Aggrieved, CMS appealed to this Court by way of a petition for review CMS's demand letter dated September 25, 1963 can not be
on certiorari, alleging (1) that the Court of Appeals erred in not making categorized as admissions that Shinko did receive the commissions in
a complete findings of fact; (2) that the testimony of Atty. Teodoro R. question.
Dominguez, regarding the admission by Shinko's president and director The alleged admission made by Atty. Ciocon, to wit
that it collected a commission of U.S. $1.00 per 1,000 board feet of logs Furthermore, as per our records, our shipment of logs to Toyo Menka
from the Japanese buyers, is admissible against DRACOR; (3) that the Kaisha, Ltd., is only for a net volume of 67,747,732 board feet which
statement of DRACOR's chief legal counsel in his memorandum dated should enable Shinko to collect a commission of US $67,747.73 only
May 31, 1965, Exhibit "K", is an admission that Shinko was able to can not be considered as such since the statement was made in the
collect the commission in question; (4) that the fact that Shinko received context of questioning CMS's tally of logs delivered to various Japanese
the questioned commissions is deemed admitted by DRACOR by its firms.
silence under Section 23, Rule 130 of the Rules of Court when it failed Similarly, the statement of Daniel R. Aguinaldo, to wit
to reply to Atty. Carlos Moran Sison's letter dated February 6, 1962; (5) . . . Knowing as we do that Toyo Menka is a large and reputable
that DRACOR is not entitled to its 5% commission arising from the company, it is obvious that they paid Shinko for certain services which
direct sales made by CMS to buyers in Japan; and (6) that DRACOR is Shinko must have satisfactorily performed for them in Japan otherwise
guilty of fraud and bad faith in its dealings with CMS. they would not have paid Shinko
With regard to CMS's arguments concerning whether or not Shinko and that of Atty. V. E. Del Rosario,
received the commission in question, We find the same unmeritorious. . . . It does not seem proper, therefore, for CMS Logging, Inc., as
To begin with, these arguments question the findings of fact made by principal, to concern itself with, much less question, the right of Shinko
the Court of Appeals, which are final and conclusive and can not be Trading Co., Ltd. with which our client debt directly, to whatever benefits
reviewed on appeal to the Supreme Court. 12 it might have derived form the ultimate consumer/buyer of these logs,
Moreover, while it is true that the evidence adduced establishes the fact Toyo Menka Kaisha, Ltd. There appears to be no justification for your
that Shinko is DRACOR's agent or liaison in Japan, 13 there is no client's contention that these benefits, whether they can be considered
evidence which established the fact that Shinko did receive the amount as commissions paid by Toyo Menka Kaisha to Shinko Trading, are to
be regarded part of the gross sales.
can not be considered admissions that Shinko received the questioned the principal has this absolute right to revoke the agency, the agent can
commissions since neither statements declared categorically that not object thereto; neither may he claim damages arising from such
Shinko did in fact receive the commissions and that these arose from revocation, 22 unless it is shown that such was done in order to evade
the sale of CMS's logs. the payment of agent's commission. 23
As correctly stated by the appellate court: In the case at bar, CMS appointed DRACOR as its agent for the sale
It is a rule that "a statement is not competent as an admission where it of its logs to Japanese firms. Yet, during the existence of the contract
does not, under a reasonable construction, appear to admit or of agency, DRACOR admitted that CMS sold its logs directly to several
acknowledge the fact which is sought to be proved by it". An admission Japanese firms. This act constituted an implied revocation of the
or declaration to be competent must have been expressed in definite, contract of agency under Article 1924 of the Civil Code, which provides:
certain and unequivocal language (Bank of the Philippine Islands vs. Art. 1924 The agency is revoked if the principal directly manages the
Fidelity & Surety Co., 51 Phil. 57, 64). 18 business entrusted to the agent, dealing directly with third persons.
CMS's contention that DRACOR had admitted by its silence the In New Manila Lumber Company, Inc. vs. Republic of the Philippines,
allegation that Shinko received the commissions in question when it 24 this Court ruled that the act of a contractor, who, after executing
failed to respond to Atty. Carlos Moran Sison's letter dated February 6, powers of attorney in favor of another empowering the latter to collect
1963, is not supported by the evidence. DRACOR did in fact reply to whatever amounts may be due to him from the Government, and
the letter of Atty. Sison, through the letter dated March 5, 1963 of F.A. thereafter demanded and collected from the government the money the
Novenario, 19 which stated: collection of which he entrusted to his attorney-in-fact, constituted
This is to acknowledge receipt of your letter dated February 6, 1963, revocation of the agency in favor of the attorney-in-fact.
and addressed to Mr. D. R. Aguinaldo, who is at present out of the Since the contract of agency was revoked by CMS when it sold its logs
country. to Japanese firms without the intervention of DRACOR, the latter is no
xxx xxx xxx longer entitled to its commission from the proceeds of such sale and is
We have no record or knowledge of any such payment of commission not entitled to retain whatever moneys it may have received as its
made by Toyo Menka to Shinko. If the payment was made by Toyo commission for said transactions. Neither would DRACOR be entitled
Menka to Shinko, as stated in your letter, we knew nothing about it and to collect damages from CMS, since damages are generally not
had nothing to do with it. awarded to the agent for the revocation of the agency, and the case at
The finding of fact made by the trial court, i.e., that "Shinko was able to bar is not one falling under the exception mentioned, which is to evade
collect the total amount of $77,264.67 US Dollars," can not be given the payment of the agent's commission.
weight since this was based on the summary prepared by CMS itself, Regarding CMS's contention that the Court of Appeals erred in not
Exhibits "M" and "M-1". finding that DRACOR had committed acts of fraud and bad faith, We
Moreover, even if it was shown that Shinko did in fact receive the find the same unmeritorious. Like the contention involving Shinko and
commissions in question, CMS is not entitled thereto since these were the questioned commissions, the findings of the Court of Appeals on
apparently paid by the buyers to Shinko for arranging the sale. This is the matter were based on its appreciation of the evidence, and these
therefore not part of the gross sales of CMS's logs. findings are binding on this Court.
However, We find merit in CMS's contention that the appellate court In fine, We affirm the ruling of the Court of Appeals that there is no
erred in holding that DRACOR was entitled to its commission from the evidence to support CMS's contention that Shinko earned a separate
sales made by CMS to Japanese firms. commission of U.S. $1.00 for every 1,000 board feet of logs from the
The principal may revoke a contract of agency at will, and such buyer of CMS's logs. However, We reverse the ruling of the Court of
revocation may be express, or implied, 20 and may be availed of even Appeals with regard to DRACOR's right to retain the amount of
if the period fixed in the contract of agency as not yet expired. 21 As P101,536.77 as part of its commission from the sale of logs by CMS,
and hold that DRACOR has no right to its commission. Consequently, CARLOS SANCHEZ, Petitioner,
DRACOR is hereby ordered to remit to CMS the amount of - versus -
P101,536.77. MEDICARD PHILIPPINES, INC., DR. NICANOR MONTOYA and
WHEREFORE, the decision appealed from is hereby MODIFIED as CARLOS EJERCITO Respondents.
stated in the preceding paragraph. Costs de officio. G.R. No. 141525
SO ORDERED.
Promulgated: September 2, 2005

DECISION

SANDOVAL-GUTIERREZ, J.:
This petition for review on certiorari seeks to reverse the Decision[1] of
the Court of Appeals dated February 24, 1999 and its Resolution dated
January 12, 2000 in CA-G.R. CV No. 47681.
The facts, as established by the trial court and affirmed by the Court of
Appeals, follow:
Sometime in 1987, Medicard Philippines, Inc. (Medicard), respondent,
appointed petitioner as its special corporate agent. As such agent,
Medicard gave him a commission based on the cash brought in.
In September, 1988, through petitioners efforts, Medicard and United
Laboratories Group of Companies (Unilab) executed a Health Care
Program Contract. Under this contract, Unilab shall pay Medicard a
fixed monthly premium for the health insurance of its personnel. Unilab
paid Medicard P4,148,005.00 representing the premium for one (1)
year. Medicard then handed petitioner 18% of said amount or
P746,640.90 representing his commission.
Again, through petitioners initiative, the agency contract between
Medicard and Unilab was renewed for another year, or from October 1,
1989 to September 30, 1990, incorporating therein the increase of
premium from P4,148,005.00 to P7,456,896.00. Medicard paid
petitioner P1,342,241.00 as his commission.
Prior to the expiration of the renewed contract, Medicard proposed to
Unilab, through petitioner, an increase of the premium for the next year.
Unilab rejected the proposal for the reason that it was too high,
prompting Dr. Nicanor Montoya (Medicards president and general
manager), also a respondent, to request petitioner to reduce his
commission, but the latter refused.
In a letter dated October 3, 1990, Unilab, through Carlos Ejercito, measures employed by him and the efforts he exerted must result in a
another respondent, confirmed its decision not to renew the health sale.[2] In other words, an agent receives his commission only upon
program contract with Medicard. the successful conclusion of a sale.[3] Conversely, it follows that where
Meanwhile, in order not to prejudice its personnel by the termination of his efforts are unsuccessful, or there was no effort on his part, he is not
their health insurance, Unilab, through respondent Ejercito, negotiated entitled to a commission.
with Dr. Montoya and other officers of Medicard, to discuss ways in In Prats vs. Court of Appeals,[4] this Court held that for the purpose of
order to continue the insurance coverage of those personnel. equity, an agent who is not the efficient procuring cause is nonetheless
Under the new scheme, Unilab shall pay Medicard only the amount entitled to his commission, where said agent, notwithstanding the
corresponding to the actual hospitalization expenses incurred by each expiration of his authority, nonetheless, took diligent steps to bring back
personnel plus 15% service fee for using Medicard facilities, which together the parties, such that a sale was finalized and consummated
amount shall not be less than P780,000.00. between them. In Manotok Borthers vs. Court of Appeals,[5] where the
Medicard did not give petitioner any commission under the new Deed of Sale was only executed after the agents extended authority
scheme. had expired, this Court, applying its ruling in Prats, held that the agent
(in Manotok) is entitled to a commission since he was the efficient
In a letter dated March 15, 1991, petitioner demanded from Medicard procuring cause of the sale, notwithstanding that the sale took place
payment of P338,000.00 as his commission plus damages, but the after his authority had lapsed. The proximate, close, and causal
latter refused to heed his demand. connection between the agents efforts and the principals sale of his
Thus, petitioner filed with the Regional Trial Court (RTC), Branch 66, property can not be ignored.
Makati City, a complaint for sum of money against Medicard, Dr. It may be recalled that through petitioners efforts, Medicard was able to
Nicanor Montoya and Carlos Ejercito, herein respondents. enter into a one-year Health Care Program Contract with Unilab. As a
After hearing, the RTC rendered its Decision dismissing petitioners result, Medicard paid petitioner his commission. Again, through his
complaint and respondents counterclaim. efforts, the contract was renewed and once more, he received his
On appeal, the Court of Appeals affirmed the trial courts assailed commission. Before the expiration of the renewed contract, Medicard,
Decision. The Appellate Court held that there is no proof that the through petitioner, proposed an increase in premium, but Unilab
execution of the new contract between the parties under the cost plus rejected this proposal. Medicard then requested petitioner to reduce his
system is a strategy to deprive petitioner of his commission; that commission should the contract be renewed on its third year, but he
Medicard did not commit any fraudulent act in revoking its agency was obstinate. Meantime, on October 3, 1990, Unilab informed
contract with Sanchez; that when Unilab rejected Medicards proposal Medicard it was no longer renewing the Health Care Program contract.
for an increase of premium, their Health Care Program Contract on its In order not to prejudice its personnel, Unilab, through respondent
third year was effectively revoked; and that where the contract is Ejercito, negotiated with respondent Dr. Montoya of Medicard, in order
ineffectual, then the agent is not entitled to a commission. to find mutually beneficial ways of continuing the Health Care Program.
Petitioner filed a motion for reconsideration, but this was denied by the The negotiations resulted in a new contract wherein Unilab shall pay
Court of Appeals on January 12, 2000. Medicard the hospitalization expenses actually incurred by each
Hence, the instant petition for review on certiorari. employees, plus a service fee. Under the cost plus system which
The basic issue for our resolution is whether the Court of Appeals erred replaced the premium scheme, petitioner was not given a commission.
in holding that the contract of agency has been revoked by Medicard, It is clear that since petitioner refused to reduce his commission,
hence, petitioner is not entitled to a commission. Medicard directly negotiated with Unilab, thus revoking its agency
It is dictum that in order for an agent to be entitled to a commission, he contract with petitioner. We hold that such revocation is authorized by
must be the procuring cause of the sale, which simply means that the Article 1924 of the Civil Code which provides:
Art. 1924. The agency is revoked if the principal directly manages the
business entrusted to the agent, dealing directly with third persons.

Moreover, as found by the lower courts, petitioner did not render


services to Medicard, his principal, to entitle him to a commission.
There is no indication from the records that he exerted any effort in G.R. No. L-10881 September 30, 1958
order that Unilab and Medicard, after the expiration of the Health Care EULOGIO DEL ROSARIO, AURELIO DEL ROSARIO, BENITO DEL
Program Contract, can renew it for the third time. In fact, his refusal to ROSARIO, BERNARDO DEL ROSARIO, ISIDRA DEL ROSARIO,
reduce his commission constrained Medicard to negotiate directly with DOMINGA DEL ROSARIO and CONCEPCION BORROMEO, plaintiff-
Unilab. We find no reason in law or in equity to rule that he is entitled appellees,
to a commission. Obviously, he was not the agent or the procuring vs.
cause of the third Health Care Program Contract between Medicard PRIMITIVO ABAD and TEODORICO ABAD, defendants-appellants.
and Unilab. Baustita and Bautista for appellees.
WHEREFORE, the petition is DENIED. The challenged Decision and Agustin C. Bagasao for appellants.
Resolution of the Court of Appeals in CA-G.R. CV No. 47681 are PADILLA, J.:
AFFIRMED IN TOTO. Costs against petitioner. Appeal from a judgment rendered by the Court of First Instance of
SO ORDERED. Nueva Ecija in civil case No. 1084.
The facts are undisputed, the parties having entered into an agreed
statement thereof, the pertinent and materials part of which are: The
plaintiffs are the children and heirs of the late Tiburcio del Rosario. On
12 December 1936, the Secretary of Agriculture and Commerce, by
authority of the President of the Commonwealth of the Philippines,
issued under the provisions of the Public Land Act (Act No. 2874)
homestead patent No. 40596 to Tiburcio del Rosario. The homestead
with an area of 9 hectares, 43 ares and 14 centares is situated in barrio
San Mauricio, municipality of San Jose, province of Nueva Ecija. On 11
February 1937, the Registrar of Deeds in and for the province of Nueva
Ecija issued original certificate of title No. 4820 in the name of the
homesteader (Annex A, stipulation of facts, pp. 25-30, Rec. on App.).
On 24 February 1937, Tiburcio del Rosario obtained a loan from
Primitivo Abad in the sum of P2,000 with interest at the rate of 12% per
annum, payable on 31 December 1941. As security for the payment
thereof he mortgaged the improvements of the parcel of land in favor
of the creditor (Annex B, complaint, pp. 10-13, Rec. on App.). On the
same day, 24 February, the mortgagor executed an "irrevocable special
power of attorney coupled with interest" in favor of the mortgagee,
authorizing him, among others, to sell and convey the parcel of land
(Annex A, complaint, pp. 7-9, Rec. on App.). Thereafter the mortgagor
and his family moved to Santiago, Isabela, and there established a new There is no question that the mortgage on the improvements of the
residence. Sometime in December 1945 the mortgagor died leaving the parcel of land executed by Tiburcio del Rosario in favor of Primitivo
mortgage debt unpaid. On 9 June 1947, Primitivo Abad, acting as Abad (Annex B, complaint, pp. 10-13, Rec. on App.) is valid.
attorney-in-fact of Tiburcio del Rosario, sold the parcel of land to his The power of attorney executed by Tiburcio del Rosario in favor of
son Teodorico Abad for and in consideration of the token sum of P1.00 Primitivo Abad (Annex A, complaint, pp. 7-9, Rec. on App.) providing,
and the payment by the vendee of the mortgage debt of Tiburcio del among others, that is coupled with an interest in the subject matter
Rosario to Primitivo Abad (Annex C, complaint, pp. 13-16, Rec. on thereof in favor of the said attorney and are therefore irrevocable, and
App.). The vendee took possession of the parcel of land. Upon the filing . . . conferring upon my said attorney full and ample power and authority
and registration of the last deed of sale, the Registrar of Deeds in and to do and perform all things reasonably necessary and proper for the
for the province of Nueva Ecija cancelled original certificate of title No. due carrying out of the said powers according to the true tenor and
4820 in the name of Tiburcio del Rosario and in lieu thereof issued purport of the same, . . ." does not create an agency coupled with an
transfer certificate of title No. 1882 in favor of the vendee Teodorico interest nor does it clothe the agency with an irrevocable character. A
Abad. mere statement in the power of attorney that it is coupled with an
On 29 December 1952 the plaintiffs brought suit against the defendants interest is not enough. In what does such interest consist must be
to recover possession and ownership of the parcel of land, damages, stated in the power of attorney. The fact that Tiburcio del Rosario, the
attorney's fees and costs. The defendants answered the complaint and principal, had mortgaged the improvements of the parcel of land to
prayed for the dismissal thereof, damages, attorney's fees and costs. Primitivo Abad, the agent, (Annex B, complaint, pp. 10-13, Rec. on
On 25 October 1954, after the parties had submitted the case upon a App.) is not such an interest as could render irrevocable the power of
stipulation of facts, the Court rendered judgment, the dispositive part of attorney executed by the principal in favor of the agent. In fact no
which is: mention of it is made in the power of attorney. The mortgage on the
WHEREFORE, the deed of sale executed by Primitivo Abad in favor of improvements of the parcel of land has nothing to do with the power of
Teodorica Abad, Annex C, is hereby declared null and void; and attorney and may be foreclosed by the mortgagee upon failure of the
Teodorico Abad is hereby ordered to execute a deed of reconveyance mortgagor to comply with his obligation. As the agency was not coupled
of the land originally with OCT No. 4820, now covered by Transfer with an interest, it was terminated upon the death of Tiburcio del
Certificate of Title No. 1880, in favor of the plaintiffs. No pronouncement Rosario, the principal, sometime in December 1945, and Primitivo
as to costs. Abad, the agent, could no longer validly convey the parcel of land to
The defendants appealed to the Court of Appeals, which certified the Teodorico Abad on 9 June 1947. The sale, therefore, to the later was
case to this Court as no question of fact is involved. null and void. But granting that the irrevocable power of attorney was
Section 116 of the Public Land Act (Act No. 2874), under which the lawful and valid it would subject the parcel of land to an encumbrance.
homestead was granted to the appellees' father, provides: As the homestead patent was issued on 12 December 1936 and the
Lands acquired under the free patent or homestead provisions shall not power of attorney was executed on 24 February 1937, it was in violation
be subject to encumbrance or alienation from the date of the approval of the law that prohibits the alienation or encumbrance of land acquired
of the application and for a term of five years from and after the date of by homestead from the date of the approval of the application and for
the issuance of the patent or grant, nor shall they become liable to the a term of five years from and after the issuance of the patent or grant.
satisfaction of any debt contracted prior to the expiration of said period; Appellants contend that the power of attorney was to be availed of by
but the improvements or crops on the land may be mortgaged or the agent after the lapse of the prohibition period of five years, and that
pledged to qualified persons, associations, or corporations. in fact Primitivo Abad sold the parcel of land on 9 June 1947, after the
The encumbrance or alienation of lands acquired by free patent or lapse of such period. Nothing to that effect is found in the power of
homestead in violation of this section is null and void.1 attorney.
Appellants claim that the trial court should have directed the appellees payment of taxes due on the transaction as well as Fifty Thousand
to reimburse Teodorico Abad for what he had paid to Primitivo Abad to Pesos (P50,000.00) as brokers commission.[5] Lim also issued in the
discharge the mortgage in the latter's favor as part of the consideration name of Saban four postdated checks in the aggregate amount of Two
of the sale. As the sale to Teodorico Abad is null and void, the appellees Hundred Thirty Six Thousand Seven Hundred Forty Three Pesos
can not be compelled to reimburse Teodorico Abad for what he had (P236,743.00). These checks were Bank of the Philippine Islands (BPI)
paid to Primitivo Abad. The former's right of action is against the latter, Check No. 1112645 dated June 12, 1994 for P25,000.00; BPI Check
without prejudice to the right of Primitive Abad to foreclose the No. 1112647 dated June 19, 1994 for P18,743.00; BPI Check No.
mortgage on the improvements of the parcel of land if the mortgage 1112646 dated June 26, 1994 for P25,000.00; and Equitable PCI Bank
debt is not paid by the appellees, as heirs and successors-in-interest of Check No. 021491B dated June 20, 1994 for P168,000.00.
the mortgagor.
GENEVIEVE LIM, G.R. No. 163720 Petitioner, Subsequently, Ybaez sent a letter dated June 10, 1994 addressed to
- versus - Lim. In the letter Ybaez asked Lim to cancel all the checks issued by
FLORENCIO SABAN, Respondent. her in Sabans favor and to extend another partial payment for the lot in
Promulgated: December 16, 2004 his (Ybaezs) favor.[6]

DECISION After the four checks in his favor were dishonored upon presentment,
Before the Court is a Petition for Review on Certiorari assailing the Saban filed a Complaint for collection of sum of money and damages
Decision[1] dated October 27, 2003 of the Court of Appeals, Seventh against Ybaez and Lim with the Regional Trial Court (RTC) of Cebu
Division, in CA-G.R. V No. 60392.[2] City on August 3, 1994.[7] The case was assigned to Branch 20 of the
RTC.
The late Eduardo Ybaez (Ybaez), the owner of a 1,000-square meter
lot in Cebu City (the lot), entered into an Agreement and Authority to In his Complaint, Saban alleged that Lim and the Spouses Lim agreed
Negotiate and Sell (Agency Agreement) with respondent Florencio to purchase the lot for P600,000.00, i.e., with a mark-up of Four
Saban (Saban) on February 8, 1994. Under the Agency Agreement, Hundred Thousand Pesos (P400,000.00) from the price set by Ybaez.
Ybaez authorized Saban to look for a buyer of the lot for Two Hundred Of the total purchase price of P600,000.00, P200,000.00 went to
Thousand Pesos (P200,000.00) and to mark up the selling price to Ybaez, P50,000.00 allegedly went to Lims agent, and P113,257.00 was
include the amounts needed for payment of taxes, transfer of title and given to Saban to cover taxes and other expenses incidental to the sale.
other expenses incident to the sale, as well as Sabans commission for Lim also issued four (4) postdated checks[8] in favor of Saban for the
the sale.[3] remaining P236,743.00.[9]

Through Sabans efforts, Ybaez and his wife were able to sell the lot to Saban alleged that Ybaez told Lim that he (Saban) was not entitled to
the petitioner Genevieve Lim (Lim) and the spouses Benjamin and any commission for the sale since he concealed the actual selling price
Lourdes Lim (the Spouses Lim) on March 10, 1994. The price of the lot of the lot from Ybaez and because he was not a licensed real estate
as indicated in the Deed of Absolute Sale is Two Hundred Thousand broker. Ybaez was able to convince Lim to cancel all four checks.
Pesos (P200,000.00).[4] It appears, however, that the vendees agreed
to purchase the lot at the price of Six Hundred Thousand Pesos Saban further averred that Ybaez and Lim connived to deprive him of
(P600,000.00), inclusive of taxes and other incidental expenses of the his sales commission by withholding payment of the first three checks.
sale. After the sale, Lim remitted to Saban the amounts of One Hundred He also claimed that Lim failed to make good the fourth check which
Thirteen Thousand Two Hundred Fifty Seven Pesos (P113,257.00) for
was dishonored because the account against which it was drawn was the agent of Ybaez. The appellate court further ruled that, in issuing the
closed. checks in payment of Sabans commission, Lim acted as an
accommodation party. She signed the checks as drawer, without
In his Answer, Ybaez claimed that Saban was not entitled to any receiving value therefor, for the purpose of lending her name to a third
commission because he concealed the actual selling price from him person. As such, she is liable to pay Saban as the holder for value of
and because he was not a licensed real estate broker. the checks.[15]

Lim, for her part, argued that she was not privy to the agreement Lim filed a Motion for Reconsideration of the appellate courts Decision,
between Ybaez and Saban, and that she issued stop payment orders but her Motion was denied by the Court of Appeals in a Resolution
for the three checks because Ybaez requested her to pay the purchase dated May 6, 2004.[16]
price directly to him, instead of coursing it through Saban. She also
alleged that she agreed with Ybaez that the purchase price of the lot Not satisfied with the decision of the Court of Appeals, Lim filed the
was only P200,000.00. present petition.

Ybaez died during the pendency of the case before the RTC. Upon Lim argues that the appellate court ignored the fact that after paying
motion of his counsel, the trial court dismissed the case only against her agent and remitting to Saban the amounts due for taxes and
him without any objection from the other parties.[10] transfer of title, she paid the balance of the purchase price directly to
Ybaez.[17]
On May 14, 1997, the RTC rendered its Decision[11] dismissing
Sabans complaint, declaring the four (4) checks issued by Lim as stale She further contends that she is not liable for Ybaezs debt to Saban
and non-negotiable, and absolving Lim from any liability towards under the Agency Agreement as she is not privy thereto, and that
Saban. Saban has no one but himself to blame for consenting to the dismissal
of the case against Ybaez and not moving for his substitution by his
Saban appealed the trial courts Decision to the Court of Appeals. heirs.[18]

On October 27, 2003, the appellate court promulgated its Decision[12] Lim also assails the findings of the appellate court that she issued the
reversing the trial courts ruling. It held that Saban was entitled to his checks as an accommodation party for Ybaez and that she connived
commission amounting to P236,743.00.[13] with the latter to deprive Saban of his commission.[19]

The Court of Appeals ruled that Ybaezs revocation of his contract of Lim prays that should she be found liable to pay Saban the amount of
agency with Saban was invalid because the agency was coupled with his commission, she should only be held liable to the extent of one-third
an interest and Ybaez effected the revocation in bad faith in order to (1/3) of the amount, since she had two co-vendees (the Spouses Lim)
deprive Saban of his commission and to keep the profits for himself.[14] who should share such liability.[20]

The appellate court found that Ybaez and Lim connived to deprive In his Comment, Saban maintains that Lim agreed to purchase the lot
Saban of his commission. It declared that Lim is liable to pay Saban the for P600,000.00, which consisted of the P200,000.00 which would be
amount of the purchase price of the lot corresponding to his paid to Ybaez, the P50,000.00 due to her broker, the P113,257.00
commission because she issued the four checks knowing that the total earmarked for taxes and other expenses incidental to the sale and
amount thereof corresponded to Sabans commission for the sale, as Sabans commission as broker for Ybaez. According to Saban, Lim
assumed the obligation to pay him his commission. He insists that Lim negotiated the sale directly with the buyer whom he met through the
and Ybaez connived to unjustly deprive him of his commission from the brokers efforts. The Court ruled that the sellers withdrawal in bad faith
negotiation of the sale.[21] of the brokers authority cannot unjustly deprive the brokers of their
commissions as the sellers duly constituted agents.
The issues for the Courts resolution are whether Saban is entitled to
receive his commission from the sale; and, assuming that Saban is The pronouncements of the Court in the aforecited cases are applicable
entitled thereto, whether it is Lim who is liable to pay Saban his sales to the present case, especially considering that Saban had completely
commission. performed his obligations under his contract of agency with Ybaez by
finding a suitable buyer to preparing the Deed of Absolute Sale between
Ybaez and Lim and her co-vendees. Moreover, the contract of agency
The Court gives due course to the petition, but agrees with the result very clearly states that Saban is entitled to the excess of the mark-up
reached by the Court of Appeals. of the price of the lot after deducting Ybaezs share of P200,000.00 and
the taxes and other incidental expenses of the sale.
The Court affirms the appellate courts finding that the agency was not
revoked since Ybaez requested that Lim make stop payment orders for However, the Court does not agree with the appellate courts
the checks payable to Saban only after the consummation of the sale pronouncement that Sabans agency was one coupled with an interest.
on March 10, 1994. At that time, Saban had already performed his Under Article 1927 of the Civil Code, an agency cannot be revoked if a
obligation as Ybaezs agent when, through his (Sabans) efforts, Ybaez bilateral contract depends upon it, or if it is the means of fulfilling an
executed the Deed of Absolute Sale of the lot with Lim and the Spouses obligation already contracted, or if a partner is appointed manager of a
Lim. partnership in the contract of partnership and his removal from the
management is unjustifiable. Stated differently, an agency is deemed
To deprive Saban of his commission subsequent to the sale which was as one coupled with an interest where it is established for the mutual
consummated through his efforts would be a breach of his contract of benefit of the principal and of the agent, or for the interest of the
agency with Ybaez which expressly states that Saban would be entitled principal and of third persons, and it cannot be revoked by the principal
to any excess in the purchase price after deducting the P200,000.00 so long as the interest of the agent or of a third person subsists. In an
due to Ybaez and the transfer taxes and other incidental expenses of agency coupled with an interest, the agents interest must be in the
the sale.[22] subject matter of the power conferred and not merely an interest in the
exercise of the power because it entitles him to compensation. When
In Macondray & Co. v. Sellner,[23] the Court recognized the right of a an agents interest is confined to earning his agreed compensation, the
broker to his commission for finding a suitable buyer for the sellers agency is not one coupled with an interest, since an agents interest in
property even though the seller himself consummated the sale with the obtaining his compensation as such agent is an ordinary incident of the
buyer.[24] The Court held that it would be in the height of injustice to agency relationship.[26]
permit the principal to terminate the contract of agency to the prejudice
of the broker when he had already reaped the benefits of the brokers Sabans entitlement to his commission having been settled, the Court
efforts. must now determine whether Lim is the proper party against whom
Saban should address his claim.
In Infante v. Cunanan, et al.,[25] the Court upheld the right of the
brokers to their commissions although the seller revoked their authority Sabans right to receive compensation for negotiating as broker for
to act in his behalf after they had found a buyer for his properties and Ybaez arises from the Agency Agreement between them. Lim is not a
party to the contract. However, the record reveals that she had
knowledge of the fact that Ybaez set the price of the lot at P200,000.00 The ruling of the Court in Infante v. Cunanan, et al., cited earlier, is
and that the P600,000.00the price agreed upon by her and Sabanwas enlightening for the facts therein are similar to the circumstances of the
more than the amount set by Ybaez because it included the amount for present case. In that case, Consejo Infante asked Jose Cunanan and
payment of taxes and for Sabans commission as broker for Ybaez. Juan Mijares to find a buyer for her two lots and the house built thereon
for Thirty Thousand Pesos (P30,000.00) . She promised to pay them
According to the trial court, Lim made the following payments for the five percent (5%) of the purchase price plus whatever overprice they
lot: P113,257.00 for taxes, P50,000.00 for her broker, and P400.000.00 may obtain for the property. Cunanan and Mijares offered the
directly to Ybaez, or a total of Five Hundred Sixty Three Thousand Two properties to Pio Noche who in turn expressed willingness to purchase
Hundred Fifty Seven Pesos (P563,257.00).[27] Lim, on the other hand, the properties. Cunanan and Mijares thereafter introduced Noche to
claims that on March 10, 1994, the date of execution of the Deed of Infante. However, the latter told Cunanan and Mijares that she was no
Absolute Sale, she paid directly to Ybaez the amount of One Hundred longer interested in selling the property and asked them to sign a
Thousand Pesos (P100,000.00) only, and gave to Saban P113,257.00 document stating that their written authority to act as her agents for the
for payment of taxes and P50,000.00 as his commission,[28] and One sale of the properties was already cancelled. Subsequently, Infante
Hundred Thirty Thousand Pesos (P130,000.00) on June 28, 1994,[29] sold the properties directly to Noche for Thirty One Thousand Pesos
or a total of Three Hundred Ninety Three Thousand Two Hundred Fifty (P31,000.00). The Court upheld the right of Cunanan and Mijares to
Seven Pesos (P393,257.00). Ybaez, for his part, acknowledged that their commission, explaining that
Lim and her co-vendees paid him P400,000.00 which he said was the
full amount for the sale of the lot.[30] It thus appears that he received [Infante] had changed her mind even if respondent had found a buyer
P100,000.00 on March 10, 1994, acknowledged receipt (through who was willing to close the deal, is a matter that would not give rise to
Saban) of the P113,257.00 earmarked for taxes and P50,000.00 for a legal consequence if [Cunanan and Mijares] agreed to call off the
commission, and received the balance of P130,000.00 on June 28, transaction in deference to the request of [Infante]. But the situation
1994. Thus, a total of P230,000.00 went directly to Ybaez. Apparently, varies if one of the parties takes advantage of the benevolence of the
although the amount actually paid by Lim was P393,257.00, Ybaez other and acts in a manner that would promote his own selfish interest.
rounded off the amount to P400,000.00 and waived the difference. This act is unfair as would amount to bad faith. This act cannot be
sanctioned without according the party prejudiced the reward which is
Lims act of issuing the four checks amounting to P236,743.00 in due him. This is the situation in which [Cunanan and Mijares] were
Sabans favor belies her claim that she and her co-vendees did not placed by [Infante]. [Infante] took advantage of the services rendered
agree to purchase the lot at P600,000.00. If she did not agree thereto, by [Cunanan and Mijares], but believing that she could evade payment
there would be no reason for her to issue those checks which is the of their commission, she made use of a ruse by inducing them to sign
balance of P600,000.00 less the amounts of P200,000.00 (due to the deed of cancellation.This act of subversion cannot be sanctioned
Ybaez), P50,000.00 (commission), and the P113,257.00 (taxes). The and cannot serve as basis for [Infante] to escape payment of the
only logical conclusion is that Lim changed her mind about agreeing to commission agreed upon.[31]
purchase the lot at P600,000.00 after talking to Ybaez and ultimately
realizing that Sabans commission is even more than what Ybaez The appellate court therefore had sufficient basis for concluding that
received as his share of the purchase price as vendor. Obviously, this Ybaez and Lim connived to deprive Saban of his commission by dealing
change of mind resulted to the prejudice of Saban whose efforts led to with each other directly and reducing the purchase price of the lot and
the completion of the sale between the latter, and Lim and her co- leaving nothing to compensate Saban for his efforts.
vendees. This the Court cannot countenance.
Considering the circumstances surrounding the case, and the cause or consideration from Ybaezs end, as vendor, while the lot
undisputed fact that Lim had not yet paid the balance of P200,000.00 represented the cause or consideration on the side of Lim, as
of the purchase price of P600,000.00, it is just and proper for her to pay vendee.[35] Ergo, Lim received value for her signature on the checks.
Saban the balance of P200,000.00.
Neither is there any indication that Lim issued the checks for the
Furthermore, since Ybaez received a total of P230,000.00 from Lim, or purpose of enabling Ybaez, or any other person for that matter, to
an excess of P30,000.00 from his asking price of P200,000.00, Saban obtain credit or to raise money, thereby totally debunking the presence
may claim such excess from Ybaezs estate, if that remedy is still of the third requisite of an accommodation party.
available,[32] in view of the trial courts dismissal of Sabans complaint
as against Ybaez, with Sabans express consent, due to the latters WHEREFORE, in view of the foregoing, the petition is DISMISSED.
demise on November 11, 1994.[33]
SO ORDERED.
The appellate court however erred in ruling that Lim is liable on the
checks because she issued them as an accommodation party. Section
29 of the Negotiable Instruments Law defines an accommodation party
as a person who has signed the negotiable instrument as maker,
drawer, acceptor or indorser, without receiving value therefor, for the
purpose of lending his name to some other person. The
accommodation party is liable on the instrument to a holder for value G.R. No. 83122 October 19, 1990
even though the holder at the time of taking the instrument knew him ARTURO P. VALENZUELA and HOSPITALITA N. VALENZUELA,
or her to be merely an accommodation party. The accommodation party petitioners,
may of course seek reimbursement from the party accommodated.[34] vs.
THE HONORABLE COURT OF APPEALS, BIENVENIDO M.
As gleaned from the text of Section 29 of the Negotiable Instruments ARAGON, ROBERT E. PARNELL, CARLOS K. CATOLICO and THE
Law, the accommodation party is one who meets all these three PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC.,
requisites, viz: (1) he signed the instrument as maker, drawer, acceptor, respondents.
or indorser; (2) he did not receive value for the signature; and (3) he Albino B. Achas for petitioners.
signed for the purpose of lending his name to some other person. In Angara, Abello, Concepcion, Regala & Cruz for private respondents.
the case at bar, while Lim signed as drawer of the checks she did not
satisfy the two other remaining requisites. GUTIERREZ, JR., J.:
This is a petition for review of the January 29, 1988 decision of the
The absence of the second requisite becomes pellucid when it is noted Court of Appeals and the April 27, 1988 resolution denying the
at the outset that Lim issued the checks in question on account of her petitioners' motion for reconsideration, which decision and resolution
transaction, along with the other purchasers, with Ybaez which was a reversed the decision dated June 23,1986 of the Court of First Instance
sale and, therefore, a reciprocal contract. Specifically, she drew the of Manila, Branch 34 in Civil Case No. 121126 upholding the petitioners'
checks in payment of the balance of the purchase price of the lot causes of action and granting all the reliefs prayed for in their complaint
subject of the transaction. And she had to pay the agreed purchase against private respondents.
price in consideration for the sale of the lot to her and her co-vendees. The antecedent facts of the case are as follows:
In other words, the amounts covered by the checks form part of the
Petitioner Arturo P. Valenzuela (Valenzuela for short) is a General Valenzuela (Exhibit "J", pp. 1-3, Decision Trial Court dated June 23,
Agent of private respondent Philippine American General Insurance 1986, Civil Case No. 121126, Annex I, Petition).
Company, Inc. (Philamgen for short) since 1965. As such, he was The petitioners sought relief by filing the complaint against the private
authorized to solicit and sell in behalf of Philamgen all kinds of non-life respondents in the court a quo (Complaint of January 24, 1979, Annex
insurance, and in consideration of services rendered was entitled to "F" Petition). After due proceedings, the trial court found:
receive the full agent's commission of 32.5% from Philamgen under the xxx xxx xxx
scheduled commission rates (Exhibits "A" and "1"). From 1973 to 1975, Defendants tried to justify the termination of plaintiff Arturo P.
Valenzuela solicited marine insurance from one of his clients, the Delta Valenzuela as one of defendant PHILAMGEN's General Agent by
Motors, Inc. (Division of Electronics Airconditioning and Refrigeration) making it appear that plaintiff Arturo P. Valenzuela has a substantial
in the amount of P4.4 Million from which he was entitled to a account with defendant PHILAMGEN particularly Delta Motors, Inc.'s
commission of 32% (Exhibit "B"). However, Valenzuela did not receive Account, thereby prejudicing defendant PHILAMGEN's interest
his full commission which amounted to P1.6 Million from the P4.4 (Exhibits 6,"11","11- "12- A"and"13-A").
Million insurance coverage of the Delta Motors. During the period 1976 Defendants also invoked the provisions of the Civil Code of the
to 1978, premium payments amounting to P1,946,886.00 were paid Philippines (Article 1868) and the provisions of the General Agency
directly to Philamgen and Valenzuela's commission to which he is Agreement as their basis for terminating plaintiff Arturo P. Valenzuela
entitled amounted to P632,737.00. as one of their General Agents.
In 1977, Philamgen started to become interested in and expressed its That defendants' position could have been justified had the termination
intent to share in the commission due Valenzuela (Exhibits "III" and "III- of plaintiff Arturo P. Valenzuela was (sic) based solely on the provisions
1") on a fifty-fifty basis (Exhibit "C"). Valenzuela refused (Exhibit "D"). of the Civil Code and the conditions of the General Agency Agreement.
On February 8, 1978 Philamgen and its President, Bienvenido M. But the records will show that the principal cause of the termination of
Aragon insisted on the sharing of the commission with Valenzuela the plaintiff as General Agent of defendant PHILAMGEN was his
(Exhibit E). This was followed by another sharing proposal dated June refusal to share his Delta commission.
1, 1978. On June 16,1978, Valenzuela firmly reiterated his objection to That it should be noted that there were several attempts made by
the proposals of respondents stating that: "It is with great reluctance defendant Bienvenido M. Aragon to share with the Delta commission of
that I have to decline upon request to signify my conformity to your plaintiff Arturo P. Valenzuela. He had persistently pursued the sharing
alternative proposal regarding the payment of the commission due me. scheme to the point of terminating plaintiff Arturo P. Valenzuela, and to
However, I have no choice for to do otherwise would be violative of the make matters worse, defendants made it appear that plaintiff Arturo P.
Agency Agreement executed between our goodselves." (Exhibit B-1) Valenzuela had substantial accounts with defendant PHILAMGEN.
Because of the refusal of Valenzuela, Philamgen and its officers, Not only that, defendants have also started (a) to treat separately the
namely: Bienvenido Aragon, Carlos Catolico and Robert E. Parnell took Delta Commission of plaintiff Arturo P. Valenzuela, (b) to reverse the
drastic action against Valenzuela. They: (a) reversed the commission Delta commission due plaintiff Arturo P. Valenzuela by not crediting or
due him by not crediting in his account the commission earned from the applying said commission earned to the account of plaintiff Arturo P.
Delta Motors, Inc. insurance (Exhibit "J" and "2"); (b) placed agency Valenzuela, (c) placed plaintiff Arturo P. Valenzuela's agency
transactions on a cash and carry basis; (c) threatened the cancellation transactions on a "cash and carry basis", (d) sending threats to cancel
of policies issued by his agency (Exhibits "H" to "H-2"); and (d) started existing policies issued by plaintiff Arturo P. Valenzuela's agency, (e) to
to leak out news that Valenzuela has a substantial account with divert plaintiff Arturo P. Valenzuela's insurance business to other
Philamgen. All of these acts resulted in the decline of his business as agencies, and (f) to spread wild and malicious rumors that plaintiff
insurance agent (Exhibits "N", "O", "K" and "K-8"). Then on December Arturo P. Valenzuela has substantial account with defendant
27, 1978, Philamgen terminated the General Agency Agreement of PHILAMGEN to force plaintiff Arturo P. Valenzuela into agreeing with
the sharing of his Delta commission." (pp. 9-10, Decision, Annex 1, I
Petition). THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF
xxx xxx xxx ARTURO P. VALENZUELA HAD NO OUTSTANDING ACCOUNT
These acts of harrassment done by defendants on plaintiff Arturo P. WITH DEFENDANT PHILAMGEN AT THE TIME OF THE
Valenzuela to force him to agree to the sharing of his Delta commission, TERMINATION OF THE AGENCY.
which culminated in the termination of plaintiff Arturo P. Valenzuela as II
one of defendant PHILAMGEN's General Agent, do not justify said THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF
termination of the General Agency Agreement entered into by ARTURO P. VALENZUELA IS ENTITLED TO THE FULL
defendant PHILAMGEN and plaintiff Arturo P. Valenzuela. COMMISSION OF 32.5% ON THE DELTA ACCOUNT.
That since defendants are not justified in the termination of plaintiff III
Arturo P. Valenzuela as one of their General Agents, defendants shall THE LOWER COURT ERRED IN HOLDING THAT THE
be liable for the resulting damage and loss of business of plaintiff Arturo TERMINATION OF PLAINTIFF ARTURO P. VALENZUELA WAS NOT
P. Valenzuela. (Arts. 2199/2200, Civil Code of the Philippines). (Ibid, p. JUSTIFIED AND THAT CONSEQUENTLY DEFENDANTS ARE
11) LIABLE FOR ACTUAL AND MORAL DAMAGES, ATTORNEYS FEES
The court accordingly rendered judgment, the dispositive portion of AND COSTS.
which reads: IV
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs ASSUMING ARGUENDO THAT THE AWARD OF DAMAGES
and against defendants ordering the latter to reinstate plaintiff Arturo P. AGAINST DEFENDANT PHILAMGEN WAS PROPER, THE LOWER
Valenzuela as its General Agent, and to pay plaintiffs, jointly and COURT ERRED IN AWARDING DAMAGES EVEN AGAINST THE
severally, the following: INDIVIDUAL DEFENDANTS WHO ARE MERE CORPORATE
1. The amount of five hundred twenty-one thousand nine hundred sixty AGENTS ACTING WITHIN THE SCOPE OF THEIR AUTHORITY.
four and 16/100 pesos (P521,964.16) representing plaintiff Arturo P. V
Valenzuela's Delta Commission with interest at the legal rate from the ASSUMING ARGUENDO THAT THE AWARD OF DAMAGES IN
time of the filing of the complaint, which amount shall be adjusted in FAVOR OF PLAINTIFF ARTURO P. VALENZUELA WAS PROPER,
accordance with Article 1250 of the Civil Code of the Philippines; THE LOWER COURT ERRED IN AWARDING DAMAGES IN FAVOR
2. The amount of seventy-five thousand pesos (P75,000.00) per month OF HOSPITALITA VALENZUELA, WHO, NOT BEING THE REAL
as compensatory damages from 1980 until such time that defendant PARTY IN INTEREST IS NOT TO OBTAIN RELIEF.
Philamgen shall reinstate plaintiff Arturo P. Valenzuela as one of its On January 29, 1988, respondent Court of Appeals promulgated its
general agents; decision in the appealed case. The dispositive portion of the decision
3. The amount of three hundred fifty thousand pesos (P350,000.00) for reads:
each plaintiff as moral damages; WHEREFORE, the decision appealed from is hereby modified
4. The amount of seventy-five thousand pesos (P75,000.00) as and for accordingly and judgment is hereby rendered ordering:
attorney's fees; 1. Plaintiff-appellee Valenzuela to pay defendant-appellant Philamgen
5. Costs of the suit. (Ibid., P. 12) the sum of one million nine hundred thirty two thousand five hundred
From the aforesaid decision of the trial court, Bienvenido Aragon, thirty-two pesos and seventeen centavos (P1,902,532.17), with legal
Robert E. Parnell, Carlos K. Catolico and PHILAMGEN respondents interest thereon from the date of finality of this judgment until fully paid.
herein, and defendants-appellants below, interposed an appeal on the 2. Both plaintiff-appellees to pay jointly and severally defendants-
following: appellants the sum of fifty thousand pesos (P50,000.00) as and by way
ASSIGNMENT OF ERRORS of attorney's fees.
No pronouncement is made as to costs. (p. 44, Rollo) After a painstaking review of the entire records of the case and the
There is in this instance irreconcilable divergence in the findings and findings of facts of both the court a quo and respondent appellate court,
conclusions of the Court of Appeals, vis-a-vis those of the trial court we are constrained to affirm the trial court's findings and rule for the
particularly on the pivotal issue whether or not Philamgen and/or its petitioners.
officers can be held liable for damages due to the termination of the We agree with the court a quo that the principal cause of the termination
General Agency Agreement it entered into with the petitioners. In its of Valenzuela as General Agent of Philamgen arose from his refusal to
questioned decision the Court of Appeals observed that: share his Delta commission. The records sustain the conclusions of the
In any event the principal's power to revoke an agency at will is so trial court on the apparent bad faith of the private respondents in
pervasive, that the Supreme Court has consistently held that terminating the General Agency Agreement of petitioners. It is
termination may be effected even if the principal acts in bad faith, axiomatic that the findings of fact of a trial judge are entitled to great
subject only to the principal's liability for damages (Danon v. Antonio A. weight (People v. Atanacio, 128 SCRA 22 [1984]) and should not be
Brimo & Co., 42 Phil. 133; Reyes v. Mosqueda, 53 O.G. 2158 and disturbed on appeal unless for strong and cogent reasons, because the
Infante V. Cunanan, 93 Phil. 691, cited in Paras, Vol. V, Civil Code of trial court is in a better position to examine the evidence as well as to
the Philippines Annotated [1986] 696). observe the demeanor of the witnesses while testifying (Chase v.
The lower court, however, thought the termination of Valenzuela as Buencamino, Sr., 136 SCRA 365 [1985]; People v. Pimentel, 147
General Agent improper because the record will show the principal SCRA 25 [1987]; and Baliwag Trans., Inc. v. Court of Appeals, 147
cause of the termination of the plaintiff as General Agent of defendant SCRA 82 [1987]). In the case at bar, the records show that the findings
Philamgen was his refusal to share his Delta commission. (Decision, p. and conclusions of the trial court are supported by substantial evidence
9; p. 13, Rollo, 41) and there appears to be no cogent reason to disturb them (Mendoza v.
Because of the conflicting conclusions, this Court deemed it necessary Court of Appeals. 156 SCRA 597 [1987]).
in the interest of substantial justice to scrutinize the evidence and As early as September 30,1977, Philamgen told the petitioners of its
records of the cases. While it is an established principle that the factual desire to share the Delta Commission with them. It stated that should
findings of the Court of Appeals are final and may not be reviewed on Delta back out from the agreement, the petitioners would be charged
appeal to this Court, there are however certain exceptions to the rule interests through a reduced commission after full payment by Delta.
which this Court has recognized and accepted, among which, are when On January 23, 1978 Philamgen proposed reducing the petitioners'
the judgment is based on a misapprehension of facts and when the commissions by 50% thus giving them an agent's commission of
findings of the appellate court, are contrary to those of the trial court 16.25%. On February 8, 1978, Philamgen insisted on the reduction
(Manlapaz v. Court of Appeals, 147 SCRA 236 [1987]); Guita v. Court scheme followed on June 1, 1978 by still another insistence on reducing
of Appeals, 139 SCRA 576 [1986]). Where the findings of the Court of commissions and proposing two alternative schemes for reduction.
Appeals and the trial court are contrary to each other, this Court may There were other pressures. Demands to settle accounts, to confer and
scrutinize the evidence on record (Cruz v. Court of Appeals, 129 SCRA thresh out differences regarding the petitioners' income and the threat
222 [1984]; Mendoza v. Court of Appeals, 156 SCRA 597 [1987]; to terminate the agency followed. The petitioners were told that the
Maclan v. Santos, 156 SCRA 542 [1987]). When the conclusion of the Delta commissions would not be credited to their account (Exhibit "J").
Court of Appeals is grounded entirely on speculation, surmises or They were informed that the Valenzuela agency would be placed on a
conjectures, or when the inference made is manifestly mistaken, cash and carry basis thus removing the 60-day credit for premiums due.
absurd or impossible, or when there is grave abuse of discretion, or (TSN., March 26, 1979, pp. 54-57). Existing policies were threatened
when the judgment is based on a misapprehension of facts, and when to be cancelled (Exhibits "H" and "14"; TSN., March 26, 1979, pp. 29-
the findings of facts are conflict the exception also applies (Malaysian 30). The Valenzuela business was threatened with diversion to other
Airline System Bernad v. Court of Appeals, 156 SCRA 321 [1987]). agencies. (Exhibit "NNN"). Rumors were also spread about alleged
accounts of the Valenzuela agency (TSN., January 25, 1980, p. 41). between Valenzuela and Philamgen is not coupled with interest. "There
The petitioners consistently opposed the pressures to hand over the may be cases in which an agent has been induced to assume a
agency or half of their commissions and for a treatment of the Delta responsibility or incur a liability, in reliance upon the continuance of the
account distinct from other accounts. The pressures and demands, authority under such circumstances that, if the authority be withdrawn,
however, continued until the agency agreement itself was finally the agent will be exposed to personal loss or liability" (See MEC 569 p.
terminated. 406).
It is also evident from the records that the agency involving petitioner Furthermore, there is an exception to the principle that an agency is
and private respondent is one "coupled with an interest," and, therefore, revocable at will and that is when the agency has been given not only
should not be freely revocable at the unilateral will of the latter. for the interest of the principal but for the interest of third persons or for
In the insurance business in the Philippines, the most difficult and the mutual interest of the principal and the agent. In these cases, it is
frustrating period is the solicitation and persuasion of the prospective evident that the agency ceases to be freely revocable by the sole will
clients to buy insurance policies. Normally, agents would encounter of the principal (See Padilla, Civil Code Annotated, 56 ed., Vol. IV p.
much embarrassment, difficulties, and oftentimes frustrations in the 350). The following citations are apropos:
solicitation and procurement of the insurance policies. To sell policies, The principal may not defeat the agent's right to indemnification by a
an agent exerts great effort, patience, perseverance, ingenuity, tact, termination of the contract of agency (Erskine v. Chevrolet Motors Co.
imagination, time and money. In the case of Valenzuela, he was able 185 NC 479, 117 SE 706, 32 ALR 196).
to build up an Agency from scratch in 1965 to a highly productive Where the principal terminates or repudiates the agent's employment
enterprise with gross billings of about Two Million Five Hundred in violation of the contract of employment and without cause ... the
Thousand Pesos (P2,500,000.00) premiums per annum. The records agent is entitled to receive either the amount of net losses caused and
sustain the finding that the private respondent started to covet a share gains prevented by the breach, or the reasonable value of the services
of the insurance business that Valenzuela had built up, developed and rendered. Thus, the agent is entitled to prospective profits which he
nurtured to profitability through over thirteen (13) years of patient work would have made except for such wrongful termination provided that
and perseverance. When Valenzuela refused to share his commission such profits are not conjectural, or speculative but are capable of
in the Delta account, the boom suddenly fell on him. determination upon some fairly reliable basis. And a principal's
The private respondents by the simple expedient of terminating the revocation of the agency agreement made to avoid payment of
General Agency Agreement appropriated the entire insurance business compensation for a result which he has actually accomplished
of Valenzuela. With the termination of the General Agency Agreement, (Hildendorf v. Hague, 293 NW 2d 272; Newhall v. Journal Printing Co.,
Valenzuela would no longer be entitled to commission on the renewal 105 Minn 44,117 NW 228; Gaylen Machinery Corp. v. Pitman-Moore
of insurance policies of clients sourced from his agency. Worse, despite Co. [C.A. 2 NY] 273 F 2d 340)
the termination of the agency, Philamgen continued to hold Valenzuela If a principal violates a contractual or quasi-contractual duty which he
jointly and severally liable with the insured for unpaid premiums. Under owes his agent, the agent may as a rule bring an appropriate action for
these circumstances, it is clear that Valenzuela had an interest in the the breach of that duty. The agent may in a proper case maintain an
continuation of the agency when it was unceremoniously terminated not action at law for compensation or damages ... A wrongfully discharged
only because of the commissions he should continue to receive from agent has a right of action for damages and in such action the measure
the insurance business he has solicited and procured but also for the and element of damages are controlled generally by the rules
fact that by the very acts of the respondents, he was made liable to governing any other action for the employer's breach of an employment
Philamgen in the event the insured fail to pay the premiums due. They contract. (Riggs v. Lindsay, 11 US 500, 3L Ed 419; Tiffin Glass Co. v.
are estopped by their own positive averments and claims for damages. Stoehr, 54 Ohio 157, 43 NE 2798)
Therefore, the respondents cannot state that the agency relationship
At any rate, the question of whether or not the agency agreement is It is to be noted that Delgado (Capital Insurance & Surety Co., Inc. v.
coupled with interest is helpful to the petitioners' cause but is not the Delgado, 9 SCRA 177 [1963] was decided in the light of the Insurance
primary and compelling reason. For the pivotal factor rendering Act before Sec. 72 was amended by the underscored portion. Supra.
Philamgen and the other private respondents liable in damages is that Prior to the Amendment, an insurance contract was effective even if the
the termination by them of the General Agency Agreement was tainted premium had not been paid so that an insurer was obligated to pay
with bad faith. Hence, if a principal acts in bad faith and with abuse of indemnity in case of loss and correlatively he had also the right to sue
right in terminating the agency, then he is liable in damages. This is in for payment of the premium. But the amendment to Sec. 72 has
accordance with the precepts in Human Relations enshrined in our Civil radically changed the legal regime in that unless the premium is paid
Code that "every person must in the exercise of his rights and in the there is no insurance. " (Arce v. Capitol Insurance and Surety Co., Inc.,
performance of his duties act with justice, give every one his due, and 117 SCRA 66; Emphasis supplied)
observe honesty and good faith: (Art. 19, Civil Code), and every person In Philippine Phoenix Surety case, we held:
who, contrary to law, wilfully or negligently causes damages to another, Moreover, an insurer cannot treat a contract as valid for the purpose of
shall indemnify the latter for the same (Art. 20, id). "Any person who collecting premiums and invalid for the purpose of indemnity. (Citing
wilfully causes loss or injury to another in a manner contrary to morals, Insurance Law and Practice by John Alan Appleman, Vol. 15, p. 331;
good customs and public policy shall compensate the latter for the Emphasis supplied)
damages" (Art. 21, id.). The foregoing findings are buttressed by Section 776 of the insurance
As to the issue of whether or not the petitioners are liable to Philamgen Code (Presidential Decree No. 612, promulgated on December 18,
for the unpaid and uncollected premiums which the respondent court 1974), which now provides that no contract of Insurance by an
ordered Valenzuela to pay Philamgen the amount of One Million Nine insurance company is valid and binding unless and until the premium
Hundred Thirty-Two Thousand Five Hundred Thirty-Two and 17/100 thereof has been paid, notwithstanding any agreement to the contrary
Pesos (P1,932,532,17) with legal interest thereon until fully paid (Ibid., 92 SCRA 425)
(Decision-January 20, 1988, p. 16; Petition, Annex "A"), we rule that the Perforce, since admittedly the premiums have not been paid, the
respondent court erred in holding Valenzuela liable. We find no factual policies issued have lapsed. The insurance coverage did not go into
and legal basis for the award. Under Section 77 of the Insurance Code, effect or did not continue and the obligation of Philamgen as insurer
the remedy for the non-payment of premiums is to put an end to and ceased. Hence, for Philamgen which had no more liability under the
render the insurance policy not binding lapsed and inexistent policies to demand, much less sue Valenzuela
Sec. 77 ... [N]otwithstanding any agreement to the contrary, no policy for the unpaid premiums would be the height of injustice and unfair
or contract of insurance is valid and binding unless and until the dealing. In this instance, with the lapsing of the policies through the
premiums thereof have been paid except in the case of a life or nonpayment of premiums by the insured there were no more insurance
industrial life policy whenever the grace period provision applies (P.D. contracts to speak of. As this Court held in the Philippine Phoenix
612, as amended otherwise known as the Insurance Code of 1974) Surety case, supra "the non-payment of premiums does not merely
In Philippine Phoenix Surety and Insurance, Inc. v. Woodworks, Inc. suspend but puts an end to an insurance contract since the time of the
(92 SCRA 419 [1979]) we held that the non-payment of premium does payment is peculiarly of the essence of the contract."
not merely suspend but puts an end to an insurance contract since the The respondent appellate court also seriously erred in according undue
time of the payment is peculiarly of the essence of the contract. And in reliance to the report of Banaria and Banaria and Company, auditors,
Arce v. The Capital Insurance and Surety Co. Inc. (117 SCRA 63, that as of December 31, 1978, Valenzuela owed Philamgen
[1982]), we reiterated the rule that unless premium is paid, an insurance P1,528,698.40. This audit report of Banaria was commissioned by
contract does not take effect. Thus: Philamgen after Valenzuela was almost through with the presentation
of his evidence. In essence, the Banaria report started with an
unconfirmed and unaudited beginning balance of account of computation. The alleged error may be given credence if committed
P1,758,185.43 as of August 20, 1976. But even with that unaudited and only once. But as earlier stated, the reconciliation of accounts was
unconfirmed beginning balance of P1,758,185.43, Banaria still came arrived at four (4) times on different occasions where Philamgen was
up with the amount of P3,865.49 as Valenzuela's balance as of duly represented by its account executives. On the basis of these
December 1978 with Philamgen (Exh. "38-A-3"). In fact, as of admissions and representations, Philamgen cannot later on assume a
December 31, 1976, and December 31, 1977, Valenzuela had no different posture and claim that it was mistaken in its representation
unpaid account with Philamgen (Ref: Annexes "D", "D-1", "E", with respect to the correct beginning balance as of July 1977 amounting
Petitioner's Memorandum). But even disregarding these annexes to P744,159.80. The Banaria audit report commissioned by Philamgen
which are records of Philamgen and addressed to Valenzuela in due is unreliable since its results are admittedly based on an unconfirmed
course of business, the facts show that as of July 1977, the beginning and unaudited beginning balance of P1,758,185.43 as of August
balance of Valenzuela's account with Philamgen amounted to 20,1976.
P744,159.80. This was confirmed by Philamgen itself not only once but As so aptly stated by the trial court in its decision:
four (4) times on different occasions, as shown by the records. Defendants also conducted an audit of accounts of plaintiff Arturo P.
On April 3,1978, Philamgen sent Valenzuela a statement of account Valenzuela after the controversy has started. In fact, after hearing
with a beginning balance of P744,159-80 as of July 1977. plaintiffs have already rested their case.
On May 23, 1978, another statement of account with exactly the same The results of said audit were presented in Court to show plaintiff Arturo
beginning balance was sent to Valenzuela. P. Valenzuela's accountability to defendant PHILAMGEN. However,
On November 17, 1978, Philamgen sent still another statement of the auditor, when presented as witness in this case testified that the
account with P744,159.80 as the beginning balance. beginning balance of their audit report was based on an unaudited
And on December 20, 1978, a statement of account with exactly the amount of P1,758,185.43 (Exhibit 46-A) as of August 20, 1976, which
same figure was sent to Valenzuela. was unverified and merely supplied by the officers of defendant
It was only after the filing of the complaint that a radically different PHILAMGEN.
statement of accounts surfaced in court. Certainly, Philamgen's own Even defendants very own Exhibit 38- A-3, showed that plaintiff Arturo
statements made by its own accountants over a long period of time and P. Valenzuela's balance as of 1978 amounted to only P3,865.59, not
covering examinations made on four different occasions must prevail P826,128.46 as stated in defendant Bienvenido M. Aragon's letter
over unconfirmed and unaudited statements made to support a position dated December 20,1978 (Exhibit 14) or P1,528,698.40 as reflected in
made in the course of defending against a lawsuit. defendant's Exhibit 46 (Audit Report of Banaria dated December 24,
It is not correct to say that Valenzuela should have presented its own 1980).
records to refute the unconfirmed and unaudited finding of the Banaria These glaring discrepancy (sic) in the accountability of plaintiff Arturo
auditor. The records of Philamgen itself are the best refutation against P. Valenzuela to defendant PHILAMGEN only lends credence to the
figures made as an afterthought in the course of litigation. Moreover, claim of plaintiff Arturo P. Valenzuela that he has no outstanding
Valenzuela asked for a meeting where the figures would be reconciled. account with defendant PHILAMGEN when the latter, thru defendant
Philamgen refused to meet with him and, instead, terminated the Bienvenido M. Aragon, terminated the General Agency Agreement
agency agreement. entered into by plaintiff (Exhibit A) effective January 31, 1979 (see
After off-setting the amount of P744,159.80, beginning balance as of Exhibits "2" and "2-A"). Plaintiff Arturo P. Valenzuela has shown that as
July 1977, by way of credits representing the commission due from of October 31, 1978, he has overpaid defendant PHILAMGEN in the
Delta and other accounts, Valenzuela had overpaid Philamgen the amount of P53,040.37 (Exhibit "EEE", which computation was based
amount of P530,040.37 as of November 30, 1978. Philamgen cannot on defendant PHILAMGEN's balance of P744,159.80 furnished on
later be heard to complain that it committed a mistake in its several occasions to plaintiff Arturo P. Valenzuela by defendant
PHILAMGEN (Exhibits H-1, VV, VV-1, WW, WW-1 , YY , YY-2 , ZZ and (P521,964.16) representing the petitioners Delta commission shall earn
, ZZ-2). only legal interests without any adjustments under Article 1250 of the
Prescinding from the foregoing, and considering that the private Civil Code and that the contractual relationship between Arturo P.
respondents terminated Valenzuela with evident mala fide it Valenzuela and Philippine American General Insurance Company shall
necessarily follows that the former are liable in damages. Respondent be deemed terminated upon the satisfaction of the judgment as
Philamgen has been appropriating for itself all these years the gross modified.
billings and income that it unceremoniously took away from the SO ORDERED.
petitioners. The preponderance of the authorities sustain the
preposition that a principal can be held liable for damages in cases of
unjust termination of agency. In Danon v. Brimo, 42 Phil. 133 [1921]),
this Court ruled that where no time for the continuance of the contract
is fixed by its terms, either party is at liberty to terminate it at will, subject
only to the ordinary requirements of good faith. The right of the principal
to terminate his authority is absolute and unrestricted, except only that
he may not do so in bad faith.
The trial court in its decision awarded to Valenzuela the amount of
Seventy Five Thousand Pesos (P75,000,00) per month as
compensatory damages from June 1980 until its decision becomes final
and executory. This award is justified in the light of the evidence extant
on record (Exhibits "N", "N-10", "0", "0-1", "P" and "P-1") showing that
the average gross premium collection monthly of Valenzuela over a
period of four (4) months from December 1978 to February 1979,
amounted to over P300,000.00 from which he is entitled to a
commission of P100,000.00 more or less per month. Moreover, his
annual sales production amounted to P2,500,000.00 from where he
was given 32.5% commissions. Under Article 2200 of the new Civil
Code, "indemnification for damages shall comprehend not only the
value of the loss suffered, but also that of the profits which the obligee
failed to obtain."
The circumstances of the case, however, require that the contractual
relationship between the parties shall be terminated upon the
satisfaction of the judgment. No more claims arising from or as a result
of the agency shall be entertained by the courts after that date.
ACCORDINGLY, the petition is GRANTED. The impugned decision of
January 29, 1988 and resolution of April 27, 1988 of respondent court
are hereby SET ASIDE. The decision of the trial court dated January
23, 1986 in Civil Case No. 121126 is REINSTATED with the
MODIFICATIONS that the amount of FIVE HUNDRED TWENTY ONE
THOUSAND NINE HUNDRED SIXTY-FOUR AND 16/100 PESOS [G.R. No. 156015. August 11, 2005]
REPUBLIC OF THE PHILIPPINES, represented by LT. GEN. JOSE M. provided that as legal fees, Atty. Adaza shall be entitled to 30% of
CALIMLIM, in his capacity as former Chief of the Intelligence Service, Legaspis share in whatever treasure may be found in the land. In
Armed Forces of the Philippines (ISAFP), and former Commanding addition, Gutierrez agreed to pay Atty. Adaza P5,000.00 as appearance
General, Presidential Security Group (PSG), and MAJ. DAVID B. fee per court hearing and defray all expenses for the cost of the
DICIANO, in his capacity as an Officer of ISAFP and former member of litigation.[4] Upon the filing of the complaint, then Executive Judge
the PSG, petitioners, vs. HON. VICTORINO EVANGELISTA, in his Perlita J. Tria Tirona issued a 72-hour temporary restraining order
capacity as Presiding Judge, Regional Trial Court, Branch 223, Quezon (TRO) against petitioners.
City, and DANTE LEGASPI, represented by his attorney-in-fact, Paul The case[5] was subsequently raffled to the RTC of Quezon City,
Gutierrez, respondents. Branch 223, then presided by public respondent Judge Victorino P.
DECISION Evangelista. On March 2, 2000, respondent judge issued another 72-
PUNO, J.: hour TRO and a summary hearing for its extension was set on March
The case at bar stems from a complaint for damages, with prayer for 7, 2000.
the issuance of a writ of preliminary injunction, filed by private On March 14, 2000, petitioners filed a Motion to Dismiss[6] contending:
respondent Dante Legaspi, through his attorney-in-fact Paul Gutierrez, first, there is no real party-in-interest as the SPA of Gutierrez to bring
against petitioners Gen. Jose M. Calimlim, Ciriaco Reyes and Maj. the suit was already revoked by Legaspi on March 7, 2000, as
David Diciano before the Regional Trial Court (RTC) of Quezon City.[1] evidenced by a Deed of Revocation,[7] and, second, Gutierrez failed to
The Complaint alleged that private respondent Legaspi is the owner of establish that the alleged armed men guarding the area were acting on
a land located in Bigte, Norzagaray, Bulacan. In November 1999, orders of petitioners. On March 17, 2000, petitioners also filed a Motion
petitioner Calimlim, representing the Republic of the Philippines, and for Inhibition[8] of the respondent judge on the ground of alleged
as then head of the Intelligence Service of the Armed Forces of the partiality in favor of private respondent.
Philippines and the Presidential Security Group, entered into a On March 23, 2000, the trial court granted private respondents
Memorandum of Agreement (MOA) with one Ciriaco Reyes. The MOA application for a writ of preliminary injunction on the following grounds:
granted Reyes a permit to hunt for treasure in a land in Bigte, (1) the diggings and blastings appear to have been made on the land
Norzagaray, Bulacan. Petitioner Diciano signed the MOA as a of Legaspi, hence, there is an urgent need to maintain the status quo
witness.[2] It was further alleged that thereafter, Reyes, together with to prevent serious damage to Legaspis land; and, (2) the SPA granted
petitioners, started, digging, tunneling and blasting works on the said to Gutierrez continues to be valid.[9] The trial court ordered thus:
land of Legaspi. The complaint also alleged that petitioner Calimlim WHEREFORE, in view of all the foregoing, the Court hereby resolves
assigned about 80 military personnel to guard the area and encamp to GRANT plaintiffs application for a writ of preliminary injunction. Upon
thereon to intimidate Legaspi and other occupants of the area from plaintiffs filing of an injunction bond in the amount of ONE HUNDRED
going near the subject land. THOUSAND PESOS (P100,000.00), let a Writ of Preliminary Injunction
On February 15, 2000, Legaspi executed a special power of attorney issue enjoining the defendants as well as their associates, agents or
(SPA) appointing his nephew, private respondent Gutierrez, as his representatives from continuing to occupy and encamp on the land of
attorney-in-fact. Gutierrez was given the power to deal with the treasure the plaintiff LEGASPI as well as the vicinity thereof; from digging,
hunting activities on Legaspis land and to file charges against those tunneling and blasting the said land of plaintiff LEGASPI; from removing
who may enter it without the latters authority.[3] Legaspi agreed to give whatever treasure may be found on the said land; from preventing and
Gutierrez 40% of the treasure that may be found in the land. threatening the plaintiffs and their representatives from entering the
On February 29, 2000, Gutierrez filed a case for damages and said land and performing acts of ownership; from threatening the
injunction against petitioners for illegally entering Legaspis land. He plaintiffs and their representatives as well as plaintiffs lawyer.
hired the legal services of Atty. Homobono Adaza. Their contract
On even date, the trial court issued another Order[10] denying are affected. Hence, the law provides that in such cases, the agency
petitioners motion to dismiss and requiring petitioners to answer the cannot be revoked at the sole will of the principal.
complaint. On April 4, 2000, it likewise denied petitioners motion for In the case at bar, we agree with the finding of the trial and appellate
inhibition.[11] courts that the agency granted by Legaspi to Gutierrez is coupled with
On appeal, the Court of Appeals affirmed the decision of the trial interest as a bilateral contract depends on it. It is clear from the records
court.[12] that Gutierrez was given by Legaspi, inter alia, the power to manage
Hence this petition, with the following assigned errors: the treasure hunting activities in the subject land; to file any case
I against anyone who enters the land without authority from Legaspi; to
WHETHER THE CONTRACT OF AGENCY BETWEEN LEGASPI AND engage the services of lawyers to carry out the agency; and, to dig for
PRIVATE RESPONDENT GUTIERREZ HAS BEEN EFFECTIVELY any treasure within the land and enter into agreements relative thereto.
REVOKED BY LEGASPI. It was likewise agreed upon that Gutierrez shall be entitled to 40% of
II whatever treasure may be found in the land. Pursuant to this authority
WHETHER THE COMPLAINT AGAINST PETITIONERS SHOULD BE and to protect Legaspis land from the alleged illegal entry of petitioners,
DISMISSED. agent Gutierrez hired the services of Atty. Adaza to prosecute the case
III for damages and injunction against petitioners. As payment for legal
WHETHER RESPONDENT JUDGE OUGHT TO HAVE INHIBITED services, Gutierrez agreed to assign to Atty. Adaza 30% of Legaspis
HIMSELF FROM FURTHER PROCEEDING WITH THE CASE. share in whatever treasure may be recovered in the subject land. It is
We find no merit in the petition. clear that the treasure that may be found in the land is the subject
On the first issue, petitioners claim that the special power of attorney of matter of the agency; that under the SPA, Gutierrez can enter into
Gutierrez to represent Legaspi has already been revoked by the latter. contract for the legal services of Atty. Adaza; and, thus Gutierrez and
Private respondent Gutierrez, however, contends that the unilateral Atty. Adaza have an interest in the subject matter of the agency, i.e., in
revocation is invalid as his agency is coupled with interest. the treasures that may be found in the land. This bilateral contract
We agree with private respondent. depends on the agency and thus renders it as one coupled with interest,
Art. 1868 of the Civil Code provides that by the contract of agency, an irrevocable at the sole will of the principal Legaspi.[16] When an agency
agent binds himself to render some service or do something in is constituted as a clause in a bilateral contract, that is, when the
representation or on behalf of another, known as the principal, with the agency is inserted in another agreement, the agency ceases to be
consent or authority of the latter.[13] revocable at the pleasure of the principal as the agency shall now follow
A contract of agency is generally revocable as it is a personal contract the condition of the bilateral agreement.[17] Consequently, the Deed of
of representation based on trust and confidence reposed by the Revocation executed by Legaspi has no effect. The authority of
principal on his agent. As the power of the agent to act depends on the Gutierrez to file and continue with the prosecution of the case at bar is
will and license of the principal he represents, the power of the agent unaffected.
ceases when the will or permission is withdrawn by the principal. Thus, On the second issue, we hold that the issuance of the writ of preliminary
generally, the agency may be revoked by the principal at will.[14] injunction is justified. A writ of preliminary injunction is an ancilliary or
However, an exception to the revocability of a contract of agency is preventive remedy that is resorted to by a litigant to protect or preserve
when it is coupled with interest, i.e., if a bilateral contract depends upon his rights or interests and for no other purpose during the pendency of
the agency.[15] The reason for its irrevocability is because the agency the principal action.[18] It is issued by the court to prevent threatened
becomes part of another obligation or agreement. It is not solely the or continuous irremediable injury to the applicant before his claim can
rights of the principal but also that of the agent and third persons which be thoroughly studied and adjudicated.[19] Its aim is to preserve the
status quo ante until the merits of the case can be heard fully, upon the
applicants showing of two important conditions, viz.: (1) the right to be not giving credence to the testimony of their surveyor that the diggings
protected prima facie exists; and, (2) the acts sought to be enjoined are were conducted outside the land of Legaspi. They also claim that
violative of that right.[20] respondent judges rulings on objections raised by the parties were
Section 3, Rule 58 of the 1997 Rules of Civil Procedure provides that a biased against them.
writ of preliminary injunction may be issued when it is established: We have carefully examined the records and we find no sufficient basis
(a) that the applicant is entitled to the relief demanded, the whole or to hold that respondent judge should have recused himself from
part of such relief consists in restraining the commission or continuance hearing the case. There is no discernible pattern of bias on the rulings
of the act or acts complained of, or in requiring the performance of an of the respondent judge. Bias and partiality can never be presumed.
act or acts, either for a limited period or perpetually; Bare allegations of partiality will not suffice in an absence of a clear
(b) that the commission, continuance or non-performance of the act or showing that will overcome the presumption that the judge dispensed
acts complained of during the litigation would probably work injustice to justice without fear or favor.[24] It bears to stress again that a judges
the applicant; or appreciation or misappreciation of the sufficiency of evidence adduced
(c) that a party, court, agency or a person is doing, threatening, or is by the parties, or the correctness of a judges orders or rulings on the
attempting to do, or is procuring or suffering to be done, some act or objections of counsels during the hearing, without proof of malice on
acts probably in violation of the rights of the applicant respecting the the part of respondent judge, is not sufficient to show bias or partiality.
subject of the action or proceeding, and tending to render the judgment As we held in the case of Webb vs. People,[25] the adverse and
ineffectual. erroneous rulings of a judge on the various motions of a party do not
It is crystal clear that at the hearing for the issuance of a writ of sufficiently prove bias and prejudice to disqualify him. To be
preliminary injunction, mere prima facie evidence is needed to establish disqualifying, it must be shown that the bias and prejudice stemmed
the applicants rights or interests in the subject matter of the main from an extrajudicial source and result in an opinion on the merits on
action.[21] It is not required that the applicant should conclusively show some basis other than what the judge learned from his participation in
that there was a violation of his rights as this issue will still be fully the case. Opinions formed in the course of judicial proceedings,
litigated in the main case.[22] Thus, an applicant for a writ is required although erroneous, as long as based on the evidence adduced, do not
only to show that he has an ostensible right to the final relief prayed for prove bias or prejudice. We also emphasized that repeated rulings
in his complaint. [23] against a litigant, no matter how erroneously, vigorously and
In the case at bar, we find that respondent judge had sufficient basis to consistently expressed, do not amount to bias and prejudice which can
issue the writ of preliminary injunction. It was established, prima facie, be a bases for the disqualification of a judge.
that Legaspi has a right to peaceful possession of his land, pendente Finally, the inhibition of respondent judge in hearing the case for
lite. Legaspi had title to the subject land. It was likewise established that damages has become moot and academic in view of the latters death
the diggings were conducted by petitioners in the enclosed area of during the pendency of the case. The main case for damages shall now
Legaspis land. Whether the land fenced by Gutierrez and claimed to be be heard and tried before another judge.
included in the land of Legaspi covered an area beyond that which is IN VIEW WHEREOF, the impugned Orders of the trial court in Civil
included in the title of Legaspi is a factual issue still subject to litigation Case No. Q-00-40115, dated March 23 and April 4, 2000, are
and proof by the parties in the main case for damages. It was necessary AFFIRMED. The presiding judge of the Regional Trial Court of Quezon
for the trial court to issue the writ of preliminary injunction during the City to whom Civil Case No. Q-00-40115 was assigned is directed to
pendency of the main case in order to preserve the rights and interests proceed with dispatch in hearing the main case for damages. No
of private respondents Legaspi and Gutierrez. pronouncement as to costs.
On the third issue, petitioners charge that the respondent judge lacked SO ORDERED.
the neutrality of an impartial judge. They fault the respondent judge for
whereby Coleongco undertook to finance and put up the funds required
for the importation of the nail wire, which Claparols bound himself to
convert into nails at his plant. It was agreed that Coleongco would have
the exclusive distribution of the product, and the "absolute care in the
G.R. No. L-18616 March 31, 1964 marketing of these nails and the promotion of sales all over the
VICENTE M. COLEONGCO, plaintiff-appellant, Philippines", except the Davao Agency; that Coleongco would "share
vs. the control of all the cash" from sales or deposited in banks; that he
EDUARDO L. CLAPAROLS, defendant-appellee. would have a representative in the management; that all contracts and
San Juan, Africa and Benedicto for plaintiff-appellant. transactions should be jointly approved by both parties; that proper
Alberto Jamir for defendant-appellee. books would be kept and annual accounts rendered; and that profits
REYES, J.B.L., J.: and losses would be shared "on a 50-50 basis". The contract was
Appeal by plaintiff Vicente Coleongco from a decision of the Court of renewed from one year to year until 1958, and Coleongco's share
First Instance of Negros Occidental (in its Civil Case No. 4170) subsequently increased by 5% of the net profit of the factory (Exhibits
dismissing plaintiff's action for damages, and ordering him to pay D, E, F).
defendant Eduardo Claparols the amount of P81,387.27 plus legal Two days after the execution of the basic agreement, Exhibit "B", on
interest from the filing of the counterclaim till payment thereof; P50,000 April 27, 1953, Claparols executed in favor of Coleongco, at the latter's
as moral and compensatory damages suffered by defendant; and behest a special power of attorney (Exhibit C) to open and negotiate
costs. letters of credit, to sign contracts, bills of lading, invoices, and papers
A writ of preliminary attachment for the sum of P100,000 was covering transactions; to represent appellee and the nail factory; and to
subsequently issued against plaintiff's properties in spite of opposition accept payments and cash advances from dealers and distributors.
thereto. Thereafter, Coleongco also became the assistant manager of the
Plaintiff Coleongco, not being in conformity with the judgment appealed factory, and took over its business transactions, while Claparols
to this Court directly, the claims involved being in excess of P200,000. devoted most of his time to the nail manufacture processes.
The antecedent facts as found by the trial court and shown by the Around mid-November of 1956, appellee Claparols was disagreeably
records, are as follows: surprised by service of an alias writ of execution to enforce a judgment
Since 1951, defendant-appellee, Eduardo L. Claparols, operated a obtained against him by the Philippine National Bank, despite the fact
factory for the manufacture of nails in Talisay, Occidental Negros, that on the preceding September he had submitted an amortization
under the style of "Claparols Steel & Nail Plant". The raw material, nail plan to settle the account. Worried and alarmed, Claparols immediately
wire, was imported from foreign sources, specially from Belgium; and left for Manila to confer with the bank authorities. Upon arrival, he
Claparols had a regular dollar allocation therefor, granted by the Import learned to his dismay that the execution had been procured because of
Control Commission and the Central Bank. The marketing of the nails derogatory information against appellee that had reached the bank
was handled by the "ABCD Commercial" of Bacolod, which was owned from his associate, appellant Coleongco. On July 6, 1956, the latter,
by a Chinaman named Kho To.1wph1.t without appellee's knowledge, had written to the bank
Losses compelled Claparols in 1953 to look for someone to finance his in connection with the verbal offer for the acquisition by me of the
imports of nail wires. At first, Kho To agreed to do the financing, but on whole interest of Mr. Eduardo L. Claparols in the Claparols Steel & Nail
April 25, 1953, the Chinaman introduced his compadre, appellant Plant and the Claparols Hollow Blocks Factory" (Exhibit 36);
Vicente Coleongco, to the appellee, recommending said appellant to and later, on October 29, 1956, Coleongco had written again the bank
be the financier in the stead of Kho To. Claparols agreed, and on April another letter (Exhibit 35), also behind the back of appellee, wherein
25 of that year a contract (Exhibit B) was perfected between them
Coleongco charged Claparols with taking machines mortgaged to the accounting, and praying for P528,762.19 as damages, and attorney's
bank, and added - . fees, to which Claparols answered, denying the charge, and counter-
In my humble personal opinion I presume that Mr. Eduardo L. Claparols claiming for the rescission of the agreement with Coleongco for
is not serious in meeting his obligations with your bank, otherwise he P561,387.99 by way of damages. After trial, the court rendered
had not taken these machines and equipments a sign of bad faith since judgment, as stated at the beginning of this opinion.
the factory is making a satisfactory profit of my administration. In this appeal, it is first contended by the appellant Coleongco that the
Fortunately, Claparols managed to arrange matters with the bank and power of attorney (Exhibit "C") was made to protect his interest under
to have the execution levy lifted. Incensed at what he regarded as the financing agreement (Exhibit "B") and was one coupled with an
disloyalty of his attorney-in-fact, he consulted lawyers. The upshot was interest that the appellee Claparols had no legal power to revoke. This
that appellee revoked the power of attorney (Exhibit "C"), and informed point can not be sustained. The financing agreement itself already
Coleongco thereof (Exhibits T, T-1), by registered mail, demanding a contained clauses for the protection of appellant's interest, and did not
full accounting at the same time. Coleongco, as could be expected, call for the execution of any power of attorney in favor of Coleongco.
protested these acts of Claparols, but the latter insisted, and on the first But granting appellant's view, it must not be forgotten that a power of
of January, 1957 wrote a letter to Coleongco dismissing him as attorney can be made irrevocable by contract only in the sense that the
assistant manager of the plant and asked C. Miller & Company, principal may not recall it at his pleasure; but coupled with interest or
auditors, to go over the books and records of the business with a view not, the authority certainly can be revoked for a just cause, such as
to adjusting the accounts of the associates. These last steps were taken when the attorney-in-fact betrays the interest of the principal, as
in view of the revelation made by his machinery superintendent, happened in this case. It is not open to serious doubt that the
Romulo Agsam, that in the course of the preceding New Year irrevocability of the power of attorney may not be used to shield the
celebrations Coleongco had drawn Agsam aside and proposed that the perpetration of acts in bad faith, breach of confidence, or betrayal of
latter should pour acid on the machinery to paralyze the factory. The trust, by the agent for that would amount to holding that a power
examination by the auditors, summarized in Exhibits 80 and 87, found coupled with an interest authorizes the agent to commit frauds against
that Coleongco owed the Claparols Nail Factory the amount of the principal.
P87,387.37, as of June 30, 1957. Our new Civil Code, in Article 1172, expressly provides the contrary in
In the meantime, Claparols had found in the factory files certain prescribing that responsibility arising from fraud is demandable in all
correspondence in February, 1955 between Coleongco and the nail obligations, and that any waiver of action for future fraud is void. It is
dealer Kho To whereby the former proposed to Kho that the latter also on this principle that the Civil Code, in its Article 1800, declares
should cut his monthly advances to Claparols from P2,000 to P1,000 a that the powers of a partner, appointed as manager, in the articles of
month, because co-partnership are irrevocable without just or lawful cause; and an
I think it is time that we do our plan to take advantage of the difficulties agent with power coupled with an interest can not stand on better
of Eddie with the banks for our benefit. If we can squeeze him more. I ground than such a partner in so far as irrevocability of the power is
am sure that we can extend our contract with him before it ends next concerned.
year, and perhaps on better terms. If we play well our cards we might That the appellee Coleongco acted in bad faith towards his principal
yet own his factory (Exhibit 32); Claparols is, on the record, unquestionable. His letters to the Philippine
and conformably to Coleongco's proposal, Kho To had written to National Bank (Exhibits 35 and 36) attempting to undermine the credit
Claparols that "due to present business conditions" the latter could only of the principal and to acquire the factory of the latter, without the
be allowed to draw P1,000 a month beginning April, 1955 (Exhibit 33). principal's knowledge; Coleongco's letter to his cousin, Kho To (Exhibit
As the parties could not amicably settle their accounts, Coleongco filed 32), instructing the latter to reduce to one-half the usual monthly
a suit against Claparols charging breach of contract, asking for advances to Claparols on account of nail sales in order to squeeze said
appellee and compel him to extend the contract entitling Coleongco to equipment from Claparols (an inquiry incompatible with Claparols'
share in the profits of the nail factory on better terms, and ultimately previous admission); (b) by the undenied fact that the appellee was in
"own his factory", a plan carried out by Kho's letter, Exhibit 33, reducing Baguio and Coleongco was acting for him during the months of July
the advances to Claparols; Coleongco's attempt to, have Romulo and August when the machine was received and sold; and (c) the fact
Agsam pour acid on the machinery; his illegal diversion of the profits of that as between the two it is Coleongco who had a clear interest in
the factory to his own benefit; and the surreptitious disposition of the selling the sawing machine to his cousin Kho To's lumber yard. If
Yates band resaw machine in favor of his cousin's Hong Shing Lumber Claparols wished to sell the machine without Coleongco's knowledge,
Yard, made while Claparols was in Baguio in July and August of 1956, he would not have picked the latter's cousin for a buyer.
are plain acts of deliberate sabotage by the agent that fully justified the The action of plaintiff-appellant for damages and lost profits due to the
revocation of the power of attorney (Exhibit "C") by Claparols and his discontinuance of the financing agreement, Exhibit "B", may not
demand for an accounting from his agent Coleongco. prosper, because the record shows that the appellant likewise
Appellant attempts to justify his letter to the Philippine National Bank breached his part of the contract. It will be recalled that paragraph 2 of
(Exhibits 35 and 36), claiming that Claparols' mal-administration of the the contract, Exhibit "B", it was stipulated:
business endangered the security for the advances that he had made That the Party of the Second Part (Coleongco) has agreed to finance
under the financing contract (Exhibit "B"). But if that were the case, it is and put up all the necessary money which may be needed to pay for
to be expected that Coleongco would have first protested to Claparols the importation of the raw materials needed by such nail factory and
himself, which he never did. Appellant likewise denies the authorship allocated by the ICC from time to time, either in cash of with whatever
of the letter to Kho (Exhibit 32) as well as the attempt to induce Agsam suitable means which the Party of the Second Part may be able to make
to damage the machinery of the factory. Between the testimony of by suitable arrangements with any well-known banking institution
Agsam and Claparols and that of Coleongco, the court below whose to recognized by the Central Bank of the Philippines.
believe the former, and we see no reason to alter the lower court's Instead of putting up all the necessary money needed to finance the
conclusion on the value of the evidence before it, considering that Kho's imports of raw material, Coleongco merely advanced 25% in cash on
letter to Claparols (Exhibit 33) plainly corroborates and dovetails with account of the price and had the balance covered by surety agreements
the plan outlined in Coleongco's own letter (Exhibit 32), signed by him, executed by Claparols and others as solidary, (joint and several)
and that the credibility of Coleongco is affected adversely by his own guarantors (see Exhibits G, H, I). The upshot of this arrangement was
admission of his having been previously convicted of estafa (t.s.n., pp. that Claparols was made to shoulder 3/4 of the payment for the imports,
139, 276), a crime that implies moral turpitude. Even disregarding contrary to the financing agreement. Paragraph 11 of the latter
Coleongco's letter to his son-in-law (Exhibit 82) that so fully reveals expressly denied Coleongco any power or authority to bind Claparols
Coleongco's lack of business scruples, the clear preponderance of without previous consultation and authority. When the balances for the
evidence is against appellant. cost of the importations became due, Coleongco, in some instances,
The same remarks apply to the finding of the trial court that it was paid it with the dealers' advances to the nail factory against future sales
appellant Coleongco, and not Claparols, who disposed of the band without the knowledge of Claparols (Exhibits "K" to K-11, K-13). Under
resawing equipment, since said machine was received in July, 1956 paragraphs 8 and 11 of the financing agreement, Coleongco was to
and sold in August of that year to the Hong Shing Lumber Co., give preference to the operating expenses before sharing profits, so
managed by appellant's cousin Vicente Kho. The untruth of that until the operating costs were provided for, Coleongco had no right
Coleongco's charge that Claparols, upon his return from Baguio in to apply the factory's income to pay his own obligations.
September, 1956, admitted having sold the machine behind his Again, the examination of the books by accountant Atienza of C. Miller
associate's back is further evidenced by (a) Coleongco's letter, Exhibit and Co., showed that from 1954 onwards Coleongco (who had the
"V", dated October 29, 1956, inquiring the whereabouts of the resaw control of the factory's cash and bank deposits, under Paragraph 11 of
Exhibit "B") never liquidated and paid in full to Claparols his half of the
profits, so that by the end of 1956 there was due to Claparols
P38,068.41 on this account (Exhibit 91). For 1957 to 1958 Claparols
financed the imports of nail wire without the help of appellant, and in
view of the latter's infringement of his obligations, his acts of disloyalty
previously discussed, and his diversions of factory funds (he even
bought two motor vehicles with them), we find no justification for his
insistence in sharing in the factory's profit for those years, nor for the
restoration of the revoked power of attorney.
The accountant's reports and testimony (specially Exhibits 80 to 87)
prove that as of June 30, 1957, Coleongco owed to Claparols the sum
of P83,466.34 that after some adjustment was reduced to P81,387.37, G.R. No. L-28050 March 13, 1928
practically accepted even by appellant's auditor. The alleged FEDERICO VALERA, plaintiff-appellant,
discrepancies between the general ledger and the result thus arrived at vs.
was satisfactorily explained by accountant Atienza in his testimony MIGUEL VELASCO, defendant-appellee.
(t.s.n., 1173-1178). Jose Martinez San Agustin for appellant.
No error was, therefore, committed by the trial court in declaring the Vicente O. Romualdez, Crispulo T. Manubay and Placido P. Reyes for
financing contract (Exh. B) properly resolved by Claparols or in appellee.
rendering judgment against appellant in favor of appellee for the said VILLA-REAL, J.:
amount of P81,387.37. The basic rule of contracts requires parties to This is an appeal taken by Federico Valera from the judgment of the
act loyally toward each other in the pursuit of the common end, and Court of First Instance of Manila dismissing his complaint against
appellant clearly violated the rule of good faith prescribed by Art. 1315 Miguel Velasco, on the ground that he has not satisfactorily proven his
of the new Civil Code. right of action.
The lower court also allowed Claparols P50,000 for damages, material, In support of his appeal, the appellant assigns the following alleged as
moral, and exemplary, caused by the appellant Coleongco's acts in committed by the trial court in its judgment, to wit: (1) The lower court
maliciously undermining appellee's credit that led the Philippine erred in holding that one of the ways of terminating an agency is by the
National Bank to secure a writ of execution against Claparols. express or tacit renunciation of the agent; (2) the lower court erred in
Undeniably, the attempts of Coleongco to discredit and "squeeze" holding that the institution of a civil action and the execution of the
Claparols out of his own factory and business could not but cause the judgment obtained by the agent against his principal is but renunciation
latter mental anguish and serious anxiety, as found by the court below, of the powers conferred on the agent; (3) the lower erred in holding that,
for which he is entitled to compensation; and the malevolence that lay even if the sale by Eduardo Hernandez to the plaintiff Federico Valera
behind appellee's actions justified also the imposition of exemplary or be declared void, such a declaration could not prevail over the rights of
deterrent damages (Civ. Code, Art. 2232). While the award could have the defendant Miguel Velasco inasmuch as the right redemption was
been made larger without violating the canons of justice, the discretion exercised by neither Eduardo Hernandez nor the plaintiff Federico
in fixing such damages primarily lay in the trial court, and we feel that Valera; (4) the lower court erred in not finding that the defendant Miguel
the same should be respected. Velasco was, and at present is, an authorized representative of the
IN VIEW OF THE FOREGOING, the decision appealed from is plaintiff Federico Valera; (5) the lower court erred in not annulling the
affirmed. Costs against appellant Vicente Coleongco. sale made by the sheriff at public auction to defendant Miguel Velasco,
Exhibit K; (6) the lower court erred in failing to annul the sale executed
by Eduardo Hernandez to the plaintiff Federico Valera, Exhibit C; (7) transferred said right of redemption to the defendant Velasco. This is
the lower court erred in not annulling Exhibit L, that is, the sale at public how the title to the right of usufruct to the aforementioned property later
auction of the right to repurchase the land in question to Salvador came to vest the said defendant.
Vallejo; (8) the lower court erred in not declaring Exhibit M null and void, As the first two assignments of error are very closely related to each
which is the sale by Salvador Vallejo to defendant Miguel Velasco; (9) other, we will consider them jointly.
the lower court erred in not ordering the defendant Miguel Velasco to Article 1732 of the Civil Code reads as follows:
liquidate his accounts as agent of the plaintiff Federico Valera; (10) the Art. 1732. Agency is terminated:
lower court erred in not awarding plaintiff the P5,000 damages prayed 1. By revocation;
for. 2. By the withdrawal of the agent;
The pertinent facts necessary for the solution of the questions raised 3. By the death, interdiction, bankruptcy, or insolvency of the principal
by the above quoted assignments of error are contained in the decision or of the agent.
appealed from and are as follows: And article 1736 of the same Code provides that:
By virtue of the powers of attorney, Exhibits X and Z, executed by the Art. 1736. An agent may withdraw from the agency by giving notice to
plaintiff on April 11, 1919, and on August 8, 1922, the defendant was the principal. Should the latter suffer any damage through the
appointed attorney-in-fact of the said plaintiff with authority to manage withdrawal, the agent must indemnify him therefore, unless the agent's
his property in the Philippines, consisting of the usufruct of a real reason for his withdrawal should be the impossibility of continuing to
property located of Echague Street, City of Manila. act as such without serious detriment to himself.
The defendant accepted both powers of attorney, managed plaintiff's In the case of De la Pea vs. Hidalgo (16 Phil., 450), this court said laid
property, reported his operations, and rendered accounts of his down the following rule:
administration; and on March 31, 1923 presented exhibit F to plaintiff, 1. AGENCY; ADMINISTRATION OF PROPERTY; IMPLIED AGENCY.
which is the final account of his administration for said month, wherein When the agent and administrator of property informs his principal
it appears that there is a balance of P3,058.33 in favor of the plaintiff. by letter that for reasons of health and medical treatment he is about to
The liquidation of accounts revealed that the plaintiff owed the depart from the place where he is executing his trust and wherein the
defendant P1,100, and as misunderstanding arose between them, the said property is situated, and abandons the property, turns it over to a
defendant brought suit against the plaintiff, civil case No. 23447 of this third party, renders accounts of its revenues up to the date on which he
court. Judgment was rendered in his favor on March 28, 1923, and after ceases to hold his position and transmits to his principal statement
the writ of execution was issued, the sheriff levied upon the plaintiff's which summarizes and embraces all the balances of his accounts since
right of usufruct, sold it at public auction and adjudicated it to the he began the administration to the date of the termination of his trust,
defendant in payment of all of his claim. and, without stating when he may return to take charge of the
Subsequently, on May 11, 1923, the plaintiff sold his right of redemption administration of the said property, asks his principal to execute a
to one Eduardo Hernandez, for the sum of P200 (Exhibit A). On power of attorney in due form in favor of a transmit the same to another
September 4, 1923, this purchaser conveyed the same right of person who took charge of the administration of the said property, it is
redemption, for the sum of P200, to the plaintiff himself, Federico Valera but reasonable and just to conclude that the said agent had expressly
(Exhibit C). and definitely renounced his agency and that such agency duly
After the plaintiff had recovered his right of redemption, one Salvador terminated, in accordance with the provisions of article 1732 of the Civil
Vallejo, who had an execution upon a judgment against the plaintiff Code, and, although the agent in his aforementioned letter did not use
rendered in a civil case against the latter, levied upon said right of the words "renouncing the agency," yet such words, were undoubtedly
redemption, which was sold by the sheriff at public auction to Salvador so understood and accepted by the principal, because of the lapse of
Vallejo for P250 and was definitely adjudicated to him. Later, he nearly nine years up to the time of the latter's death, without his having
interrogated either the renouncing agent, disapproving what he had made by the sheriff by virtue of the execution of the judgment in favor
done, or the person who substituted the latter. of Miguel Velasco and against the said Federico Valera; and the same
The misunderstanding between the plaintiff and the defendant over the thing is true as to the validity of the resale of the same right of
payment of the balance of P1,000 due the latter, as a result of the redemption made by Eduardo Hernandez to Federico Valera; inasmuch
liquidation of the accounts between them arising from the collections as Miguel Velasco's purchase at public auction held by virtue of an
by virtue of the former's usufructuary right, who was the principal, made execution of Federico Valera's usufructuary right is valid and legal, and
by the latter as his agent, and the fact that the said defendant brought as neither the latter nor Eduardo Hernandez exercised his right of
suit against the said principal on March 28, 1928 for the payment of redemption within the legal period, the purchaser's title became
said balance, more than prove the breach of the juridical relation absolute.
between them; for, although the agent has not expressly told his Moreover, the defendant-appellee, Miguel Velasco, having acquired
principal that he renounced the agency, yet neither dignity nor decorum Federico Valera's right of redemption from Salvador Vallejo, who had
permits the latter to continue representing a person who has adopted acquired it at public auction by virtue of a writ of execution issued upon
such an antagonistic attitude towards him. When the agent filed a the judgment obtained by the said Vallejo against the said Valera, the
complaint against his principal for recovery of a sum of money arising latter lost all right to said usufruct.
from the liquidation of the accounts between them in connection with And even supposing that Eduardo Hernandez had been tricked by
the agency, Federico Valera could not have understood otherwise than Miguel Velasco into selling Federico Valera's right of repurchase to the
that Miguel Velasco renounced the agency; because his act was more latter so that Salvador Vallejo might levy an execution on it, and even
expressive than words and could not have caused any doubt. (2 C. J., supposing that said resale was null for lack of consideration, yet,
543.) In order to terminate their relations by virtue of the agency the inasmuch as Eduardo Hernandez did not present a third party claim
defendant, as agent, rendered his final account on March 31, 1923 to when the right was levied upon for the execution of the judgment
the plaintiff, as principal. obtained by Vallejo against Federico Vallera, nor did he file a complaint
Briefly, then, the fact that an agent institutes an action against his to recover said right before the period of redemption expired, said
principal for the recovery of the balance in his favor resulting from the Eduardo Hernandez, and much less Federico Valera, cannot now
liquidation of the accounts between them arising from the agency, and contest the validity of said resale, for the reason that the one-year
renders and final account of his operations, is equivalent to an express period of redemption has already elapsed.
renunciation of the agency, and terminates the juridical relation Neither did the trial court err in not ordering Miguel Velasco to render a
between them. liquidation of accounts from March 31, 1923, inasmuch as he had
If, as we have found, the defendant-appellee Miguel Velasco, in acquired the rights of the plaintiff by purchase at the execution sale,
adopting a hostile attitude towards his principal, suing him for the and as purchaser, he was entitled to receive the rents from the date of
collection of the balance in his favor, resulting from the liquidation of the sale until the date of the repurchase, considering them as part of
the agency accounts, ceased ipso facto to be the agent of the plaintiff- the redemption price; but not having exercised the right repurchase
appellant, said agent's purchase of the aforesaid principal's right of during the legal period, and the title of the repurchaser having become
usufruct at public auction held by virtue of an execution issued upon absolute, the latter did not have to account for said rents.
the judgment rendered in favor of the former and against the latter, is Summarizing, the conclusion is reached that the disagreements
valid and legal, and the lower court did not commit the fourth and fifth between an agent and his principal with respect to the agency, and the
assignments of error attributed to it by the plaintiff-appellant. filing of a civil action by the former against the latter for the collection of
In regard to the third assignment of error, it is deemed unnecessary to the balance in favor of the agent, resulting from a liquidation of the
discuss the validity of the sale made by Federico Valera to Eduardo agency accounts, are facts showing a rupture of relations, and the
Hernandez of his right of redemption in the sale of his usufructuary right complaint is equivalent to an express renunciation of the agency, and
is more expressive than if the agent had merely said, "I renounce the
agency."
By virtue of the foregoing, and finding no error in the judgment appealed
from, the same is hereby affirmed in all its parts, with costs against the
appellant. So ordered.